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Regulation and Compliance > Federal Regulation > FINRA

FINRA Fines Aegis Capital Over Unsuitable Trades

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What You Need to Know

  • Aegis Capital Corp. faces about $2.8 million in FINRA sanctions, including $1.7 million in restitution.
  • Supervisors failed to respond to 700 of the 900 exception reports.
  • Recognizing and responding to red flags is the hallmark of proper supervision, said enforcement head Hopper.

The Financial Industry Regulatory Authority said Tuesday that it has sanctioned Aegis Capital Corp. approximately $2.8 million, including $1.7 million in restitution, to 68 customers whose accounts were potentially excessively and unsuitably traded by the firm’s reps.

FINRA also imposed a $1.1 million fine for Aegis’ supervisory violations.

FINRA said the case originated from its exam of the firm and a review of a customer’s arbitration complaint.

From July 2014 to December 2018, Aegis failed to implement a supervisory system reasonably designed to comply with FINRA’s suitability rule.

“As a result, Aegis failed to identify and address its representatives’ potentially excessive and unsuitable trading in customer accounts, including trading by eight Aegis representatives who excessively traded 31 customers’ accounts,” the order states.

“The trading in these accounts generated average cost-to-equity ratios — that is, the amount the accounts must increase in value just to cover commissions and other trading expenses — of 71.6%, and caused the customers to incur more than $2.9 million in trading costs,” FINRA said.

Aegis, and designated supervisors Joseph Giordano and Roberto Birardi, failed to take reasonable steps to investigate numerous “red flags” indicative of potentially excessive and unsuitable trading by the firm’s registered reps, according to FINRA.

“The firm failed to act on more than 900 exception reports from its clearing firm that identified potentially unsuitable trading, and more than 50 complaints from customers alleging excessive, unsuitable or unauthorized trading in their accounts,” the order states.

Giordano and Birardi, who were responsible for supervising six of the reps, “failed to respond to 700 of the 900 exception reports. Also, when Aegis’ compliance personnel identified deficiencies with the firm’s systems and procedures used to monitor for potentially excessive trading, Aegis did not promptly address the deficiencies or improve its supervision,” the complaint said.

Jessica Hopper, executive vice president and head of FINRA’s Department of Enforcement, said in a statement: “Recognizing and responding to red flags is the hallmark of proper supervision, and a critical component in preventing excessive and unsuitable trading in customer accounts. This matter demonstrates FINRA’s commitment to holding accountable the firm, supervisors and individuals responsible, and providing restitution to harmed customers.”

Giordano agreed to a six-month supervisory suspension and a $10,000 fine, and Birardi agreed to a three-month supervisory suspension and a $5,000 fine.

Giordano and Birardi must also complete 20 hours of continuing education.

FINRA has to date reached settlements with four Aegis reps, barring two reps for churning and excessive and unauthorized trading and suspending and fining two others for excessive trading.


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