More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Massachusetts securities regulator William Galvin on Wednesday charged a New York broker-dealer and two of its agents with “churning” the market account of an elderly business owner in the state and concealing the amount he was being charged for the excessive trading.
The Massachusetts Securities Division’s administrative complaint seeks to revoke the existing registrations and to permanently bar Brookville Capital Partners LLC of Uniondale, N.Y.; Ali Habib Mayar of Melville, N.Y.; and Christopher F. Veale of New York City from the securities business in Massachusetts.
They would also be required to compensate the 81-year-old investor for his $1.6 million in losses.
Brookville and Veale have prior disciplinary actions against them, as does Brookville’s CEO, a related party in the complaint.
Veale has been registered and employed with 18 different securities firms since 1994, starting with Stratton Oakmont Inc., which is the firm where the infamous broker Jordan Belfort’s illegal activities are played out in the movie “The Wolf of Wall Street.”
Brookville and Mayar are registered in Massachusetts; Veale is registered in Rhode Island. His registration in Rhode Island was subject to heightened supervision. Under that agreement, Brookville was supposed to exercise special supervision.
Since leaving Brookville on June 26, 2012, Veale has been a registered repr at Blackwall Capital Markets Inc.; Meyers Associated L.P.; John Thomas Financial; and Legend Securities Inc.
“Rogue brokers have long been a plague on the investing public,” Secretary Galvin said in a statement. “My office, along with other state and federal regulators, is determined to move aggressively against them as well as the firms that hire them.”
In 2004, Veale was fined $10,000, suspended and ordered to pay $35,696.48 in restitution for engaging in unsuitable and excessive trading in the accounts of three customers of S.W. Bach & Co.
Last September, the Financial Industry Regulatory Authority fined and censured Brookville and its president for failure to maintain adequate supervisory systems and procedures in the sale of exchange-traded funds. In 2010, FINRA fined New Castle Financial Services LLC, a former name of Brookville, $200,000 for supervisory violations.
In 2008, the Connecticut Department of Banking fined New Castle $50,000 for operating an unregistered branch office.
Wednesday’s complaint states that an 81-year-old Rhode Island resident and owner of a commercial masonry business in Massachusetts opened an investment account with Brookville after a cold call from a salesperson in August 2010. Mayar and Veale shared commissions on his account. Their communications with the investor were both in Massachusetts and Rhode Island.
“Over the life of the account – from August 2010 through June 2012 – the investor was induced by the brokers to put $873,622 into the account to meet margin calls and purchase securities,” the Massachusetts Securities Division says. “His account turnover ratio was over 200% and he incurred $319,818 in commissions and hidden markups.”
Overall the 81-year-old suffered out-of-pocket losses of $1.6 million, the complaint charges.
The complaint charged that the two brokers engaged in abusive sales practices, churning the account through 310 transactions, fraudulent use of discretionary authority, the use of markups to conceal commission charges, and throughout a failure on the part of Brookville to exercise supervision.
Check out Massachusetts to Require Background Checks for Advisors on ThinkAdvisor.