Richard H. Byerly first became registered in the securities industry in 1978 and during the relevant time of September 19, 2003 through November 18, 2009, was a General Securities Representative with RBC Capital Markets Corporation ("RBC").
In October 2010, the Financial Industry Regulatory Authority ("FINRA") filed a Complaint that alleged, in part, that starting around February 2006 through about November 2008, Byerly engaged in unsuitable, excessive trading in the accounts of two elderly customers, both of whom were retirees with conservative investment objectives living on fixed incomes. The Complaint further alleged that Byerly exercised discretion in the two elderly customers' accounts, as well as in the accounts of 12 other customers, without written authorization from the customers or written acceptance of the accounts as discretionary from his member firm. FINRA Department Of Enforcement, Complainant, V. Richard H. Byerly, Respondent (Complaint/2009017492201, October 26, 2010).
The Complaint alleged that in 2000, Customer HS had opened both a personal account and an IRA with Byerly (this was at another brokerage firm before Byerly joined RBC). Customer HS is characterized as a conservative investor with minimal investment experience whose primary income came from his social security payments and investment income. Pointedly, Customer HS needed to be able to withdraw about $3,000 a month to cover living expenses.
When he opened his accounts with Byerly, Customer HS invested virtually all of his retirement money and liquid net worth, which was about $637,000 - those funds were derived from HS' pension and the settlement of a wrongful death claim involving his wife.
During September 2003, the Complaint alleged that Customer HS (then, 71 years old and retired from his position as a facilities manager for a check printing company) transferred his personal and IRA accounts to RBC, which Byerly had joined. The New Account forms listed Customer HS' investment objectives as "Growth (Focus is on generating long-term capital growth)."
In servicing Customer HS' two accounts at RBC, Byerly exercised discretion without written authority and rarely consulted with the customer prior to trading - which the Complaint asserts resulted in Byerly controlling the accounts' trading.
Starting around July 2006 until about November 2008, Byerly allegedly recommended to Customer HS and effected or caused to be effected about 127 transactions in the regular account, which had an average monthly equity of about $307,000. The Complaint characterizes that the activity as excessive, resulting in an annualized turnover ratio of approximately 1.55 and an annualized 6.7% cost-to-equity ratio, which required this account to earn 6.7% merely to break even.
In Customer HS' IRA account, the Complaint alleges that during the same period, there were 83 transactions with an average monthly equity of $116,000. In this account the allegedly excessive trading resulted in an annualized turnover ratio of approximately 2.18 and an annualized 10.9% cost-to-equity ratio.
The Complaint alleged that Customer HS' two accounts sustained about $200,000 in losses although Byerley earned about $31,000 in net commissions (versus gross commissions charged of about $78,000)
By recommending excessive and unsuitable transactions in both of HS' accounts, Byerly was charged with violating NASD Conduct Rules 2310 and 2110, and IM-2310-2. By exercising discretion without written authority in these accounts, Byerly was charged with violating NASD Conduct Rules 2510 and 2110.
The Complaint alleged a similar pattern in the account of Customer JW, a 78-year old widow living on a fixed income of approximately $1,800 per month. In February 2006, Customer JW opened an IRA account with Byerly at RBC, using about $373,000 she had obtained from an inheritance (which represented JW's primary retirement assets). Customer JW is characterized as a conservative investor with no prior investment experience and whose age and retirement financial needs motivated her to avoid significant risk. Her RBC New Account form stated her investment objectives as "Growth (Focus is on generating long-term capital growth)."
The Complaint alleged that Byerly exercised discretion in Customer JW's account and rarely consulted with her before trading, thus resulting in the stockbroker's control over the account's trading. Starting in February 2006 through about December 2007, Byerly allegedly recommended and effected (or caused to be) some165 transactions in Customer JW's IRA, whose average monthly equity was about $354,000. The Complaint asserts that these transactions were unsuitable in view of their size and frequency, the transaction costs incurred, and in light of Customer JW's financial situation, investment objectives and needs.
The Complaint computed the excessive transactions as resulting in an annualized turnover ratio of approximately 2.1 and an annualized 9.41% cost-to-equity ratio. However, during the relevant period, the Customer JW's IRA account lost about $190,000, although Byerly earned about $35,000 in net commissions versus $85,000 in gross commissions charged.
By recommending excessive and unsuitable transactions in Customer JW's account, Byerly was charged with violating NASD Conduct Rules 2310 and 2110 and IM-2310-2. By exercising discretion without written authority in this account, Byerly was charged with violating NASD Conduct Rules 2510 and 2110.
Starting around January 2006 through about December 2007, the Complaint alleged that Byerly exercised discretion in effecting the majority of the securities transactions in the accounts of 12 additional RBC customers. Byerly was charged with failing to obtain prior written authorization from each of these customers to exercise discretion in their accounts; and also failing to obtain written acceptance of the accounts as discretionary by RBC, which did not permit discretionary accounts.
By exercising discretion without written authority in these accounts, Byerly was charged with violating NASD Conduct Rules 2510 and 2110.
Additionally, the Complaint alleged that from 2006 through 2008, Byerly falsedly submitted annual compliance questionnarires to RBC in which he denied having exercised discretion in any customer account. For making such misrepresentations to RBC, Byerly was charged with having violated NASD Conduct Rule 2110.
Finally, around March 20, 2009, Customer HS submitted a complaint to FINRA accusing Byerly of mishandling his account through excessive trading and commission charges. In responding to FINRA's investigation, Byerly stated that:
We [he and HS] spoke almost weekly, most certainly prior to any transactions and we had face to face meetings on several occasions each year . . . I spoke with [HS] regularly and discussed any portfolio changes and investment recommendations; initiating trades only after receiving his approval and instruction to do so.
The Complaint deemed Byerly's response about his communications with Customer HS to be false based upon a determination that Byerly rarely spoke with this customer prior to effecting transactions and that the stockbroker actually exercised discretion in effecting the majority of trades at issue.
By providing FINRA staff with false information, Byerly was charged with violating FINRA Rules 8210 and 2010.
In response to the charges in the Complaint but without admitting or denying the allegations, Byerly submitted an Offer of Settlement that the self-regulatory organization accepted. FINRA Department Of Enforcement, Complainant, V. Richard H. Byerly, Respondent (Offer of Settlement/2009017492201, July 21, 2011).
Accordingly, FINRA ordered that Byerly be suspended for two years from association with any FINRA member in any capacity, and he disgorge a portion of his ill-gotten gains and pay $30,000 in partial restitution to customers HS and JW. The Offer of Settlement noted that Byerly submitted a sworn financial statement and demonstrated an inability to pay full restitution immediately upon acceptance of the Offer.
In light of Byerly's financial status, no fine was imposed; however, restitution of $30,000 to was made payable subject to the following:
No later than 15 days after the due-date for each scheduled payment, Byerly must submit to FINRA satisfactory proof of payment of restitution or of reasonable and documented efforts undertaken to effect restitution. If Byerly cannot locate either of the customers after reasonable and documented efforts within 15 days from the due date (or such additional period as agreed to), he shall forward any undistributed restitution and interest to the appropriate escheat, unclaimed property or abandoned property fund for the state in which the customer is last known to have resided- and, thereafter, within 14 days of such forwarded payments, Byerly must provide to FINRA satisfactory proof of such action.