While the SEC continues to investigate alleged sales practice violations at the Washington, D.C., branch of Wheat First Securities (now Wheat First Union), several clients of the firm have confirmed to RR some of the allegations first brought to light two years ago by Ron Brown, a former rep at the branch.
In telephone interviews with RR magazine, two clients identified by Brown as suffering from alleged transgressions say they believe churning and unauthorized trading took place in their accounts.
One client, Michael Kowalysko of Gaithersburg, Md., claims his broker traded his account without authorization, in one instance liquidating a position in Cisco one week before a stock split.
"[My broker] decided to sell it on his own," Kowalysko says. "I made money, but the price [subsequently] doubled and it split twice since then."
Kowalysko complained to the branch manager, but says nothing came of his complaint. Neither the branch manager, the firm nor any regulators ever contacted him for more information on the alleged unauthorized trade. He feels the broker, who has since left Wheat First, got away with wrongdoing.
"He's a sleaze," Kowalysko says. "He's still in the business. I should have pursued it higher up."
Another client, a 43-year-old woman in New York, who did not want her name used, confirms Brown's claim that her mutual fund investments were churned. The broker "kept insisting on putting me in load funds," says the client, who acknowledges that she doesn't know much about investing. She further claims that this broker on more than one occasion bought or sold stocks without her approval. "She made some moves without checking with me," she says. "Instead of buying blue-chip stocks, she bought ridiculous stocks."
Though this client never complained and continues to keep her Wheat First account, she says she refuses to do any more trading with the firm, and did not follow the broker to another firm.
Brown made allegations about the former Wheat brokers and several other alleged rogue reps in a November 1996 letter he sent to the SEC. Brown claims his Washington, D.C., branch manager routinely ignored or discarded client complaints. The manager, Bill Butler, left the branch in July 1998, although CRD records show he's still employed by Wheat First.
In response to Brown's letter, the SEC interviewed Brown by phone and examined the branch in December 1996, then made a follow-up visit in January 1997. Both Brown and Wheat First say the SEC told the firm in February 1997 that it found no wrongdoing. Brown subsequently complained to the media, members of Congress and other federal agencies about what he claims was a case that was botched by cozy relations between Wheat First and the SEC.
The SEC, claiming the investigation was never closed, attempted to get in-person testimony from Brown in November 1997--a year after first being contacted by him. But Brown claims health problems have kept him from testifying. The agency then subpoenaed him this spring demanding more information, and went to federal court in July to enforce the request. SEC attorneys told the court that there did indeed appear to be sales practice problems at the branch.
Brown was terminated from Wheat First in February 1997 for "low production." This year he filed a $25 million wrongful termination suit against the firm, alleging that he was fired for whistle-blowing.