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<\/a><\/a>\nSeparately, FINRA suspended the firm\u2019s supervisors, Marc Harrison and Kelli Mezzatesta, who both failed to identify and investigate red flags related to Rudiger\u2019s and Reid\u2019s pervasive misconduct, for three months in all principal capacities. FINRA also fined them $5,000 each and required them to complete 20 hours of supervision-related continuing education.<\/p>
\nExcessive trading in a customer's account is trading that generates commissions for the broker but is not in the customer\u2019s best interest. Churning is excessive trading undertaken with an intent to defraud or with reckless disregard for a customer\u2019s interests.<\/p>
\n\u201cThis action underscores FINRA\u2019s unique role as a self-regulatory organization committed to protecting retail investors from misconduct,\u201d said Bill St. Louis, Executive Vice President and Head of Enforcement at FINRA<\/a>. \u201cThe egregious churning and excessive trading in this case resulted in significant customer losses over nearly six years, warranting the firm\u2019s expulsion and permanent bars for the registered representatives responsible.\u201d<\/p> \nFINRA determined that the firm and its cofounders excessively traded a total of 20 accounts, several of which were also churned over the course of six years with an intent to defraud or with reckless disregard for customers\u2019 interests. This misconduct caused customers to incur approximately $2 million in commissions and trading costs and approximately $2.7 million in losses.<\/p> \nBoth Reid and Rudiger recommended to customers a high-volume, high-cost market-timing strategy that made it virtually impossible for customers to make a profit. This misconduct violated the Care Obligation of Reg BI, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and FINRA Rules 2111, 2020 and 2010.<\/p> \nThe misconduct was evident through disproportionate commissions and trading costs that resulted in high cost-to-equity ratios, which represents the return on a customer\u2019s investments that would have been needed to cover commissions and expenses. This included:<\/p> \nThe firm and Rudiger, as CEO, failed to establish and maintain a supervisory system reasonably designed to detect and act upon churning and excessive trading.<\/p> \nIn addition, the firm, as well as Harrison and Mezzatesta, failed to take reasonable steps to supervise the trading in the affected customers\u2019 accounts, despite numerous red flags indicative of excessive trading and churning. They also did not consider customers\u2019 cost-to-equity ratios in the course of trading supervision or use available exception reports that could have assisted in identifying the violative trading.<\/p> \nIn settling these matters, the firm, as well as Reid, Rudiger, Harrison and Mezzatesta accepted and consented to the entry of FINRA\u2019s findings without admitting or denying them.<\/p> \nFINRA makes available disciplinary actions and other information on its Disciplinary Actions Online<\/a> database. In addition, FINRA publishes on its Monthly Disciplinary Actions<\/a> page a summary of disciplinary actions against firms and individuals for violations of FINRA rules; federal securities laws, rules and regulations; and the rules of the Municipal Securities Rulemaking Board. FINRA\u2019s use of fine monies is limited to specific purposes set forth in its public Financial Guiding Principles<\/a>, which are approved by its Board of Governors. FINRA publicly itemizes and discloses<\/a> how it uses fine monies each year.<\/p> \nAbout FINRA<\/b><\/p> \nFINRA is a not-for-profit organization dedicated to investor protection and market integrity. FINRA regulates one critical part of the securities industry\u2014member brokerage firms doing business in the U.S. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org<\/a>.<\/p>\n