By NEAL WAGNER / Managing Editor

The Alabama Securities Commission and the Financial Industry Regulatory Authority have permanently barred Westover Mayor Mark McLaughlin from selling securities to the public after McLaughlin faced allegations he engaged in unethical trading practices between 2010 and 2012.

McLaughlin served as a registered securities broker with multiple firms from September 1989 through October 2012, including a tenure as a broker with Securities America, Inc. from October 2000 through October 2012. He has been the mayor of Westover since 2004.

A stipulation of McLaughlin’s agreement with FINRA prevents him from making any public statements directly addressing the information and allegations detailed in the document. Citing the stipulation, McLaughlin declined to comment specifically on the allegations laid out in the FINRA document. He did not confirm or deny the allegations laid out in the Alabama Securities Commission order.

Alabama Securities Commission

On Nov. 8, 2013, the Alabama Securities Commission ordered McLaughlin to be “barred from further offers or sales of any security into, within or from the state of Alabama.”

The ASC is a state governmental agency regulating the securities industry in Alabama. All securities brokers in the state are required to be registered with the ASC.

The ASC order came after the organization “received documents and information that alleged McLaughlin may have committed several violations of the Alabama Securities Act.”

According to the ASC order, the Securities America Compliance Department conducted a risk assessment of McLaughlin’s top 10 revenue-generating clients covering the period between Aug. 1, 2011, to Aug. 31, 2012.

The ASC alleged McLaughlin executed a total of 1,009 trades in his 10 most active accounts during the time period, generating a total of $99,209.75 in commissions.

“(Securities America) documents obtained by the Commission indicated numerous client accounts for McLaughlin experienced turnover rates from 553 percent to 1,053 percent over a 12-month period,” read the order. “One Alabama client account paid $1,980.63 in commissions in February 2012 and had a turnover measure of 831 percent for the trailing 12 months.”

The turnover rates represent the number of times the value of the accounts were turned over during the two-year span.

The ASC also conducted a churning analysis of all of McLaughlin’s accounts. Churning occurs when a broker acts “in its own interest and against the interest of its customer, which effects or induces transactions in the customer’s account which are excessive in size and frequency in the light of the nature of the account.”

“The frequency of the transactions conducted in the (Securities America) client accounts by McLaughlin from January 1, 2011, to September 30, 2012, was against the interest of the clients, and is evidence of churning,” read the ASC order. “McLaughlin’s conduct constitutes dishonest or unethical practices in violation of the (Alabama Securities) Act.”

Financial Industry Regulatory Authority

In November 2014, FINRA enacted a permanent bar on McLaughlin after McLaughlin voluntarily accepted the sanctions “without admitting or denying” the allegations against him, according to FINRA documentation.

FINRA’s letter of acceptance, waiver and consent, which laid out the sanctions against and was signed by McLaughlin in 2014, reported FINRA received information from Securities America claiming McLaughlin had engaged in excessive trading and had recommended unsuitable short-term trading of A-share mutual funds.

“Excessive trading occurs when a registered representative has control over trading in an account, and the level of activity in that account is inconsistent with the customer’s objectives and financial situation,” read the FINRA letter. “By virtue of this conduct, McLaughlin engaged in excessive trading … when he excessively traded the above customers’ accounts.”

Securities America also alleged McLaughlin had engaged in unauthorized trading in three customers’ accounts, and had exercised discretion in another customer’s account without having the customer’s written authorization. FINRA did not release the customers’ identities.

FINRA is a private corporation and is a self-regulatory organization overseeing brokerage firms, such as Securities America.

According to the FINRA letter, “On October 29, 2012, (Securities America) terminated McLaughlin’s registrations for violating firm policies and procedures relating to excessive trading.

McLaughlin had stopped working in the finance field in August 2012, and was in the process of selling his business, which included assets and customer relationships, to a broker with another financial firm.

“Although McLaughlin currently is not associated with a FINRA member firm, FINRA retains jurisdiction over him,” read the FINRA letter.

Securities America spokeswoman Natalie Hadley declined to comment on the company’s involvement with McLaughlin.

On January 15, 2013, Securities America filed an amendment … reporting a written complaint against McLaughlin filed by customer “DM.”

The customer complaint “alleged that losses in the customer’s account were caused by excessive trading,” read the FINRA letter.

