According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Damon Vickers (Vickers) has been the subject of at least three customer complaints, one regulatory investigation, and one criminal matter. Records also show that broker Frank Black (Black) has been subject to five regulatory actions, four customer complaints, one criminal matter, and two terminations for cause. Both Vickers and Black were associated with brokerage firm Southeast Investments, N.C., Inc. (Southeast Investments) at the same time.
The recent regulatory action was initiated by the State of Washington where the Securities Division brought action (Order Number S-11-0597-14-SC01) against Damon Vickers, Frank Black, and Southeast Investments, alleging that Vickers engaged in excessive trading in his customers’ discretionary brokerage accounts. The state alleged that from 2009 through 2012, due to the excessive trading and commission-based compensation Vickers generated approximately $5.3 million dollars in commissions from trading his customer accounts. The State found that Vicker’s commissions were unreasonable and constituted a high percentage of the customer’s average portfolio value, a key metric used in determining churning. The regulator found that the commissions were unreasonable compared to what customers would have been charged had they been offered fee-based accounts.
Washington alleged that Black was Vickers designated supervisor and was subject to Black’s supervision. The state found that Black violated the Securities Act of Washington by failing to reasonably supervise Vickers by approving his commission schedule. The regulator also found that Southeast Investments failed to maintain adequate supervisory policies regarding the review of discretionary accounts for signs of excessive trading.
Churning is investment trading activity in the client’s account that serves no reasonable purpose for the investor and is transacted solely to profit the broker. The elements to establish a churning claim, which is considered a species of securities fraud, are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over plus whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably profit from the activity.
Gana LLP represents investors who have suffered investment losses due to broker wrongdoing, such as churning and unsuitable investments. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.