Churning (Excessive Trading)

Stifel Nicolaus Broker Robert Head Terminated and Barred for Unauthorized Trading

November 14, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) in an acceptance, waiver, and consent action (AWC) and barring former Stifel, Nicolaus & Company, Inc. (Stifel Nicolaus) broker Robert Head (Head) concerning allegations that between August 2013, and October 2013, Head exercised discretion, aka unauthorized trading, in the account of a customer without obtaining the customer’s prior written consent in violation of NASD Conduct Rule 2510(b) and FINRA Rule 2010. In addition, FINRA alleged that Head recommended transactions to the same customer between January 2010, and October 2013, that were qualitatively and quantitatively unsuitable for the customer.

From August 2008, until January 2014, Head was registered with Stifel Nicolaus. Since that time, Head has not been registered with any brokerage firm. In December 2013, Head was discharged from Stifel Nicolaus for alleged violation of the firm’s policy regarding exercising discretion in a client’s account without written authorization.

According to FINRA, Head managed a Stifel Nicolaus trust account for a customer from August 2008, until October 2013. The customer was retired with an original account application listing investment objectives of “Growth and Income” and “Speculation / Active Trading / Complex Strategies.” FINRA found that in November 2009, the account’s investment objective was changed to identify only ”Speculation / Active Trading / Complex Strategies.” FINRA found that the customer never gave Head written authorization to exercise his own discretion for her account.

Gana LLP Investigates Investor Claims of Churning at Global Arena Capital and Whitewood Group

November 12, 2014 | by Staff Attorney

The law office of Gana Weinstein LLP is investigating a string of securities arbitration cases involving brokers associated or formerly associated with Global Arena Capital Corp (Global Arena) and Whitewood Group, Inc (Whitewood Group). Two such brokers include Mark Lisser (Lisser) and Benjamin Brown Jr. (Brown).

FINRA recently brought an action against Brown alleging that between October 19, 2012, and December 10, 2012, while registered with Whitewood Group, Brown effected 30 transactions while exercising discretion without written authorization in a customer’s account. From August 2011, until November 2011, Brown was associated with Global Arena. Thereafter, from February 2012, through May 2013, Brown was registered with Whitewood Group. Finally, from May 2013 until December 2013, Brown was associated with Salomon Whitney LLC. Brown has had two customer complaints filed against him, both alleged churning and unsuitable investments.

In FINRA’s action against Brown, it is against the industry’s rules for a registered representative to exercise any discretionary power in a customer’s account unless such customer has given prior written authorization and the account has been accepted by the member in writing. FINRA found that between October 19, 2012, and December 10, 2012, Brown effected 30 option transactions while exercising discretion in one customer’s account without the customer’s prior written authorization to exercise discretion to engage in discretionary trading.

Broker Stephen Campbell Sanctioned Over Churning Claim

October 31, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Stephen Campbell (Campbell) concerning allegations that the broker engaged in churning in a client account. Campbell has been a broker since 1978. From November 12, 2004 through November 12, 2013, Campbell was registered with Oppenheimer & Co., Inc. (Oppenheimer).

Investment churning is trading activity characterized by purchasing and selling activity that is excessive and serves no practical purpose for the investor. Brokers engage in churning solely to generate commissions without regard for the client’s interests. In order to establish a churning claim the investor must show that the trading was first excessive and second that the broker had control over the investment strategy. 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.

In Campbell’s case, FINRA found that one of his customers was a 55 year old single mother who initially opened an account with Campbell in 2000. FINRA alleged that from January 2009, through September 2011, while exercising control over her accounts, Campbell excessively and unsuitable traded her accounts inconsistently with her investment objectives, financial situation and needs. FINRA determined that the trading activity resulted in an annualized turnover ratio of 15 and an annualized cost-to-equity ratio of 59% in her IRA account, and an annualized turnover ratio of 21 and an annualized cost-to-equity ratio of 120% in her individual account. During this period, FINRA determined that Campbell’s improper trading resulted in a collective loss of approximately $62,000, while generating total gross commissions of approximately $64,000.

