A customer’s complaint about churning, and partly a self-directed examination, has resulted in Aegis Capital Corporation being sanctioned by the Financial Industry Regulatory Authority (FINRA), primarily for the unsuitable, excessive trading in the accounts of many of its customers.
68 customers found harmed by the activities will receive $1.7 million in restitution from the firm. Additionally, the broker-dealer will also pay a fine of $1.1 million for their supervisory neglect and violations. Advisors Joseph Giordano and Roberto Birardi, designated as supervisors, have been named in connection with the securities violations.
If you are a client of Aegis Capital Corporation or used their asset management services, please contact us for a free consultation to review your portfolio. The toll-free number is 1-800-856-3352
Aegis Capital Complaint
Between July 2014 and December 2018, it appears that Aegis operated without a supervisory structure that would have enabled it to comply with the suitability rules laid down by FINRA, as per their findings during the investigation.
It was no surprise, therefore, that instances of unsuitable and excessive trading went unidentified which obviously means that they were not dealt with in a suitable manner.
Identified supervisors Birardi and Giordano did not, it appears, bother to investigate the warning signals of possible churn by brokers, under their watch. This resulted in 31 customers, handled by 8 different Aegis advisors, incurring over $2.9 million in trading costs alone.
The clearing firm of Aegis Capital, it seems, highlighted over 900 possible unsuitable trading discrepancies which the firm did not act on. Like it did not act on customer complaints, over 50 in number, claiming either unsuitable or excessive or even unauthorized trading in their account. 700 of the exception reports of the clearinghouse were not even responded to by Birardi and Giordano. To make matters worse, even when deficiencies were highlighted to the firm by compliance teams, they chose to let things be.
Aegis Capital Corp Financial Advisors with sanctions
Joseph Giordano, based in New York, agreed to a $10K fine and suspension for 6 months.
Birardi was suspended for 3 months and was slapped with a $5K fine.
Without denying or confirming the findings, both agreed to the penalties.
Settlements were also reached by FINRA with four other brokers of Aegis Capital. Two of them earned a bar and two earned a suspension. All actions pertaining to the alleged churning in customer accounts.
Aegis Capital has faced scrutiny earlier with regard to its registered representatives. As recently as July 2021, Douglas Szempruch, then an Aegis Capital Advisor was suspended for a year, again on account of allegations of unauthorized and excessive trading, the sixth Aegis broker this year to face sanctions. James Schwartz, then Aegis broker once again, was barred in 2019 for his engagement with $10 million worth of unauthorized trades, 535 of them in number, that cost customers $660K.
Unsuitable Investments and Trades
If there was a single strategy that worked for everyone, investing would be simple. Each investor is unique in their financial situation, assets, resources, financial goals, risk tolerance, and needs. For a 25-year old unmarried woman, investments may not be appropriate for her.
A financial professional such as a stockbroker, financial advisor, or financial planner is one way to avoid investing in a one-size-fits-all manner. They have a responsibility to fully understand the financial situation of their clients and recommend suitable trading strategies or financial products. Brokers don’t always adhere to the rules when advising clients about investing.
Financial professionals who recommend unsuitable investments to clients or make recommendations that are not in the client’s best interest can be held financially responsible if they cause major losses. Stockbroker misconduct victims can be helped by a skilled investment fraud attorney.
The rules and regulations of the Financial Industry Regulatory Authority ( FINRA) apply to brokers, financial advisors, and investment advisors in the United States. FINRA, a non-profit organization authorized by Congress to protect American investors by regulating the broker-dealer sector. Brokers and advisors must follow federal law and register with the Securities and Exchange Commission.
In the past, brokers like Aegis Capital and financial advisers had to follow two main rules when recommending investments or investment strategies: (1) FINRA Rule 2111 Suitability; (2) FINRA Rule 2090 Know Your Customer. The SEC recently enacted Regulation Best Interest (B.I ). Reg BI is a new law that’s long and detailed but has yet to be tested by arbitrators or judges. However, it requires that brokers make recommendations in the client’s best interests. These rules are designed to protect customers against brokers who might recommend strategies or investments that do not meet their needs.
FINRA’s Suitability Rule formerly states that brokerage firms and brokers must have a “reasonable basis to believe that a recommended transaction or investment strategy involving a securities or securities is suitable” based on information obtained through the reasonable diligence and associated persons. This may include factors like the customer’s age and financial situation, tax status, tax history, liquidity needs, risk tolerance, and investment objectives.
A customer profile must be used to determine whether a strategy or investment is suitable. This includes evaluating the ability of the investor to accept the risks associated with the suggested course of action. This rule states that only brokerage firms or financial advisors can recommend strategies or investments to a customer. Reg BI is expected to increase the “suitability” criteria and raise the standard of quality for broker recommendations.
Law Firm for Support
If they suspect excessive or unauthorized trading in their accounts, investors are advised to seek expert advice and determine their options.
Haselkorn & Thibaut is actively engaged in pursuing FINRA arbitration claims on behalf of their clients. Our investment fraud attorneys are even investigating customer claims of losses involving Aegis advisors for excessive or unsuitable trading.
To speak with one of our attorneys, call 1-800-856-3352.