The Financial Industry Regulatory Authority has suspended a rep for nine months and ordered him to pay a $10,000 fine and $69,830 in restitution for excessive trading in four clients' accounts, violating Regulation Best Interest.
According to FINRA's order, between May 2017 and February 2023, Joseph Kelly of Spartan Capital Securities excessively traded in the accounts of four retail customers.
Three of the clients to whom Kelly made relevant recommendations between May 2017 and November 2019 relied on Kelly’s advice and routinely followed his recommendations, the order states. As a result, Kelly exercised de facto control over those customers’ accounts.
Kelly’s recommendations to the four customers resulted in turnover rates and cost-to-equity ratios that exceeded the traditional guideposts of 6 and 20%, respectively, as well as significant losses, FINRA said.
"Specifically, Kelly’s recommendations to the customers resulted in turnover rates of 10 to 35 and cost-to-equity ratios of 42% to 171%," the order states, "while generating $365,344 in total commissions and causing $262,683 in total realized losses."
For instance, according to FINRA:
In April 2017, a 59-year-old convenience store owner opened an account at Spartan. The client's investment objective was speculation.
Between May 2017 and April 2018, Kelly recommended 55 transactions in the client's account resulting in an annualized turnover rate of 35 and an annualized cost-to-equity ratio of 171%.
Kelly’s recommendations generated $39,676 in commissions and caused $67,546 in realized losses.
In March 2018, a 56-year-old computer engineer opened a joint account with his wife at Spartan with a different Spartan representative, with an investment objective of speculation.
Kelly subsequently took over the client's account and, between May 2022 and February 2023, recommended 25 transactions in the client's account resulting in a turnover rate of 12 and a cost-to-equity ratio of 68%. Kelly’s recommendations generated $30,154 in commissions and caused $56,452 in realized losses.
"The level of trading that Kelly recommended in the four customers’ accounts was excessive," the order states.
Kelly accepted and consented to FINRA's findings without admitting or denying them.
Credit: Chris Nicholls/Touchpoint Markets
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