The White Law Group reviews the regulatory history of Hilltop Securities.
Hilltop Securities (CRD#: 6220) is an independent broker-dealer based in Dallas, Texas. Hilltop Holdings, Inc. completed its acquisition of SWS Group, Inc. in 2015. First Southwest Company, LLC and Southwest Securities, Inc. subsequently merged into what is now Hilltop Securities, Inc., in 2016.
Hilltop Securities has been registered with FINRA since 1992. The firm currently has 75 disclosure events on its CRD (FINRA BrokerCheck report), including 54 regulatory actions and 21 arbitrations. The CRD is a central database maintained by the Financial Industry Regulatory Authority (FINRA) that contains registration and licensing information for individuals and firms involved in the securities industry in the United States.
FINRA, who oversees brokers and brokerage firms, may take regulatory actions against a broker-dealer including censures, fines, suspensions and restitution, among others. These regulatory actions can have serious consequences for a broker-dealer’s profile and reputation. Arbitrations refer to the process of resolving disputes between investors, clients, or other parties and the broker-dealer firm through arbitration. The following is a review of Hilltop Securities including complaints, broker misconduct and FINRA claims.
FINRA Censures and Fines Hilltop Securities
July 2020 – FINRA censured and fined Hilltop Securities $475,000 for regulatory failures. Among others, Hilltop reportedly failed to establish and implement an AML compliance program reasonably designed to detect and report suspicious trading activity in low-priced securities. During the AML Relevant Period, customers introduced to Hilltop traded at least 2.07 billion shares of low-priced securities, valued at approximately $221 million. These 2.07 billion shares were not subject to a reasonable review to detect and investigate red flags of suspicious activity for purposes of determining whether to file a suspicious activity report.
September 2019 –FINRA reportedly sanctioned Hilltop Securities with a censure and a $250,000 fine. Hilltop allegedly failed to establish procedures reasonably designed to assure that customers received the initial margin interest rate disclosures and failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA rules. According to the regulator, Hilltop’s customers did not receive the initial disclosure stating the annual rate or rates of margin interest that could be imposed.
June 2017 – Hilltop agreed to sanctions of a censure and fine for supervisory failures related to unsuitable investments. From May 2012 through March 2014, Hilltop, acting through its Regional OSJ Manager, failed to reasonably supervise a registered representative’s unsuitable investment recommendations to customers. Additionally, Hilltop also allegedly failing to establish, maintain and enforce a reasonable supervisory system to detect and prevent unsuitable short-term trading and/or switching of open-end mutual funds and unit investment trusts, and unsuitable trading in closed end funds, in customer accounts. FINRA fined Hilltop $40,000 plus restitution and its rep was suspended for 15 days and fined $5,000.
Repeated MSRB Violations – Hilltop Securities
According to a Letter of Acceptance Waiver and Consent, Hilltop Securities (formerly known as Southwest Securities) has been sanctioned several times in connection with violations of MSRB (Municipal Securities Rulemaking Board). The firm was sanctioned and fined in 2011, 2013 and again in 2016, according to FINRA.
The MSRB, or Municipal Securities Rulemaking Board, is a self-regulatory organization that establishes rules and regulations for firms and individuals involved in the municipal securities market in the United States. Municipal securities are debt securities issued by state and local governments to fund public projects and operations. Broker-dealers that engage in the trading, underwriting, or selling of municipal securities are subject to the rules set forth by the MSRB.
The SEC Settles with Firms for Mutual Fund Overcharges
September 2019 – The SEC settles charges with 17 investment advisers for disclosure failures regarding their mutual fund share class selection practices. Hilltop was one of the firms that self-reported as part of the SEC’s Share Class Selection Disclosure Initiative. These firms were censured and ordered to return the money to investors.
Customer Complaints and Broker Misconduct
All broker-dealers have a responsibility to adequately supervise its employees. They must ensure the necessary procedures and systems to detect misconduct. There have been several cases of registered representatives employed by Hilltop Securities who were allegedly involved in broker misconduct and fraudulent activities. 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.
July 2019 – FINRA reportedly barred Hilltop Securities broker Richard Cagle of Corpus Christi after allegations of unsuitable investment recommendations. FINRA was investigating allegations that Cagle made unsuitable investment recommendations and mismarked customer order tickets while associated with his former member firm, Hilltop Securities.
September 2019 – A Hilltop Securities broker in Dallas, Texas was barred after he allegedly created false account statements for a customer in connection with securing $1.872 million. The broker reportedly received $50,000 from the customer and the customer’s brother in payment for his actions. The customer’s entity defaulted on the loan, resulting in a loss to the bank of more than $3.2 million.
March 2016 – FINRA reportedly barred David Lockey after allegations of unsuitable short-term trading and other violations. Lockey while associated with Hilltop (formerly known as SWS), allegedly engaged in unsuitable short-term trading and switching in open-end mutual funds and/or unit investment trusts in four different customer accounts and engaged in unsuitable trading and switching in closed-end funds in two of the four customers’ accounts. Lockey also allegedly falsified five required SWS switch forms, making it appear that certain OMF and/or UIT securities purchased through him at his prior employer had been held in customer accounts longer than they actually had been, in violation of FINRA Rules.
FINRA’s Supervision Rules
All broker-dealers have a responsibility to adequately supervise their advisors. They must ensure they have procedures and systems in place to detect broker 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.
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 mainly because the vast majority of brokerage firms have mandatory arbitration clauses in their account agreements that require investors to file their disputes through FINRA.
The White Law Group represents investors in FINRA claims against their broker dealers. If you have suffered losses due to broker negligence or broker fraud, we can help. Our firm can evaluate the strength of your case, draft a well-structured statement of claim that accurately presents your allegations of fraud and desired damages, and provide representation during the arbitration hearing by presenting evidence and making compelling arguments on your behalf. Additionally, an attorney can engage in negotiation efforts for a potential settlement before the arbitration process begins. Opting for our securities fraud attorneys will ensure that your rights are safeguarded throughout the arbitration process, maximizing your likelihood of achieving a favorable resolution.
If you have suffered losses with Hilltop Securities, the securities attorneys at the White Law Group may be able to help you. For a free consultation, please call the offices at 888-637-5510.
The foregoing information, which is all publicly available, is being provided by The White Law Group. The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.
For more information on The White Law Group, visit whitesecuritieslaw.com.
Tags: broker-dealer review, Hilltop Securities Last modified: August 29, 2023