Choosing the Right Securities Arbitration Attorney

September 29, 2014 | by Staff Attorney

When to Call a Securities Arbitration Attorney

Securities arbitration attorneys, sometimes referred to as investment attorneys, FINRA attorneys, or securities attorneys, should be contacted whenever an investor believes he or she has been a victim of broker misconduct. An investor may have cause to retain a securities fraud attorney to file a lawsuit or arbitration claim if his or her broker failed to create a suitable investment strategy. An investor may also want to contact an attorney case if a broker made false or misleading statements about a security or omitted negative information about the risk of a security in order to persuade the investor to invest.

An investor may also want to seek legal counsel the investor’s broker bought or sold securities without prior consent (unauthorized trading) or excessively traded securities for the purpose generating commissions (churning).

Broker Spotlight – Mark Lisser Accused of Churning by at Least Three Customers

August 27, 2014 | by Staff Attorney

The law office of Gana Weinstein LLP is investigating a string of securities arbitration cases involving broker Mark Lisser (Lisser) which generally allege securities violations including churning, excessive use of margin, churning, unsuitable investments, and breach of fiduciary duty. All the cases have been filed before The Financial Industry Regulatory Authority (FINRA).

Lisser was registered with Prestige Financial Center, Inc. from February 2008, until November 2010. Thereafter, he was an associated person with Global Arena Capital Corp.

As a background “churning” occurs in a securities account when a dealer or broker, acting in his own interests and against those of his customer, induces transactions in the customer’s account that are excessive in size and frequency in light of the character of the account. In order to show that churning took place a claimant must demonstrate that the broker-dealer exercised control over the account and that the broker engaged in excessive trading considering the objectives and nature of the account.

Gana LLP Investigates Claims of Churning Involving Newport Coast Securities Brokers (Part II)

August 6, 2014 | by Staff Attorney

This post picks up our prior article concerning our investigation of claims concerning churning and failure to supervise after The Financial Industry Regulatory Authority (FINRA) made allegations stating that from September 2008, through May 2013, Newport Coast Securities, Inc. (Newport Coast) and five of its registered representatives excessively traded and churned 24 customers’ accounts. The five brokers named in the complaint are Douglas Leone (Leone), Andre LaBarbera (LaBarbera), David Levy (Levy), Antonio Costanzo (Costanzo), and Donald Bartelt (Bartelt). In addition, FINRA alleged that the representatives’ supervisors, including Marc Arena (Arena) and Roman Tyler Luckey (Luckey) and the firm’s Compliance Department managers knew took no meaningful steps to curtail the misconduct.

Newport Coast was formerly known as Grant Bettingen, Inc., and has been a FINRA member since 1986. Newport Coast is a wholly owned subsidiary of Rubicon Financial, Inc. (Rubicon), and until March 2013, was based in Irvine, California. The firm is currently based in New York and has approximately 45 branch offices and 122 registered representatives.

Douglas A. Leone entered the securities industry in 1993. He associated with a dozen different firms before joining Newport Coast in October 2008. From October 2008 through March 2013, Leone was associated with Newport Coast. Leone worked from his home office but was part of a Long Island, New York branch of Newport Coast. Leone is currently associated with Salomon Whitney LLC.

FINRA Files Complaint Against Newport Coast Securities, Five Brokers, and Two Supervisors Over Churned Accounts

August 4, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating claims of churning and failure to supervise in wake of the allegations made by The Financial Industry Regulatory Authority (FINRA) concerning allegations that from September 2008, through May 2013, Newport Coast Securities, Inc. (Newport Coast) and five of its registered representatives excessively traded and churned 24 customers’ accounts. In addition, FINRA alleged that the representatives’ direct supervisors, including Marc Arena (Arena) and Roman Tyler Luckey (Luckey) and the firm’s Compliance Department managers knew what was transpiring but took no meaningful steps to curtail the misconduct. To the contrary, FINRA found that managers, a supervisor, and the firm’s former President profited through overrides on these churned accounts.

