WASHINGTON – The Financial Industry Regulatory Authority (FINRA) announced today that it has filed a complaint against broker Hank Mark Werner of Northport, New York, charging him with securities fraud for churning the account of his customer, a 77-year old blind widow, and for excessive and unsuitable trading concerning her account. The complaint alleges that Werner engaged in a deceptive and fraudulent scheme by churning the widow’s accounts over a three-year period to maximize his compensation by charging more than $243,000 in commissions, while causing the customer approximately $184,000 in net losses.
According to the complaint, Werner had been the elderly customer’s broker – and that of her blind husband until his 2012 death – since 1995. The complaint alleges that a few weeks after the customer’s husband passed away, Werner began aggressively trading her accounts to generate excessive commissions for himself. Werner exercised control over each of her accounts and recommended every trade, and the customer followed all of Werner’s recommendations. Because she was blind and severely debilitated, requiring in-home care, the customer relied completely on Werner to accurately portray her account activity and let her know about account performance.
From October 2012 to December 2015, Werner placed over 700 trades in more than 200 different securities, and charged the widow either a markup or commission on every purchase and sale, and initially charged a markup or commission between 2.50 percent and 3.00 percent. When he changed firms, he increased his markups and commissions on her trades to 3.75 to 4.25 percent, an increase of over 40 percent. The complaint notes that based on the level of trading and commissions charged, there was little to no possibility that the customer would profit from such trading. It also notes the trading in the accounts was excessive, as evidenced by the high turnover rates and cost-to-equity ratios for her accounts ranging from 64.40 percent to 97.73 percent.
In addition, FINRA also alleges in the complaint that in light of the customer’s investment objective and financial situation, Werner did not have reasonable grounds or a reasonable basis to believe that his recommended trading was suitable. The complaint also alleges that in July 2015, Werner recommended an unsuitable variable annuity exchange, and earned a commission of more than $10,000 on the transaction.
FINRA’s complaint emanated from an examination commenced by FINRA’s Department of Member Regulation triggered by “red flags” in Werner’s trading at his former firm.
The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 18.9 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA’s Disciplinary Actions Online database. Investors can also call FINRA’s Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.