The SEC charged New York-based FINRA regulated brokerage firm Alexander Capital L.P. (CRD # 40077)as well as two of its managers for failing to supervise three registered brokers, William C. Gennity, Rocco Roveccio, and Laurence M. Torres last Friday. The alleged supervisory failures are concerning charges against the brokers for unsuitable recommendations, churning accounts, and executing unauthorized trades in September 2017. While the brokers profited from commissions, investors lost their hard-earned savings over violations of the antifraud provisions of the federal securities laws. According to the SEC, Alexander Capital L.P lacked reasonable supervisory policies and procedures that could have helped detect fraudulent practices by three brokers. In a separate order, the SEC also charged Alexander Capital managers, Philip A. Noto II and Barry T. Eisenberg for missing red flags and failing to adequately supervise to detect the alleged broker committed fraud. Consequently, investors lost substantial money over fraud that could have been prevented with reasonable policies and procedures to detect broker wrongdoings.
The parties agreed to settle the charges without admitting or denying the SEC’s findings. Alexander Capital has agreed to pay $193,775 of allegedly ill-gotten gains, $23,437 in interest, and a $193,775 penalty, which will be placed in a fund to be returned to harmed retail customers. Philip A. Noto II agreed to a permanent supervisory bar and a $20,000 penalty. Barry T. Eisenberg agreed to a five-year supervisory bar and a $15,000 penalty. Alexander Capital has agreed to hire an independent consultant to review its policies and procedures, according to the press release. Will Alexander Capital enforce the many reminders that the SEC released for brokerage firms to supervise account activities and protect consumers adequately? It remains to be seen, as old habits die hard.
The Securities and Exchange Commission’s recent charges against a New York-broker dealer Alexander Capital illustrates the agency’s crackdown on broker supervisory failures within the financial services industry. Our FINRA arbitration attorneys applaud the SEC’s commitment to holding securities firms accountable, but still think more needs to be done. After all, SEC has no tolerance for unscrupulous brokers, according to Andrew M. Calamari, Director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker-Dealer Taskforce. Nevertheless, FINRA arbitration attorneys continue to file numerous claims involving churning, unauthorized trading, and other types of securities fraud, which the SEC has never detected.
The SEC’s Office of Investor Education and Advocacy and Broker-Dealer Task force have jointly issued an Investor Alert with warnings against some of the activities allegedly committed by Alexander Capital. Potential red flags that investors should look out for in a brokerage account include unauthorized or frequent trading and excessive fees. An investment is unsuitable if it is unreasonable given the financial constraints of the client; if the knowledge upon which the investment is based on can be proven insufficient; and/or if the client is not given full disclosure of the risks or returns on the investment. Excessive fees can indicate churning which entails a broker making excessive trades in customer’s account just to maximize commission. Unauthorized trading is when a broker executes a trader without consulting the client. This often happens when a broker sells securities after the margin account falls below the firm’s requirements.
Investors can hold brokers liable for financial losses from their failure to perform their duties of trust and responsibility in FINRA arbitration. Customers should seek out experienced FINRA arbitration attorneys to help prove their investment losses resulted from FINRA member or firm’s intentional provision of inaccurate information. Brokers must responsibly make investments on their clients’ behalf with the clients’ best interests in mind.
Malecki Law’s FINRA arbitration attorneys have substantial experience obtaining settlements and awards on behalf of investment fraud victims. Investors should remember to review their statements and related brokerages documents for any indication of suspicious activity. If your broker-dealer has defrauded you, please contact our securities lawyers for a free consultation.