William C. Gennity, of Staten Island, New York, and Rocco Roveccio, of Freehold, New Jersey, stockbrokers employed with Alexander Capital, have been charged by Securities and Exchange Commission (SEC) in a Complaint alleging that they made fraudulent investment recommendations to customers, misrepresentations, churned customer investment portfolios, and traded without authorization from 2012 to 2014. Securities and Exchange Commission v. William C. Gennity, et al., Civil Action No. 1:17-cv-07424 (Sept. 28, 2017).
According to the Complaint, Roveccio and Gennity had a duty to have a reasonable basis in concluding that their investment recommendations were appropriate for customers; however, they failed to fulfill that duty to customers. The Complaint alleged that Roveccio and Gennity knew or were reckless in not knowing that the investment recommendations they made to customers were nearly certain to result in customer losses. Roveccio and Gennity allegedly lacked any adequate basis in concluding that the transactions were appropriate considering the rate at which securities trades had been recommended coupled with high trading costs customers incurred from pursuing those trades.
The Complaint stated that the amounts charged to customers on mark-downs and mark-ups of principal trades and commissions on agency trades had been arbitrarily determined by Roveccio and Gennity, and customers were charged commissions regardless of whether investments were sold at a gain or loss. Customers were assessed costs ranging between one percent and five percent, but also had to pay fixed handling or commission fees ranging from $39.00 to $49.00 for each trade. Roveccio and Gennity were paid most of those mark-downs, mark-ups and commissions that they unilaterally determined to charge customers. The Complaint further alleged that the trades Roveccio and Gennity effected for customers had been recommended by them, where they told customers which issuers to buy and sell securities from, as well as the time in which the securities should be transacted upon.
Securities in customer accounts were held for only thirteen days by Gennity prior to him selling positions; they were only held for twenty days on average by Roveccio. The costs that customers incurred with the short-term trading strategy reportedly eliminated the possibility that they would profit in any amount. SEC alleged that Roveccio and Gennity ought to have known, if they did not know already, that the short-term trading strategy could not have been in their customers’ best interest if transaction costs eroded gains. The Complaint stated that Gennity accumulated $405,152.00 through mark-downs, mark-ups and commissions and other costs assessed to four customers; Roveccio accumulated $331,499.00. Eight of the eleven affected customers supposedly incurred costs that were greater than the average equity that customers had in their investment portfolios.
Apparently, most customers suffered from cost-to-equity ratios exceeding one hundred percent – five times the twenty-percent threshold that SEC uses to determine excessive trading. Particularly, customers of Gennity incurred annual cost-to-equity ratios of over ninety-eight percent on average, and customers of Roveccio incurred seventy-four percent.
SEC alleged Roveccio’s and Gennity’s actions were violative of Securities Act of 1933 Section 17(a), Securities Exchange Act of 1934 Section 10(b), and Rule 10b-5, and seek sanctions against them including a cease and desist, disgorgement of ill-gotten gains, and bar from association with any broker or investment advisor.
Financial Industry Regulatory Authority (FINRA) Public Disclosure reveals that Gennity has been identified in six customer initiated investment related disputes in regard to allegations of Gennity’s misconduct while he was associated with First Stand Financial, LLC and Alexander Capital. Particularly, on September 24, 2014, a customer initiated investment related written complaint regarding Gennity’s activities was resolved for $28,627.46 in damages based upon allegations that Gennity over-concentrated the customer’s account in speculative over-the-counter equities, and churned the customer’s investment portfolio.
Then, on February 8, 2016, a customer filed a written complaint concerning Gennity’s activities, where the customer requested $660,000.00 in damages based upon allegations that the customer was charged excessive commissions, and sold investments that were not suitable. On March 17, 2016, another customer filed a written complaint involving Gennity’s conduct, in which the customer sought $5,000.00 in damages supported by allegations of misrepresentations and omissions, and unsuitable investment recommendations in regard to stock transactions.
Subsequently, on November 14, 2016, a customer initiated investment related complaint involving Gennity’s conduct was settled for $12,029.52 in damages based upon allegations that Gennity failed to follow the customer’s instructions, and sold securities from the customer’s account without the customer’s authorization.
Thereafter, a customer filed an investment related arbitration claim regarding Gennity’s activities, in which the customer requested $200,000.00 in damages based upon allegations of breach of fiduciary duty and churning in regard to the customer’s equity account. FINRA Arbitration No. 17-01783 (July 10, 2017). Further, on August 14, 2017, a customer filed an investment related arbitration claim involving Gennity’s conduct, where the customer sought $435,000.00 in damages supported by allegations that Gennity traded in the customer’s account without the customer’s consent, and misinformed the customer about over-the-counter equities transactions effected in the customer’s investment portfolio.
FINRA Public Disclosure reveals that Roveccio is the subject of three customer initiated investment related disputes containing allegations of his improper conduct while employed with LCP Capital Corp., Brookstone Securities, Alexander Capital, L.P., and GunnAllen Financial. In particular, a customer was awarded $216,275.00 in damages according to an investment related arbitration claim involving Roveccio’s misconduct, based upon findings of churning, suitability, unauthorized trading and breach of fiduciary duty. National Association of Securities Dealers Arbitration No. 00-05463 (July 12, 2002).
On August 15, 2006, a customer initiated investment related written complaint pertaining to Roveccio’s conduct had been resolved for $8,011.00 in damages founded on allegations that Roveccio placed over-the-counter equities trades in the customer’s account without the customer’s consent. Then, on April 11, 2014, a customer initiated investment related arbitration claim regarding Roveccio’s activities was resolved for $87,500.00 in damages based upon allegations of suitability, unauthorized trading and breach of fiduciary duty in regard to options and over-the-counter equities transactions. FINRA Arbitration No. 13-01691 (Apr. 11, 2014).
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