Articles Tagged with Cost-to-Equity Ratio

The Financial Industry Regulatory Authority (FINRA) suspended broker James Glenn Tallant (Tallant) for three months and fined him $15,000 including the disgorgement of $8,560.44 in commissions.  FINRA alleged that Tallant exercised discretionary trading authority without written authorization in four securities accounts in violation of NASD Conduct Rule 2510(b) and FINRA Rule 2010.  In addition, FINRA found that Tallant engaged in excessive trading and quantitatively unsuitable in violation of NASD Conduct Rule 2310 and IM-2310-2.

Tallant has been a registered representative with Morgan Stanley from 2005 through July 2013.  FINRA alleged that Tallant’s securities violations involved a 49 years old woman, divorced, and with two children.  The client owned and operated a women’s boutique clothing store and had an annual income of approximately $140,000 and an estimated net worth of approximately $300,000.

The client’s IRA account investment objectives capital appreciation and aggressive income.  FINRA found that between March 2009, and March 2010, Tallant executed 39 purchase and sale securities transactions in the client’s individual account amounting to $147,366.50 with gross commissions totaling $8,739.56. In the client’s three other accounts Tallant’s trading totaled between $99,000 and $261,000 over the same time period.  In 2009 alone, Tallant’s total gross commissions were $200,927.

The Financial Industry Regulatory Authority (FINRA) suspended broker Anthony Mediate (Mediate) for 60 days concerning allegations of excessive trading (churning) and unauthorized trading.  “Churning” is excessive investment trading activity that serves little useful purpose or is inconsistent with the investor’s objectives and is conducted solely to generate commissions for the broker.  Churning is also a type of securities fraud.

FINRA alleged that Mediate violated NASD Rules 2110 and 2310.  NASD Rule 2310(a) provides that when recommending the purchase, sale, or exchange of any security a broker “shall have reasonable grounds for believing that the recommendation is suitable for such customer…”  A broker’s recommendations must “be consistent with his customer’s best interests.” NASD IM-2310-2(a)(1) also require that the broker must “’have reasonable grounds to believe that the number of recommended transactions within a particular period is not excessive.”  NASD IM-2310-2(b)(2) prohibits brokers from excessively trading in customer accounts.

An excessive trading violation occurs when: 1) a broker has control over the account and the trading in the account, and 2) the level of activity in that account is inconsistent with the customer’s objectives and financial situation.  Where an intent to defraud or reckless disregard for the customer’s interests is present the activity is also churning.

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