BROWSE BY TOPIC
- Investments - Private
- Investor Protection
- Investments - Unsuitable
- Compliance Concepts
- Investments - Strategies
- Regulatory Sanctions
- Rules & Regulations
- Bad Advisors
- Bad Brokers
- Boiler Rooms
- Wall Street News
- Terminations/Cost Cutting
- General News
- Donald Trump & Co.
- Big Banks
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
Too Little Too Late: FINRA Deals with a Firm Full of Bad Brokers
by Howard Haykin
Brent Morgan Porges was a journeyman for most of his 12 years in financial services, working for 17 firms – 7 of which were expelled. His longest stint was 3 years, 9 months with Craig Scott Capital, based in Uniondale, NY. Also named in the FINRA complaint were Craig Scott Taddonio and Craig Scott Capital LLC, which Porges and Taddonio co-founded, co-owned and co-managed.
FINRA FINDINGS. For nearly 3 years, … from the day Craig Scott Capital opened its doors in January 2012 through at least December 2014 (the “Relevant Period”), the firm and its 2 owners fostered a culture of aggressive and excessive trading of customer accounts. They encouraged registered reps to use upcoming earnings announcements as a catalyst for recommending hundreds, and in some cases thousands, of short-term trades in customer accounts.
- Almost all CSC customers were identified on new account forms as having a “speculative investment” objective, on the belief that the designation - whether accurate or not - would give the salesforce free rein to engage in active trading to maximize commissions.
- Taddonio and Porges encouraged the firm's senior brokers to pitch to their customers "earnings plays" as a way to encourage customers to permit rapid trading in their accounts in order to generate commissions. Simply put, Taddonio and Porges gave the senior brokers information on companies in advance of upcoming earnings announcements to recommend that customers buy shares of the so-called "earnings companies" and then immediately sell positions shortly after the earnings announcements.
- Brokers were permitted to actively trade accounts, oftentimes relying heavily on margin.
- Taddonio and Porges established a policy that every buy and sell order (after the opening transaction in an account) carried 2 charges: (i) an agency commission or principal markup, generally between 3-5% of the trade amount; and, (ii) an additional standard $99 ticket charge designated as a "firm commission" on trade confirmations. For opening transactions in new customer accounts, brokers were instructed to charge only the $99 ticket charge - an enticement to customers to open accounts.
- The most glaring red flag was the trading itself, all of it carried out openly by 4 brokers, with all the trading details reflected in firm books and records. There were more than 9,000 trades in the customers’ accounts with total costs of just under $6 million, and with most of the trades were marked as solicited by these brokers.
- A sampling of 38 of the firm’s most actively-traded accounts reveals annualized turnover rates as high as over 200, annualized cost-to equity ratios as high as over 800%, total commissions of almost $5 million, and total customer losses in excess of $9 million.
- Taddonio and Porges received - but routinely ignored or failed to follow up on - 'red flags'd identified on monthly or quarterly summaries of actively-traded accounts from CCOs for the firm, along with underlying support – which included exception reports and other monitoring reports produced by the firm’s clearing broker, COR Clearing LLC.
- Taddonio and Porges reinforced the trading environment by encouraging "cold-calling" by the sales force, who routinely ignored "do-not-call" telemarketing restrictions.
FINANCIALISH TAKE AWAYS. If only it were possible for clearing brokers to regularly provide FINRA with duplicate sets of ‘exceptional’ exception reports that they send to their correspondent broker-dealers. With some heavy, up-front analysis, FINRA might readily identify potential patterns of violative scenarios, which FINRA examiners could then follow up on - i.e., ascertain that compliance officers at the correspondent broker-dealers are reviewing, investigating and, where applicable, applying corrective actions. With the passage of time, FINRA would define a narrow universe of member firms that present outsized risks of excessive and/or unsuitable trading in customer accounts.
While such an approach might be time-consuming and labor-intensive, early detection of violative conduct is likely to significantly reduce customer losses. Time to think out of the box, FINRA.
This case was reported in FINRA Disciplinary Actions for December 2018.
For details the case, go to ... FINRA Disciplinary Actions Online, and refer to Case # 2015044823501.