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.
FINRA alleged that Mediate’s customers relied on his investment advice and Mediate exercised control over their accounts. In addition, the level of activity in the customers’ accounts was inconsistent with the customers’ objectives and financial situation.
From January 2007, to November 2007, Mediate was registered broker with Carlton Capital Group, Inc. From October 2007 to January 2011, Mediate was registered with J.P. Turner & Company, LLC. (JP Turner). From January 2011, to December 2011, Mediate was associated with National Securities Corporation. Then, from December 2011, to November 2012, Mediate was associated with Newbridge Securities Corporation. Since November 2012, Mediate has been again been associated with National Securities Corporation.
The two most common indicators used to determine a claim of excessive trading and churning are the turnover ratio and the cost-to-equity ratio. These ratios attempt to measure whether the activity in the account bears indications of activity designed merely to generate commissions. FINRA alleged that the trading activity in one customer account average annualized cost-to-equity ratios of 30% and an average turnover rate of 5.35. In total, Mediate made over $37,000 in commissions during 15 months while the customer account suffered losses of approximately $55,000.
The attorneys at Gana Weinstein LLP are experienced in investigating claims of excessive trading and churning. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.