The SEC barred a broker from the industry and deferred to FINRA for fines and restitution arising from allegations that the broker recommended unsuitable in-and-out trading strategies and churned customer accounts. The SEC asserts that the broker did not disclose to his nondiscretionary clients that the recommended strategies, even if successful, were likely to exceed the commissions paid to him on the frequent trading. The SEC also claims that the broker placed trades without client consent. The broker, who had a disciplinary history, worked at 5 different firms over his 18-year career. The SEC worked with FINRA and the Montana securities regulator to bring the action. An SEC official warned, “We’re intensifying our focus on unscrupulous brokers and their harmful practices.”
The regulators have prioritized the prosecution of bad brokers. Earlier this year, FINRA advised firms to heighten supervision of brokers with a disciplinary history. This case shows the inter-regulatory cooperation to find and rid the industry of these bad apples. Also, compli-pros should note that “non-discretionary” accounts are not a compliance silver bullet.