• August 27, 2024
• Western International Securities

Christopher Booth Kennedy (CRD#:4498061) was a previously registered broker and investment advisor.

Broker’s History

He entered the securities industry in 2002 and previously worked with RBC Dain Rauscher Inc.; Multi-Financial Securities Corporation; Financial West Group; and Western International Securities.

Allegations of Misconduct

According to publicly available records released by the U.S Securities and Exchange Commission (SEC), in September of 2023, Kennedy was named a respondent in a FINRA complaint alleging that he churned and excessively traded accounts of customers. The complaint alleges that Kennedy used his control over these accounts to direct an excessive series of transactions in each account that generated commissions for his own benefit at the customers’ expense. Kennedy directed trades representing net trading of more than $350 million in the customer accounts. Each month, Kennedy made trades representing net trading of more than $6.9 million per account or approximately 13 times the average account value. Kennedy’s trading for the customers resulted in annualized cost-to-equity ratios ranging from 27 percent to 39 percent for an average cost-to-equity ratio of more than 31 percent across all their accounts.

In addition, Kennedy’s trading resulted in annualized turnover rates ranging from 31 to 58, for an average turnover rate of more than 47 across all their accounts, even excluding options purchases. As the result of Kennedy’s excessive trading, the customers collectively lost over $2.3 million in value from their accounts and paid more than $715,000 in total trading costs and margin interest, including over $595,000 in commissions.

By churning the customer accounts, Kennedy willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and violated FINRA Rule 2020, and by excessively trading their accounts, he willfully violated Exchange Act Rule 15l-1 (Regulation Best Interest).

The complaint also alleges that Kennedy made fake account statements to hide the results of his trading from two customers, a husband and wife co-trustees of a family trust account. Over six months, Kennedy prepared and sent six fake account statements to the customers from his personal email. Kennedy supplemented these fake account statements by making a series of other false statements to the married couple inflating their account value. For example, Kennedy sent a fake account statement to the married couple purporting to show an ending balance of $5.2 million and a gain in value of over $3 million. In fact, under Kennedy’s control the account had lost nearly all of its value and only approximately $160,000 in value remained in the account.

The complaint further alleges that during FINRA’s investigation of his trading, Kennedy repeatedly lied to FINRA in response to its requests for information and on-the-record testimony. In particular, Kennedy falsely denied preparing any fake account statements for the married couple and falsely claimed that his personal email had been hacked and that an imposter had sent all but one of the fake account statements.

As a result, it was ordered that Respondent be barred from associating with any FINRA member indefinitely.

In addition Christopher Kennedy has twelve other disclosures:
• June 2022—“ Claimant alleges misrepresentation, suitability of transactions, and breach of fiduciary duty in the management of the account.” The damage amount requested was $120,694.00 and the customer dispute settled for $75,000.
• May 2022—“ Losses sustained by virtue of unauthorized trading.” The customer dispute settled for $375,000.
• March 2022—“ Engaged in extensive and unauthorized trading without clients knowledge or consent.” The customer dispute settled for $2,453,936.28.
• January 2022—“ Client alleged through counsel on August 24, 2021, that Kennedy had begun in February 2021 to use margin without approval of the Client family accounts and that during the week of July 26th Kennedy had engaged in improper options trading for Client. Claimant allegations, include but not limited to, Breach of Fiduciary duty.” The damage amount requested was $5,424,035 and the customer dispute settled for $3,800,000.
• December 2021—“ Client alleges breach of fiduciary duty, unauthorized trading, and breach of contract.” The damage amount requested was $245,000 and the customer dispute settled for $125,000.
• November 2021—“ Customer expressed concern of the handling of his account.” The damage amount requested was $36,870.52 and the customer dispute settled for $36,870.52.
• November 2021—“ Claimant raised concerns regarding misrepresentation and negligence in handling accounts.” The damage amount requested was $40,731.26 and the customer dispute settled for $40,731.26.
• November 2021—“ Claimant alleged breach of contract, fiduciary duty, and negligence in handling the account.” The damage amount requested was $375,000 and the customer dispute settled for $245,000.
• September 2021—“ The Client has alleged that his account lost 300K over the past few months and that Kennedy was trading without authority from the client or supervision from Western.” The customer dispute settled for $450,000.
• September 2021—“ Client alleged through counsel that Kennedy forged and denied access to client account statements in order to hide allegedly improper trading in the Client’s account occurring from December 2020 through August 2021, including options trading conducted in the last week of July 2021 which led to these allegations.” The customer dispute settled for $2,760,000.
• August 2021—Discharged by Western International Securities, Inc., “Clients have alleged unauthorized options trading and failure to adhere to discretionary options sales orders.”
• June 2008—“ CLIENT ALLEGES RBC IGNORED A 10% STOP LOSS ORDER ON ALL INVESTMENTS IN 2008, AND REQUESTS THAT THEY BE REIMBURSED FOR EVERY LOSS ABOVE 10%.” The customer dispute settled for $40,000.

We Help Investors Recover Investment Losses

FINRA Rule 2150 specifically addresses theft and conversion in a customer account, stating “no member or person associated with a member shall make improper use of a customer’s securities or funds.” This rule includes any “guarantee” that brokers make to customers in relation to losses incurred in a brokerage account.

In addition, FINRA Rule 3240 strictly prohibits a financial advisor from borrowing money from a client absent from unique circumstances, such as a familial relationship between the Financial Advisor and the client. There is also an exception if the client is a financial institution regularly engaged in the business of lending. The reason for this prohibition is clear—borrowing money from clients creates an immediate conflict of interest and can potentially lead to theft or conversion of client assets.

Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.

Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.

Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s age, tax status, time horizon, liquidity needs, and risk tolerance; a client’s other investments, financial situation and needs, investment objectives, and any other information disclosed by the customer should also be considered.

Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation. Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.

FINRA regulations require that a customer’s written authorization is required before a broker-dealer can carry out transactions in the customer’s account. In addition, the broker-dealer’s member firm needs to approve the broker-dealer’s authorization. These measures are intended to protect the customer. Discretionary trading allows the broker-dealer to unilaterally decide to buy or sell securities at any price and not have to check with the client first. Exercising discretion without authorization can be costly to investors, and broker-dealers and their member firms, too.

Excessive trading often occurs when a Financial Advisor puts his or her interests ahead of the clients and makes transactions solely for the purpose of generating commissions. Financial Advisors have a regulatory duty to recommend suitable investment strategies. One of the components of the suitability analysis is quantitative suitability.

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.