Lincoln Financial Fined by FINRA for Former Broker's "Selling Away" Scheme
On Sept. 27, a FINRA arbitration panel declared Lincoln Financial liable
for $4.43 million in damages and interest to approximately 24 former clients,
according to an Oct. 5 InvestmentNews article. FINRA ruled that the firm's
liability was the result of negligent conduct in failing to prevent one
of the firm's registered brokers from operating a "selling away" scheme.
The broker, Scott Gordon, was a registered broker with Lincoln Financial. During the time he was affiliated with Lincoln, Gordon became CEO of Healthright Inc., a software development company. According to the article, Gordon began advertising his role with Healthright, Inc. in e-mails conducted in the course of business as a broker for Lincoln, and even included his position with Healthright and the company's contact information in the footer of his Lincoln e-mails.
Gordon then sold investments in Healthright to approximately 24 people, including investments in common stock and private equities issued by Healthright. In June 2006, after Gordon was no longer CEO of Healthright, Grant Gifford - an investor in the company - attended his first board-of-directors meeting.
In its decision, the FINRA panel described the board-of-directors meeting as the moment Mr. Gifford "discovered that misstatements and omissions had been made by Mr. Gordon." Problems with Gordon's management of Healthright were also discovered.
The panel ruled that Lincoln was responsible for monitoring Gordon's outside activities and that the firm's "negligence caused the loss of claimants' investments in Healthright," according to the InvestmentNews article. Lincoln Financial was ordered to pay $366,000 to Mr. Gifford and a little over $4 million to Healthright.
Gordon was fired by Lincoln Financial in 2006 and barred from the securities industry by FINRA in 2008.
To learn more about selling away, view the video below.