Formerly registered broker James Bradly Schwartz is facing charges in a FINRA disciplinary proceeding for allegedly churning customers’ accounts while a registered broker employed with Aegis Capital Corp between August 2014 and May 2016. In this quite brief period, Schwartz allegedly executed around 535 trades in these customer accounts, many of which were unauthorized. The FINRA complaint alleges that Schwartz violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder as well as FINRA rules 2010, 2011 and 2020. His alleged victims include a married couple, engineer, estate executer and a deceased individual. It is alleged that Schwartz even made unauthorized and excessive trades while one of the victims was dying in the hospital. Our securities law team is appalled to hear that possibly two unauthorized transactions were made in this customer’s account less than an hour after he passed away.
Churning is a fraudulent activity in which the broker makes excessive trades in light of the customer’s investment objectives. Common signs of churning in investment accounts are high broker commissions and significant investor losses. While Mr. Schwartz’s customers allegedly lost at least $660,000, Schwartz is reported as having pocketed over $194,000 sales credits and commissions, with annualized turnover rates ranged from 19.9 to 54.7 and annualized cost-to-equity ratios between 87% and 120%. These percentages are above average for their proclaimed non-speculative investment objectives. In an alleged effort to conceal his purported nefarious activities, Schwartz allegedly traded on a riskless principal basis. Trading on a reckless principal basis does not explicitly report the commission costs on customer’s account statements. Our securities attorneys believe that if such measures to hide his activity is true, Schwartz most likely acted with intent to defraud, which fulfilling the churning legal requirement of “scienter”.
This current FINRA disciplinary proceeding is not the first time that Schwartz has been accused of fraudulent activity. In his 18 years in the securities industry, Schwartz accumulated 12 disclosures on his official CRD records, publicly available on Broker Check. Each of the nine customer disputes mentioned on Schwartz’s BrokerCheck reference at least one allegation pertaining to unsuitability, unauthorized trading, or churning. Our New York securities attorneys encourage investors to think twice before working with brokers that have that many negative disclosures mentioned on their records. Even before Schwartz was a registered representative with Aegis Capital Corp for three years in June 2013, he procured a seemingly shady record that should have raised many flags. It is a matter of grave concern that Schwartz may have continued to gain new employment after so many customers made some of the same allegations.