FINRA Charges Advisor After Unsuitable Alts Recommendations
The Financial Industry Regulatory Authority barred Luke Johnson after the advisor convinced nine clients to invest millions in illiquid alternative investments, including GPB Holdings.
The investments were made without knowledge of their risk tolerance and even whether they were accredited investors. These recommendations included at least $1.05 million in investments in GPB Holdings, who was named in a number of class action lawsuits and other investigations after the company purportedly issued marketing materials to more than 180 Massachusetts investors which contained material misstatements and omissions.
From April 2015 through May 2018, respondent Luke Johnson, while associated with FINRA member firm Coastal Equities Inc., made “unsuitable recommendations” to nine customers to purchase more than $2.35 million in illiquid alternative investments. Johnson earned more than $132,900 in commissions from these recommendations.
FINRA says Johnson’s recommendations to these customers were unsuitable in light of the customers’ investment profiles and because Johnson’s recommendations over-concentrated the customers’ liquid net worth in illiquid and high-risk securities. During the relevant period, Johnson, or his assistants, also falsified these nine customers’ reported net worth and liquid net worth on Coastal’s customer account information forms
FINRA says that beginning in April 2015, while Johnson was associated with Coastal, the firm had a policy that limited its customers from investing more than 35% of their liquid net worth in alternative investments. Johnson dramatically inflated his customers’ net worth and liquid net worth and dramatically understated the percentage of his customers’ assets invested in alternative investments in order to circumvent Coastal’s concentration policy and Coastal’s supervisory oversight.
According to FINRA, by recommending unsuitable investments to the customers, falsifying documents and causing information about these customers to be inaccurate on Coastal’s customer account records and alternative investment documents Johnson violated FINRA rules.
According to BrokerCheck, Johnson began in the industry in 2000 at Baird. After briefly working for various firms, including Northwestern and Summit Brokerage Services, he remained ay Coastal Equities from 2012 to 2019 until being charged by FINRA. In November 2019 after he allegedly “failed to follow firm policy by failing to timely forward a customer complaint to his supervisor and compliance, and by inconsistently stating a customer’s liquid net worth on client disclosure documents,” Coastal fired Johnson.
In December of last year, Coastal Equities settled charges with FINRA after the company allegedly failed to properly supervise a registered representative who engaged in “excessive and unsuitable trading” in four customer’s accounts related to investments in offerings issued by GPB Capital Holdings without notifying them that the issuer had failed to make timely required filings with the Securities and Exchange Commission, including filing audited financial statements.
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