Pinehurst, North Carolina Broker Mercer Hicks III Subject of FINRA Enforcement Action
On May 19, 2021, FINRA’s Office of Hearing Officers rendered a decision (the Decision) in connection with a December 2019 Complaint brought by FINRA Enforcement against Pinehurst, North Carolina stockbroker Mercer Hicks III (Hicks, CRD No. 245170). As set forth in the Decision, the disciplinary proceeding against Mr. Hicks concerned whether he violated FINRA’s suitability obligation (FINRA Rule 2111) “when he recommended high-risk, illiquid investments to five senior customers.”
Mr. Hicks is a longtime financial services professional, with nearly 50 years of experience in the securities industry. Since April 2014, he has been affiliated with Charlotte, North Carolina-headquartered broker-dealer Southeast Investments, N.C., Inc. (Southeast Investments). As set forth in the Decision, many of Hicks’ clients were retired senior citizens; in fact, Mr. Hicks would make use of “directories of residents of retirement communities in and around Southern Pines to identify potential customers and then to introduce himself…” through cold calls. As further described in the Decision, Hicks historically recommended that his clientele, including many senior customers, invest in variable annuities, mutual funds, and tax-advantaged municipal bonds.
However, according to the Decision, beginning around 2014, Mr. Hicks changed course and began focusing on and recommending “to his clients that they invest in real estate investment trusts, or REITs, and a business development corporation [or, BDC], Business Development Company of America (‘BDCA’).” These recommendations consisted of non-traded REITs and non-traded BDCs, which are investment products that typically carry high fee and commission structures, in addition to being extremely illiquid financial products that cannot be readily sold on a liquid national exchange.
In reaching its Decision that Mr. Hicks violated FINRA Rule 2111, the Office of Hearing Officers analyzed the two prongs of the Suitability Rule. It was ultimately determined that Hicks failed to fulfill his customer-specific suitability obligations to his senior customers, who were all elderly during the time frame in question (73 – 88 years) and had relatively low risk tolerance. Moreover, with respect to the second prong of the Suitability Rule, it was determined that Hicks failed to “conduct reasonable basis due diligence to assess the suitability…” of the various non-traded investment products he recommended.
Investors in non-traded financial products—especially elderly securities customers who may be retired, and likely have enhanced liquidity needs—are cautioned to carefully evaluate any investment in a non-traded REIT, BDC, or similar illiquid product such as a private placement. Further, brokerage firms like Southeast Investments have a legal obligation to perform adequate due diligence on any investment product recommended to customers. In addition, financial advisors have a duty to understand the products they are recommending to their customers and to disclose the risk components of a particular investment (or investment strategy). Ultimately, financial advisors must conduct a comprehensive suitability analysis to determine if the investment (or investment strategy) conforms to an investor’s stated investment objectives and risk profile.
If you have invested in any non-traded financial products on the recommendation of your financial advisor, and have suffered losses or are unable to exit your illiquid investment position, you may be able to recover your losses in securities arbitration before FINRA. The attorneys at Giarrusso Law Group LLC have significant experience working with investors in complex and illiquid non-conventional investments, including non-traded BDCs and REITs. Investors who wish to discuss a possible claim may contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation.