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FINRA Fines Ex-JPMorgan Broker Who Split Trades to Boost Commissions

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What You Need to Know

  • The 18-month suspension handed down by FINRA is steeper than many suspensions by the regulator.
  • The ex-broker had broken up multiple client orders into separate trades and charged more commission fees.
  • He didn't show that his trading strategy was suitable for customers, FINRA said.

The Financial Industry Regulatory Authority has fined a former JPMorgan broker $10,000 and suspended him from associating with any FINRA member in all capacities for 18 months after he “engaged in a pattern of breaking up” client orders into multiple small trades that generated more commissions for himself, according to the regulator.

Without admitting or denying the findings of FINRA’s investigation, Trevor B. Rahn signed a FINRA letter of acceptance, waiver and consent March 1 in which he consented to the imposition of FINRA’s sanctions. FINRA signed the letter Friday.

However, Rahn may never serve the suspension because he is no longer registered as a broker or financial advisor, according to his report on FINRA’s BrokerCheck website.

JPMorgan declined to comment Monday. Dexter B. Johnson, a partner at the law firm Mallon & Johnson who represented Rahn in the dispute with FINRA, did not immediately respond to a request for comment.

Rahn became associated with J.P. Morgan Securities on July 30, 2010, as a general securities representative, according to FINRA.

In a Form 5 Uniform Termination Notice filed on Sept. 27, 2018, the BD reported it discharged Rahn on Sept. 17, 2018, for “unacceptable practices by the representative relating to the timing and size of orders entered and resulting transaction charges in a client account and relating to the marking of certain orders for the account as unsolicited,” FINRA said.

JPMorgan amended Rahn’s Form U5 on Dec. 20, 2018, March 14, 2019, and April 24, 2020, to disclose three customer complaints against him, according to FINRA.

Breaking Up Trades

From January 2014 to September 2018, Rahn recommended an “average pricing” investment strategy to his customers in which he executed orders in 32 client accounts by breaking them into multiple small trades that each generated a separate commission, according to FINRA.

When entering those multiple smaller trades, “Rahn often entered a separate commission on each trade that was greater than the amount that would be charged under the firm’s standard commission schedule,” according to the regulator.

He also “relied on the firm’s system to automatically assign commissions in accordance with the firm’s commission schedule without taking steps to confirm it actually did so,” FINRA alleged.

Because Rahn didn’t conduct the necessary reasonable diligence to understand the cost implications of his recommended strategy, he “lacked a reasonable basis to recommend his strategy to clients,” according to FINRA.

In connection with his strategy, Rahn exercised time and price discretion by breaking up 1,106 client orders into more than 7,500 smaller trades without the required authorization, according to FINRA.

Separately, between June 2016 and September 2017, Rahn executed 577 unauthorized trades in a customer’s account and also mismarked 4,714 solicited trades in three customer accounts as “unsolicited,” FINRA alleged.

As a result of his actions, Rahn violated FINRA Rules 2111(a) (governing suitability rules), 2010 (governing standards of commercial honor and principles of trade) and 4511 (governing the making and preserving of books and records), as well as NASD Rule 2510(b) (discretionary account rules), according to FINRA.