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Regulatory Sanctions

A FINRA Decision That, Unfortunately, Is Not Worth the Paper It’s Printed On

June 12, 2019

by Howard Haykin



In December 2017, FINRA Enforcement filed a Complaint against Accelerated Capital Group, Inc., alleging that its failure to supervise 2 registered reps resulted in sizable customer losses. Enforcement properly served the Complaint, Accelerated filed an Answer and, after several postponements, a hearing was scheduled for December 2018.
On October 3, 2018, Accelerated filed Form BDW; the SEC terminated the Firm’s registration effective December 2, 2018; FINRA terminated the registration effective December 26.
On February 15, 2019, the FINRA Office of Hearing Officers (OHO) issued a Default Decision censuring Accelerated, fining it $400K, and ordering it to pay $422K in restitution plus interest to 6 customers.
FYI … It's interesting to note that Accelerated, a Costa Mesa, CA, full service broker-dealer and FINRA member since 1997, had quite a clean disciplinary record prior to this case. The only blot on its CRD records was a 2014 settlement costing the firm $32.5K - FINRA charged that, among other things, Accelerated's website contained misleading information, including fabricated testimonials, and that its website contained a world map graphic that incorrectly suggested the firm had worldwide offices.
Now, in 2019, the firm apparently “bailed out” of its obligations to FINRA and its former customers by withdrawing its registration. EASY PEASY NICE AND EASY!



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.




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.


►     As a result, he was placed on heightened supervision for the first 3 months he was associated with the Firm.



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 2014, the Firm again placed BM on heightened supervision, this time for excessive mutual fund trading. The terms of BM’s heightened supervision authorized the Firm to contact his clients at random, monitor his trading daily, conduct suitability reviews of his clients’ accounts, and review all trades prior to execution. Despite these measures, BM continued short-term selling of Class A mutual funds from customer accounts.
►     BM’s short-term Class A mutual fund trades were red flags that should have alerted the Firm to take action. Yet the Firm did not contact any of BM’s clients. Thus, it was unaware that BM did not sufficiently understand the strategy he was employing to have a reasonable basis for recommending the short-term mutual fund trades, and that his customers neither understood nor approved the trades. Furthermore, the Firm did not use routine exception reports that could have identified problematic trade activity and recognized that BM was churning his clients’ accounts without authorization.



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.


►     In July 2014, Accelerated issued BM a disciplinary letter for what it cited as trading that “appeared aggressive,” and rebooked 110 trades to make partial returns of commissions BM had charged the customers.
►     Despite the Firm’s awareness of BM’s trading pattern, he continued to trade excessively.
►     Accelerated somehow failed to detect the extent of his continuing excessive trading or the losses suffered by customers.
►     The Firm failed to ensure that customers understood the fees associated with Class A mutual funds and authorized the trades in their accounts. It also failed to ensure that the trades were suitable.



This case was reported in FINRA Disciplinary Actions for May 2019.

For further details, click on...  FINRA AWC #2012033566205.