The Financial Industry Regulatory Authority penalized a former Wells Fargo Advisors broker for rules violations involving the accounts of his customers, according to Advisor Hub.
James E. Holmes III was fined $10,000 and suspended for eight months by FINRA for his actions in the matter.
“Between October and December 2021, Holmes recommended options transactions to a customer without having a reasonable basis to conclude that the transactions would be in the customer’s best interest or suitable based on her investment profile,” according to FINRA’s letter of acceptance, waiver and consent. The authority went on to add, “In August 2020, Holmes submitted account information for the same customer to his employer firm that inaccurately stated her financial circumstances, investment experience, and investment objectives, in violation of FINRA Rules 4511 and 2010.”
Regulators said Holmes allegedly modified the customer’s account profile to reflect that she had more than three years of experience trading options and a higher risk tolerance than she initially stated. The following year, Holmes recommended a series of risky uncovered options trades that resulted in losses for the customer, who had told Holmes that she “could not afford to lose her principal in meeting her investment goals, did not have other funds to fall back on, and could not afford to be exposed to significant risk,” according to FINRA.
Furthermore, it was determined that between January 2023 and September 2024, Holmes exercised discretion without prior written authorization in at least five customers’ accounts to effect at least 250 trades.
Holmes was found to have willfully violated the SEC’s Regulation Best Interest, which establishes a standard of conduct on behalf of the customer’s best interest for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts.
Holmes also violated FINRA Rule 2360(b)(19):
(A), which provides that “[n]o member or person associated with a member shall recommend to any customer any transaction for the purchase or sale (writing) of an option contract unless such member or person associated therewith has reasonable grounds to believe upon the basis of information furnished by such customer after reasonable inquiry by the member or person associated therewith concerning the customer’s investment objectives, financial situation and needs, and any other information known by such member or associated person, that the recommended transaction is not unsuitable for such customer.”
(B) provides that “[n]o member or person associated with a member shall recommend to a customer an opening transaction in any option contract unless the person making the recommendation has a reasonable basis for believing, at the time of making the recommendation, that the customer has such knowledge and experience in financial matters that he may reasonably be expected to be capable of evaluating the risks of the recommended transaction, and is financially able to bear the risks of the recommended position in the option contract.”
A violation of Reg BI and FINRA Rule 2360 also is a violation of FINRA Rule 2010, which requires associated persons to “observe high standards of commercial honor and just and equitable principles of trade” in the conduct of their business.
“Based upon an agreement reached with FINRA, I can neither confirm nor deny the stated charges,” Holmes said in a statement. “I can state that in 34 years in the business, I have never received a formal customer complaint.” A spokesperson for Wells declined to comment.
In October 2024, Wells Fargo filed a Uniform Termination Notice for Securities Industry Registration (Form U5) disclosing that Holmes had been discharged for “using trading discretion in multiple client accounts.” Wells Fargo reimbursed Holmes’s customer for their losses.
Hyman Cotter PC routinely represents investors harmed when financial professionals and their firms engaged in misconduct that caused their clients investment losses. Our team includes lawyers who have worked for large financial institutions, including Morgan Stanley and UBS Financial Services, and regulatory bodies such as the SEC. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Hyman Cotter PC at 312-291-4600 or through our online contact form for a no-cost evaluation of your matter.
