NEWARK – Attorney General Gurbir S. Grewal and the Division of Consumer Affairs announced today that the New Jersey Bureau of Securities revoked the registration of a Rumson financial advisor and assessed him $750,000 in civil penalties for violating the New Jersey securities laws by making investment recommendations to clients that were inconsistent with their needs and risk tolerance.
Gabriel Block recommended securities to his clients as part of an unsuitable, high-cost trading strategy that generated at least $1.6 million in commissions and fees for himself and his associated broker-dealers at the expense of his clients.
In a Summary Penalty and Revocation Order issued by the Bureau today, the Bureau Chief found that from at least December 2008 to March 2015, Block engaged in dishonest or unethical practices in the securities business by inducing trading in his clients’ accounts that was designed to maximize commissions for himself, without regard to its suitability for his customers.
Block made money by recommending trading in commission-based accounts, in which the more the customers traded, the more commissions and other fees Block and the firms would make, regardless of whether the trading was in the customer’s best interest.
Because Block was generally paid 50 percent or more of the commissions and other fees he generated, he personally received at least $800,000 of the $1.6 million generated by the unsuitable and excessive trades he made at the expense of clients.
“Financial advisors should be advancing their clients’ best interests, not their own,” said Attorney General Grewal. “That’s why we recently proposed new regulations to address this problem. But in the meantime, we will continue our aggressive enforcement of existing rules to ensure that New Jersey investors are protected to the fullest extent of the law.”
Block’s investment strategy preyed on inexperienced, unsophisticated investors that included:
“Block callously steered his clients towards riskier trades that put more money in his own pocket, instead of recommending securities or an investment strategy that was suitable for investors. This was a pattern of practice that was not only illegal, but made all the more offensive because he preyed on the vulnerable,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “The Bureau’s action today sends a clear message that New Jersey will vigorously enforce the law to protect investors from being taken advantage of.”
Under rules and regulations issued pursuant to the New Jersey Securities Law and the Financial Industry Regulatory Authority (“FINRA”) requirements, financial advisors are required to have a reasonable basis when recommending to a customer a security or an investment strategy.
The Bureau Chief found that, despite these rules and regulations, Block recommended securities to Investors A, B, and C as part of an active and excessive trading strategy without having a reasonable basis for believing that this strategy, and many of the accompanying securities, were suitable.
Block’s strategy – which emphasized aggressive growth and short-term trading over conservative income and principal preservation—was unsuitable for his clients who relied on their portfolio returns to meet living expenses and/or medical needs, and were unable to replace capital that was lost in the market or consumed by excessive transaction costs, the Bureau Chief found.
“The financial exploitation of any client is a shameful breach of trust, but Block’s conduct is even more repugnant because he took advantage of unsophisticated, financially vulnerable clients who had entrusted him with money they needed to live on,” said Christopher W. Gerold, Chief of the Bureau of Securities. “Violators like him must receive the strongest possible penalties, not only to hold them accountable for their misdeeds but also to serve as a deterrent to others in the industry.”
Assistant Attorney General Brian F. McDonough and Deputy Attorney General Nicholas A. Dolinsky, of the Division of Law’s Affirmative Civil Enforcement Practice Group, represented the Bureau in this matter. Deputy Bureau Chief Amy Kopleton, Director of Examinations Stephen Bouchard, and Investigator Rosemary Gonzalez, investigated the matter for the Bureau.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors "Check Before You Invest." Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contracting the Bureau toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at 973-504-3600, or by visiting the Bureau's website. Investors can also contact the Bureau for assistance or to raise issues or complaints about New Jersey-based financial professionals or investments.