Summary Revocation Order

TRENTON – Attorney General Matthew J. Platkin and the Division of Consumer Affairs (“Division”) announced today that the Bureau of Securities (“Bureau”) revoked the registrations of a New Jersey broker-dealer agent/investment adviser representative for recommending and selling unsuitable, high-risk investments to elderly clients that were not in their best interest, benefitted him financially, and resulted in financial losses for them.

Carlos Leston, a/k/a Jose Carlos Leston, a/k/a Jose C. Leston, of Maywood, New Jersey, offered and sold two elderly clients a total $3.65 million in securities in a New York lending company (“lending company”), without disclosing that the CEO of the corporation was a friend of his who had been barred from the securities industry, or that Leston had a referral arrangement with the lending company and was compensated more than $1.5 million by the company.

On Leston’s recommendation, the elderly clients liquidated existing insurance annuities they relied on for steady incomes and used the proceeds to purchase the investments, which were neither suitable nor in their best interest. As a result of the full or partial surrenders of their annuity contracts, the clients incurred losses, taxes, and surrender charges that exceeded any potential benefit of purchasing the lending company securities.

“Protecting New Jersey investors from financial exploitation is a responsibility my office takes very seriously, especially when it comes to seniors and other vulnerable individuals,” said Attorney General Platkin. “The action announced today makes it clear that we have no tolerance for unscrupulous agents who unlawfully enrich themselves at the expense of the elderly clients who trust them with a lifetime of savings.”

Leston sold the lending company securities in unauthorized private transactions while registered as an agent/investment adviser representative for a Massachusetts-based broker-dealer. The transactions violated numerous policies and procedures in place at the broker-dealer, including those mandating that agents comply with Regulation Best Interest, a federal rule that requires broker-dealers to act in the best interest of their retail customers when making recommendations about securities transactions or investment strategies.

“Instead of putting the financial interests of his clients ahead of his own, as he was required to do, Carlos Leston steered them toward risky, unsuitable investments that benefitted him at the expense of his clients,” said Cari Fais, Acting Director of the Division of Consumer Affairs. “We will continue to vigorously enforce our laws and regulations to protect investors from the kind of egregious financial abuse evidenced in this case.”

In revoking Leston’s registrations, the Bureau found that he engaged in dishonest or unethical business practices in the securities business by:

·    Violating the Bureau’s rules by failing to abide by the U.S. Securities and Exchange Commission Regulation Best Interest and by recommending his elderly clients surrender existing annuity contracts to purchase the lending company securities, transactions in which they incurred costs and Leston benefitted; and

·    Violating his employer broker-dealer’s policies and procedures in conduct that included:

o  engaging in outside business activities that were prohibited, not disclosed, and not approved;

o  being named and acting as a power of attorney on behalf of a client, acts that were prohibited, not disclosed, and not approved;

o  establishing a joint checking account with a client, an act that was prohibited; and

o  entering into a referral arrangement with the lending company that was neither approved nor disclosed to the broker-dealer or to the elderly clients, then advising the clients to purchase the company’s securities and receiving undisclosed compensation from the company.

Additionally, the Bureau found that Leston, who holds an insurance producer license with the New Jersey Department of Banking and Insurance, engaged in dishonest or unethical business practices in the insurance business by recommending that the elderly clients surrender and replace annuity contracts, which incurred costs that exceeded any benefit.

“Investors expect – and the law requires – that financial professionals conduct business in compliance with the policies and procedures in place to promote transparency in securities transactions, prevent conflicts of interest, and ensure professionals act in their clients’ best interest,” said Elizabeth M. Harris, Chief of the Bureau of Securities. “When professionals violate Regulation Best Interest and other important investor protections, we will hold them accountable.”

The Bureau’s action was handled by Deputy Bureau Chief Amy Kopleton, Supervising Investigators Rachel Glasgow and Irwin Slotnick, and Investigator Gillian Spellman of the Bureau of Securities within the Division of Consumer Affairs.