[Photo: Los Guerreros, World Champion Tag-Team Wrestlers] 

by Howard Haykin

BROKER #1 GETS THE BALL ROLLING.    A broker with Windsor Street Capital (fka Meyers Associates) serviced elderly customers and the brokerage account for their Trust. According to the new account form for the Trust account, the "investment profile" for the account was "moderate." An account form for options trading listed the primary account objectives as "dividend and premium income" and "hedging," with the least important objectives being "trading profits" and speculation."

The Trust account was not very large and probably generated little activity (and thus threw off little or no commission revenue to the broker). We know that the account held a relatively small amount of cash, along with 19,898 shares of Huntington Bancshares (“HBAN”) stock, which the couple had held for more than 36 years. Needless to say, the shares carried a very low cost basis.

In an apparent effort to generate commissions, the broker recommended that the elderly couple liquidate the HBAN shares in their trust account. And so, …

• On September 16, 2014, the shares were sold, netting the Trust $191,101. In addition to the $7,550 markdown, the couple incurred a capital gains tax liability of ~$15,000.
• Over the next 6 weeks, the broker recommended 3 other transactions in HBAN (and each was effected in the Trust account):

►    On September 24, the Trust purchased 20,000 HBAN shares at a cost of $200,025, which included a $2,600 markup.

►    On October 16, the Trust sold all 20,000 HBAN shares at a loss, resulting in net proceeds of $177,971. A of $6,000 markdown was applied to the transaction.

►    On October 28, the Trust purchased 18,068 HBAN shares at a cost of $180,705, which included a $6,324 markup.

• On November 19, 2014, the broker left his employment at Windsor Street and the Firm terminated his registrations the following day stating that the reason for termination was "voluntary."

All told, during the 2-month period, the 4 short-term transactions in HBAN shares generated $22,474 in markups and markdowns and,  by the end of November 2014, the Trust account value was $25,285 less than when it transferred to Windsor Street.

BROKER #2 KEEPS THE BALL ROLLING.    Starting in December 2014, the new broker for the Trust account continued the in-and-out trading of HBAN shares. Over the next 13 months, this broker recommended 26 transactions (24 of which involved HBAN or HBAN options) - that aggregated $69,623 in losses and more than $78,000 in commissions, markups and markdowns.

FINRA SANCTIONS.    Here's where things get dicey. FINRA meted out the following disciplinary decisions that few people would necessarily like or agree with: 

• Broker #1 agreed to pay a $2.5K fine and $2.5K in disgorgement, and serve a one-month suspension.  [he currently is associated with Merrill Lynch]
• Broker #2 agreed to serve a 4-month suspension, and not pay a fine - in light of his financial status.  [he currently is not associated with with a member firm]
• Windsor Street Capital, which was expelled in May 2018, was ordered to pay a $500,000 fine for its alleged failure to supervise the unsuitable handling of the elderly customers’ account by these 2 registered reps. [Now how likely is it that Windsor will pay the $500K fine?]

Broker #1 and Broker #2 were reported in FINRA Disciplinary Actions for July 2018, under the same AWC #.

For details the cases, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015046971701 .