The five brokers named in the complaint are Douglas Leone (Leone), Andre LaBarbera (LaBarbera), David Levy (Levy), Antonio Costanzo (Costanzo), and Donald Bartelt (Bartelt). FINRA alleged that the misconduct by the brokers was so extreme and egregious in nature that it should have quickly drawn scrutiny and been stopped. FINRA alleged that the brokers’ trading caused numerous “red flags” of misconduct including: (i) cost-to-equity ratios often over 100%; (ii) turnover rates often over 100; (iii) extraordinary amounts of in-and-out trading; (iv) customer accounts were highly margined and often concentrated in one security; (v) large numbers of transactions where the total commission/markup per trade exceeded 3% or 4%; (vi) there was a deceptive mix of riskless principal and agency trading in numerous accounts with higher cost trades generally exceeding $1,000 per trade were executed on a riskless principal basis whereas lower cost trades, typically involving sales of the same securities, were executed on an agency basis; (vii) inverse and/or leveraged Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) remained in accounts for multiple trading sessions; (viii) solicited trades were inaccurately characterized as unsolicited; and (ix) nearly all of the customer accounts exhibited large losses.
FINRA also alleged that after FINRA Enforcement issued Wells Notices, Levy and Costanzo attempted to dissuade some of their customers from cooperating with FINRA’s investigation. In one instance, Costanzo offered to compensate a customer for his losses but conditioned his offer on the customer’s signing a letter stating that he would not testify at a hearing. In another instance, FINRA found that Levy traveled to Logan, Iowa, to tell a customer that he would not receive any restitution if the broker wound up barred but promised the customer that he would assist in the preparation of a claim against Newport Coast if the customer signed a letter informing FINRA that the customer would not participate in a disciplinary hearing.
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