Two registered representatives have been fined and suspended by the Financial Industry Regulatory Authority for violating the Securities and Exchange Commission’s Regulation Best Interest (Reg BI) rule, reports ThinkAdvisor.
FINRA announced the actions against Todd Anthony Cirella and Edward Scott Short, brokers with Laidlaw & Co. in the firm’s Melville, New York office.
The SEC’s Reg BI, under the Securities Exchange Act of 1934, establishes a “best interest” standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities.
FINRA determined that Cirella and Scott had recommended trading activity that was “excessive, unsuitable, and not in the customer’s best interest.”
In Cirella’s case, he was found to have recommended 46 trades for a client that generated $27,566 in commissions but also led to about $12,000 in trading losses, with an annualized cost-to-equity ratio of 37.65% and an annualized turnover rate of 20.39. This meant the account would have to grow 37% annually just to break even. Cirella was suspended for three months and was ordered to pay a $5,000 fine and $27,566 in restitution.
FINRA said Short recommended 204 transactions for one of his clients, which generated $116,859 in commissions, but also led to $185,000 in trading losses, as well as an annualized cost-to-equity ratio of 76.53% and an annualized turnover rate of 47.49. That client’s account would have to grow by over 76 percent a year to break even. Short was suspended for seven months and ordered to pay a $5,000 fine and $116,859 in restitution.
FINRA’s first disciplinary action citing Reg BI came in October 20222, when the authority suspended and fined a representative over allegations that he recommended a number of transactions for one client’s accounts that were deemed excessive in light of the customer’s investment profile and thus in violation of the best interest standard.
The attorneys at Lewitas Hyman fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. We have decades of experience representing clients with respect to examinations, investigations and enforcement proceedings initiated by the SEC, FINRA, state securities regulatory agencies and other self-regulatory organizations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.