Boca Raton Based Summit Brokerage Services Fined For Broker’s Excessive Trading
FINRA announced this week that it fined Summit Brokerage Services, Inc. approximately $880,000 for supervisory failures, including about $558,000 in restitution to customers whose accounts were excessively traded by a former broker of the firm barred by FINRA. FINRA Press Release
FINRA found that between January 2012 through March 2017, Summit, which had over 700 brokers, failed to review certain automated trade alerts used to identify excessive trading. One representative identified as “CJ,” was singled out by FINRA for excessively trading securities in the accounts of 14 customers. Most egregiously, FINRA found that CJ placed 533 trades for a retiree over a three-year period, causing her to pay more than $171,000 in commissions. FINRA also fined Summit for inadequate supervision of its brokers. Although CJ’s trading for 14 customers generated more than 150 alerts for potentially excessive trading, FINRA found that Summit did not review them. Summit agreed to pay restitution to affected customers in the amount of the commissions they were charged as a result of the excessive trading in their accounts. FINRA previously barred CJ in a separate disciplinary action.
In the FINRA AWC FINRA found that from June 2015 through March 2018, Summit failed to reasonably supervise its representatives’ use of “consolidated reports,” documents provided to customers summarizing the customer’s financial holdings, including assets held away from the firm. FINRA found that one such report sent by a registered representative of the firm to a customer materially misstated the value of the customer’s investment.
FINRA Rule 2111 and its predecessor, NASD Rule 2310, require brokerage firms and their brokers to have a reasonable basis to believe that a recommended securities transaction is suitable in light of the customer’s investment profile. Recommended securities transactions may be unsuitable if, when taken together, they are excessive, the level of trading is inconsistent with the customer’s investment profile, and the registered representative exercises control over the customer’s account. No single test defines when trading is excessive, but factors such as the turnover rate and the cost-to-equity ratio are considered in determining whether a member firm or associated person has violated FINRA’s suitability rule.
If you believe your brokerage account has been excessively traded or that unsuitable investments have been sold to you or a loved one, you may have a claim for damages. Please call us at 888-768-2499 or complete our contact form for a free consultation. Former Wall Street Attorney Melanie S. Cherdack represents investors in the United States and the Caribbean in claims against brokers and brokerage firms for wrongdoing.