Craig Scott Taddonio, owner and president of Craig Scott Capital, LLC, as well as Brent Morgan Porges, owner and chief compliance officer, and Edward Beyn, the firm’s registered representative, were all barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity according to a FINRA Office of Hearing Officers Extended Hearing Panel Decision containing findings that: Beyn made unsuitable investment recommendations and traded excessively in customer accounts; Porges and Taddonio failed to supervise Beyn’s activities; and Porges and Taddonio lied to FINRA staff in the course of an investigation into their misconduct. Department of Enforcement v. Taddonio et al., No. 2015044823501 (July 31, 2017).
According to the Decision, customer accounts were traded excessively and churned by Beyn. Apparently, Beyn subjected customers to high fees for trades that he recommended, where Beyn failed to properly apprise the customers about their cost of investing. Beyn’s conduct was deemed by FINRA’s Extended Hearing Panel to have been principally crafted for the purpose of benefiting Beyn and Craig Scott Capital versus benefiting the customers. Apparently, Beyn intentionally churned the customer’s investment portfolios to yield this result. Further, Beyn reportedly made recommendations for large exchange traded fund transactions to be effected in customer accounts even though he lacked an adequate foundation to conclude that the investments were suitable for customers.
The Decision reported that Beyn’s activities, among other representatives, were known to Porges and Taddonio. Particularly, the Decision noted that Porges and Taddonio were aware of high cost-to-equity ratios and turnover rates in customer accounts, where trading occurred at levels that crossed FINRA’s and SEC’s threshold for excessive trading. Moreover, they were aware that customers had sustained substantial investment losses, handed over large commissions, and had high commission-to-equity ratios. Porges and Taddonio evidently knew that customers filed complaints in that regard.
The Extended Hearing Panel stated that the firm failed to take appropriate measures to reduce the commissions that customers paid, and insufficiently addressed customer accounts that were exposed to the misconduct. Evidently, Porges and Taddonio failed to ascertain the extent of excessive trading and provide proper remedies, and neglected to place limitations on the firm’s registered representatives’ trading activities. Critically, the firm sought confirmation from customers to authorize trading activities in their accounts even though they were deprived of the fees associated with trades or the volume in which trading occurred.
FINRA’s Extended Hearing Panel cited Porges and Taddonio for failing to supervise the firm’s operations. Specifically, the Panel noted that Taddonio’s duties to properly address red flags were evident by way of his role as supervisor, sales manager, chief executive officer and president. The Decision stated that Taddonio’s delegation of duties in reference to customer account trading was deficient because he was cognizant that the chief compliance officer failed to comply with regulations designed for investor protection. Porges was found by FINRA to be sufficiently intertwined in the sales activities of the firm to warrant his supervision – yet he neglected to address the red flags regarding excessive trading by registered representatives in customer accounts. Critically, the Decision indicated that Porges and Taddonio went in the opposite direction: they fueled the excessive trading to benefit financially.
Further, Taddonio and Porges provided on-the-record testimony before FINRA staff; during which time they reportedly claimed not have known about the telephone conversations with customers having been recorded by the firm’s supervisory staff; they also claimed not to have known that the firm maintained sufficient equipment to record customer conversations. FINRA’s Extended Hearing Panel concluded that the Porges’ and Taddonio’s testimony in that regard was false.
FINRA Public Disclosure reveals that on August 4, 2008, a customer initiated investment related arbitration claim involving Porges’ conduct was settled for $9,998.00 in damages, where the customer’s claim was rooted in allegations of excessive commissions, trading on margin without authorization, and fraud.
On August 22, 2014, a customer filed an investment related arbitration claim involving Beyn’s conduct, wherein the customer sought $200,000.00 in damages supported by allegations against Beyn including the violation of federal securities laws, unsuitability, misrepresentation and fraud in regard to the customer’s equity investment portfolio. Then, on September 3, 2014, two customers filed investment related written complaints regarding Beyn’s activities, in which the customers sought $1,000,000.00 in damages based upon allegations against Beyn including unsuitability, breach of fiduciary obligations, negligence, and misrepresentation of mark-ups and mark-downs and commissions on equity trades effected in the customer’s account.
Subsequently, on October 27, 2014, a customer filed an investment related written complaint regarding Beyn’s activities, where the customer requested $94,000.00 in damages founded on allegations that Beyn placed stock trades in the customer’s account on an excessive and unauthorized basis. Further, on April 16, 2015, a customer initiated investment related arbitration claim pertaining to Porges’ conduct was resolved for $178,500.00 in damages, where the customer’s claim rested upon allegations against Porges, Taddonio and Beyn of misrepresentation, suitability, and excessive trading of exchange traded notes and equities effected in the customer’s accounts. The customer additionally alleged that Beyn’s activities were not adequately supervised.
Similarly, on May 1, 2015, a customer was awarded $338,454.00 in damages according to an investment related arbitration claim involving Porges’ and Taddonio’s misconduct, based upon allegations of the failure to supervise activities in the customer’s account. The customer additionally alleged that transactions were not suitable and had been misrepresented, and trades were effected in the customer’s investment account on an excessive basis.
On July 26, 2016, a customer was awarded $252,193.83 in damages according to an investment related arbitration claim involving Porges’ and Taddonio’s misconduct, based upon allegations including misrepresentation and omissions, unjust enrichment, breach of contract and fiduciary duties, unauthorized trading, churning of the customer’s portfolio, suitability, and negligence in reference to derivatives and penny stock transactions effected in the customer’s account. Moreover, on April 12, 2017, another customer was awarded $80,970.05 in damages according to an investment related arbitration claim involving Porges’ wrongdoing, based upon allegations including fraud and the violation of the State of Florida’s Securities and Investor Protection Act.
Since January 26, 2000, Porges has been associated with fifteen different broker dealers, four of which, including Brookstone Securities, have been expelled by securities regulators for violation of federal securities laws or are otherwise defunct. Taddonio and Beyn were also associated with Brookstone Securities prior to commencing employment at Craig Scott Capital.
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