Investor Alleges James Flower Executed Unauthorized and Excessive Trades
James Flower (CRD #: 2817701), a broker formerly registered with Spartan Capital Securities, has been barred by FINRA and is the subject of a pending dispute, according to his BrokerCheck record, accessed on April 26, 2023. If you want to know more about his alleged conduct as a broker, read on.
Investor Disputes
In a dispute filed on March 3, 2023, James Flower was named in allegations of excessive and unauthorized trading, excessive commissions, negligence, and suitability violations. This pending dispute seeks $156,127 in damages.
On September 18, 2015, an investor alleged that James Flower engaged in excessive trading, overconcentration, and other suitability violations, as well as excessive use of margin. The client alleged that this misconduct occurred between November 2014 and March 2015. Disposition of this dispute was stayed due to James Flower’s bankruptcy.
FINRA Rule 2111
FINRA Rule 2111 defines suitable investments as securities that fit an investor’s profile, which describes characteristics such as their age, risk tolerance, and tax status.
FINRA Rule 3260
FINRA Rule 3260 limits brokers to exercising their trading discretion in pre-approved discretionary accounts. These accounts must be approved for discretionary trading by both the client and the firm.
2021 Bar by FINRA
On April 10, 2020, FINRA filed a complaint against James Flower alleging that he churned five clients’ accounts, executed unauthorized trades, and mismarked trades as “unsolicited” between January 1, 2016, and July 31, 2018.
This complaint was followed by a decision by FINRA’s Office of Hearing Officers (OHO), filed on May 27, 2021, and James Flower’s bar by FINRA.
Alleged Excessive Trading
According to the OHO decision, James Flower allegedly engaged in excessive trading that resulted in five clients’ accounts exhibiting annualized cost-to-equity ratios from 69-176% and annualized turnover rates from 16 to 33. By comparison, cost-to-equity ratios over 20% and turnover rates above 6 are considered potential red flags for excessive trading.
These clients allegedly realized losses of more than $220,000 and generated more than $210,000 in fees and commissions.
Alleged Unauthorized Trading
FINRA further alleged that James Flower executed 17 unauthorized trades in one of these clients’ accounts. This account was allegedly non-discretionary and the client did not have knowledge of these trades.
Alleged Mismarking of Trades
Additionally, FINRA alleged that James Flower mismarked 58 solicited transactions as unsolicited in SW Financial’s system.
FINRA concluded that these allegations constituted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and also violated FINRA Rules 2111, 2020, 4511, and 2010.
Securities Exchange Act of 1934
Section 10(b) of the Securities Exchange Act of 1934 forbids the use of manipulative or deceptive devices in relation to the purchase or sale of securities. Rule 10b-5 extends this to include fraudulent schemes, untrue statements, and omissions of fact.
FINRA Rule 2020
FINRA Rule 2020 forbids the use of manipulative or deceptive tactics, like the misrepresentation or omission of material facts, as they relate to the purchase and sale of securities.
FINRA Rule 4511
FINRA Rule 4511 requires that firms maintain accurate books and records.
FINRA Rule 2010
FINRA Rule 2010 holds brokers to high standards of commercial honor and just and equitable principles of trade.
Sanctions
James Flower was permanently barred starting July 14, 2021. He was also ordered to pay a sanction of $10,655.45 and restitution of $242,014.46 plus prejudgment interest.
You can read the initial FINRA complaint here and the OHO hearing panel decision here.
2017 FINRA Suspension
On June 12, 2017, James Flower consented to the entry of findings that he allegedly made unsuitable recommendations of a highly volatile exchange-traded note to 13 clients from 2013-2014.
According to a Letter of Acceptance, Waiver & Consent (AWC), James Flower allegedly made recommendations of the iPath S&P 500 VIX Short Term Futures ETN (“VXX”). This note was allegedly inversely tied to the performance of one- and two-month futures contracts on the CBOE Volatility Index (“VIX Index”).
Notably, the AWC alleged that this index was “generally expected to lose value” over time and was typically used for short-term speculation rather than long-term investment strategies.
The AWC alleged that James Flower mistakenly believed that the VIX Index traded inverse to the S&P 500 Index and recommended the VXX to clients as a hedge against market decline.
Thirteen clients allegedly made 58 purchases and 39 sales of VXX shares during the relevant period and allegedly experienced total losses in excess of $249,000. They allegedly held these shares for periods ranging from two weeks to over a year.
Further, the AWC alleged that James Flower lacked an adequate understanding of the product and a reasonable basis to believe the VXX would be suitable for clients. The AWC concluded that these allegations constituted violations of FINRA Rules 2111 and 2010.
Sanctions
James Flower consented to the following sanctions:
- 3-month suspension
- 10 hours of continuing education concerning complex products within 60 days of the Notice of Acceptance of the AWC
His suspension ran from July 3 to October 2, 2017.
You can read a copy of the AWC here.
Bankruptcy
On January 14, 2016, James Flower discharged a bankruptcy.
Background Information
James Flower has passed the following exams:
- Series 63 – Uniform Securities Agent State Law Examination
- SIE – Securities Industry Essentials Examination
- Series 7 – General Securities Representative Examinatio
In the past, he worked for the following firms:
- Spartan Capital Securities (CRD#:146251)
- SW Financial (CRD#:145012)
- Laidlaw & Company (UK) (CRD#:119037)
- Global Arena Capital Corporation (CRD#:16871)
- Prestige Financial Center (CRD#:30407)
- Brookstone Securities (CRD#:13366)
- Prestige Financial Center (CRD#:30407)
- Obsidian Financial Group (CRD#:104255)
- Westrock Advisors (CRD#:114338)
- J.P. Turner & Company (CRD#:43177)
- Granite Associates (CRD#:46682)
- Continental Broker-Dealer Corporation (CRD#:14048)
- Harrison Securities (CRD#:14103)
- Whitehall Wellington Investments (CRD#:38022)
- Tasin & Company (CRD#:30709)
- Duke & Company (CRD#:8035)
- Gaines, Berland (CRD#:14623)
Kurta Law Can Help
If you worked with James Flower and you have concerns about your investments, please contact us today at 877-600-0098 or info@kurtalawfirm.com for a free consultation.
For over 20 years, Kurta Law has advocated on behalf of investors who want to recover their investment losses from brokers and brokerage firms. Kurta Law is a nationally recognized law firm and exclusively represents investors against brokers and brokerage firms on a contingency basis. This means that the firm only earns a fee if our securities attorneys recover money on your behalf.
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