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FINRA penalizes former broker for Regulation Best Interest violations

On Behalf of | Sep 27, 2023 | FINRA Compliance

A former broker was penalized by the Financial Industry Regulation Authority for violations of the Regulation Best Interest rule, reports AdvisorHub.

Under a settlement reached with FINRA, Elba M. Nogueras was suspended for four months and fined $5,000. Nogueras was found to have violated Reg B1 as well as FINRA Rule 2010, which requires members to observe high standards of commercial honor and just and equitable principles of trade.

The Securities and Exchange Commission adopted Reg B1 in June 2020 to establish a “best interest” standard of conduct under which broker-dealers may not put their financial interests ahead of the interests of a retail customer when making recommendations.

Nogueras, who spent 19 years as a broker, is based in Guaynabo, Puerto Rico.  FINRA’s findings date back to September 2020, when she was registered with First Southern LLC and working with a 56-year-old client with moderate risk tolerance and limited investment experience.

According to FINRA, Nogueras recommended that her client invest $81,000, or 81% of his liquid net worth, into an unidentified non-traded real estate investment trust (REIT). The sale brought Nogueras a $5,670 commission. In the settlement letter, FINRA pointed to the REIT’s prospectus which said the investment carried a high degree of risk and could have resulted in a complete loss of principal for investors.  In addition the non-traded REIT was illiquid, and investors had only limited opportunities, at the issuer’s discretion, to redeem their shares.

FINRA said that due to the REIT’s risk and illiquidity, Nogueras did not have a reasonable basis to believe her recommendation that her customer invest 81% of his liquid net worth in the REIT was in the best interest of the customer.

Nogueras left First Southern in October 2021 and has not been registered as a broker or investment advisor since then.

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