OneAmerica (FINRA CRD No. 4173) is a FINRA broker-dealer and member since September 1969. OneAmerica is a wholly owned subsidiary of American United Life Insurance Company, and is headquartered in Indianapolis, Indiana. The firm operates a general securities business and employs approximately 821 registered individuals who operate out of219 branch offices. OneAmerica’s FINRA BrokerCheck report indicates it was the subject of four regulatory events and/or investigations, including the present disciplinary action.
FINRA’s Department of Enforcement investigated OneAmerica and alleged it failed to reasonably inquire and/or ignored multiple “red flags” indicating Matthew J. Davis (“Davis”), a registered representative, recommended unsuitable options investments and caused an improper and/or unauthorized transfer of funds to a third party. According to FINRA, Davis was barred from the financial industry as a result of an exhaustive inquiry into his business dealings detailed below.
Unsuitable Options Investments
FINRA alleges OneAmerica failed to supervise Davis when he recommended unsuitable options investments to a couple. According to FINRA, the couple disclosed to OneAmerica a relatively modest income ($50,000 to $75,000 per year), net worth ($250,001 to $500,000) and limited investment experience. Nevertheless, Davis had the couple sign an option agreement on November 21, 2011, which permitted the couple (at the direction of Davis) to invest in options.
Due to Davis’ unsuitable investment recommendations, the customers lost almost half of their retirement savings. At the end of January 2012, the couple’s account balance was approximately $260,000. According to FINRA, Davis began buying and selling puts and calls, and by late spring, the couple’s account had evolved into a rapidly traded options account. Indeed, Davis executed 55 options transactions in May 2012; 52 options transactions in June 2012; and 53 options transactions in July 2012. By July 2012, the couple’s account suffered approximately $150,000 in investment losses.
Unauthorized and Suspicious Third Party Transfer
In addition to recommending speculative and unsuitable options investments to the couple, Davis also transferred funds from one of his customer’s accounts to another, unrelated customer in order to hide the latter customer’s investment losses. According to FINRA, one of Davis’ customers opened an account with OneAmerica on April 25, 2011. From April 2011 to June 2012, Davis generated large losses in the customer’s account while he was actively buying and selling options in the customer’s account. By June 2012, the customer’s account suffered approximately $50,000 in investment losses. However, instead of informing the customer his account suffered a 100% decline in value, Davis effectuated a transfer of funds from another one of his customer’s accounts to hide the investment losses.
Based upon the foregoing misconduct perpetuated by Davis, FINRA alleged OneAmerica failed to supervise his conduct and thereby violated several financial industry rules and regulations. FINRA alleged OneAmerica violated NASD Rules 3010(a) and (b) and FINRA Rules 2360(b)(20)(A) and 2010. Specifically, under NASD Rule 3010, a brokerage firm owes a duty to all of its clients to monitor and supervise its employees properly. The rule states: “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…”
If a FINRA-member fails to supervise its employees or conduct proper due diligence on investment products, then the firm may be liable to the customer for damages or disciplined by FINRA, or both. Here, OneAmerica failed to supervise Davis’ conduct when it permitted him to recommend unsuitable options investments and cause an improper and/or unauthorized transfer of funds to a third party. As a result, FINRA censured OneAmerica and fined it $75,000.
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 losses as a result of investing with Davis through OneAmerica, you may be eligible to participate in a FINRA arbitration proceeding to recoup your losses. Please complete our contact form below or contact one of our attorneys at (800) 627-2179.