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Brookstone Securities, Inc., fined for making misrepresentations, omissions, unsuitable investments

FINRA has taken disciplinary action against Brookstone Securities, Inc and five of its agents for making misrepresentations or omissions of material fact.  Additionally, FINRA found that registered representatives recommended and effected the sale of securities without having a reasonable basis to believe that the transactions were suitable given the customers’ financial circumstances and conditions, and their investment objectives.

FINRA’s investigation found that Richard J. Buswell and Herbert S. Fouke, while registered with Brookstone, made misrepresentations and omissions of material fact in connection with the sale of investments in Advanced Blast Protection, Inc.  The registered representatives guaranteed customers that they would receive back their principal investment plus returns.  Additionally, they failed to inform investors of risks associated with the investments and did not discuss the risks outlined in the private placement memorandum (PPM).  The PPM stated that the investment was speculative, involved a high degree of risk and was only suitable for investors who could risk losing their entire investment.  In addition, Buswell exercised discretion in the accounts of customers without prior written authorization, made unsuitable recommendations to customers with conservative investment objectives, and made excessive use of margin.

FINRA found that Anthony L. Turbeville, acting as Chief Operating Officer (COO), and David W. Locy, as President, failed to reasonably supervise Buswell and failed to follow up on “red flags”.  FINRA stated that Brookstone failed to establish, maintain and enforce reasonable supervisory procedures in four areas: (1) due diligence; (2) prevention and detention of unsuitable recommendations resulting from excessive trading, excessive use of margin and over concentration; (3) the new account application process; and (4) the reviews of customer accounts required by the procedures.  Despite numerous violations and red flags, the firm took no steps to contact customers or place the representative on heightened supervision, although it later placed limits only on the representative’s use of margin.

FINRA stated that Mark Mercier was the Chief Compliance Officer and was responsible for ensuring that the offering of Advanced Blast Protection, Inc. complied with due diligence requirements, but performed only a superficial review and failed to complete the steps required by the firm’s Written Supervisory Manuals.  The findings also stated that the firm failed to establish, maintain and enforce supervisory procedures reasonably designed to prevent violations of NASD Rule 2310 regarding suitability.

FINRA accepted an offer of settlement, in which the firm will pay a fine of $200,000.00.  David W. Locy, Mark M. Mercier and Anthony L. Turbeville were sanctioned with suspensions and additional fines.