Mr. Schaker hasn’t been seeing a lot of clients these days with the recent market downturn-which means he hasn’t been generating any commissions, and commissions are his bread and butter. So, Mr. Schaker does some Googling on his computer and notes that a prominent family of load funds has just introduced a new global fund. Scribbling the name and contact information of the fund family on his notepad, he begins calling his existing clients and promoting the new fund, encouraging his clients to redeem some shares in their existing funds to invest in this fund. Has Mr. Schaker violated any securities laws?
Explanation
Answer: B - Yes. Mr. Schaker has violated securities laws in recommending a fund that he doesn’t even seem to have researched very well to his existing clients, some of whom may not be suitable candidates for a global fund, which invests in foreign as well as domestic securities. Although FINRA’s rules do indicate that it is not trying to stymie legitimate sales efforts, Mr. Schaker’s actions do not fall within this category. There is no research that indicates new funds tend to offer abnormally high funds for the first 12 months of their existence, and if Mr. Schaker would have implied that, he could be up on criminal fraud charges. There is no law, however, that prohibits a registered representative from recommending a load fund to a client, as long as there is a legitimate reason for doing so.
