Brighton Securities Corp., a brokerage firm headquartered in Rochester, New York, was censured and fined $50,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm failed to supervise its stockbroker, who effected mutual fund trades that were not suitable for customers. Letter of Acceptance, Waiver and Consent, No. 2015046536701 (Dec. 28, 2017).
According to the AWC, from March of 2013 to March of 2014, the sales practices of stockbroker CK were not supervised. Apparently, CK executed trades of class A mutual fund shares on a short-term basis in the accounts owned by six of the firm’s customers. Those trades were construed by FINRA to be unsuitable because class A mutual fund shares were meant to be held for longer-term periods considering the substantial costs assessed to customers upfront when purchasing them.
The AWC stated that customers were exposed to CK’s high rate of recommendations for purchasing and selling the mutual funds inside of a one-year period. Customers reportedly only held class A shares in their portfolios for under four months on average. Consequently, customers sustained losses totaling $30,254.00.
The AWC revealed that the firm did not have an adequate supervision system to identify when switching and short-term trading of class A mutual fund shares had been effected by stockbrokers in an unsuitable fashion. Evidently, no exception reports focusing on class A mutual fund shares had been developed by the firm. The firm was reportedly void of any method for automatically monitoring holding periods of class A mutual fund shares, and failed to set forth any restrictions on class A mutual fund holding periods or trading activities.
The AWC stated that the firm was cognizant of the risks of CK’s frequent trading activities in customer accounts. Apparently, CK was placed on heightened supervision on five occasions by the firm based on CK’s failure to abide by the policies of the firm; for placing trades on a discretionary basis without customers’ written authorization or the firm’s authorization; and for executing unauthorized trades in the customer’s accounts. The AWC also revealed that CK effected trades on a short-term basis in many accounts of senior customers or those with a low tolerance for risk and longer-term investment objectives. FINRA concluded that the firm failed to put a stop to the unsuitable trading that CK engaged in. Consequently, FINRA found that the firm’s conduct was violative of FINRA Rule 2010 and NASD Rule 3010.
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