Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2015044589701) against broker David Khezri (Khezri) resulting in a monetary sanction and suspension. In addition, according to the BrokerCheck records kept by FINRA, Khezri has been the subject of at least 1 customer complaint. The customer complaints against Khezri alleges excessive trading among other claims.
FINRA’s findings stated that Khezri consented to sanctions that he improperly exercised discretion by effecting around 100 trades for six customers without obtaining written authorization from the customers. The firm also did not accept the accounts as discretionary. FINRA alleged that Khezri exercised discretion by executing trades days after his customers provided him oral authority. However, FINRA found that Khezri’s firm did not permit discretionary trading except for registered investment advisors (RIA) trading in the accounts of their advisory clients and Khezri was not an RIA.
Advisors are not allowed to engage in unauthorized trading. Such trading occurs when a broker sells securities without the prior authority from the investor. All brokers are under an obligation to first discuss trades with the investor before executing them under NYSE Rule 408(a) and FINRA Rules 2510(b). These rules explicitly prohibit brokers from making discretionary trades in a customers’ non-discretionary accounts. The SEC has also found that unauthorized trading to be fraudulent nature because no disclosure could be more important to an investor than to be made aware that a trade will take place.