Supervisor Irving Burstein (Burstein) has settled charges brought by the Financial Industry Regulatory Authority (FINRA) by accepting a one-year bar from the securities industry. FINRA’s allegations concerned Burstein’s activities from March 2007, until July 2011, where Burstein, as Chief Compliance Officer at NSM Securities, Inc. (NSM) failed to supervise the activities of NSM’s registered representatives and also failed to implement and enforce the firm’s Written Supervisory Procedures.
Burstein first became associated with a member firm in 1988, when he joined Stuart, Coleman & Co. Thereafter, Burstein became licensed as a registered representative of at least 15 other brokerage firms including Aura Financial Services, Inc., Pointe Capital, LLC, Legend Securities, Inc., and R.M. Stark & Co., Inc.
According to FINRA, NSM’s business model is to solicit high net worth individuals of Indian descent and then engage in a highly active trading strategy in their accounts involving only a few securities. FINRA alleged that many NSM customer accounts were excessively traded in order to generate large fees for NSM registered representatives and the firm. FINRA found that Burstein, as a supervisor, failed to supervise the activities of the firm’s registered representatives and failed to implement and enforce the firm’s written supervisory procedures. FINRA alleged that NSM, through Burstein’s conduct, helped to create a “culture of noncompliance at NSM that resulted in the rampant churning of customer accounts, unsuitable recommendations, unauthorized trading, and significant customer harm.”
FINRA found that the NSM’s supervisor procedures required Burstein to the review customer accounts to detect and monitor for: (1) unsuitable transactions; (2) excessive trading activity; (3) unauthorized trading/transactions; (4) excessive losses; (4) wholesale recommendations; (5) excessive securities concentrations; (6) and large or routine debit balances. However, according to FINRA Burstein failed to review customer accounts for any of the foregoing activities. Instead, FINRA found that Burstein’s daily activities were limited to reviewing the trade blotter and order tickets and listening to registered representatives make cold calls and that review of customer account activity was limited to a quarterly review of customer files selected on a random basis.
FINRA found that the turnover ratios and cost-to-equity ratios in NSM’s exception reports indicated that on average approximately 30 NSM customer accounts were being excessively traded each month. FINRA also found that NSM registered representatives made unsuitable recommendations to their customers by concentrating customer accounts in one or two securities and using excessive margin in trading their accounts. The firm also sent deficient “comfort letters” to clients that were inadequate and failed to explain to the customer why he or she was receiving the letter. Furthermore, FINRA found that Burstein failed to review e-mails and failed to place registered representatives on heighted supervision when customer complaints were received by the firm. As a result, FINRA found that numerous customer complaints were not reviewed, and registered representatives were allowed to engage in sales practice abuses, such as unauthorized trading and churning, with virtually no oversight.
The attorneys at Gana Weinstein LLP are experienced in handling claims involving churning, excessive trading, and unsuitable investment strategies. Our consultations are free and we welcome any inquiries concerning securities matters.