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Former Compliance Chief to Pay $65K Over Broker's Leveraged ETF Trades

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A former chief compliance officer at America Northcoast Securities, an advisory firm barred by the Financial Industry Regulatory Authority, has agreed to pay $65,000 as part of a settlement with the Securities and Exchange Commission for enabling an ex-broker to make risky trades without clients’ consent, according to the regulator.

In an order filed by the SEC Aug. 27, the regulator claimed Christopher R. Barone, 54, of Pepper Pike, Ohio “enabled” ex-ANS broker Dominic A. Tropiano to “solicit and place securities trades in 66 accounts of retail customers that Tropiano had recruited from the broker-dealer where he previously worked.”

Tropiano “engaged in unauthorized and unsuitable trading in the accounts of retail customers” with Barone’s “knowledge and substantial assistance,” the SEC said, adding Barone “willfully aided and abetted and caused” Tropiano and the firm to violate securities rules.

The SEC, on Aug. 27, also filed a complaint against Tropiano in U.S. District Court, Northern District of Ohio, in which it claimed he fraudulently engaged in unsuitable and unauthorized trading in the accounts of retail brokerage customers.

“Tropiano’s fraud involved placing more than 500 trades involving complex securities called leveraged exchange-traded funds [that] were high-risk securities intended to be traded daily by sophisticated investors and not held for periods longer than one day,” the SEC said.

Tropiano’s customers were retail investors, including elderly ones, “who had only moderate risk profiles and long-term investment objectives,” the SEC said.

Although the investments were “unsuitable for his customers, Tropiano recommended and purchased leveraged ETFs for at least 40 retail customer accounts and held the leveraged ETFs in those accounts for weeks and, in some cases, months,” according to the complaint.

Tropiano also “fraudulently traded leveraged ETFs for certain customers without their authorization,” the SEC claimed, adding: “As a result of Tropiano’s fraudulent trading in leveraged ETFs, his customers sustained combined losses of more than $1 million.”

On the same day that complaint was filed, without admitting or denying its allegations, the SEC announced Tropiano “agreed to the entry of a judgment that permanently enjoins him from violating the charged provisions of the federal securities laws, and provides that the amount of disgorgement, prejudgment interest, and civil penalties will be determined by the court at a future date.”

The settlement was subject to court approval, the SEC noted.

Barone had signed a FINRA letter of acceptance, waiver and consent Dec. 30, agreeing to be barred from association with any FINRA firm in any capacity. FINRA accepted the letter Jan. 23.

Between December 2016 and July 2017, Barone made misrepresentations to FINRA about the frequency of his supervision of his firm’s trade reporting responsibilities, and altered documents that he produced to FINRA, the regulator alleged. Through this conduct, Barone violated FINRA Rules 8210 and 2010, FINRA said.

Barone was America Northcoast’s president and CCO during that period, FINRA pointed out. The firm’s written supervisory procedures required the CCO to conduct a monthly review of the firm’s trade reporting responsibilities to ensure compliance with applicable rules. “For various reasons, however, Barone was only completing this responsibility three or four times a year,” according to FINRA.