On August 28, 2024, the Financial Industry Regulatory Authority (FINRA) announced the suspension and fining of Richard Joseph Jackson, a former broker, for allegedly engaging in misleading communications with clients regarding stock performance. This case underscores the critical importance of compliance with FINRA’s communication rules, particularly for financial professionals responsible for advising clients.

The Allegations

FINRA’s investigation into Jackson’s conduct revealed that between January 2020 and November 2022, Jackson allegedly sent emails to at least 20 clients that contained exaggerated claims about the potential growth of certain stocks.

These communications, which Jackson allegedly sent while employed by Equity Services, included predictions such as a particular technology company:

“likely grow[ing] in excess of 20% per year for the next 5 years” and another stock being “[v]ery confident [to become] a $1000+ stock within 12 to 36 months.”

Such statements, FINRA argues, violated Rule 2210, which governs communications with the public. Rule 2210 explicitly prohibits any communications that predict or project the performance of a security, imply that past performance will recur, or make exaggerated or unwarranted claims, opinions, or forecasts. Additionally, FINRA found that Jackson’s conduct breached Rule 2010, the catchall regulation that mandates all members observe high standards of commercial honor and just and equitable principles of trade.

Consequences and Regulatory Response

As a result of these alleged violations, FINRA imposed a $5,000 fine and a one-month suspension on Jackson, who has not been registered with any brokerage firm since his termination by Equity Services in 2022. The termination itself was reportedly linked to an internal investigation concerning Jackson’s use of performance data and projections in his correspondence with clients.

Jackson chose to settle the allegations without admitting or denying the misconduct, a common practice in regulatory enforcement actions. However, this settlement does not negate the fact that his conduct, as alleged, presents a clear example of the risks financial advisors face when failing to adhere strictly to regulatory guidelines.

The Importance of Compliance

This case serves as a stark reminder to brokers and financial advisors about the importance of maintaining “fair and balanced” communications with clients. The prohibition against making promissory or exaggerated claims is rooted in the principle of protecting investors from potential misinformation and undue influence, which could lead to misguided investment decisions.

For financial professionals, the lesson is clear: all communications, particularly those related to the performance of securities, must be carefully crafted to comply with FINRA regulations. This includes avoiding any language that could be construed as guaranteeing returns or projecting specific performance outcomes. Instead, advisors should focus on providing clients with balanced, factual information that accurately reflects the potential risks and rewards associated with any investment.

Moving Forward

In light of this case, financial firms may want to revisit their internal compliance training and monitoring processes to ensure that all client communications meet regulatory standards. Regular audits, updated training sessions, and clear guidelines on permissible communications can help prevent similar issues from arising within their organizations.

At Anderson P.C., we specialize in advising financial professionals and firms on regulatory compliance and enforcement matters. If you have questions or need guidance on navigating FINRA’s complex regulatory landscape, please don’t hesitate to contact us.

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