A representative for Spartan Capital Securities has been penalized for violations involving excessive trading, ThinkAdvisor reports.
The Financial Industry Regulatory Authority suspended Jesse Krapf for five months for his actions, according to a letter of acceptance, waiver and consent.
FINRA said that between October 2019 and April 2022, Krapf recommended a series of trades in a senior customer’s account that were excessive, unsuitable, and not in the customer’s best interest. As a result, Krapf was found to have willfully violated the Best Interest Obligation under Rule 15l1 of the Securities Exchange Act of 1934 (Regulation BI) and violated FINRA Rules 2111 and 2010.
The matter originated from a FINRA cycle examination of Spartan Capital.
According to FINRA’s order, “Krapf excessively and unsuitably traded the account of one customer, a senior who was a business owner. The customer relied on Krapf’s advice and routinely followed his recommendations. As a result, Krapf exercised de facto control over the account. Krapf recommended in-and-out trading to the customer, even when the price of his recommended securities did not materially change.”
One example given by FINRA was in April 2020, when Krapf “recommended that the customer purchase nearly $180,000 of stock in a biotechnology company and then recommended that the customer sell the position two days later. Krapf charged commissions on the round-trip transaction of $7,800.”
The next day, Krapf recommended that the customer purchase nearly $82,000 in a semiconductor company and sell the position the same day for a loss, while charging the customer commissions of $2,000.
Between October 2019 and April 2022, FINRA said that Krapf recommended 58 transactions in the customer’s account, resulting in an annualized turnover rate of 23 and an annualized cost to-equity ratio of 104 percent. Krapf’s trading in the customer’s account generated total trading costs of $96,496, including $92,847 in commissions, and caused $41,017 in total realized losses.
Krapf accepted and consented to FINRA’s findings without admitting or denying them.
Reg BI’s Care Obligation, set forth at Exchange Act Rule 15l-1(a)(2)(ii), 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 retail customer’s best interest in light of the retail customer’s investment profile.
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