FINRA Bars Broker David Sheppard Over Excessive Trading and Churning

shutterstock_184149845-300x246Broker David Sheppard (Sheppard) was recently sanctioned by The Financial Industry Regulatory Authority (FINRA) in an enforcement action that led to a permanent bar against the broker.  According to BrokerCheck, FINRA found that Sheppard consented to sanctions that he refused to appear for on-the-record testimony requested by FINRA to investigate potential churning (excessive trading) in customer accounts.

The securities lawyers of Gana Weinstein LLP are also investigating customer complaints against Sheppard.  There have been at least three customer complaints against Sheppard, one regulatory action, and two judgements or liens in Sheppard’s 21 year career.  The customer complaints against Sheppard allege a number of securities law violations including that the broker made unauthorized trading, and breach of fiduciary duty among other claims.

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.

An examination of Sheppard’s employment history reveals that Sheppard moves from troubled firm to troubled firm.  The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry.  See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013).  In Sheppard’s 21 year career he has worked at least 12 different firms.

In addition, the number of customer complaints against Sheppard 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.

Sheppard entered the securities industry in January 1995.  From May 2009 until July 2010, Sheppard was associated with Capitol Securities Management, Inc.  From July 2010 until February 2014, Sheppard was associated with Bishop, Rosen & Co., Inc.  From February 2014 until December 2015, Sheppard was associated with Aegis Capital Corp.  Finally from December 2015 until October 2016 Sheppard was associated with Meyers Associates, L.P. out of the firm’s New York, New York office location.

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.

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