A representative for Spartan Capital Securities was the subject of disciplinary action over violations involving excessive trading, ThinkAdvisor reported.
The Financial Industry Regulatory Authority issued Gary Talbot a four-month suspension from associating with any FINRA member in all capacities. Talbot has been associated with Spartan Capital for the past ten years.
In a letter of acceptance, waiver and consent, FINRA stated that Talbot excessively traded the account of one retail customer, a moderate risk investor who was 67 years old at the time of the trading activity at issue. The matter spanned the period between March 2023 and October 2024.
FINRA said, “During this time, Talbot recommended 20 transactions in the customer’s account resulting in an annualized turnover rate of seven and an annualized cost-to-equity ratio of 30%. Talbot’s trading in the customer’s account generated $9,433 in commissions. The level of trading that Talbot recommended in the customer’s account was excessive and not in the best interest of the customer.”
The matter originated from a FINRA cycle exam of Spartan Capital. Talbot was found to have violated the Best Interest Obligation under Rule 15l-1(a)(1) of the Securities Exchange Act of 1934 (Regulation BI or Reg BI) and violated FINRA Rule 2010. Talbot consented to FINRA’s findings without admitting or denying them.
Under Regulation BI, broker-dealers are required to act in the best interest of retail customers when making a recommendation of any securities transaction or investment strategy involving securities. Reg BI’s Care Obligation requires broker-dealers to exercise reasonable diligence, care, and skill to have a reasonable basis to believe that a series of recommended transactions, even if in the retail customer’s best interest when viewed in isolation, is not excessive and is in the customer’s best interest in light of the customer’s investment profile.
A violation of Reg BI also is a violation of FINRA Rule 2010, which requires brokers to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.
FINRA noted that “no single test defines when trading is excessive, but factors such as the turnover rate, the cost-to-equity ratio, and the use of in-and-out trading in a customer’s account are relevant to determining whether an associated person has excessively traded a customer’s account in violation of Reg BI.”
The turnover rate “represents the number of times that a portfolio of securities is exchanged for another portfolio of securities,” FINRA said. “The cost-to-equity ratio measures the amount an account must appreciate just to cover commissions and other expenses. In other words, it is the break-even point where a customer may begin to see a return. A turnover rate of six or more, or a cost-to-equity ratio above 20%, generally indicates that a series of recommended transactions was excessive.”
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