FINRA sanctions Aegis Capital $2.8m for excessive trading

Rick Steves

Customer accounts saw commissions and other trading expenses going through the roof, having incurred more than $2.9 million in trading costs.

Aegis Capital Corp. has settled with FINRA for alleged supervisory violations with sanctions up to approximately $2.8 million.

FINRA imposed $1.7 million in restitution to 68 customers whose accounts were potentially excessively and unsuitably traded by the firm’s representatives and a $1.1 million fine.

After reviewing a customer’s arbitration complaint, FINRA found that from July 2014 to December 2018, Aegis failed to implement a supervisory system compliant with the regulator’s suitability rule.

This means that Aegis failed to identify and address its representatives’ potentially excessive and unsuitable trading in customer accounts.

FINRA identified eight Aegis representatives that excessively traded 31 customers’ accounts, pushing the average cost-to-equity ratio to 71.6 percent.

The amount the accounts must increase in value just to cover commissions and other trading expenses has gone through the roof. This practice has harmed customers who incurred more than $2.9 million in trading costs.

Aegis, and designated supervisors Joseph Giordano and Roberto Birardi, failed to take reasonable steps to investigate numerous “red flags” indicative of potentially excessive and unsuitable trading by the firm’s registered representatives.

According to the complaint, 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. Giordano and Birardi failed to respond to 700 of the 900 exception reports.

Aegis, Giordano and Birardi have accepted and consented to the entry of FINRA’s findings without admitting or denying them. 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.

Additionally, FINRA has to date reached settlements with four Aegis representatives, barring two individuals for churning and excessive and unauthorized trading1 and suspending and fining two individuals for excessive trading.

Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement, commented: “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.”

In 2020, FINRA suspended an Aegis Capital representative for using WhatsApp to conduct securities related business with three customers of Aegis.

Aegis was not able to capture the communications Falcon sent and received through WhatsApp Messenger. By virtue of the foregoing, Falcon violated FINRA Rules 4511 and 2010. He consented to a 30-calendar-day suspension from associating in any and all capacities with any FINRA member firm, and a fine of $5,000.

Falcon primarily used his personal cellular telephone to communicate via WhatsApp Messenger, but occasionally used his desktop computer at Aegis as well.

Aegis did not approve Falcon’s use of WhatsApp Messenger, nor did the firm capture the communications sent and received through WhatsApp Messenger so that it could maintain and preserve them.

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