Firm Settles FINRA Charges for Unauthorized and Unsuitable Leveraged Trading

A firm settled FINRA charges for a representative's unsuitable leveraged investment recommendations and for unauthorized discretionary trading.

According to the AWC, the firm failed to respond to red flags concerning a representative who recommended a complex strategy involving concentrated positions in high-yield securities purchased with leverage. FINRA found the firm ignored nearly 10,000 supervisory alerts across the representative's accounts during the relevant period, including over 2,500 related to overconcentration, often closing them with boilerplate notes that lacked customer-specific details. Additionally, FINRA found the company changed customer risk tolerances from moderate to aggressive without validation, suppressed margin call notifications, and allowed the representative to routinely exercise discretion in non-discretionary accounts without prior written authorization. FINRA found the firm's failure to act resulted in significant customer losses during a period of market volatility, leading to margin calls and forced liquidations.

FINRA found the firm violated FINRA Rule 3110 ("Supervision") by failing to establish and maintain a reasonably designed supervisory system and failing to reasonably investigate and act upon red flags related to suitability and unauthorized discretionary trading.

To resolve the matter, the firm agreed to a censure and a $3,250,000 fine. The company also paid over $55 million to complaining customers through arbitration awards or settlements and voluntarily offered approximately $1.35 million to six other affected customers.