Rogue Broker at Stephens Inc. Caused Penalty, $1.9M Claim

by George Waldon  on Monday, Feb. 17, 2014 12:00 am  

Stephens Building (Photo by Mauren Kennedy)

Lost in the political fracas between the Arkansas Securities Department and Stephens Inc. is the event that started it all: a customer complaint against a former Stephens stockbroker, William Wayne LaRue.

Along the way, Stephens paid $475,000 in September to settle a $1.9 million claim by an unidentified LaRue client in an arbitration case. LaRue worked for Stephens in its Conway office from October 1998 until August 2011.

His regulatory troubles led to the ASD’s Aug. 22 consent order against his former employer and the $25,000 fine that has provided legislative grist in the conflict between Stephens and ASD Commissioner Heath Abshure.

The consent order ended an amazing 33-year run of sanction-free business in Arkansas for Stephens.

Individual Stephens employees have had brushes with state securities officials over the years, but the company itself had avoided being fined by the Arkansas Securities Department since 1980. (See Previous Consent Orders.)

The regulatory wheels that ended the streak were set in motion in early 2012.

That’s when the ASD received a complaint from an investor who claimed LaRue had made a series of unauthorized trades on her account before he left Stephens a few months earlier.

That lone complaint mushroomed into an investigation that uncovered other LaRue clients with similar experiences. Digging deeper, the agency discovered other violations.

“The unauthorized trading was occurring in margin accounts,” said Scott Freydl, staff attorney with the Arkansas Securities Department. “In looking at this, we saw there were leveraged and inverse exchange traded funds [ETFs]. That’s when the issue of suitability came up.”

According to documents filed by Stephens in its grievance against Abshure, the LaRue clients afflicted by unauthorized trading and/or unsuitable investments included Diana Kirkland, David Branscum, Ray and Donna Hambuchen, Bobby Spradlin and Doug and Andrea McConnell.

LaRue made unauthorized trades in the ultra-short-term investments designed to be held for one day that were instead held for days, weeks and even months in some of his clients’ margin accounts, according to the ASD findings.

In one instance outlined in the consent order against LaRue, he bought and sold speculative, short-term ETFs in July 2009 for a client account with an investment objective listed as “long-term growth with greater risk.”

 

 

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