by Howard Haykin

A 44-year old woman moved her IRA to Van Clemens and Co., a small Minneapolis-based broker-dealer, where her broker, Peter Monson, took control of the account and excessively traded microcap stocks. Before becoming Monson’s customer 2 years earlier, she had only invested in mutual funds and never purchased individual stocks.

At the time the woman made the move, the IRA account was worth $429,000. Two-and-a-half years later, the account value was down to $76,000 – thanks to $215,000 in trading losses and broker commissions, along with a $138,000 withdrawal used to finance a family business.

WHAT WENT WRONG.    From the outset, Monson asserted effective control over the customer’s account. Besides the fact that the broker rarely spoke with his customer, it was clear the woman had little understanding about managing a securities portfolio. Perhaps she was also intimidated by Monson who, when they first met, had 20 years’ experience and a clean disciplinary record. For that matter, Van Clemens had been in business since 1975 and it too had a relatively clean track record.

However, it didn’t take long for matters to deteriorate:

• Monson traded excessively.   Rather than take a conservative approach - i.e., to buy and hold (invest) in stocks - Monson engaged in frequent trading, including occasional in-and-out trades. Over one 13-month period, he executed 187 trades in the account.
• Monson focused nearly entirely on risky ‘microcap’ stocks.   Monson had no interest in buying shares of large companies that traded on stock exchanges. Instead, he traded small public companies with market capitalizations of between $50 million to $300 million that traded over-the-counter. 'Microcap' stocks, in general, are riskier and less stable and, because there’s limited public information available about these companies, fraud and market manipulation are quite common in ‘microcaps’.
• Monson concentrated the account heavily in individual securities.   Rather than diversify, Monson repeatedly loaded up on shares of individual companies. One such company, Alpha Natural Resources (‘ANR’), accounted for nearly 26% of her portfolio. Unfortunately, one month after acquiring the shares, the price of ANR shares fell 85%.
• Van Clemens and Co. failed to supervise the account.   Despite Monson’s excessive and unsuitable trading, firm supervisors did nothing to slow down the trading or otherwise protect the customer.
• Customer learned she had advanced-stage cancer.    Even upon learning that the customer was deathly ill with advanced-stage cancer, Monson continued to actively trade the account.

HIDDEN FIGURES – UNDISCLOSED SETTLEMENT.    After the customer’s death, Van Clemens and Monson entered into a settlement agreement with the customer’s estate concerning losses resulting from the unsuitable trading. Yet, there’s nothing on record to disclose the customer’s complaint or the terms of this settlement – i.e., HIDDEN FIGURES. Sadly, the first anyone learned of the violative conduct by the firm and the broker was when FINRA posted its sanctions against the pair – more than 3 years after the violations occurred.   

It's interesting to note that Monson is still on Van Clemens' payroll. They apparently deserve one another. 

[For further details on Van Clemens & Co., click on … FINRA Case #2017053162101.]
[For further details on Peter Monson, click on … FINRA Case #2017053162102.]