The Financial Industry Regulatory Authority (FINRA) , filed a complaint in February 2012, against two UBS Financial Services brokers, Charles Kern, III and Thomas Haskins, alleging that they made unsuitable recommendations and material misrepresentations or omissions regarding options
investments in the S&P 500 Euro Index.
The option strategy suggested involved selling uncovered calls with a strike price 10% above the market price of the S&P 500 Index and selling uncovered puts at a strike price 10% below the market price of the S&P 500 index. If the calls and puts expired unexercised, the customer retained the premiums collected on the option sales. If the calls or puts were exercised, the customer would have to purchase the securities to cover the exercise of the options.
Broker Kern told broker Haskins, who apparently did not have personal professional experience with this strategy, represented that it would be successful 90% of the time and did not explain that losses were potentially unlimited, but rather told the customer that losses would be limited to $2-3,000 per transaction.
Two clients, referred to as WH and CH in the complaint were instructed to sign a Client Qualification Form for option trading, but were told not to fill in the part of the form dealing with liquid net worth, annual income, risk tolerance and experience. WH had completed the 8th grade and CH had completed high school. They were 61 and 62 years old.
One was disabled and the other a sewing machine operator. Annual combined income was about $35,000. Clearly they should not have been advised to follow such a risky trading strategy.
Customers should never sign any forms that are not completed and it is a warning sign that something may be amiss. In this case the brokers filled the forms out using false information so that the firm’s compliance department would approve the trading. Had the correct information been submitted(net worth, experience, risk tolerance, etc.) the trading would have been prohibited by the compliance department.
These clients lost $25,000, a significant portion of their $75,000 nest egg.
Other clients who were similarly enticed to follow this option trading strategy had losses of nearly $800,000.
If you have lost money as a result of option trading or other trading strategies which you did not understand at the time of the recommendation, call to speak with an experienced securities attorney and learn how you may be able to recover damages.
Rex Securities Law , with offices in Boca Raton, FL, and Austin, TX, provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.
Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.
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