Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) broker Scott Martinson (Martinson), previously associated with Arive Capital Markets, has been subject to at least 2 disclosable events. These events include one customer complaint, one regulatory event. Several of those complaints against Martinson concern allegations of high frequency trading activity also referred to as churning or excessive trading among other securities laws violations.
FINRA BrokerCheck shows a final customer complaint on December 22, 2021.
Without admitting or denying the findings, Martinson consented to the sanctions and to the entry of findings that he failed to reasonably supervise a former registered representative at his member firm who, while under Martinson\\u2019s heightened supervision, excessively and unsuitably traded in customer accounts. The findings stated that Martinson became aware of red flags that the registered representative was recommending excessive and unsuitable securities transactions but failed to reasonably investigate the red flags or take appropriate action in response to them. Although Martinson discussed the affected accounts with the registered representative, he accepted the registered representative\\u2019s explanations that the customers understood and desired an aggressive trading strategy. When Martinson spoke with the affected customers, he did not ask them whether they understood the amount of commissions they were being charged, whether they wanted aggressive trading as the representative claimed, or whether the trading in their accounts was consistent with their investment objectives. Martinson failed to take other steps to reasonably investigate whether the trading in the customers\\u2019 accounts was suitable for them, such as calculating the turnover rate or cost-to-equity ratio. Had he done so, Martinson would have learned that the trades the registered representative recommended to the affected customers resulted in cost-to-equity ratios exceeding 25 percent, meaning that the accounts would have had to grow by 25 percent just to cover the commissions and other costs charged to the accounts.
FINRA BrokerCheck shows a pending customer complaint with a damage request of $5,000.00 on April 15, 2021.
Failure to Supervise
Should a broker participate in excessive trading, or churning, they may repeatedly buy and sell securities, occasionally even the same stock, within a short span of time. Every month, part of the account are replaced by 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 claim consists of: an excessive number of securities transactions, broker control over the account, and fraudulent intent to obtain unlawful commissions from the investor. 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.
According to newsources, a study revealed that 7.3% of financial advisors had a customer complaint on their record when records from 2005 to 2015 were examined. Brokers must publicly disclose reportable events on their BrokerCheck reports that include customer complaints, IRS tax liens, judgments, investigations, terminations, and criminal cases. In addition, research has shown a disturbing pattern with troublesome brokers where brokers with high numbers of customer complaints are not kicked out of the industry but instead these brokers are sifted to lower quality brokerage firms with loose hiring practices and higher rates of customer complaints. These lower quality firms may average brokers with five times as many complaints as the industry average.
Martinson has been in the securities industry for more than 22 years. Martinson has been registered as a Broker with Arive Capital Markets since 2021.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.