A Scottsdale, Ariz., advisor and brokerage rep has been suspended for 18 months and ordered to pay more than $36,000 in fines and restitution under a settlement with Finra over accusations that he recommended unsuitable investments to clients, then falsified documents related to those investments.
Luke Michael Johnson consented to a settlement of Finra charges, according to an order accepting Johnson’s offer of settlement issued on Thursday, Jan. 30. As is usual with Finra settlements, Johnson neither admitted to nor denied the allegations in accepting the punishment.
From April 2012 until December 2019, Johnson was registered as a representative through Coastal Equities, according to Finra’s filing. During part of his tenure, from April 2015 until May 2018, Johnson allegedly made unsuitable recommendations to nine clients to purchase more than $2.35 million in “illiquid alternative investments,” earning more than $132,900 in commissions by doing so.
Those recommendations were unsuitable due to the client’s investment profiles and because Johnson “overconcentrated” their liquid net worth into illiquid and risky investments, according to Finra.
Coastal Equities posted a policy forbidding clients form having more than 35% of their liquid net worth placed into alternative investments, according to Finra, which may have led Johnson to inflate his clients’ net worth and liquid net worth in order to understate the proportion of their assets allocated to alternatives.
Furthermore, Finra alleged that Johnson or his assistants falsified customers’ net worth on account information forms and investment documents, also allegedly falsifying at times these clients’ reported risk tolerance, liquidity needs, annual income and their accredited investor status on subscription agreements and disclosure forms.
Coastal Equities filed a Form U5 notice of termination on Dec. 13, 2019, that accused Johnson of failing “to follow firm policy by failing to timely forward a customer complaint to his supervisor and compliance,” and also “inconsistently” reporting a client’s net worth on disclosure documents.
According to Finra’s filing, Johnson first became registered with the agency in November 2000. In 2005, he was “permitted to resign” from a Finra member firm for allegedly signing the name of his office’s designated supervisor on at least four variable life insurance applications.
Johnson’s BrokerCheck record reveals 31 regulatory disclosures, with five of them still pending.
Johnson’s recommendations allegedly ran afoul of Finra rules 2111 and 2010, while the alleged falsification of documents and resulting inaccurate recordkeeping violated Finra rules 4511 and 2010.
Finra ordered Johnson to pay a $15,000 fine, $21,797.30 in restitution and to accept an 18-month suspension from associating with Finra members in any capacity.