The Financial Industry Regulatory Authority (FINRA) recently filed a complaint against former Morgan Stanley and current Wells Fargo financial advisor Lloyd Thomas Layton (Layton). The underlying basis of the complaint alleged Layton’s recommended unsuitable short-term unit investment trusts (UITs) in many of his clients’ accounts. Layton settled the complaint with FINRA and accepted a three (3) month suspension and $5,000 fine.
Layton (FINRA CRD No. 1618414) has been a member of FINRA since 1987. From 2004 to 2015, Layton worked for Morgan Stanley and its predecessor firms. Layton has worked for Wells Fargo Clearing Services, LLC (“Wells Fargo”) since 2015. FINRA’s Department of Enforcement brought a complaint against Layton for the following alleged misconduct.
FINRA alleged between July 2012 and December 2014, Layton recommended unsuitable UIT investments in 54 customer accounts. A UIT is a type of investment that issues securities in the form of units in a one-time public offering, which represents undivided interests in a fixed portfolio of securities. UITs have a specific maturity date and typically carry significant upfront charges. Generally, UIT investments are considered long-term investments and short-term recommendations may be considered unsuitable.
Specifically, Layton recommended UITs with 24-month maturity dates with sales charges of close to 4%. According to FINRA, despite the two-year maturity dates, Layton frequently recommended his clients sell the UITs after holding them on average for 265 days. In some instances, Layton recommended his customers use the proceeds from the unsuitable sale of the first UIT to purchase another UIT with additional upfront charges despite similar or identical investment objectives.
Based upon the foregoing misconduct, FINRA alleges Layton violated FINRA Rules 2111 and 2010. FINRA Rule 2111, for example, requires financial advisors to recommend suitable investments and investment strategies to their clients (known as the suitability rule) based upon the client’s unique financial situation, including investment objectives and risk tolerance. A financial advisor also must have a reasonable basis to believe that a recommended transaction or investment strategy is suitable for the customer.
Lufrano Law, LLC is a national investment litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. Please contact us at (800) 627-2179 for more information if you have been the victim of investment negligence or fraud.