Broker-Dealer Fined for Unsuitable Margin Practices

A broker-dealer settled FINRA charges for failing to supervise recommendations for margin use in customer accounts and for not addressing red flags of excessive margin trading.

According to the AWC, two representatives recommended unsuitable use of margin in five customer accounts, which resulted in significant customer losses, margin calls and over $62,000 in margin interest charges. FINRA said that one customer, a 62-year-old pastor with no prior margin trading experience, incurred 31 margin calls and over $34,000 in interest charges due to excessive margin trading in his retirement account.

FINRA found that the broker-dealer lacked sufficient supervisory procedures to assess the suitability of margin recommendations and failed to investigate alerts related to high margin balances and repeated margin calls.

FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision").

To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $60,000 civil monetary penalty and (iii) restitution of $45,442.21 plus interest to affected customers. The firm also committed to improving its supervisory procedures to prevent future misconduct.