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NEWSLETTERS & ALERTS
A FINRA Decision That, Unfortunately, Is Not Worth the Paper It’s Printed On
by Howard Haykin
In its default decision, OHO charged Accelerated with failure to: (i) maintain an adequate supervision system; (ii) reasonably supervise trading activity of registered reps who engaged in excessive, unsuitable, and unauthorized trading; (iii) monitor the use of pre-signed and altered customer forms and documents; and, (iv) report required information to FINRA.
A BROKER’S EXCESSIVE, UNSUITABLE, AND UNAUTHORIZED TRADING … AND ACCELERATED’S INADEQUATE SUPERVISION SYSTEM AND FAILURE TO SUPERVISE.
From August 2012 through February 2016 (the “Relevant Period”), Accelerated’s supervisory failures allowed one of its registered reps, ‘BM’ (presumably Bahram Mirhashemi, barred by FINRA in February 2016), to engage in extensive misconduct leading to customer harm - patterns of excessive short-term trading in Class A mutual funds and “swing trading” that resulted in trading losses sustained and improper sales loads paid by his customers in excess of $900,000.
When it hired BM in August 2012, Accelerated knew that BM’s previous firm had terminated his employment for sales practice violations, BM had large unpaid tax liabilities, and he was living far above his means.
Beginning in September 2012, BM began to buy, sell, and re-purchase Class A mutual funds on behalf of numerous customers, holding the funds for inappropriately short periods of less than 2 months to slightly more than a year, generating large fees and commissions, and causing significant losses. From September 2012 through September 2014, he made 150 purchases of Class A mutual funds in 21 client accounts - selling 138 of the positions after holding them for less than 6 months - generating $150,000 in commissions and fees. In 18 of the accounts, held by 9 customers, the clients did not authorize the trades.
In October 2013, BM started to trade other securities excessively in his customer accounts. He claimed he was following a strategy of “swing trading,” which he described as a short-term investment strategy based on computer algorithms. From October 2013 through December 2014, BM, employed this “swing trading” strategy, placing more than 2,000 trades in 11 customer accounts, many unauthorized. When asked about the strategy, BM conceded that he did not understand how it worked. Consequently, he had no reasonable basis to believe it was suitable for his clients. The total losses to the customers’ portfolios was more than $750,000, and BM’s commissions exceeded $500,000. The average annualized cost-to-equity ratio was more than 30%, and the average annualized turnover rate was 8.
This case was reported in FINRA Disciplinary Actions for May 2019.
For further details, click on... FINRA AWC #2012033566205.