FINRA took action against Richard Mireles, a supervisor at Independent Financial Group. Mireles faced penalties for a $2 million churning violation. The excessive trading led to $2.2 million in fees and losses for customers.
FINRA fined Mireles $5,000 and suspended him for four months. This happened between July 2020 and December 2022.
Mireles broke FINRA’s Rule 3110 and Rule 2010. As Vice President of Supervision, he failed to spot red flags in trading activity. This case shows how important it is for firms to watch for excessive trading.
It also highlights the need to protect investors from harmful practices in the financial industry.
Background of the Churning Violation
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A churning violation rocked the financial world in 2022. Two brokers faced serious charges for excessive trading in customer accounts.
Actions of Stewart “Paxton” Ginn
Stewart “Paxton” Ginn’s actions led to serious financial losses for his clients. He bought and quickly sold large stock positions while charging high fees. This practice, known as churning, generated $2.2 million in fees but caused equal losses for customers.
Ginn’s trading style involved commissions up to 3% per transaction.
Independent Financial Group (IFG) paid Ginn 93% of the commissions he made. This high payout likely encouraged his excessive trading. As a result, FINRA took action against Ginn. He now faces an 18-month suspension until March 2026.
Ginn also agreed to pay a $50,000 fine and $115,000 in restitution to affected clients.
Richard Mireles’ Role as Supervisor
Richard Mireles held a key role at Independent Financial Group (IFG) as Vice President of Supervision. His job was to watch over brokers and make sure they followed the rules. But Mireles didn’t do his job well.
He only looked at trades one by one instead of checking the whole picture. This led to problems with excessive trading that hurt customers.
Mireles ignored clear warning signs about a broker’s bad behavior. Two people under him told Mireles they were worried about the broker’s trades. Yet, Mireles didn’t take proper action.
His failure to respond to these red flags led to serious consequences. The next section will explain the fines and suspension FINRA gave to Mireles for his mistakes.
FINRA’s Imposed Fine and Suspension
FINRA took action against Richard Mireles and Stewart “Paxton” Ginn. They faced fines and suspensions for their roles in the churning violation.
Fine and Suspension of Richard Mireles
FINRA imposed a $5,000 fine on Richard Mireles and suspended him for four months. This action came after Mireles failed to spot and stop excessive trading by a broker he supervised.
The settlement was finalized on September 16, 2024. Despite this penalty, Mireles still works in the financial industry. He has 17 years of experience and remains registered with IFG, according to BrokerCheck.
Mireles’ case shows how the Financial Industry Regulatory Authority deals with supervisors who don’t catch rule-breaking. His fine and suspension serve as a warning to other supervisors in the investment world.
The case also highlights the importance of watching for red flags in trading activities to protect customers from financial losses.
Fine and Suspension of Stewart “Paxton” Ginn
Moving from Mireles’ case, we now turn to Stewart “Paxton” Ginn’s penalties. FINRA took strong action against Ginn for his role in the churning violation. The regulatory body imposed a $50,000 fine on Ginn.
He also had to pay $115,000 in restitution to affected clients.
Ginn’s punishment didn’t stop at fines. He received an 18-month suspension from the securities industry. This suspension will last until March 2026. The severity of these sanctions reflects the scale of Ginn’s actions.
He allegedly generated $2.2 million in fees and caused another $2.2 million in losses. His trading involved high commissions of up to 3%.
Violations of FINRA Rules
FINRA rules exist to protect investors. Richard Mireles broke these rules by ignoring clear warning signs of excessive trading.
Failure to Respond to Red Flags
Richard Mireles ignored clear warning signs of excessive trading. Two junior supervisors raised concerns about the broker’s trading activity. IFG’s automated systems also flagged Ginn’s trades in five customer accounts.
Despite these red flags, Mireles only focused on individual trades. He failed to review the series of trades as a whole, missing the bigger picture of churning.
Mireles’ actions violated FINRA Rule 3110, which requires proper supervision of brokers. His narrow focus on single trades instead of overall patterns allowed the churning to continue.
This oversight led to significant financial losses for customers and high cost-to-equity ratios in their accounts. Mireles’ failure to act on these warnings resulted in a fine and suspension from FINRA.
Violation of Rule 3110 and Rule 2010
FINRA’s Rule 3110 requires firms to maintain a proper supervisory system. Mireles broke this rule by failing to oversee Ginn’s actions. He also violated Rule 2010, which sets standards for ethical business conduct.
These breaches led to serious consequences for Mireles and his firm.
The settlement for these violations was finalized on September 16, 2024. FINRA took action to protect investors and uphold industry standards. This case shows the importance of following securities laws and maintaining strong oversight in financial firms.
Impact of Excessive Trading
Excessive trading hurts customers’ wallets. High turnover rates and fees can eat into profits and leave investors with big losses.
Financial Losses for Customers
Customers faced huge money losses due to Ginn’s actions. He made $2.2 million in fees while causing $2.2 million in losses for clients. One victim was an older person with Alzheimer’s disease.
This shows how harmful churning can be, especially for weak clients. The trading involved buying and quickly selling large stock positions. This type of fast trading often leads to big losses for customers.
It also creates high costs that eat into any gains. Ginn agreed to pay back $115,000, but this is just a small part of the total losses.
High Cost-to-Equity Ratios
The trading actions led to sky-high cost-to-equity ratios, reaching up to 27%. This rate made it almost impossible for clients to make any profit. Ginn’s commissions, which went as high as 3%, added to the problem.
IFG paid Ginn 93% of the commissions he generated, showing a clear conflict of interest. These high ratios and fees created a tough situation for investors, eating into any potential gains.
Such extreme cost-to-equity ratios are a red flag in the financial industry. They often point to excessive trading, also known as churning. This practice hurts investors and breaks FINRA rules.
The next section will look at how these actions impacted customers financially.
Conclusion
FINRA’s actions against Mireles and Ginn send a clear message about the gravity of churning violations. Supervisors must stay vigilant and respond promptly to red flags of excessive trading.
This case shows how unchecked churning can lead to massive losses for investors. Financial firms should review their oversight processes to prevent similar issues. Investors should monitor their accounts closely and question frequent trades that seem unnecessary.
