Alabama Financial Advisor, Kevin McCallum, Formerly of LPL Financial, Suspended for One Year for Making Unsuitable Investment Recommendations

The Financial Industry Regulatory Authority (“FINRA”) has suspended financial advisor Kevin McCallum from the securities industry for one year. Mr. McCallum consented to the suspension after FINRA alleged that from May 2017 through June 2019, while associated with LPL Financial LLC in Birmingham, Alabama, he made unsuitable recommendations to 12 customers, resulting in their overconcentration in a high-risk, publicly-traded business development company (BDC), believed to be Medley Capital Corporation.

Additionally, FINRA alleged that during the same period, Mr. McCallum sent emails to customers about the BDC that contained unwarranted and exaggerated claims, opinions, and forecasts, did not provide fair and balanced treatment of the risks and benefits of the investment, and contained promissory statements in violation of FINRA rules.

In addition to the suspension, Mr. McCallum was ordered to pay a $25,000 fine, disgorge $14,231 of commissions, and pay over $1.2 million in restitution to customers. However, it is unclear whether he will be able to satisfy the restation order and repay customers.

Customers of Mr. McCallum, including customers that have been notified that they may be receiving restitution, should consult with a securities arbitration law firm. If you or a loved one were a customer of Kevin McCallum, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation.

Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as LPL Financial LLC.

FINRA Letter of Acceptance, Waiver, and Consent No. 2019062569501

FINRA and Mr. McCallum entered into a Letter of Acceptance, Waiver, and Consent No. 2019062569501 on June 17, 2021, after FINRA alleged that between May 2017, and June 2019, while associated with LPL Financial, Mr. McCallum made unsuitable recommendations to 12 customers, resulting in their overconcentration in a high-risk, publicly-traded business development company (BDC). As a result, Mr. McCallum violated FINRA Rules 2111 and 2010. Specifically, FINRA alleged:

From May 2017 through June 2019, Mr. McCallum recommended concentrated investments to 12 customers in a high-risk and highly speculative publicly traded BDC that exhibited signs of financial distress, even though his customers had low or moderate risk tolerances and investment objectives and lacked any prior experience investing in BDCs.
BDCs are a type of closed-end investment fund. BDCs typically invest in debt and equity of small and medium-sized companies that do not have ready access to public capital markets or other forms of conventional financing. The companies may be in their early stages of development or may be distressed companies that are not able to obtain bank loans or raise money from other investors. BDCs are required to distribute 90% of their ordinary taxable income as dividends to shareholders in return for favorable tax treatment.
The BDC that Mr. McCallum recommended held first and second lien secured loans, unsecured loans, and equity in small and medium-sized companies in a variety of industries, including construction, banking, telecommunications, pharmaceutical, and oil and gas companies.
The risk of loss for investments in this BDC was magnified because it borrowed money.
Additionally, the illiquidity of the BDC’s investments presented the risk that it would be difficult for the BDC to sell such investments if required, causing it to realize significantly less than the value at which the BDC recorded the investments.
Further, the BDC was exposed to interest rate risk that could affect its investment returns.
From May 2017 through June 2019, the BDC’s net asset value (NAV) declined steadily as a result of write-downs to its loan portfolio. Likewise, the BDC’s share price and the percentage of NAV at which it traded declined throughout the period.
During the period between May 2017 and June 2019, Mr. McCallum’s recommendations resulted in the 12 customers concentrating as much as approximately 17% to over 60% of their liquid net worth in the BDC.
Four of the customers were over the age of 60, and seven of the customers invested retirement funds in the BDC.
McCallum’s recommendations generated commissions to LPL totaling $37,492.78, $14,231.61 of which was paid to Mr. McCallum.
After June 2019, the BDC’s stock price continued to decline.
In November 2019, Mr. McCallum’s customers began to file arbitration claims against LPL concerning McCallum’s recommendations of the BDC, which precipitated FINRA’s investigation.
One customer who realized losses from the sale of her positions obtained payment from LPL in connection with resolving her arbitration claims.
Four other customers also sold their positions and realized losses totaling $1,222,092.29.
By virtue of the foregoing, McCallum violated FINRA Rules 2111 and 2010.

