Securities Lawyers Blog
Gana Weinstein LLP has recently filed securities arbitration case on behalf of a group of five investors against J.P. Turner Company, L.L.C. (JP Turner) and National Securities Corporation (National Securities) concerning the alleged complete lack of supervision at JP Turner and National Securities to monitor and prevent Ralph Calabro (Calabro) from churning customer accounts.
As a background, Calabro was expelled from the securities industry when on November 8, 2013, the SEC issued an order (SEC Order) finding that JP Turner registered representatives including Calabro, Jason Konner, and Dimitrios Koutsoubos churned customer accounts and Executive Vice President (EVP), Michael Bresner (Bresner), as head of supervision, failed to supervise the representative’s activities.
The SEC alleged that JP Turner knew that numerous accounts had a cost-to-equity ratio greater than 20%, a number sufficiently high to establish an inference of churning requiring close supervision and corrective action. The reports of these accounts resulted in an report being emailed to principals and the compliance office for review including Bresner. The SEC found that the average number of accounts being reviewed for high costs was shockingly high for each quarter in 2008-2009 and was between 300 and 325 accounts and included more than 100 JP Turner registered representatives. Even though these accounts bore the hallmarks of churning, Bresner testified that he could not recall closing an account, personally contacting any JP Turner customers, or even imposing a trading limitation.
As for Calabro he joined JP Turner in 2004 and left in 2011 to be a registered representative at National Securities. While at JP Turner, Calabro acted as a principal and registered representative at the Parlin, New Jersey office that Calabro opened. Calabro’s customer base was seventy investors by 2010 through cold calling. By 2009, Calabro had about $17 million under management and was JP Turner’s top grossing representative with more than $3 million in commissions over 2008 and 2009.
Between January 2008 and December 2009, the SEC alleged that Calabro churned three client accounts causing losses of $2.3 million. The SEC said that the trading in the accounts was excessive in light of Calabro’s customers’ objectives, experience, age, and needs. The SEC decision ordered Calabro to: (1) cease and desist from committing fraud in violation of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5; (2) be barred from association with a broker, dealer, investment adviser, (3) disgorge $282,000 plus prejudgment interest, and (4) pay civil penalties of $150,000. In addition to the SEC action, Calabro has also faced numerous customer disputes all including charges of churning, unauthorized trades and breach of fiduciary duty.
The complaint alleged that Calabro cold called some of the clients who then called and referred Calabro to other claimants in the case. The complaint alleged that Calabro generally promised the investors decent returns. The complaint alleged that Calabro opened accounts for each claimant and immediately took control over the account and the investment strategy without any input for the clients. The complaint alleged that Calabro, as both a broker and a registered principal for his branch office, knew that discretionary transactions were not permitted in non-discretionary accounts regardless of client approval and yet, Calabro made many trades for the claimants without their authority.
The complaint alleged that Calabro’s investment strategy consisted of a speculative and excessive trading in huge positions shorting stocks, buying large call options, margin trading, and speculative investments such as leveraged exchange traded funds (Non-Traditional ETFs) that were contrary to the client’s investment objectives. The complaint alleged that claimants’ accounts had turnover ratios of over 9 and a cost-to-equity of over 20% and no one at JP Turner or National Securities flagged the account for review or contacted Claimants to determine if their accounts were being handled appropriately.
The attorneys at Gana Weinstein LLP can help you or someone you know evaluate their potential securities case. If you suspect misconduct in your account please contact us for a free consultation.