Date:

February 16, 2021

Type of alert:

Churning  

On January 13, 2021, the Financial Industry Regulatory Authority (FINRA) Office of Hearing Officers recently accepted a Settlement to resolve FINRA rule violations against former general securities representative Steven Luftschein, who was previously associated with Aegis Capita Corp. (Aegis), to resolve allegations of churning and excessive trading in customer accounts.

According to his FINRA BrokerCheck report, Luftschein has been associated with twelve FINRA member firms since obtaining his license in 1995. Luftschein was last associated with Joseph Stone Capital L.L.C in Huntington, New York from May 2017 to May 2018. Just prior to that, he was associated with Aegis Capital Corp. in Melville, New York from June 2013 to October 2016.

The Complaint brought forth by FINRA Department of Enforcement, alleges that Luftschein executed approximately 430 trades in three customers’ accounts between July 2014 and June 2016. The trading activity resulted in annualized turnover rates between 12.5 to 96.3 and annualized cost-to-equity ratios between 35.6% and 123.8%. This activity caused the customers to experience a combined loss of over $261,000 in their accounts, and generated approximately $136,200 in commissions for Luftschein.

FINRA Department of Enforcement further claims that during this same time period, Luftschein traded in these customers’ accounts 88 times with a total principal value of approximately $3.1 million without obtaining prior authorization from the customers. Luftschein allegedly executed these trades on a riskless principal basis, even though they could have been made on an agency basis with a commission, in an attempt to conceal the high costs of his trading activity in these customers’ accounts. Thus, the trade confirmations the customers’ received from Aegis only reported the “postage fee” charged by Aegis and the per-share markup or markdown and did not indicate total costs associated with each transaction. These “hidden” markups and markdowns represented approximately 79% of the customers’ total trading costs.

FINRA Department of Enforcement asserts that by churning and excessively trading in these customers’ accounts without authorization, Luftschein willfully violated Section 10(b) of the Securities Exchange Act of 1934 and FINRA Rules 2111, 2020 and 2010.

Under the terms of the Offer of Settlement, Luftschein consents, without admitting or denying the allegations of the Complaint, to a bar from associating with any FINRA member firm in any capacity.

Luftschein’s BrokerCheck report reveals over a dozen customer disputes, with the most recent disputes alleging excessive, unsuitable and/or unauthorized trading, churning, false and misleading statements, negligence, and breach of fiduciary duty.

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