The Securities and Exchange Commission announced that it has charged broker-dealer PHX Financial, Inc. with violating Regulation Best Interest for excessive trading in customer accounts.
According to details of the case reported by ThinkAdvisor, the violation occurred when one of the firm’s registered representatives recommended a short-term, high-volume investment strategy to customers without a reasonable basis.
The SEC determined that from January 2019 to October 2021, a PHX registered representative, Baris Cabalar, recommended a strategy to eight retail customers that made it virtually impossible for those customers to achieve positive returns due to the commissions and fees that PHX charged.
The customers each lost money in their PHX brokerage accounts during that time, but PHX and Cabalar made over $400,000 in commissions and fees from these customers. The order finds that PHX also failed to establish, maintain, and enforce policies reasonably designed to address and prevent violations of Regulation Best Interest.
The SEC’s Reg BI establishes a “best interest” standard of conduct for broker-dealers when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, requiring that they act in the customer’s best interest.
PHX was found to have violated Regulation Best Interest’s Care Obligation and Regulation Best Interest’s Compliance Obligation. The SEC also said PHX failed reasonably to supervise the representative, who violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder with respect to the eight customer accounts.
PHX did not admit or deny the findings under the settlement but was censured and agreed to cease and desist from future violations of these provisions and to pay disgorgement of $142,995, prejudgment interest of $24,993, and a civil penalty of $180,000.
The attorneys at Lewitas Hyman understand the complexities that come with being the subject of a regulatory inquiry by the SEC, FINRA, and other self-regulatory organizations, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact us at (888) 655-6002 or through our online contact form for a free consultation.
