The White Law Group reviews the regulatory history of Cabot Lodge Securities LLC.
Cabot Lodge Securities LLC, (CRD#: 159712/SEC#: 8-69009) headquartered in Schaumburg, IL, is dually registered as an investment adviser and broker-dealer. Cabot Lodge has been a FINRA member since August 2012. Headquartered in New York, Cabot Lodge employs approximately 182 registered representatives in approximately 117 branch offices.
The firm has 2 regulatory actions and 1 arbitration disclosed on its CRD or broker report.
Regulatory actions taken against a broker-dealer may include censures, fines, suspensions, and restitution, among others. They can have grave consequences for a broker-dealer’s profile and reputation. The following is a review of FINRA and the SEC’s regulatory actions involving Cabot Lodge Securities.
FINRA Sanctions Cabot Lodge Securities
April 6, 2021 – FINRA Sanctioned Cabot Lodge Securities with a hefty fine and restitution. From August 2012 to February 2016, Cabot Lodge Securities LLC participated in an initial public offering (IPO) of a non-traded real estate investment trust (REIT). During this period, the organization and offering expenses (O&O) associated with the IPO exceeded fair and reasonable limits, and Cabot Lodge allegedly failed to disclose compensation to its representatives.
These shortcomings were primarily due to the firm’s inadequate supervision of underwriting and sales related to the REIT, its main product at the time. Additionally, Cabot Lodge made an unsuitable recommendation to an elderly customer.
Nine months after the launch of the REIT, Cabot Lodge reportedly sought to become the dealer manager, and despite submitting a plan to address excessive O&O expenses, the firm allegedly neglected its duty to adopt controls and monitor these expenses.
The overall O&O expenses surpassed 15 percent of the gross offering proceeds, with the underwriting compensation portion exceeding 10 percent of the gross offering proceeds, excluding reinvested distributions. This resulted in Cabot Lodge’s participation in a public offering with O&O expenses deemed unfair and unreasonable, violating FINRA Rules 2310(b)(4) and 2010.
Failure to Supervise
Furthermore, Cabot Lodge allegedly participated in the IPO without disclosing restricted shares of the REIT’s common stock awarded to individuals related to the firm as items of underwriting compensation. This lack of disclosure violated FINRA Rules 5110(c), 2310(b)(3), and 2010. These violations were attributed to Cabot Lodge’s failure to establish an effective supervisory system, including written procedures, to ensure compliance with FINRA Rules 5110 and 2310.
Lastly, Cabot Lodge violated FINRA Rules 2111(a) and 2010 by recommending, in January 2016, that an elderly customer invest in the REIT without having a reasonable basis to believe that the recommendation was suitable based on the customer’s investment profile.
According to a Letter of Acceptance, FINRA censured Cabot Lodge and fined the firm $270,000 as well as ordered $75,010 in restitution to its customer. In addition, the firm was required to review and revise the firm’s supervisory systems and procedures.
Cabot Lodge Censured and Fined by FINRA
FINRA Arbitration Award
August 24, 2021 – In a FINRA arbitration case (No. 21-02101), customers filed a statement of claim against Cabot Lodge Securities, LLC, and a representative. The claimants alleged various causes of action, including violation of the Securities and Exchange Act, misrepresentation, violation of FINRA Rules, unsuitability, unauthorized discretionary trading, breach of fiduciary duty, breach of contract, negligence, and failure to supervise.
The claims related to alleged unsuitable investment strategies and the purchase of unsuitable securities. The claimants sought total monetary damages of $414,224. In the award, the panel found respondents jointly and severally liable and ordered them to pay compensatory damages totaling $31,000, with Cabot Lodge Securities responsible for $23,000 and the representative responsible for $4,000. Interest on the sums was awarded at the rate of prime plus 1% per annum from the claim filing date. The broker’s request for expungement was denied, and other claims for relief, including punitive damages and attorneys’ fees, were denied.
Broker Misconduct and Customer Complaints
There have been several cases of registered representatives employed by Cabot Lodge Securities who were allegedly involved in broker misconduct and fraudulent activities.
Ex-Cabot Lodge Broker has GWG Complaints
Broker David Arlein, formerly registered with Cabot Lodge Securities in Boca Raton, Florida, has a record showing 22 customer complaints, including two pending complaints related to the sales of GWG Holdings investments. One of the pending complaints, filed on July 6, 2023, alleges breach of fiduciary duty, negligence, negligent misrepresentation, breach of contract, failure to supervise, and negligence – violation of Regulation Best Interest regarding purchases of GWG L Bonds in 2020. Another complaint filed on January 12, 2023, alleges breach of fiduciary duty, negligence, negligent supervision, fraud, breach of contract, violation of Securities Exchange Act sections, and violation of the Florida Securities and Investor Protection Act regarding the purchase of GWG.
Cabot Lodge Securities Exec Suspended and Fined
On December 27, 2019, the President and CEO of Cabot Lodge Securities reportedly entered into an Acceptance, Waiver and Consent with FINRA without admitting or denying violations of NASD Rule 3010(a) and (b), FINRA Rules 3110(a) and (b), and Rule 2010 in connection with an offering of a REIT by a member firm. The broker was reportedly suspended for 90 days in a principal capacity from association with a member firm and fined $20,000.
Supervision Rules
All broker-dealers have a responsibility to adequately supervise its employees. They must ensure the necessary procedures and systems to detect misconduct. Brokerage firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.
When brokers violate securities laws, such as making unsuitable investments, the brokerage firm they are working with may be liable for investment losses through FINRA Arbitration.
National Securities Attorneys
The foregoing information, which is all publicly available, is being provided by The White Law Group.
The Financial Industry Regulatory Authority (FINRA) operates the largest dispute resolution forum in the securities industry. In fact, FINRA Dispute Resolution is the forum for almost all disputes between investors, brokerage firms and individual brokers. This is because most brokerage firms have mandatory arbitration clauses in their account agreements that require investors to file their disputes through FINRA.
With over 30 years of securities law experience, The White Law Group has the expertise to help investors who were defrauded by their financial advisors. For more information, please visit our website, www.whitesecuritieslaw.com.
If you have suffered losses investing with Cabot Lodge Securities LLC and would like to speak with a securities attorney, please call The White Law Group at 888-637-5510.
