The Financial Industry Regulatory Authority continues to bring enforcement actions over violations of the three-year-old Regulation Best Interest rule and this week fined and suspended a former broker who put 81% of her customer’s net worth into a single non-traded real estate investment trust.
Elba M. Nogueras, who is based in Guaynabo, Puerto Rico, accepted a four-month suspension and $5,000 fine for violating Reg BI and Finra’s “catch-all” Rule 2010 requiring brokers “observe high standards,” according to a letter of settlement finalized on Monday.
In September 2020, Nogueras, who was registered with First Southern LLC, recommended that her 56-year old client, who had a moderate risk tolerance and limited investment experience, invest $81,000, or 81% of his liquid net worth, into an unidentified non-traded REIT, Finra said. Nogueras, who spent 19 years as a broker, received a $5,670 commission from the sale, according to the letter.
Finra noted that the REIT’s prospectus warned the investment had a high degree of risk, “could have resulted in a complete loss of principal” and that investors had limited opportunities to redeem their shares, according to the letter.
The industry’s self regulatory organization is not taking a stricker stance than it previously could have under its older suitability stand rules, which governed broker-dealers prior to Reg BI’s June 2020 effectiveness, according to Hugh Berkson, president of the Public Investors Arbitration Bar Association, a plaintiff lawyer trade group.
“I’m heartened that Finra went after somebody for selling one of these [REITs] and tying up somebody with so much of their net worth in a single product like this,” said Berkson. “But I don’t think that that arises out of Reg BI.”
Finra in August censured Network 1, a New Jersey-based broker-dealer, and its chief compliance officer for failing to set up a supervisory system that was compliant with Reg BI or to detect red flags about excessive trading, according to a separate settlement. The broker-dealer agreed to pay a $200,000 fine and almost $534,000 in restitution.
Finra initiated the enforcement action against Nogueras following an exam of First Southern, according to the letter.
Guaynabo-based First Southern has both a registered investment advisor and broker-dealer. It has an office in Atlanta and offers its RIA services through First Southern Asset Management, LLC, according to its SEC filings.
A spokesperson for the firm did not respond to a request for comment. Nogueras left the firm in October 2021 and has not since been registered as a broker or investment advisor, according to registration records.
Nogueras first registered as a broker in 2002 at R-G Investment Corp. and worked at UBS Financial Services and independent broker Kovack Securities, Inc. before joining First Southern in 2019, according to her BrokerCheck.
Nogueras has 21 disclosures on her record going back over a decade. Two customer complaints from 2010 and 2011 were denied, two from 2014 and one from 2015 were closed with no action and one dispute from 2015 was withdrawn by the client. The remaining 14 settled for between $15,000 and $365,000 each.
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