FINRA’s Department of Enforcement investigated Davidson and alleged he engaged in unsuitable mutual fund switching. Specifically, Davidson recommended 49 unsuitable mutual fund switches in 12 different customer accounts. At least half of the customers were elderly and one of the customers was 97-years old. According to FINRA, all of the mutual fund switch recommendations involved the recommendation to purchase Class A mutual fund shares and to subsequently sell those shares within less than a year of the purchase, even though there were significant upfront costs associated with the purchase of Class A shares. It is widely recognized that Class A shares should be held long-term because of their expensive front-load fees.
Based upon the foregoing misconduct, FINRA alleged Davidson violated NASD Rule 2310, IM-2310-2, as well as FINRA Rules 2010 and 2111. Specifically with respect to NASD Conduct Rule 2310, financial advisors are required to recommend suitable investments and investment strategies to their clients (known as the suitability rule). Here, FINRA’s theory of liability involved allegations that Davidson’s mutual fund switch recommendations were unsuitable for his clients – especially those who were elderly.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you suffered investment damages investing in a mutual fund with Davidson through American Portfolio, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please contact one of our attorneys at (800) 627-2179 to schedule a free consultation.