National investor fraud law firm, KlaymanToskes (“KT”), has commenced an investigation (“HJ Sims Boca Raton FL Investigation”) into the Boca Raton, Florida branch of Herbert J. Sims & Co., Inc. (“HJ Sims”) in light of the SEC’s recent $250,000 fine of the brokerage firm relating to its failure to supervise their registered representatives’ unsuitable recommendations of variable interest rate structured products to certain customers.
What Are Variable Interest Rate Structured Products?
Variable Interest Rate Structured Products, or VRSPs, sold by HJ Sims were structured securities typically issued by large well-known financial institutions with stated fixed maturity periods and periodic interest payments. However, the VRSP’s characteristics made the investment highly complex and risky.
For instance, the structured securities had maturity periods of fifteen years of more, and initially paid a high fixed introductory rate for a period of one to five years. However, the VRSPs convert to a variable rate after the initial fixed rate period.
During the variable rate period, the VRSPs no longer guarantee payments. Moreover, the SEC states how the VRSPs are “principal-at-risk” securities, which means that investors can lose some or all of their invested principal at maturity if the VRSPs’ derivative component fail to perform within certain pre-determined ranges.
The recommended VRSPs from HJ Sims also typically lacked a secondary market, which the SEC found “significant” in light of the products’ fixed maturity periods of fifteen years or more.
Which HJ Sims Customers Were Sold These Unsuitable Products?
According to the SEC, registered representatives from HJ Sim’s Boca Raton, Florida branch made these unsuitable recommendations to forty-five (45) customers, even though they knew or should have known that the investments were unsuitable given the following profiles of the customers:
- At or Near Retirement Age
- Low or Moderate Risk Tolerance
- Primary Investment Objective of Income or Long-Term Growth
- Annual Income of Less than $250,000
- Net Worth of Less than $500,000 (in some cases)
- Desire to Minimize Exposure to Invested Principal to Loss
Brokerage firms and its financial advisors must only recommend suitable investments to their customers. Unsuitable investment advice is an investment recommendation that is not consistent with an investor’s investment objectives, risk tolerance and investment time horizon.
When Did HJ Sims Recommend These Unsuitable Products?
HJ Sims and thirteen (13) of its registered representatives from their Boca Raton, Florida branch sold the unsuitable products from January 2015 to April 2018. The SEC stated that HJ Sims and its registered representatives violated Sections 17(a)(2) and 17(a)(3) of the Securities Act by these unsuitable recommendations.
What Are Some Examples of HJ Sims Unsuitable Recommendations?
The SEC Order provided three examples of HJ Sims’s unsuitable VRSP recommendations.
- $30,000 VRSP recommendation to a 69-year old customer with a low-risk tolerance, an investment objective of income, an annual income of less than $25,000, and net worth less than $185,000
- $49,000 VRSP recommendation to an 87-year-old customer with a moderate risk tolerance, an investment objective of income, an annual income of less than $25,000, and a net worth of less than $300,000.
- $18,000 VRSP recommendation to a 68-year-old customer with a low risk tolerance, an investment objective of income, an annual income of less than $25,000, and a net worth less than $455,000.
The SEC imposed a censure and fined the brokerage firm $250,000.
Did You Invest in Variable Interest Rate Structured Products with HJ Sims Boca Raton FL?
Former and current customers of HJ Sims’s Boca Raton, Florida branch who suffered losses exceeding $100,000, and those who have information related to the handling of their investments, are encouraged to contact Lawrence L. Klayman, Esq., at (561) 542-5131, and download our Special Investor Report.
KT is a leading national securities law firm which practices exclusively in the field of securities arbitration on behalf of retail and institutional investors throughout the world in large and complex securities matters. KT has recovered more than $220 million for investors in FINRA arbitrations. KT has office locations in California, Florida, New York, and Puerto Rico.