BROWSE BY TOPIC
- Bad Brokers
- Compliance Concepts
- Investor Protection
- Investments - Unsuitable
- Investments - Strategies
- Wall Street News
- Investments - Private
- Rules & Regulations
- Bad Advisors
- Boiler Rooms
- Terminations/Cost Cutting
- General News
- Donald Trump & Co.
- Big Banks
- Regulatory Sanctions
Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
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.