The Financial Industry Regulatory Authority has ordered a New York firm and its representatives to pay restitution to customers due to excessive trading in their accounts.
FINRA announced a letter of Acceptance, Waiver and Consent in the case of Joseph Stone Capital LLC, based in Mineola, Long Island. The authority determined that from January 2015 to June 2020, Joseph Stone failed to implement a supervisory system reasonably designed to comply with FINRA’s rules relating to excessive trading.
Because of this, the firm did not identify or address excessive and unsuitable trading by its representatives in 25 customer accounts. Those customers incurred about $1 million in commissions and other trading costs, and the additional expenses left them with cost-to-equity ratios ranging from 21% to 96%. The costs made it “unlikely that the customers’ accounts would reach their break-even points or earn a positive return”, FINRA said.
Following its investigation into the case, FINRA ordered Joseph Stone to pay restitution of about $825,000 to customers whose accounts were excessively traded. The authority also suspended eight current or former Joseph Stone representatives and required them to pay, collectively, an additional $211,000 in restitution to customers who were affected. Three supervisors at the firm were suspended for failing to reasonably identify or respond to red flags of excessive trading. In addition, two representatives were barred for refusing to respond to FINRA’s requests for information related to the investigation. The firm was found to be in violation of FINRA Rule 3110(a) and (b) and Rule 2010.
In its announcement, FINRA noted that commissions and excessive trading expenses make it more difficult for customers to make positive returns on their investments. “Firms must ensure that they establish systems and procedures to supervise recommendations to retail customers; supervisors must use available tools to identify and address red flags of excessive trading; and representatives must ensure that the costs and commissions they charge are reasonable and not excessive,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement.
In the AWC letter, the respondents did not admit or deny the charges but did consent to the entry of FINRA’s findings.
At Hyman Cotter PC we represent clients nationwide who are the victims of unauthorized trading, breaches of fiduciary duty and other forms of financial adviser misconduct and securities fraud. Our team of lawyers brings a diverse range of knowledge and experiences to our clients’ cases. If your financial adviser made trades without your consent, you may be able to pursue a lawsuit to recoup your losses. We’ll help you understand your rights and options. Contact us at 312-291-4600 or email our team to learn more.
