July 21, 2021
FINRA AWC
Douglas Edward Szempruch recently settled with FINRA by signing an Acceptance, Waiver, and Consent (AWC) for (1) recommending and effecting excessive and unsuitable trades in six customer accounts: (2) exercising discretionary authority without prior written authorization to effect trades in seven customer accounts, and (3) sending email communications containing misleading statements about an investment opportunity from his firm-approved email account. The violations described further below occurred between August 2014 and June 2017, while Szempruch was associated with Aegis Capital Corp.
Factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has excessively traded an account. Turnover rate represents the number of times that a portfolio of securities is exchanged for another portfolio of securities. The cost-to-equity ratio measures the amount an account must appreciate to cover commissions and other expenses. In other words, it is the break-even point where a customer may begin to see a return. A turnover rate of six or a cost-to-equity ratio above 20 percent generally indicates that excessive trading has occurred. This is a violation of FINRA Rule 2111 and also a violation of FINRA Rule 2010, which requires registered representatives to “observe high standards of commercial honor and just and equitable principles of trade.” According to FINRA, between August 2014 and September 2016. Szempruch engaged in quantitatively unsuitable, i.e., excessive trading in six customer accounts
Szempruch also allegedly made material misrepresentations to customers in violation of FINRA Rules. FINRA Rule 2210 governs communications by registered representatives with the public. FINRA Rule 2210(d)(1)(B) states: No member may make any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication. No member may publish, circulate or distribute any communication that the member knows or has reason to know contains any untrue statement of material fact or is otherwise false or misleading. A violation of FINRA Rule 2210(d)(1)(B) is also a violation of FINRA Rule 2010.
Between May 2017 and June 2017. Szempruch allegedly sent the same or similar email to 34 prospective customers, making misleading statements concerning investments in a certain company. Specifically, Szempruch inaccurately represented that he: (1) had visited the company’s production facility: (2) had met with and was in direct communication with the company’s management; (3) was participating in weekly calls with the company’s management, and (4) had first-hand information about the company. In fact, although Szempruch was invited to visit the company’s facilities, he did not attend and was instead briefed later by colleagues who did make the trip. He also did not directly communicate with the company’s management but instead closely followed the company.
Although Szempruch understood that his Aegis colleagues (as opposed to Szempruch himself) had begun conducting periodic status conferences with the company’s management, the company’s management ceased participating in the conferences shortly after executing a March 2017 agreement with Aegis. Szempruch thus did not have direct or firsthand information about the company, and misleadingly described his relationship and interactions with the company and its management. Therefore, he also violated FINRA Rules 2210(d)(1)(B) and 2010.
As a consequence, Szempruch consented to the imposition of the following sanctions:
Szumpruch submitted a statement of financial condition and demonstrated a limited ability to pay. In light of Respondent’s financial status, the sanctions do not include a monetary fine.
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