Investor attorneys at Mika Meyers, PLC are interested in talking to customers of former Huntleigh Securities Corporation stock broker Jeffrey Kinder of St Louis, Missouri. Kinder was recently fined and suspended by the Financial Industry Regulatory Authority after an investigation led the regulator to find that Kinder had engaged in an unsuitable pattern of short term trading with respect to Unit Investment Trusts and Class A Mutual Funds.
UlTs are investment companies that offer shares of a fixed portfolio of securities for a fixed investment period. They typically carry significant upfront sales charges. Open-end mutual funds are also investment companies. They typically offer a variety of share classes. Like UITs, Class A Mutual Fund shares are “front loaded.” Due to these characteristics of UITs and Class A Mutual Fund shares, it is generally improper to use them for short-term trading . Despite this, Kinder allegedly advised 5 of his clients to liquidate positions in UITs and Class A Mutual Fund shares after short holding periods, and to use the proceeds to purchase similar investments. The sales charges on these transaction ranged from 3.95% to 4.95%, which resulted in Kinder’s clients making almost $100,000 in unnecessary payments.
Investment company “churning” or “switching” has been a problem for years. In the 90s, FINRA’s predecessor, the NASD, repeatedly admonished its member firms about switch recommendations. In Notice to Members 94-16, the NASD warned member firms that switches that do not lead to a “net investment advantage to the investor” are unsuitable. In NASD IM-23 I0-2(b)(3), the regulator stated that investment companies are “not proper trading vehicles” and that engaging in “such activity on its face may raise the question of Rule violation[s].” In a more recent case dealing with investment company switching, FINRA stated that absent compelling evidence, “a pattern of . . . switches is not reconcilable with the concept of suitability.” Dep’t of Enforcement v. Epstein, Complaint No. C9B040098, 2007 FINRA Discip. LEXIS 18, at *67-68 (FINRA NAC Dec. 20, 2007). The burden is on the broker “to demonstrate the unusual circumstances which justified” a switch recommendation. Epstein, 2007 FINRA Discip. LEXIS 18, at *67 (internal quotations and citations omitted).
If you have suffered investment losses as a result of UIT or mutual fund switching by Jeffrey Kinder and/or Huntleigh Securities Corporation, the law firm Mika Meyers, PLC may be able to assist you in recovering some or all of your losses. Contact investor claims attorney Dan Broxup of Mika Meyers, PLC for a free, no-obligation consultation.