NASD bans Md. broker

The Baltimore Sun

As a voice on AM radio, Brian J. Kelly dispensed investment advice, took calls from listeners and shared his views on stocks and the markets.

As a broker at several prominent Maryland investment firms, Kelly was the target of a number of client complaints, many of which were settled, and this month he was barred from the profession for life by the NASD, which regulates the industry.

A NASD panel concluded that Kelly took advantage of an "unsophisticated" investor by using his account to make more than 540 trades in little more than a year, generating tens of thousands of dollars in commissions for himself in a illegal practice known as "churning."

The day after the panel's decision July 12, Kelly canceled his radio program on WBIS 1190, whose slogan is "Your Business and Information Station." A few days after that, he left his job at his latest employer, Ferris Baker Watts Inc., where he had worked as an "investment executive" in the Annapolis office since 2004.

Kelly has denied the allegations and could not be reached. His attorney, Kevin F. Arthur, said yesterday that Kelly plans to appeal the decision. Arthur declined to comment further.

James Weitzman of Nations Radio LLC, which owns WBIS-AM, said Kelly's radio show was a paid advertisement that Kelly started in December 2004. Weitzman said that while the station may do a cursory check on a new host, they do not fully vet their professional credentials. He said the shows are identified as "sponsored programs" and that disclaimers are aired at the beginning and end of the programs.

"It's like any of these infomercials like you see on TV at night for the George Foreman grill or real estate or Ginsu knives," he said. "This gives listeners a chance to listen to this guy week after week and see how he answers questions and how he gives advice, or in the case of a stockbroker, how he reacts to changes in the market.

"As the public gains a level of comfort with the kind of advice that he's giving out, then listeners have an opportunity to call him and do business with him," Weitzman added.

Ferris Baker spokeswoman Robin Oegerle said that a number of brokers host radio shows that the firm helps to sponsor by sharing the expense. "To call it an infomercial isn't correct," she said. "It's a paid advertisement."

The case that led to Kelly's exit from the brokerage business dates to when he worked for Wachovia Securities in Baltimore five years ago.

At a hearing in April, Kelly expressed "deep regret" for anything he did that led to losses for his client. He added that his work was "somewhat careless and sloppy" during that time as his wife was dealing with a serious medical condition.

The NASD, in its decision, detailed how the "churning" incident happened.

The NASD decision said client Gerard Manowski heard Kelly on the radio and contacted the broker for a meeting in early 2001. It was unclear what station aired the show. At the time, Manowski was in his mid-50s and had retired as a mill mechanic after 27 years with Bethlehem Steel. He owned a pretzel store in a Glen Burnie mall and helped his son rehabilitate and sell homes in Baltimore.

Manowski said that Kelly bragged about making a 50 percent return for his clients, even in down markets, according to the NASD. He closed his Alex. Brown account, which had $250,000 mostly in money markets and mutual funds, and moved to First Union, a predecessor of Wachovia.

Kelly told the NASD that he made no such claim about returns and that he explained his investment philosophy and day-trading strategy to Manowski. Kelly said the new client wanted to get into day trading, the practice of rapidly buying and selling stocks, sometimes all in one day, to make a quick profit.

For his part, Manowski said that he believed day trading meant trading during "normal" hours as opposed to after markets closed, according to the NASD, formerly the National Association of Securities Dealers.

Manowski did give Kelly permission to trade in his account, according to NASD. After that, Manowski said that months would pass without any contact. When he did complain, Manowski said that Kelly told him they would bounce back and that he believed it would turn out OK.

Kelly used margin on Manowski's account, meaning he obtained loans from the brokerage with securities in Manowski's account as collateral.

From May 2001 to July 2002, purchases totaling $7.8 million were made in Manowski's account. The account lost $90,000, and he was charged about $3,400 in margin interest.

The trading took place as stocks were sliding after the technology boom went bust in 2001. Many of the trades in Manowski's account were for tech stocks, which were frequently bought and sold a few days apart. In some cases, the trades appeared to be profitable. In May 2001, shares of Ciena Corp. were bought for $87,200; six days later the same number of shares were sold for $95,000.

Other times, trades appeared to lose money fast. A block of shares in Storage Networks Inc. was bought in July 2001 for $16,200. Four days later, the same number of shares were sold for $13,400, according to NASD.

Wachovia spokesman Tony Mattera said the case came to the company's attention after Kelly had left the firm for Ferris Baker in November 2004.

Wachovia settled Manowski's complaint in arbitration for $95,000, and then NASD brought its case.

Kelly had been the subject of other customer complaints, according to records maintained by NASD. Most recently, at Ferris Baker, a customer complained about unauthorized trades and the firm settled in November 2005 for more than $15,000.

At the hearing on the Wachovia complaint, Kelly said that he was under special supervision at Ferris Baker and was prohibited from placing trades without a manager's approval. Similarly, when he first joined Wachovia he was under special supervision for a year because he mishandled an account at his previous firm, the NASD panel noted in its decision.

Kelly had worked for Alex. Brown Inc. and Merrill Lynch & Co. Inc. and been the subject of complaints stemming from his work at both places, records with NASD show. Those cases also were settled.

laura.smitherman@baltsun.com

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