Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) fined and suspended broker Debra Lyman (Lyman) concerning allegations that between January 2013 through November 2013 Lyman engaged in unauthorized or discretionary trading in six client accounts without proper written permission.
Lyman was associated with Morgan Stanley from 1998 , through January 17, 2014. Respondent was terminated by the firm for exercising discretion in client accounts without obtaining written authorization. In addition to the FINRA complaint, Lyman has been the subject of at least five customer complaints, the majority of which complain of high commissions and fees associated with unauthorized and excessive trading activity, commonly known and referred to as churning.
NASD Conduct Rule 2510(b) prohibits brokers from exercising discretionary power in a customer’s account unless such customer has given prior written authorization to the broker and the brokerage firm has accepted the account as discretionary. FINRA alleged that from January through November 2013, Lyman effected discretionary transactions in at least six customer accounts without obtaining prior written authorization from the customers and without the accounts being accepted as discretionary by Morgan Stanley.
According to FINRA, Lyman had previously been reprimanded by Morgan Stanley for engaging in similar misconduct and was suspended by the firm from August 31, 2009, through September 4, 2009, for admitting to taking time and price discretion in clients’ accounts.
Often times brokers engaged in discretionary trading in order to excessively trade a client’s account. Under the FINRA rules excessive trading occurs when: (1) a broker exercises control over a customer’s account: and (2) the amount of trading activity in that account is inconsistent with the customer’s investment objectives, financial situation, and needs. This conduct violates FINRA’s suitability standards. When making a determination that excessive activity occurred, the account trading is examined to weigh whether the costs of the investment strategy were unreasonably in light of the returns needed to offset the costs.
Two metrics commonly used to measure excessive trading include the account’s “annualized turnover ratio” and its “cost to equity ratio.” The cost-to-equity ratio represents the percentage of return on the customer’s average net equity needed to pay commissions and expenses over a given period of time just to break even.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of excessive trading and brokerage firms failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.