Excessive trading at Joseph Stone results in over $1 million in restitution

Rick Steves

The trading in these accounts generated cost-to-equity ratios ranging from 21%-96%.

FINRA boosts OTC transparency by 20% of all NMS Equities

FINRA has ordered Joseph Stone Capital LLC to pay restitution of approximately $825,000 to customers whose accounts were excessively traded by the firm’s representatives. Eight representatives were order to pay an additional $211,000 in restitution.

From January 2015 to June 2020, Joseph Stone was found to have failed to identify or address representatives’ excessive and unsuitable trading in 25 customer accounts, causing the customers to incur approximately $1 million in commissions and other trading costs.

The trading in these accounts generated cost-to-equity ratios ranging from 21%-96%.

Jessica Hopper, Executive Vice President and Head of Enforcement at FINRA, commented: “Excessive costs and commissions make it more difficult for customers to realize a positive return. FINRA is committed to investigating when firms fail to reasonably supervise the suitability of recommended securities transactions, and to providing restitution to harmed investors. Firms must ensure that they establish systems and procedures to supervise recommendations to retail customers; supervisors must use available tools to identify and address red flags of excessive trading; and representatives must ensure that the costs and commissions they charge are reasonable and not excessive.”

Clearing firm flagged accounts with high commission-to-equity ratios

Joseph Stone’s clearing firm informed Joseph Capital about the excessive trading taking place via an “active account report” that flagged accounts with high-commission-to-equity ratios. However, the designated principal responsible for reviewing actively traded accounts often did not review this report, according to the regulator, who added that even when a supervisor flagged an account for potential excessive trading, Joseph Stone did not respond appropriately.

In several instances, Joseph Stone responded by prospectively restricting the commission that the representative could charge for certain trades in the account, but did not restrict the number of trades the representative could execute in the account or the aggregate commissions that could be charged. The measures would even motivate representatives to simply place more frequent trades in order to earn more commissions.

Two barred, three suspended, eight to pay $211,000 in restitution

As part of the settlement, Joseph Stone also agreed to place the representatives who are still associated with the firm on heightened supervision for two years. In addition:

  • Three Joseph Stone principals who failed to reasonably respond to red flags of excessive trading agreed to supervisory suspensions ranging from two to five months: Adam Maggio, Joseph Scott Audia, and Anthony Joseph Graziano;
  • Eight Joseph Stone representatives who excessively traded customer accounts agreed to suspensions ranging from three to eight months and to pay, collectively, approximately $211,000 in restitution: Miguel Angel Murillo, Joseph A. Ambrosole, Sebastian Wyczawski, Michael James May, Douglas J. Rosenberg, Todd Franklin Kling, Martin J. Petela, and Nico Rutella.
  • Two Joseph Stone representatives agreed to bars from associating with any FINRA member for refusing to respond to FINRA’s requests for information in connection with the investigation: Eugene A. McAdams and David Martin Martirosian.

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