Craig Jay Sherman of Fletcher, North Carolina, a stockbroker formerly registered with Wynston Hill Capital LLC, has been fined $5,000.00 and suspended for four months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity supported by findings that he failed to supervise stockbrokers’ trading at Wynston Hill. Letter of Acceptance Waiver and Consent No. 2019060648801 (November 12, 2021).
According to the AWC, Sherman was made responsible by Wynston Hill for reviewing the trading activities of stockbrokers. The written supervisory procedures used by Wynston Hill called for monthly reviews of trades to be conducted by Sherman. Those trades were recommended by stockbrokers, and the need to review those trades arose from concerns about the possible churning of customer accounts. The written supervisory procedures also called for monthly reviews to be conducted by Sherman regarding the emails that stockbrokers sent to existing or potential customers of Wynston Hill. The regulator indicated that Sherman did not perform any of these supervisory duties.
The AWC states that from October of 2018 to June of 2019, there were no reviews undertaken by Sherman to detect possible excessive trading or churning of customer accounts. This precluded Sherman from knowing that there were two Wynston Hill stockbrokers making excessive trades. FINRA indicated that in under six months, customers were charged at least $300,000.00 in fees and commissions because of these stockbrokers.
According to the AWC, red flags concerning excessive trading were not investigated by Sherman even though he was made aware of these red flags. The regulator points to a February 2019 instance in which Sherman was told by a New York City Wynston Hill branch manager that within three weeks, a customer was charged approximately $100,000.00 in commissions by one of those stockbrokers. Sherman did not investigate if the stockbroker’s trading was suitable. Sherman did not assess the turnover ratio or cost-to-equity ratio for the account where these commissions were charged.
FINRA indicated that the customer’s annualized cost-to-equity ratio exceeded 100 percent, which put the customer in a position to have to make 100 percent annual returns to offset the costs and commissions charged by the stockbroker. The regulator added that the customer’s investment profile did not justify Sherman’s actions, and the customer was not made aware of the commissions charged to them.
The regulator also relayed that Sherman’s failure to review emails prevented him from seeing that the stockbrokers were making recommendations to customers who lived in states where the stockbrokers were not registered. Sherman knew that the stockbrokers were not registered in those states.
The emails also show that a third stockbroker made false records as he claimed to be the stockbroker assigned to the customers’ accounts – not the two other stockbrokers who were making recommendations. Sherman knew that the stockbroker claiming to be assigned to the customers’ accounts had no experience. FINRA indicated that if Sherman reviewed the emails, he would have been alerted that this stockbroker was not communicating with the customers and that other stockbrokers were the ones making recommendations and having customers complete the required forms to invest.
FINRA states that Sherman failed to supervise in violation of FINRA Rules 2010 and 3110.
FINRA Public Disclosure reveals that on August 1, 2019, a customer filed an investment related FINRA securities arbitration claim involving Sherman’s activities in which the customer requested $314,852.00 in damages based upon accusations that unauthorized and unsuitable trades were executed in the customer’s account in 2019 when Sherman was associated with Wynston Hill. FINRA Arbitration No. 19-02155 (August 1, 2019). According to the claim, the customer was defrauded on options and stock transactions. The claim also alleges that Wynston Hill failed to supervise.
Sherman was employed by Wynston Hill Capital between June 15, 2017, and October 15, 2020.