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- 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
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NEWSLETTERS & ALERTS
Unscrupulous Brokers and Their Supervisors: FINRA Should Stick to Them Like ‘White On Rice’
by Howard Haykin
In July 2018, FINRA reported that Philip Fatta agreed to pay a $5K fine and serve a 4-month suspension to settle FINRA charges that he engaged in quantitatively unsuitable trading in a customer’s account. In August 2018, FINRA reported that Franklin Ogele agreed to pay a $5K fine and to not serve in a principal capacity for 45 days to settle FINRA charges that he failed to supervise the unsuitable and excessive trading activity of ‘PF’, one of his firm’s registered reps. Each case involved violative conduct that occurred at Blackbook Capital LLC.
BACKGROUND INFO. Blackbook Capital LLC was a New York, NY-based broker-dealer that, from 2003 until June 2016, employed around 35 registered persons operating out of 3 offices. It was expelled by FINRA for failing to pay a $50,000 fine.
Frank Ogele was CEO, President, FinOp, CCO and principal owner of Blackbook Capital. According to FINRA Brokercheck, Ogele is a self-described attorney who maintains a private law practice in Newark, NJ – a practice that “often requires [him] to act as an officer/member or shareholder of companies incorporated by [him] such as Blackbook Investments Inc. which may invest in real estate and Blackbook Income LLC which may invest in start up companies and real estate. Applicant intends to devote requisite time to his law practice. Applicant devotes less than 1 hr a month on the companies.” Ogele lists other companies (in his stable), for which he supposedly also devotes limited time.
Philip Fatta, when he joined Blackbook Capital in August 2014, had 18 years’ experience with 13 firms. Notwithstanding the fact that he was a ‘rolling stone’ of sorts, Fatta was apparently the top producer in Blackbook’s New York City office – that, according to FINRA’s case write-up on Frank Ogele.
WHAT WENT WRONG – FATTA. Between August 2014 and April 2016, Fatta engaged in quantitatively unsuitable trading in the account of a customer who is now retired and had limited financial wherewithal. Fatta exercised de facto control by recommending excessive and unsuitable trading in the customer’s account – recommendations that the customer followed. This trading, which resulted in an annualized turnover rate of 7 and an annualized cost-to-equity ratio of 41%, led to $98,000 in losses. [In violation of FINRA Rule 2111.]
WHAT WENT WRONG – OGELE. Between August 2014 and June 2015, Ogele permitted ‘PF’ – i.e., Philip Fatta, who was the top-producing broker in Blackbook’s Lexington Avenue (New York) branch office - to self-supervise his trading activity. As a consequence, Ogele failed to identify unsuitable excessive trading by PF in a customer's account. The significant losses and outsized cost-to-equity ratio and a turnover rate should have resulted in a review or investigation by Ogele and BlackBook. Yet, because no supervisory review of PF's customer activity was conducted, this activity went undetected.
NOTE: In 2017, the customer obtained an arbitration award against Blackbook Capital and Philip Fatta. According to BrokerCheck, the award has not been paid – and, in my opinion, will likely never be paid.
FINANCIALISH TAKE AWAY. While the above prescribed oversight that I recommend for FINRA might be a departure from the regulator’s day-to-day routines, the procedures might just be the sort of “out-of-the-box” approach that can lead to tremendous benefits. If nothing else, it’s worth a try.