An arm of SunTrust Banks was ordered on Thursday to pay $1.44 million in fines and restitution for hundreds of “unsuitable” trades that allegedly bilked 17 mostly elderly and disabled clients of hundreds of thousands of dollars.
Three Maryland-based employees of the unit, SunTrust Investment Services, were slapped with disciplinary action by the Financial Industry Regulatory Authority (FINRA).
Broker David Bredenburg of Timonium, Md., who was also accused of paying personal expenses out of client accounts during a later stint with Merrill Lynch, has been permanently barred from the securities industry. Donald Mattran, of Bel Air, Md., a supervisor, has been suspended from working in the industry for six months and fined $10,000, for approving the trades despite numerous “red flags.”
FINRA also lodged a complaint against an unnamed Maryland broker charging him with multiple violations, including making unsuitable recommendations and discretionary trades for customers without written approval. The trades occurred from 2004 through 2006.
A spokesman at SunTrust's Atlanta headquarters declined comment. SunTrust Investment Services is the bank's main retail investment arm. It had $48.6 million in revenue in the second quarter.
As part of the settlement, SunTrust Investment Services admitted no wrongdoing but agreed to review all investment trust transactions.
The penalty consists of a $900,000 fine and $540,000 in restitution.
FINRA said the brokers conducted a host of risky transactions and convinced 10 clients to make risky trades on borrowed funds — known as margin trading — resulting in $133,000 in interest penalties.
The Maryland-based brokers are also accused of not disclosing the risk associated with certain transactions.
The recommended trades essentially generated fees for the brokers with little advantage to the client, FINRA said. As part of the fine, $224,000 in commissions were returned.
Regulators allege the brokers told clients to sell certain investments within a year — and sometimes within a month — of purchasing them.
Regulators are cracking down on high volume trades by brokers with elderly clients, said Dan Kolber, a securities attorney with Intellivest Securities Inc. in Atlanta.
“When a pattern of changes emerges with elderly clients, that’s a red flag,” Kolber said.
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