Broker Steven Shmulewitz Subject to Customer Churning Complaints

shutterstock_183549914The securities fraud lawyers of Gana LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Steven Shmulewitz (Shmulewitz).  According to BrokerCheck records Shmulewitz has been the subject of at least nine customer complaints.  The customer complaints against Shmulewitz allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, and churning (excessive trading) among other claims.

The most recent complaint was filed in May 2016 and alleged unauthorized use of margin in the customer’s account from 2011 through March 2014 causing $250,000.  Thee complaint settled for $52,800.  In May 2015, another customer alleged excessive commissions, mishandling of the account and misrepresentations leading to $21,000 in damages.  The complaint settled for $20,000.

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 Shmulewitz 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.

Shmulewitz entered the securities industry in 1994.  From 1999 until December 2014, Shmulewitz was associated with Woodstock Financial Group, Inc.  Finally, since May 2015 Shmulewitz has been associated with Craft Capital Management LLC out of the firm’s Garden City, 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.