Talk about a wrong number.
Cold-calling stockbrokers, apparently unaware of whom they were dialing, reached regulators at the Missouri Securities Division.
The Show Me State officials were not amused and have filed cease-and-desist orders against brokers from Financial Network Investment Corp., a large independent broker-dealer, and Meyers Associates LP, an investment banking boutique.
Missouri filed cease-and-desist orders against the firms as well.
Once a standard marketing tool, cold calling is a practice the securities industry publicly frowns upon. The National Do Not Call Registry also has put a dent in the once-common prospecting technique.
But cold calling remains a staple of some brokers' and firms' business.
According to the November action against FNIC, one broker pitched the Nuveen Multi-Strategy Income and Growth Fund 2 to a Missouri registration specialist and an investigator, telling them “they could expect a 20% to 25% return during that six- to eight-month period.” Broker Derek Robertson, who is not registered to sell securities in Missouri, “characterized this as a "realistic' and "very conservative' estimate,” according to the order.
In December, a broker from Meyers Associates called the same office, spoke with a registration specialist and pitched shares of Nuance Communications Inc., discussing the stock's potential to rise to $28 or $29 per share, based on the belief that it will be acquired by Apple Inc. During a Dec. 8 call, the broker, Sukhwan Michael Yun, “continued to pressure [the regulator] to make an immediate purchase, asking, "Why don't we do this?'” according to the Missouri order. As of Dec. 1, the stock was trading at $17.90 a share.
In a later call, Mr. Yun, who is not registered to sell securities in Missouri, described Nuance Communications as “the "Bentley' of stocks,” calling an investment in the company “money in the bank” and “safe money,” according to the Missouri action.
The Missouri Securities Division made similar allegations against both FNIC and Meyers Associates, including violations of transacting business as an unregistered agent, employing an unregistered agent and multiple violations of omitting to state material facts in connection with the offer or sale of a security. The action against Meyers Associates also alleges that one of its representatives made untrue statements in connection to an offer or sale of a security.
FNIC is home to more than 2,000 independent reps and advisers, who produce close to $300 million in annual gross revenue.
“Financial Network strives to comply with all state and federal regulatory requirements,” spokeswoman Carol Graumann wrote in an e-mail. “We regret the circumstances that led the state of Missouri to file this action and are cooperating with the state to reach a quick conclusion. The firm will have no further comment on the specifics of this matter.”
Meyers Associates has about 100 advisers, according to the Missouri action. Bruce Meyers, its managing partner, did not immediately return calls requesting a comment.
Meyers has been on the radar screens of other securities regulators of late. In November, the Connecticut banking commissioner issued a cease-and- desist order against the firm, alleging that its brokers were not registered with the state.
It also alleged that Meyers “engaged in fraudulent, dishonest and unethical conduct by failing to disclose to Connecticut customers that a "handling fee'” the firm charged included a profit to the firm, and that different clients paid lower fees, according to the firm's record on Finra's BrokerCheck system.
And in October, the Financial Industry Regulatory Authority Inc. said that the firm had failed to respond to requests for information and responded in an untimely way to requests for information and documents, a violation of Finra rules. The complaint is pending.
E-mail Bruce Kelly at [email protected].