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.

Three Rockwell Global Capital Brokers Accused of Securities Misconduct by Customers

April 3, 2014 | by Staff Attorney

Rockwell Global Capital LLC (Rockwell) brokers Robert E. Lee Jr. (Robert Lee), Douglas Guarino (Guarino), and Lawrence Lee (Lee) have been the subject of at least 29 combined customer complaints. All three brokers have been accused by clients of churning their accounts and making unsuitable investment recommendations.

Robert Lee first became registered in 1988. From March 2005, through November 2009, Robert Lee was registered through former FINRA member firm GunnAllen. Since November 2009, Robert Lee has been registered through Rockwell.

In August 2013, Robert Lee accepted a settlement with FINRA barring the broker from associating with any broker dealer. FINRA found that between September 25, 2008, and October 31, 2008, while Robert Lee was registered with GunnAllen, Robert Lee failed to follow a customer’s instructions regarding the purchase of three securities. FINRA also found that between September 2008, and at least December 2009, while Robert Lee was registered with two member firms, Robert Lee made material misrepresentations and omissions to a customer regarding the status of their investments. Specifically, FINRA found that Robert Lee misrepresented to the client that certain investments had earned $49,591 in dividends when in fact the investments did not exist and no dividends had been earned.

JP Turner Supervisor Sanctioned Over Failure to Supervise Mutual Fund Switches

March 13, 2014 | by Staff Attorney

As we have reported, claims of churning, excessive trading, and failure to supervise have plagued J.P. Turner & Company, L.L.C. (JP Turner) brokers, among other misconduct. Recently, the Financial Industry Regulatory Authority (FINRA) imposed sanctions against Herman Mannings (Mannings), a JP Turner supervisor, concerning allegations that from February 2009, through October 2011, Mannings failed to reasonably supervise the activities of a registered representative to prevent unsuitable mutual fund switching.

On August 20, 2002, Mannings became registered with JP Turner. On February 10, 2003, Mannings was registered as a General Securities Principal at JP Turner. FINRA’s supervisory rule provides that each brokerage firm must establish, maintain, and enforce written procedures to supervise the types of business it engages in. Supervision of registered representatives, registered principals, and other associated persons must be reasonably designed to achieve compliance with applicable securities laws and regulations.

FINRA found that from February 2009, through October 2011, Mannings was an Area Vice President for JP Turner and his responsibilities included the supervision of at least 30 branch offices and as many as 60 representatives. According to FINRA, a registered representative referred to as only by the initials “LG” was one of the representatives that Mannings supervised. FINRA found that LG effected approximately 335 unsuitable mutual fund switches in the accounts of 54 customers without having reasonable grounds for believing that such transactions were suitable for those customers.

Sterne Agee Financial Services Fined Over Failing to Supervise Excessive Trading or “Churning” Activity

March 7, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined SAL Financial Services, Inc. dba Sterne Agee Financial Services, Inc. (Sterne Agee) concerning allegations that Sterne Agee failed to implement reasonable supervisory procedures to detect and prevent excessive trading activity, otherwise known as churning, in client accounts.

Sterne Agee has been a FINRA member since 1986 and the firm’s main office is located in Birmingham, Alabama. Sterne Agee has 137 branch office locations and employs 304 registered representatives.

FINRA alleged that from August 2009, through November 2010, Sterne Agee failed to establish and maintain a supervisory system and enforce written supervisory procedures reasonably designed to identify and prevent unsuitable excessive trading and churning in customer accounts. Specifically, FINRA found that Sterne Agee relied solely on a single exception report with inadequate parameters to identify active accounts with patterns of unsuitable and excessive trading. FINRA alleged that Sterne Agee had access to its clearing firm’s additional exception reports but that Sterne Agee failed to use those reports. Consequently, FINRA concluded that Sterne Agee failed to identify at least thirty-nine accounts where thirty of the instances came from the Ft. Lauderdale, Florida office.