excessive trading

Broker James Tallant Suspended Over Allegations of Excessive Trading and Quantitative Unsuitable Investments

November 12, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) suspended broker James Glenn Tallant (Tallant) for three months and fined him $15,000 including the disgorgement of $8,560.44 in commissions. FINRA alleged that Tallant exercised discretionary trading authority without written authorization in four securities accounts in violation of NASD Conduct Rule 2510(b) and FINRA Rule 2010. In addition, FINRA found that Tallant engaged in excessive trading and quantitatively unsuitable in violation of NASD Conduct Rule 2310 and IM-2310-2.

Tallant has been a registered representative with Morgan Stanley from 2005 through July 2013. FINRA alleged that Tallant’s securities violations involved a 49 years old woman, divorced, and with two children. The client owned and operated a women’s boutique clothing store and had an annual income of approximately $140,000 and an estimated net worth of approximately $300,000.

The client’s IRA account investment objectives capital appreciation and aggressive income. FINRA found that between March 2009, and March 2010, Tallant executed 39 purchase and sale securities transactions in the client’s individual account amounting to $147,366.50 with gross commissions totaling $8,739.56. In the client’s three other accounts Tallant’s trading totaled between $99,000 and $261,000 over the same time period. In 2009 alone, Tallant’s total gross commissions were $200,927.

FINRA Suspends Broker Anthony Mediate for 60 Days Over Allegations of Excessive Trading (Churning) and Unauthorized Trading

October 9, 2013 | by Staff Attorney

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 Bars Broker Over Allegations of Churning (Excessive Trading) and Unauthorized Trading in Customer Accounts

October 7, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has barred Chad David Kelly (Kelly) concerning allegations of churning (excessive trading) 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 Kelly willfully violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act of 1934”), Rule 10b-5, and violated FINRA Rules 2020, and 2010, NASD Rules 2120, 2110, 2310, and IM-2310(a) and (b).

According to FINRA, 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. Section 10(b) of the Exchange Act of 1934 prohibits the use of “any manipulative or deceptive act or practice” in connection with the purchase or sale of a security and Rule 10b-5 prohibits “any device, scheme, or artifice to defraud.” 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.

What is Churning?

September 1, 2013 | by Staff Attorney

“Churning” is essentially 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.

Recently, the National Adjudicatory Council (“NAC”) provided a detailed description of the elements and factors evaluated in determining a claim of churning. The NAC affirmed a Financial Industry Regulatory Authority (FINRA) finding that Alan Jay Davidofsky (Davidofsky) engaged in unauthorized trading, excessive trading, and churning in a customer’s account. The panel barred Davidofsky from the financial industry for the unauthorized trading, imposed a separate bar for the excessive trading and churning, and ordered Davidofsky to pay a fine of $11,741 as disgorgement of the financial benefit earned through the misconduct.

As the NAC ruling explained, NASD Rule 2110 requires brokers to “observe high standards of commercial honor and just and equitable principles of trade.” NASD Rule 2310(a) provides that in recommending securities, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer based upon the customer’s financial situation and needs. Included in this rule is the obligation of “quantitative suitability,” which focuses on whether the number of transactions within a given timeframe is suitable in light of the customer’s financial circumstances and investment objectives.

Karl Hahn Ordered by FINRA to Pay An Investor $11 Million

August 28, 2013 | by Staff Attorney

Former Merrill, Lynch Pierce, Fenner & Smith, Inc. (Merrill Lynch), Deutsche Bank Securities (Deutsche Bank), Inc., and Oppenheimer & Co., Inc. (Oppenheimer), broker Karl Edward Hahn (Hahn) was ordered by the Financial Industry Regulatory Authority (FINRA) to pay former clients over $11 million for misconduct in April 2013. Hahn was accused of common law fraud, negligent misrepresentations, and breach of fiduciary duties.

Hahn worked at Merrill Lynch from 2004 until 2008, at Deutsche Bank from 2008 to mid-2009, and at Oppenheimer from 2009 to early 2011. Hahn allegedly recommended various unsuitable investments to customers including covered calls, a premium financed life insurance policy, and $2.3 million fraudulent real estate financing project “involving East Coast” properties. Hahn allegedly recommended the life insurance policy for the the large commissions he stood to earn. Hahn also allegedly pocketed the money that was supposedly going to finance the East Coast properties.

Other claims made against Hahn include churning of investment accounts. Churning is a type of financial fraud where the broker engages in excessive trading in a client’s account for the purpose of generating commission but does not provide the investor with suitable investment strategy.