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The Financial Industry Regulatory Authority fined the broker/dealer Aegis Capital approximately $2.8 million for failing to supervise potentially excessive trading by some of the firm’s registered reps. The total sum includes $1.7 million for nearly 70 customers whose accounts were potentially affected by the suspect trading activity, according to FINRA.
Aegis Capital, which has been registered with FINRA since 1984, is based out of New York with more than 300 registered reps spread through 23 branch offices. The settlement sprang from an examination of the firm and a customer’s arbitration complaint, with FINRA arguing the firm “failed to implement a supervisory system reasonably designed” to meet compliance standards.
In a statement, FINRA EVP and Enforcement Department Head Jessica Hopper said the sanctions illustrated the regulator’s commitment to holding the firm accountable.
“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,” she said.
According to the letter of acceptance, waiver and consent with Aegis, from July 2014 to December 2018, the firm lacked the supervisory procedures to catch trading in hundreds of investors’ accounts that was potentially unsuitable. Particularly, there were trades eight registered reps made in 31 customers’ accounts that generated a cost-to-equity ratio that resulted in more than $2.9 million in trading costs for those customers.
FINRA found that Aegis received exception reports from its clearing firm meant to flag instances where reps’ activity suggested excessive or unsuitable trading. In total, the firm received (and didn’t act on) more than 900 of these reports that identified potentially suspect trading among the eight reps in question and also didn’t act in response to more than 50 customer complaints about “excessive, unsuitable or unauthorized” trades made in their accounts.
In a separate action, FINRA specifically knocked Aegis designated supervisors Joseph Giordano and Robert Birardi for failing to follow up on these red flags. According to the agency, the two supervisors were responsible for overseeing the activity of six of the reps in question and failed to respond to 700 of the 900 exception reports.
Even when compliance officials with the firm found that its procedures for monitoring such trades were insufficient, Aegis did not quickly move to address the issues or improve the oversight, according to the FINRA order. The agency argued that the firm failed “to establish, maintain and enforce” a supervisory system that would flag potentially unsuitable sales of non-traditional exchange traded funds (ETFs).
When reached by phone, Aegis declined to comment on the actions from FINRA.
As part of the agreement, Aegis Capital, Giordano and Birardi did not admit or deny the findings contained in the report. In addition to the $1.7 million for restitution, Aegis must pay a $1.1 million fine for the alleged violations. Giordano agreed to a six-month supervisory suspension with a $10,000 fine, while Birardi settled with FINRA and took a three-month suspension and a fine of $5,000. Both supervisors also need to complete 20 hours of continuing education.
Additionally, FINRA previously reached settlements with four Aegis reps, barring two of them for churning and unauthorized trading and suspending and fining two others for excessive trades.
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