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Excessive Trading: Did Meyers Associates Fiddle While Broker Burned Customer’s Account?
[Image: Nero Fiddling While Rome Burned]
by Howard Haykin
Craig Langweiler was ordered by the Office of Hearing Officers (OHO) to pay a $17.5K fine, serve a 14-month suspension, and pay $18K in disgorgement of commissions. Langweiler was also barred from the industry after he failed to respond to FINRA’s request for information.
FINRA FINDINGS. Langweiler had 39 years’ experience with 9 firms – his last 5-1/2 years were with Meyers. In addition to Series 5 and Series 7 licenses, Langweiler also held a Series 8 (Sales Supervisor) license.
Customer “KK” opened his Meyers account with Langweiler in November 2013 with a deposit of $50,000. He deposited an additional $41,000 over the next 3 months so, throughout the Relevant Period (November 2013 through May 2014) the average monthly account balance was $76,773.02; the customer made no withdrawals.
Langweiler exercised discretion in KK’s account during this 6-month Relevant Period – and he excessively traded the account, as evidenced by the high annualized turnover and cost-to-equity ratios, excessive in light of the size and frequency of the transactions, the transaction costs incurred, the nature of the investments and the customer's financial situation, investment objectives and needs.
- Langweiler executed 257 trades with nearly $1.3 million in gross purchases.
- The trading resulted in an annualized turnover rate of 28.85 (anything over 6 is considered excessive).
- The trading resulted in an annualized cost-to-equity ratio of 60.5% (anything over 20% is considered excessive).
- Langweiler's trading generated over $27,000 in commissions and $5,400 in additional fees and costs.
- The account incurred more than $33,000 in losses.
- The account value diminished by >25%.
FINANCIALISH TAKE AWAYS. One can just image the number of ‘red flags’ that popped up as a result of Langweiler’s trading – in an account that, at any point in time, had no more than $91,000 in assets. And keep in mind, we do not know this customer’s financial situation, investment objectives and needs. For all we know, KK might have been a multi-millionaire and his Meyers brokerage account might have been his “playful, 'throw caution to the wind' account" – though FINRA seems to indicate otherwise.
One possibility is that FINRA sanctioned Langweiler’s supervisory principal. And if that is true, shouldn’t the firm and/or its CCO bear some sort of responsibility? After all, how effective could the firm’s supervisory policies and procedures (WSPs) been if Langweiler's excessive trading continued for 6 months?
One can only wonder whether FINRA investigators took the initiative to drill down to determine whether the firm acted on the numerous red flags raised by the excessive trading. For now, this issue is only open to conjecture.
This case was reported in FINRA Disciplinary Actions for March 2018.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2014040347701.