September 9, 2022

Broker-Dealer Settles Charges for Excessive Trading

A broker-dealer settled FINRA charges for excessive trading in customer accounts, as well as missing red flags and failing to timely respond when red flags were spotted.

In a Letter of Acceptance, Waiver, and Consent, FINRA found that the broker-dealer's representatives excessively traded in 25 customer accounts generating over $1,000,000 in fees. FINRA found that the broker-dealer either did not identify or timely respond to red flags which indicated potential excessive trading, and that the broker-dealer's procedures did not provide reasonable guidance on how to identify when an account was being excessively traded. FINRA found that excessive trading restrictions on the account typically did not become effective until one month after it was flagged, which allowed representatives to continue excessively trading in the account until the restrictions kicked in. Further, FINRA found that the restrictions did not limit the number of trades a representative could place in a given account, but merely limited the commission that could be charged. FINRA said that this lapse resulted in customers being charged thousands of dollars in commissions even after their accounts were flagged.

As a result, FINRA determined that the broker-dealer violated 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) restitution of $825,607 and (iii) undertakings to improve its policies regarding excessive trading review.

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