BROWSE BY TOPIC
Stories of Interest
- Deutsche Bank Is Weighing Massive Cuts in Its U.S. Cash Equities Unit
- Richard Jenrette, Co-Founder of DLJ Investment Bank, Dies at 89
- Goldman Sachs Makes First Hire in Cryptocurrency Markets Unit
- Special FINRA Election to Fill Large Firm Governor Vacancy
- Chicago-Based Investment Adviser Sentenced to 151 Months in Prison - SEC
- Dun & Bradstreet Hit With FCPA Violations - SEC
- SEC Charges Additional Defendant in Fraudulent ICO Scheme
- Warren Buffett Simply Blew it on Wells Fargo Stock: Dick Bove (Video)
- Barclays and Deutsche Bank to Lag U.S. Trading Peers
- NY AG Schneiderman Seeks to Close Loophole That Could Let Trump Pardons Block State Charges
- 'Fearless Girl' is Moving to NYSE After Year Staring Down 'Charging Bull'
- What's In Your Wallet - American Express Shares Soar After Earnings Release
- Deutsche Bank's Executive Departures Continue Following Change in CEO
- Reflections of an Economist Commissioner (SEC's Piwowar)
- Billionaire HF Manager and The Fed Chair Runner-Up are Investing in New Cryptocurrency
- Court Finds 2 Brokers Liable for Fraud Involving Mortgage-Backed Securities
- One FINRA: An Organization’s Commitment to Diversity and Inclusion
- 2018 GASB Accounting Support Fee to Fund the Governmental Accounting Standards Board
- Barclays Eyes Move Into Cryptocurrency Trading
- Goldman Breaks From Wall Street Pack with Bond-Trading Boom
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
A Broker’s Death Wish (Or A Case of Failed Supervision)
by Howard Haykin
Joseph Cotter, an ex-broker with NEXT Financial Group, agreed to pay a $15K fine, serve a 9-month suspension, and pay $101K plus interest in disgorged commissions to settle FINRA charges that he engaged in excessive, unsuitable trading in a customer’s accounts.
FINRA FINDINGS. Over a 2-year period (2014 to 2015), Cotter exercised de facto control over an IRA account and a second account of his customer, “LC,” an unsophisticated investor. De facto control existed because Cotter solicited all the transactions in the accounts and LC routinely accepted his recommendations. LC was in her sixties, had a desire to earn income for retirement, had annual income of $60,000, and had a ‘conservative risk’ tolerance.
Cotter used this control to excessively trade the accounts in a manner that was inconsistent with LC's investment objectives, financial situation, and needs.
- The turnover rate in the IRA account was 9.84, and in the second account it was 5.3.
- Based on the cost-to-equity ratios of each account, the accounts would have needed minimum returns of 20% to 23% to break even.
FINANCIALISH TAKE AWAYS. In FINRA cases involving excessive trading, I usually anticipate that the broker-dealer and/or its supervisory personnel had a role in the ‘crime’. My suspicions in this case were heightened when I read in Cotter’s CRD records that NEXT Financial – and not Cotter – had agreed to pay $329,000 to settle customer LC’s complaint that Cotter had mismanaged her brokerage accounts. My suspicions were finally confirmed when, upon reviewing NEXT Financial's CRD records, I found that the firm had been disciplined for, among other things, repeated failures to detect, investigate and deter excessive trading by its registered reps.
[For details on disciplinary actions against NEXT Financial, click on Financialish's accompanying story: Failed Supervision at NEXT Financial Enabled Broker to Fleece Customer Accounts]
Notwithstanding the culpability of NEXT Financial, its compliance department and its supervisory personnel, I was frankly surprised by Cotter's actions. He had a clean disciplinary record, held 2 principal/supervisory licenses, had been in the business for 32 years, and had been with NEXT Financial for 6 years when he began 'fleecing' his customer. Unfortunately, nothing in FINRA's write-up or records provides a clue into Cotter's motives.
- Did his greed emerge when he retained a customer who provided him with de facto discretion over her accounts?
- Was he aware that NEXT Financial oversight was full of holes?
- Was he financially desperate?
- Did he have a "death wish" after 32 years as a registered rep?
While we can't provide answers to these questions, we can say with a degree of certainty that FINRA got its sanctions right in this case.
This case was reported in FINRA Disciplinary Actions for December 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2016049316301.