Between October 2015 and June 2019, Mr. McCallum sent seventeen emails about the BDC to 19 customers, including eight of the customers to whom he made the unsuitable recommendations that violated the content standards of FINRA Rule 2210.
All of the emails were unbalanced, in violation of FINRA Rule 2210(d)(1)(A), and 11 of the emails failed to provide a sound basis for evaluating the facts, also in violation of FINRA Rule 2210(d)(1)(A).
Thirteen of the emails contained unwarranted and promissory statements in violation of FINRA Rule 2210(d)(1)(B).
Finally, in 15 of the emails, Mr. McCallum provided impermissible projections and/or exaggerated or unwarranted claims, opinions, or forecasts in violation of FINRA Rule 2210(d)(1)(F).
For example, in a March 2018 email to a customer, Mr. McCallum discussed the customer’s account performance, including the purported benefits of continuing to hold a position in the BDC, but failed to explain the associated risks, in violation of FINRA Rule 2210(d)(1)(A).
McCallum also made statements that were promissory and unwarranted in violation of FINRA Rule 2210(d)(1)(B), by stating that the stock price of the BDC would increase to 80% to 90% of the NAV, stating that he did not anticipate further downside in the customer’s portfolio, stating that he was confident that the portfolio would rise back to previous levels and higher, and predicting that the Federal Reserve would raise interest rates three times in the year, which would benefit the BDC.
Finally, McCallum also included an impermissible projection of the anticipated 12-month dividend cash flow from the BDC, in violation of FINRA Rule 2210(d)(1)(F).

Financial Advisor Kevin Marshall McCallum (CRD No. 2222586)

Kevin McCallum has 26 years of experience in the securities industry and has been associated with the following firms in Birmingham, AL:

LPL Financial LLC, from May 2012 to July 2019.
NBC Securities, Inc., from October 2009 to May 2012.
Colonial Brokerage, Inc., from April 2007 to November 2009.
Amsouth Investment Services, Inc., from May 1993 to March 2007.

Mr. McCallum, who is currently not registered with any broker-dealer, may also have been affiliated with Glacier Point Advisors, LLC.

According to his public disclosure report with FINRA, Mr. McCallum has been the subject of at least five customer disputes:

Customer Dispute (February 2021): A customer filed a complaint alleging that between August 2019 and October 2019, Mr. McCallum unsuitable investment recommendations and concentrated the customer’s account in Medley Capital Corporation. The dispute is pending.
Customer Dispute (December 2020): A customer filed a securities arbitration complaint alleging $4.8 million in damages. The complaint alleged that between October 2017 through December 2018, Mr. McCallum made discretionary investments and concentrated the customers’ accounts in a non-diversified, closed-end management company that was not consistent with their investment objectives. The dispute is pending.
Customer Dispute (October 2020): A customer filed a securities arbitration complaint alleging that between February 2018 and December 2018, Mr. McCallum made unsuitable investment recommendations and concentrated the customer’s accounts in Medley Capital Corporation, a closed-end business development corporation. The dispute is pending.
Customer Dispute (November 2019): A customer filed a securities arbitration complaint alleging that between 2011 and 2019, Mr. McCallum made unauthorized and unsuitable purchases of thinly traded shares of Medley Capital Corporation, resulting in more than 50% concentration in the customer’s account. The dispute was settled by LPL Financial for $70,000.
Customer Dispute (April 2019): A customer filed a securities arbitration complaint alleging that beginning in 2012, Mr. McCallum engaged in fraudulent transactions in unsuitable and risky investments, including the unauthorized use of margin. LPL Financial paid the customer $500,000 to settle the dispute.

LPL Financial, LLC – A Duty to Supervise

Financial institutions like LPL Financial, LLC must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as suitable investment recommendations, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.

How to Recover Financial Losses or Obtain a Free Consultation

If you have suffered investment losses with Kevin McCallum or LPL Financial or suspect other inappropriate activity occurred in your investment or retirement account, contact securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (855) 430-4010 for a free and confidential review of your legal rights.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.