FINRA bars brokers for misconduct in mortgage debt

NEW YORK (Reuters) - The Financial Industry Regulatory Authority said on Thursday it barred two brokers and suspended a third for misconduct in selling complex mortgage-backed securities to retail customers, its first penalties in an industrywide probe.

FINRA said it permanently barred Brian Berkowicz and Cindy Schwartz from the securities industry, and suspended John Webberly for two years. It said all three worked for the Boca Raton, Florida, branch of the now defunct brokerage Samco Financial Services Inc.

According to the regulator, the brokers made unsuitable recommendations or made misrepresentations to clients about a particularly volatile type of collateralized mortgage obligation known as an "inverse floater." It said the recommendations led to more than $500,000 of client losses.

"Brokers and firms have an obligation to ensure that they recommend these securities only to those customers for whom they are a suitable investment -- namely sophisticated investors with a high-risk profile," said Susan Merrill, FINRA's enforcement chief, in a statement.

The brokers did not admit wrongdoing, but consented to the sanctions, FINRA said.

(Reporting by Jonathan Stempel, editing by Gerald E. McCormick)