FINRA Issues First Reg BI-Related Fine

In its first disciplinary move related to Regulation Best Interest, the Financial Industry Regulatory Authority has fined a former registered rep $5,000 and issued a six-month suspension.

From July 2020 through November 2021, Charles V. Malico willfully violated Reg BI’s Care Obligation and also violated FINRA Rule 2010 “by recommending a series of transactions in the account of one retail customer that was excessive in light of the customer’s investment profile and therefore was not in that customer’s best interest,” FINRA’s order explained.

A FINRA spokesperson confirmed Wednesday that this action represents the regulator’s first Reg BI-related fine. FINRA’s action followed an enforcement review of an arbitration claim.

At the time, Malico worked for Network 1 Financial Securities in Huntington Station, New York, according to BrokerCheck. His client was a 63-year-old tax preparer with an annual income of roughly $100,000 and a liquid net worth of about $50,000.

Although the client’s average account balance during the relevant period was less than $30,000, “Malico recommended that he make more than 350 trades in his account,” which meant the individual paid more than $54,000 in commissions and other trading costs, FINRA said.

Malico “frequently recommended” that the customer buy and then sell a security, only to repurchase the same security weeks or even days later, according to the regulator. For example, between January and July 2021, Malico recommended that the client buy and then sell shares of the same biotechnology company six separate times.

On four of those occasions, Malico recommended that the customer buy shares of the company only to sell them on the same day or the next day, FINRA said. “Such in-and-out trading caused [the customer] to lose more than $6,000, while generating more than $3,200 in commissions and trading costs to Malico and Network.”

Collectively, the trades that Malico recommended in the client’s account “resulted in an annualized cost-to-equity ratio exceeding 158% — meaning that [the customer’s] account would have had to grow by more than 158% annually just to break even. Thus, Malico’s recommendations made it virtually impossible for [the customer] to realize a profit and, in fact, [the client] lost more than $17,500 during the relevant period,” according to the order.

First registered with FINRA in 1987, Malico was registered with FINRA as a general securities representative through an association with Network 1 Financial Securities from June 2016 through April 2022.

He is not currently registered or associated with any FINRA member firm. However, he remains subject to FINRA’s jurisdiction pursuant to Article V, Section 4 of FINRA’s by-laws.