Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) broker Stephen Sloane (Sloane), previously associated with Westpark Capital, INC., has been subject to at least 2 disclosable events. These events include one customer complaint, one regulatory event. Several of those complaints against Sloane concern allegations of high frequency trading activity also referred to as churning or excessive trading among other securities laws violations.
FINRA BrokerCheck shows a settled customer complaint on July 01, 2021.
Client is alleging unsuitable recommendations and churning treasuries.
FINRA BrokerCheck shows a final customer complaint on July 20, 2020.
Sloane was named a respondent in a FINRA complaint alleging that he recommended an unsuitable investment strategy to retail customers. The complaint alleges that Sloane recommended that the customers engage in active, short-term trading of U.S. Treasuries with 10 and 30-year maturities, without conducting reasonable diligence to understand the effect of the strategy’s costs on the customers’ potential returns. Sloane, therefore, did not have a reasonable basis to recommend the strategy. Sloane did not do any research or seek any guidance about whether the trading strategy could be profitable at the costs the customers paid. Sloane also made no attempt to calculate either the returns he expected to generate from active trading or whether those returns would breakeven with the cumulative costs of his trading strategy. Sloane received approximately $220,000 in compensation from implementing his strategy for the customers, representing his share of the $510,025 in markups and markdowns he charged to execute the trades for the customers. By contrast, after paying markups, markdowns, and other transactional service fees, the customers realized total trading losses, exclusive of interest, of $329,811, as a result of Sloane’s investment strategy. Sloane’s member firm instructed him to reduce his trading costs. When that firm fired him for disregarding its directive, Sloane moved to another member firm where he continued executing the same unsuitable strategy. The complaint also alleges that Sloane charged excessive and unfair markups. Sloane recommended that some customers use the proceeds from sales of treasury securities to purchase treasury securities the following day. The markups resulted in those customers’ trades on those days occurring at prices not reasonably related to prevailing market prices.
Should brokers engage in excessive trading, known as 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 beneficiary of this kind of investment trading activity is the broker, who profits from the commissions generated by these trades, which serve no meaningful purpose for the investor. Churning is regarded as a specific category of securities fraud. The fundamental aspects of the claim involve excessive securities transactions, the broker’s undue influence over the account, and an intention to defraud the investor for illegal financial gain. 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.
Sloane has been in the securities industry for more than 29 years. Sloane has been registered as a Broker with Westpark Capital, INC. since 2016.
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.