Financial industry regulators maintain strict oversight to protect investors from improper broker conduct. A recent disciplinary case involving Kenneth John Malm, a former broker with Securities America and Osaic Wealth, demonstrates the importance of regulatory compliance in the securities industry.
FINRA imposed a seven-month suspension and $10,000 fine against Malm following his acceptance of a $1 million bequest from a deceased client. The case was brought to FINRA’s attention through their Securities Helpline for Seniors program.
The Regulatory Violation
Table of Contents
Malm violated FINRA Rule 3241 by failing to report the inheritance to his employer and obtain required written approval. The advisor learned of the bequest after his client’s death in August 2021 but did not follow proper disclosure procedures.
This violation ultimately led to Malm’s resignation from Osaic Wealth in August 2024 during the firm’s internal review process. The case illustrates the critical importance of adherence to industry rules regarding gifts and bequests from clients.
Key Details of the Disciplinary Action
The $1 Million Bequest Case
The FINRA disciplinary action centers on Malm’s acceptance of a substantial inheritance from a client who passed away in August 2021. Despite learning of this $1 million bequest, Malm failed to notify Osaic Wealth or obtain the necessary written approval as mandated by securities regulations.
FINRA Rule 3241 specifically prohibits financial advisors from accepting bequests from non-family clients without proper firm authorization. This rule exists to prevent potential conflicts of interest and maintain ethical boundaries between advisors and their clients.
Sanctions Imposed
FINRA’s disciplinary action resulted in:
- Seven-month suspension from the securities industry
- $10,000 financial penalty
Malm accepted these sanctions through a settlement process without admitting or denying FINRA’s findings, which is standard practice in such regulatory proceedings.
Regulatory Framework and Compliance
Fiduciary Obligations
Financial advisors operate under strict fiduciary standards that require them to prioritize their clients’ interests above their own. The acceptance of client bequests without proper disclosure creates potential conflicts of interest that can compromise this fundamental obligation.
FINRA Rule 3241 serves as a safeguard by requiring:
- Written notification to the employing firm
- Formal approval before accepting any bequest
- Documentation of the approval process
Industry Standards
The securities industry maintains rigorous ethical standards to protect investors and preserve market integrity. Violations of these standards can result in significant penalties, including suspension, fines, and permanent bars from the industry.
Implications for Investors
Verification and Due Diligence
Investors should regularly verify their financial advisor’s regulatory standing through FINRA’s BrokerCheck database, which provides comprehensive disciplinary history information. This free resource allows investors to make informed decisions about their advisory relationships.
Recovery Options for Affected Investors
Investors who believe they may have been affected by advisor misconduct have several potential avenues for recovery:
- FINRA arbitration proceedings offer a structured process for resolving investment disputes
- Securities litigation may be appropriate in cases involving significant losses
- Regulatory complaints can trigger additional oversight and investigation
Legal Representation and Recovery
At Haselkorn & Thibaut, we understand the complexities of securities law and the challenges investors face when dealing with advisor misconduct. Our experienced securities attorneys provide comprehensive legal representation for investors seeking recovery from broker violations.
Our Approach
- Free case evaluations to assess potential claims
- Contingency fee arrangements – no recovery, no fee
- Experienced representation in FINRA arbitration and federal court proceedings
- Comprehensive investigation of advisor misconduct and potential damages
When to Seek Legal Counsel
Consider consulting with a securities attorney if you have experienced:
- Undisclosed conflicts of interest with your financial advisor
- Investment losses due to unsuitable recommendations
- Misrepresentation of investment risks or potential returns
- Breach of fiduciary duty by your investment professional
Conclusion
The disciplinary action against Kenneth John Malm underscores the importance of regulatory compliance in the securities industry. FINRA’s enforcement demonstrates its commitment to protecting investors from potential advisor misconduct.
For investors, this case serves as a reminder to remain vigilant about their advisory relationships and to verify their advisor’s regulatory standing regularly. The financial industry’s regulatory framework exists to protect investors, but individuals must also take proactive steps to safeguard their investments.
Contact Haselkorn & Thibaut
If you believe you may have been affected by securities violations or advisor misconduct, our experienced legal team is here to help. Contact Haselkorn & Thibaut today for a free consultation at 1-888-885-7162 . Our securities attorneys will evaluate your case and discuss your options for potential recovery.
Don’t wait – securities claims are subject to time limitations. Call 1-888-885-7162 today to protect your rights and explore your legal options.
