Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) broker Joseph Desapio (Desapio), previously associated with Spartan Capital Securities, LLC, has been subject to at least one disclosable event. These events include one regulatory event. Several of those complaints against Desapio concern allegations of high frequency trading activity also referred to as churning or excessive trading among other securities laws violations.
FINRA BrokerCheck shows a final customer complaint on March 08, 2024.
Without admitting or denying the findings, Desapio consented to the sanction and to the entry of findings that he willfully violated Exchange Act Rule 15l-1, Regulation BI, by recommending quantitatively unsuitable trades in accounts held by customers, one of whom was a senior. The findings stated that Desapio’s customers relied on his advice and routinely followed his recommendations and, as a result, Desapio exercised de facto control over the customers’ accounts. Desapio’s trading resulted in high turnover rates and cost-to-equity ratios that were well above the traditional guideposts, as well as significant losses. Desapio’s trading in these customer accounts generated total trading costs of $136,023, including $111,798 in commissions, and caused $92,546 in realized losses. Desapio’s member firm settled with two customers after they filed an arbitration claim against them along with Desapio and the firm alleging sales practice violations. The findings also stated that Desapio borrowed $20,000 from a customer, with whom he had a prior personal non-familiar relationship. Desapio did not provide prior notice to or obtain written approval from his firm for the loan. The customer’s funds were recovered in connection to their settlement with the Desapio’s firm.
When brokers indulge in excessive trading, often called churning, they typically buy and sell securities, sometimes even the same stock, repeatedly over a short span of time. Every month or a few months, the account could be completely replaced with new securities. The sole purpose of this kind of investment trading activity in the client’s account is to generate commissions that benefit the broker, not the investor. Securities regulators consider churning to be a distinct form of investment fraud. Excessive trading of securities, broker manipulation of the account, and the intent to deceive the investor for illicit commissions form the basis of the claim. 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.
According to newsources, a study revealed that 7.3% of financial advisors had a customer complaint on their record when records from 2005 to 2015 were examined. Brokers must publicly disclose reportable events on their BrokerCheck reports that include customer complaints, IRS tax liens, judgments, investigations, terminations, and criminal cases. In addition, research has shown a disturbing pattern with troublesome brokers where brokers with high numbers of customer complaints are not kicked out of the industry but instead these brokers are sifted to lower quality brokerage firms with loose hiring practices and higher rates of customer complaints. These lower quality firms may average brokers with five times as many complaints as the industry average.
Desapio has been in the securities industry for more than 11 years. Desapio has been registered as a Broker with Spartan Capital Securities, LLC since 2017.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. 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.