Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) broker Peter Monson (Monson), currently associated with Van Clemens & Co. Incorporated (Van Clemens), has been subject to a regulatory investigation by FINRA. The focus of the regulatory investigation is for potential violations of NASD Conduct Rule 2510(b) – Authorization and Acceptance of Account, FINRA Rules 2111 – Suitability, and 2010 – Standards of Commercial Honor and Principles of Trade. This investigation appears to be related to a regulator action FINRA took against his firm Van Clemens concerning allegations of high frequency trading activity also referred to as churning or excessive trading.
FINRA alleged that Van Clemens, from June 1, 2015, through June 30, 2016, failed to establish and maintain a supervisory system reasonably designed to ensure that the firm reviewed transactions in customer accounts for potentially unsuitable excessive trading in order to achieve compliance with FINRA’s suitability rule. FINRA found that the firm’s procedures did not directly address quantitative suitability and, as such, did not set forth a process or identify personnel responsible for reviewing customer accounts for potentially excessive trading.
Accordingly, FINRA determined that Van Clemens did not instruct its supervisors to review account activity for potential excessive trading nor did it train its supervisors to do so. In addition, FINRA found that the firm lacked the necessary tools to even make a determination that excessive trading occurred such as reports for turnover rates or cost-to-equity ratios. FINRA found that a registered representative referred to by the initials “PM”, believed to be Monson, recommended transactions to a firm customer that resulted in the customer’s account having an annualized turnover rate above 9.0 and an annualized cost-equity ratio of 32.3%. FINRA found this activity was excessive, given the customer’s investment objectives and financial situation, and coincided with losses in the account of more than $100,000 during the 13-month period
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.
Monson entered the securities industry in 1992. Since February 2014 Monson has been registered with Van Clemens out of the firm’s Minneapolis, Minnesota office location.
At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to excessive trading and churning violations. Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.