FINRA Sanctions LPL Rep for Guiding 95-Year-Old Client to Unsuitable Investments
Brenton Ditto – a general securities representative through an association with LPL Financial – has been suspended, fined, and ordered to disgorge commissions by the Financial Industry Regulatory Authority for recommending complex and unsuitable investments to a 95-year-old client. Ditto was found to have violated Regulation Best Interest and FINRA Rule 2010.
The case originated from a complaint filed with FINRA. In September 2021, Ditto recommended that a 95-year-old client, who had opened an account with LPL, invest in Government National Mortgage Association, or GNMA, support class bonds. The client’s investment profile, as detailed by his daughter who held power of attorney, was conservative with a stated objective of “income with capital appreciation” and a critical need for liquidity within one year. The account was funded with $75,000 from the sale of the client’s home.
The customer’s daughter told Ditto that she was seeking an investment for her father that had no principal risk but could generate returns greater than a bank CD. She also told Ditto that the principal of the investment could not be tied up for any longer than one year because she needed the funds for her father’s living expenses.
GNMA support class bonds are part of a complex mortgage-backed security structure where principal repayments are directed to other, higher-priority classes first. This makes them particularly susceptible to a decrease in value and a halt in principal repayments during a rising interest rate environment.
According to FINRA, Ditto’s recommendation disregarded the client’s investment profile – specifically their age, risk tolerance, and urgent liquidity needs. He failed to review the prospectuses and did not consider the significant risks associated with the bonds, including the potential for no principal repayments and a decrease in market value.
Following the investment, interest rates rose, and the client received no principal repayments on the GNMA bonds, leading to approximately $19,000 in losses. The customer’s claim against LPL has since been settled.
FINRA found that Ditto willfully violated Reg BI, which subjects him to a statutory disqualification from the industry. He has been sanctioned with a four-month suspension from associating with any FINRA member, a $5,000 fine, and must disgorge commissions of $402.58 plus interest.
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