December 10, 2020
Failure to Supervise
Two former supervisors at Financial West Group in Los Angeles, California recently consented to bar from association from member firms under the jurisdiction of the Financial Industry Regulatory Authority (FINRA) for failing to supervise four registered representatives who engaged in excessive and unsuitable trading in customer accounts.
According to the Letter of Acceptance, Waiver and Consent (AWC) approved by FINRA Department of Enforcement on November 17, 2020, supervisors failed to supervise four representatives who excessively traded and made qualitatively unsuitable trades involving cheap low-cost securities, options, and Non-Traditional Exchange Traded Products (ETPs) in five customer’s accounts. FINRA asserts that the supervisors ignored numerous red flags related this account activity from December 2013 to July 2017, including, but not limited to: 1) the accounts reflecting high annualized turnover rates and excessive trading; 2) in-and-out trading; 3) inverse and/or leveraged ETF positions in the customer accounts for multiple trading sessions; 4) trades involving options and short-term trading in low-cost securities; and 5) being flagged by the Monthly Account Supervision exception report and daily trade blotter. During this time, the Financial West compliance principal approached the supervisors on separate occasions to notify them of these red flags. One of the supervisors, as the OSJ Supervisor, profited $52,432.81.
By failing to supervise these registered representatives, the supervisors violated NASD Rule 3010(a), and FINRA Rules 3110(a), 2360(b)(20), and 2010. By signing the AWCs, the supervisors consented to a bar from associating with any FINRA member firm in any capacity and a $20,000 fine. The OSJ Supervisor also consented $52,432.81 in partial restitution.
The supervisors are currently associated with Western International Securities, Inc. since they left Financial West in 2017. Their FINRA BrokerCheck report shows one customer dispute for one supervisor that alleged unsuitability. The case settled for over $45,000; the requested settlement amount. The OSJ supervisor has two disciplinary disclosures. In 1991, he consented to an AWC for a violation related to net capital and consented to a censure and $5,000 fine between the other respondents. In 1994, he submitted an Offer of Settlement for another net capital-related violation and consented to a six-month suspension and $10,000 fine.