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Regulation and Compliance > Federal Regulation > FINRA

FINRA Suspends Ex-Rep Over Reg BI Violations

By Melanie Waddell

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The Financial Industry Regulatory Authority has suspended a broker for 15 months for recommending unsuitable trades in four accounts held by three customers, one of whom was over 70, in violation of the best-interest obligation under Regulation Best Interest.

From June 2017 through June 2021, Joseph Desapio recommended “quantitatively unsuitable trades” in four accounts, the order states.

From May 2017 to July 2022, Desapio was registered as a general securities representative (GS) through Spartan Capital Securities LLC.

“His customers relied on his advice and routinely followed his recommendations and, as a result, Desapio exercised de facto control over the three customers’ accounts,” FINRA’s order states. “Desapio’s trading resulted in high turnover rates and cost-to-equity ratios that were well above the traditional guideposts of six and 20 percent, respectively.”

Desapio’s clients included a 58-year-old paralegal, a 57 year-old widowed yoga instructor and a 71-year-old insurance agent.

Desapio’s trading in the accounts was excessive, unsuitable, and not in the best interest of these three customers given their investment profiles, according to the order.

For instance, in the 71-year-old insurance agent’s account, Desapio recommended 131 transactions, resulting in an annualized turnover rate of 12 and an annualized cost to-equity ratio of 72%. Desapio’s trading in the account generated total trading costs of $27,527, including $19,778 in commissions, and caused $24,454 in realized losses.

On July 27, 2022, Spartan filed a Uniform Termination Notice for Securities Industry Registration terminating Desapio’s registration through the firm. The Form U5 stated that an arbitration had been filed against Desapio alleging “that applicant borrowed money and executed promissory note for funds from customer” and that the applicant “owes Firm $22,992.38.”

In addition, Desapio borrowed $20,000 from one of his customers in September 2019 without Spartan’s prior approval, in violation of FINRA Rules 3240 and 2010.

Although Desapio is no longer registered or associated with a FINRA member firm, he remains subject to FINRA’s jurisdiction.

Melanie Waddell

@Think_MelanieW

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