The Securities and Exchange Commission (SEC) recently instituted public administrative and cease-and-desist proceedings against Summit Planning Group, Inc. (Summit) and Richard Urciuoli, the firm’s sole owner and investment advisor representative. This measure was deemed appropriate and in the public interest, given the seriousness of the allegations against them.
Allegation’s Seriousness and Case Information
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The allegations against Summit and Richard Urciuoli are severe and of significant concern. The SEC found that Urciuoli used his discretionary authority over client accounts to buy and hold a complex, futures-linked exchange-traded note (ETN) known as VXX for periods between 34 and 86 trading days. This was inconsistent with the product’s intended use as described in its prospectus and pricing supplement, the primary disclosure documents for the product.
Despite explicit warnings in the disclosure documents about the suitability and risks of VXX for short-term investment horizons, Urciuoli held VXX in his customers’ accounts for multiple weeks. This resulted in client accounts losing over $443,809 from Summit’s VXX investments. In addition, the firm charged its clients $8,476.36 in fees in connection with the VXX investments.
The SEC concluded that neither the firm nor Urciuoli had a reasonable basis to conclude that holding VXX for extended time periods was suitable for their clients. As a result of his conduct, Urciuoli willfully violated Section 206(2) of the Advisers Act and caused the firm’s violations of Advisers Act Section 206(4) and Rule 206(4)-7 thereunder.
Explanation in Simple Terms and the FINRA Rule
In simple terms, Urciuoli and Summit are accused of making unsuitable investments on behalf of their clients, disregarding explicit warnings about the risks associated with the VXX product. This alleged behavior is a violation of the Financial Industry Regulatory Authority (FINRA) Rule 2111, which requires that a firm or associated person have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer.
The FINRA Rule 2111 is designed to protect investors from unsuitable investment advice and strategies. It requires that financial advisors and firms consider the customer’s investment profile, including the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, and risk tolerance.
Why It Matters for Investors
Investors rely heavily on their financial advisors for sound investment advice. When advisors disregard the suitability of investment products for their clients, they risk causing significant financial harm. In this case, clients of Summit and Urciuoli suffered substantial losses due to the unsuitable investment in VXX. This is a stark reminder of the importance of suitable investment advice and the potential consequences of its absence.
Moreover, this case underscores the importance of transparency and adherence to the product’s disclosure documents. Financial advisors must fully understand the products they recommend and ensure they align with their clients’ investment profiles.
Red Flags for Financial Advisor Malpractice and How Investors Can Recover Losses
Investors should be wary of financial advisors who fail to explain the risks associated with a particular investment product, disregard product warnings, or make unsuitable investment recommendations. Other red flags may include excessive fees, unauthorized trades, or a high concentration of investments in one area.
If you suspect financial advisor malpractice, it is crucial to seek legal help. Haselkorn & Thibaut, a national investment fraud law firm with over 50 years of experience and a 98% success rate, offers free consultations to clients. They have offices in Florida, New York, North Carolina, Arizona, and Texas, and operate under a “No Recovery, No Fee” policy.
Through FINRA Arbitration, Haselkorn & Thibaut can help investors recover losses caused by financial advisor malpractice. They are currently investigating the advisor and company involved in this case. For a free consultation, call their toll-free number at 1-800-856-3352.