From October 2010 through October 2012, FINRA claimed McLaughlin engaged in excessive trading in four customers’ accounts:

-For customer “LC,” McLaughlin allegedly caused the execution of 286 purchase and sale transactions resulting in a turnover rate of 47.63 and a cost-to-equity ratio of 228.03 percent.

-For customer “LR,” McLaughlin allegedly caused the execution of 459 purchase and sale transactions resulting in a turnover rate of 15.86 and a cost-to-equity ratio of 69.54 percent.

-For customer “FR,” McLaughlin allegedly caused the execution of 140 purchase and sale transactions resulting in a turnover rate of 6.79 and a cost-to-equity ratio of 32.74 percent.

-For customer “TW,” McLaughlin allegedly caused the execution of 111 purchase and sale transactions resulting in a turnover rate of 8.75 and a cost-to-equity ratio of 44.50 percent.

A cost-to-equity ratio measures the percentage of return a customer would have to generate in their net equity to pay commissions and other account expenses over a given period of time.

The FINRA letter also accused McLaughlin of recommending “unsuitable short-term trading of A-share mutual funds” for the four customers between October 2010 and October 2012.

“A-Share mutual funds are intended to be long-term investments due to the 5-percent upfront fee paid by the customer,” read the FINRA document.

The document claimed McLaughlin recommended the four customers purchase a total of $167,500 worth of A-share mutual funds between 2010 and 2012, and claimed he recommended the customers sell them after an average of 167 days.

“The unsuitable purchases and sales recommended by McLaughlin resulted in the four customers collectively paying unnecessary mutual fund fees – $8,375 in upfront fees associated with A-Shares – and McLaughlin receiving a benefit from the short-term trading by earning over $8,000 in commissions from the A-share purchases,” read the FINRA letter. “As front-loaded products, the A-shares were intended to be held long-term, which McLaughlin’s recommendations ignored. McLaughlin had no reasonable basis to believe that the short-term trading of A-share mutual funds was suitable for his customers.”

The FINRA letter also claimed McLaughlin exercised discretion in the four customers’ accounts without prior written authorization to do so. FINRA claimed McLaughlin placed trades “in these accounts without having discussions with the customers about the trades prior to the transactions and without obtaining the customers’ authorization to place these trades before he placed them.”

FINRA claimed McLaughlin traded three customers’ accounts without authorization from the customers. The fourth customer “verbally gave McLaughlin discretionary authority, but she did not provide McLaughlin any written authorization to exercise discretion in her account.

“In addition, her account had not been approved and accepted as a discretionary account by (Securities America),” the letter read.

When contacted about the issue, McLaughlin did not admit or deny the allegations, and instead provided the following statement, which is printed in its entirety:

“While I am grateful for the opportunity to answer your questions, it is awkward to address questions from the Shelby County Reporter, a direct competitor of my marketing and advertising company, and to answer them just before the August 23rd election regarding my business. I am proud I have been a businessman since 1989 and that I have had different business interests during that time and over 1,000 clients and or customers and have never been sued by a client or customer. I have started and sold businesses and I have worked out of the same location and office since 2000 and have extensive experience in handling multiple complex business issues. I am thankful for the words of encouragement and endorsements to me to lead our city to continue the success. The successes include securing a fire department ISO rating of 3/3X (saving the residents thousands of dollars in homeowners premiums over time); growing city resources by over 800 percent and boundaries by 20 square miles; started a 24/7 City of Westover Fire and Rescue and secured new fire hydrants; built a city financial reserve with no city property tax; recruited Eddleman Properties, Dollar General, Villages of Westover, Willow Oaks and other development projects; established a City Park, playgrounds, play fields, storm shelter, weather sirens, library, building inspections, public safety patrol, parade, Santa ride; negotiated with the bond companies to secure money to repair our neighborhood streets and new traffic signal, bridge and street re-pavings. In addition to being a business owner for twenty-seven years I am a certified municipal official – Alabama League of Municipalities; certified Alabama planning and zoning official- University of North Alabama; Leadership Shelby County graduate – Class of 2007; Fire officer I – Alabama Fire College and Personnel Standards Commission; Fire instructor I – Alabama Fire College and Personnel Standards Commission; Planning Commission chair 2001-2004 – City of Westover; Planning Commission Member since 2001 – City of Westover; Mayor since 2004 – City of Westover starting with a $77,000 per year budget; Chelsea High School football staff since 2002; Fire Explorer Post advisor Post 291 – Boy Scouts of America; Westover roots dating back to before the formation of the state, five generations; and have been married for 25 years with two children.”