The Financial Industry Regulatory Authority (FINRA), in an acceptance, waiver, and consent action (AWC), sanctioned brokerage firm Cantella & Co., Inc. (Cantella) over allegations that from approximately January 2006, to September 2011, the firm charged customers excessive commissions on approximately 1,270 equity transactions and 99 options transactions. FINRA also found that Cantella also failed to establish, maintain, and enforce an adequate supervisory system for the review of commissions charged.
Cantella has been a member of FINRA since 1983, the firm’s principal office is located in Boston, MA, and currently employs approximately 210 registered representatives working out of the principal office and 136 branch offices.
NASD Conduct Rule 2440 provides that all brokerage firms shall buy or sell at a security at a price which is fair, taking into consideration all relevant circumstances. The NASD established a policy that a mark-up of five percent may be deemed unreasonable and this policy applies equally to commissions on agency trades, and to mark-ups or mark-downs on principal transactions. In addition to the commission percentage other factors to be considered in determining the fairness of commission charges include: (i) the type of security involved; (ii) the availability of the security; (iii) the price of the security; (iv) the size of the transaction; (v) whether disclosure of the transaction cost was made to the customer prior to the trade’s execution; (vi) pattern of mark-ups; and (vii) the nature of the member’s business.
FINRA found that Cantella relied on automatic commission schedules to charge commissions. FINRA found that with certain purchases and sales of primarily low priced securities, or penny stocks, the commissions charged by the firm were not fair and reasonable. FINRA determined that excessive commissions were charged on approximately 1,270 equity transactions, ranging up to as much as 67.57% of the principal amount of the transactions. These transactions allegedly resulted in approximately $120,000 in excessive charges.
In addition, FINRA found that the frm also charged excessive commissions on 99 options transactions ranging from over 15% to 74.99% of the principal amount of the transactions. Importantly, FINRA noted that the options were on shares issued by major U.S. corporations. That were frequently-traded, liquid securities.
Finally, FINRA alleged that the firm failed to establish, maintain and enforce an adequate supervisory system for the review of commissions charged. FINRA determined that Cantella’s procedures required monitoring commission charges to ensure that they comported with the requirements of the FINRA Rules. However, FINRA found that the firm relied exclusively on the automated commission schedule, rather than an independent supervisory review of the fairness of the commissions.
Investors who have suffered losses through excessive trading and churning may be able recover their losses through arbitration. The attorneys at Gana LLP are experienced in representing investors in cases where brokerage firms fail to supervise their representatives trading in client accounts. Our consultations are free of charge and the firm is only compensated if you recover.