Broker Investigation: Churning Claims Against Broker Kerry Raheb (a/k/a Patrick Raheb)

shutterstock_171721244The securities fraud lawyers of Gana LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Kerry Raheb (a/k/a Patrick Raheb) (Raheb). According to BrokerCheck records there are at least 5 customer complaints, two judgments or liens, and one criminal matter involving Raheb. The customer complaints against Raheb allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, and churning (excessive trading) among other claims. The most recent customer complaint filed in December 2015 alleged unsuitable investments resulting in losses of $199,001. The claim is still pending. In April 2014, another client filed a complaint alleging unauthorized trading claiming damages of $300,000. The broker has denied the allegations in the complaint and the claim is still pending.

In addition, Raheb has two judgements. One tax lien filed in January 2014 for $64,518 and one civil judgement for $12,024 recorded in February 2013. Substantial judgements and liens on a broker’s record can reveal a financial incentive for the broker to recommend high commission products or services. A broker’s inability to handle their personal finances has also been found to be relevant in helping investors determine if they should allow the broker to handle their finances.

As a background, when brokers engage in excessive trading, sometimes referred to as churning, the broker will typical trade in and out of securities, sometimes even the same stock, many times over a short period of time. Often times the account will completely “turnover” every month with different securities. This type of investment trading activity in the client’s account serves no reasonable purpose for the investor and is engaged in only to profit the broker through the generation of commissions created by the trades. Churning is considered a species of securities fraud. The elements of the claim 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.

The number of customer complaints against Raheb is high relative to his peers. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must publicly disclose certain types of reportable events on their CRD including but not limited to customer complaints. In addition to disclosing client disputes brokers must divulge IRS tax liens, judgments, and criminal matters. However, FINRA’s records are not always complete according to a Wall Street Journal story that checked with 26 state regulators and found that at least 38,400 brokers had regulatory or financial red flags such as a personal bankruptcy that showed up in state records but not on BrokerCheck. More disturbing is the fact that 19,000 out of those 38,400 brokers had spotless BrokerCheck records.

An examination of Raheb’s employment history reveals that Raheb moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Raheb’s 16 year career he has worked at 14 different firms. Raheb entered the securities industry in 1995. From October 2012 until July 2013, Raheb was associated with C.K. Cooper & Company, Inc. From July 2013 until July 2014, Raheb was associated with Spartan Capital Securities, LLC. Finally, from June 2014 until May 2015 Raheb was registered with Laidlaw & Company (UK) LTD. out of the firm’s Melville, New York office location.

The investment fraud attorneys at Gana LLP represent investors who have suffered securities losses due to the mishandling of their accounts. 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.