FINRA has imposed a $1.1 million fine for Aegis Capital’s supervisory violations as well as $1.7 million in restitution to 68 customers whose accounts were potentially excessively and unsuitably traded by the firm’s representatives.
In total, Aegis Capital was sanctioned approximately $2.8 million in a case that originated from a review of a customer’s arbitration complaint.
This led FINRA to find that from July 2014 to December 2018, Aegis failed to implement a supervisory system reasonably designed to comply with FINRA’s suitability rule.
The US financial watchdog alleged that Aegis failed to identify and address its representatives’ potentially excessive and unsuitable trading in customer accounts, including trading by eight Aegis representatives who excessively traded 31 customers’ accounts.
The trading in these accounts generated average cost-to-equity ratios — that is, the amount the accounts must increase in value just to cover commissions and other trading expenses — of 71.6 percent, and caused the customers to incur more than $2.9 million in trading costs.
FINRA pointed the finger at Aegis, and designated supervisors Joseph Giordano and Roberto Birardi, who allegedly failed to take reasonable steps to investigate numerous “red flags” indicative of potentially excessive and unsuitable trading by the firm’s registered representatives.
Aegis, Giordano and Birardi accept and consent to the entry of FINRA’s findings without admitting or denying them.
According to the regulator, Aegis failed to act on more than 900 exception reports from its clearing firm that identified potentially unsuitable trading, and more than 50 complaints from customers alleging excessive, unsuitable or unauthorized trading in their accounts. Giordano and Birardi allegedly failed to respond to 700 of the 900 exception reports and, when Aegis’ compliance personnel identified deficiencies, the firm did not promptly address the deficiencies or improve its supervision.
“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. This matter demonstrates FINRA’s commitment to holding accountable the firm, supervisors and individuals responsible, and providing restitution to harmed customers”, Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement.
Giordano agreed to a six-month supervisory suspension and $10,000 fine, and Birardi agreed to a three-month supervisory suspension and $5,000 fine. Giordano and Birardi must also complete 20 hours of continuing education.
FINRA has to date reached settlements with four Aegis representatives, barring two individuals for churning and excessive and unauthorized trading and suspending and fining two individuals for excessive trading.
