Articles Tagged with in-and-out trading

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.

Churning” is essentially 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.

Recently, the National Adjudicatory Council (“NAC”) provided a detailed description of the elements and factors evaluated in determining a claim of churning.  The NAC affirmed a Financial Industry Regulatory Authority (FINRA) finding that Alan Jay Davidofsky (Davidofsky) engaged in unauthorized trading, excessive trading, and churning in a customer’s account.  The panel barred Davidofsky from the financial industry for the unauthorized trading, imposed a separate bar for the excessive trading and churning, and ordered Davidofsky to pay a fine of $11,741 as disgorgement of the financial benefit earned through the misconduct.

As the NAC ruling explained, NASD Rule 2110 requires brokers to “observe high standards of commercial honor and just and equitable principles of trade.”  NASD Rule 2310(a) provides that in recommending securities, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer based upon the customer’s financial situation and needs.  Included in this rule is the obligation of “quantitative suitability,” which focuses on whether the number of transactions within a given timeframe is suitable in light of the customer’s financial circumstances and investment objectives.

Contact Information