(FINRA Case #2016049789601)
Donald P. Southwick (CRD #4425538, Wixom, Michigan) – An AWC (Accept, Waiver Consent) was issued in which Southwick was suspended from association with any FINRA member in all capacities for six months. In light of Southwick’s financial status, no monetary sanction has been imposed.
Without admitting or denying the findings, Southwick consented to the sanction and to the entry of findings that he failed to perform a reasonable basis suitability analysis prior to recommending investments in two private offerings, a bond offering and a bridge loan, to his customers.
The findings stated that Southwick did not have an understanding of the potential risks and rewards associated with the offering, the financial condition of his member firm’s parent at the time, or the illiquid nature of the investments. Southwick relied entirely on information provided in a script by senior officers of the parent, and he did not conduct his own analysis of the bond offering or bridge loan. Southwick accepted representations of others at face value without undertaking reasonable, independent steps to verify those representations, and he failed to obtain adequate information regarding the parent’s financial condition.
While Southwick’s customers who invested in the bond offering still hold their investments, interest payments ceased after May 2015. Similarly, when the bridge loan principal and interest payments were due to his customers in 2015, the parent defaulted on repayment.
The findings also stated that Southwick recommended unsuitable transactions in the securities accounts of two customers by recommending purchases that resulted in an overconcentration of illiquid private offerings, inconsistent with their investment objectives and risk tolerance. Southwick recommended they each invest a significant portion of their stated liquid net worth in the bond offering and bridge loan notes, both of which were illiquid investments. The recommendation to invest in the illiquid, risky private bond offering was inconsistent with one customer’s investment objectives and risk tolerance, and the concentration in this investment did not meet the customer’s investment objectives. Southwick recommended the other customer invest more than half of her stated net worth in the bond offering and bridge loan. The bond offering and bridge loan carried a significant amount of risk, as evidenced by the high rate of interest and lack of liquidity, and the concentration in this investment did not meet the customer’s investment objectives.
The suspension is in effect from October 16, 2017, through April 15, 2018.
Southwick most recent employment was with CSSC Brokerage Service, Inc. from 2012 to 2015. FINRA does not show record of current employment with any registered brokerage firm.
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