In July 2012, or in legal terms, a long time ago, at a place, not so far away, Redlands, California, a stockbroker, Chris B. Palkowitsh, of Equinox Securities, Inc. was charged by FINRA and thereaftyer terminated by his employer for doing bad things to his customers, including churning the daylights out of his customer accounts, in among other things Sirius XM Radio. The FINRA Complaint.
According to the Complaint, Palkowitsh, formerly associated with the notorious boilerroom, Sterling Financial Investment Group, and during the course of his association with Equinox Securities, Inc. seems to have ammased more than $800,000 in unpaid tax liens. sometime in 2008 hooked up with his old buddy Stephen Michael Oliveira to open his own “independent office” in Redlands, California.
According to the Complaint, from November 2008 through June 2012, Palkowitsh had effected excessive trades and churned a total of eight customer accounts. Palkowitsh often charged customers a seventy-five-dollar commission pertaining to each transaction (customer were also charged a six-dollar handling fee), and had continuously effected the transactions in accounts with principal amounts that only ranged between one-hundred and three-hundred dollars. In fact, Palkowitsh was reportedly Equinox’s highest commission broker from November 2008 through June 2012.
Palkowitsh also effected several hundred, if not thousands, of these transactions in customers’ accounts, causing him to earn substantial commissions. Palkowitsh’s investment strategy apparently did not fluctuate in nature between the affected customers and consisted of effecting daily individual equity transactions in small principle amounts.
Supposedly, the customers affected by Palkowitsh’s trading strategy, ranging from a former software engineer in Massachusetts, an architecture and construction contractor from Florida, a turfand lawn care products salesman from New Jersey, and a lawn services irrigation equipment company executive from Connecticut, were not sophisticated investors, and had only limited experience in mutual funds investing. but were duped by Palkowitsh who reportedly misrepresented his customers’ investment profile (financial condition, knowledge, experience, objectives) in account applications, where Palkowitsh routinely described such customers as having speculative investment objectives and risk tolerances.
Equinox president, Stephen M. Oliveira, who also held the title of designated supervisor and chief compliance officer, reviewed Palkowitsh’s transactions but failed to act accordingly. Oliveira was apparently aware of Palkowitsh’s misbehavior with respect to customers’ accounts, yet did nothing to step in to stop Palkowitsh from causing customers’ harm.
Ultimately, FINRA lodged a Complaint against Palkowitsh, alleging that he violated NASD Rules 2110 and 2310, IM-2310-2, and FINRA Rule 2010 as a result of excessive churning and trading. Palkowitsh was also alleged to have violated Section 10b of the Securities and Exchange Act of 1934, Rule 10b-5, FINRA Rules 2010 and 2010, and additionally NASD Rules 2110 and 2120 as a result of churning customers’ accounts.
FINRA further alleged that Equinox and Palkowitsh engaged in recommendations that were qualitatively unsuitable as a result of concentrating customers’ funds in a single security – conduct violative of FINRA Rules 2010 and NASD Rule 2310. Equinox and the Oliveira were alleged to have failed to supervise Palkowitsh in violation of NASD Rules 2110 and 3010, and FINRA Rule 2010; and were alleged to have failed to develop the appropriate supervisory protocol in order to detect and prevent unsuitable recommendations from taking place.
Public disclosure records reveal that Palkowitsh has been subject to two disclosure incidents, both of which are from customer disputes. On October 24, 2002, Palkowitsh settled a customer dispute for $205,000.00 after alleging trading losses. On January 22, 2007, Palkowitsh settled a customer dispute for $21,466.00 after the customer alleged churning and unauthorized transactions.
In some customer accounts, Palkowitsh effected over two hundred transactions per month.
A majority of customers’ funds were held in individual retirement accounts.
In some case, Palkowitsh’s customers’ cost/equity ratios ended up exceeding one-hundred percent in the process. Palkowitsh’s customers also reportedly lost over $800,000.00 in the aggregate as a result of Palkowitsh’s trading. The Order indicated that customers had not understood what transpired in their accounts due to Palkowitsh’s trading, including information about the nature of such losses.
In one case, Palkowitsh handled the investments in the account of customer, LP, an individual whom Palkowitsh was told was risk adverse and had conservative investment objectives. LP reportedly only had experience with respect to mutual funds that she held in a 401(k) account with her former employer. The Order indicated that all of LP’s retirement savings were held in the 401(k). Palkowitsh reportedly stated to LP that only one-fifth of her investments would be in equities, with the remaining in cash.
Subsequently, Palkowitsh misstated LP’s investment objectives as being speculative (rather than conservative), and described her as having excellent investment experience (Palkowitsh claimed that LP had experience in investments that she did not actually have experience in). The Order stated that after LP rolled over her 401(k) funds to invest via Palkowitsh, Palkowitsh began his excessive trading and churning, which increased over time. Palkowitsh reportedly determined all aspects of the trading activity (when to purchase, what quantity, etc.), while keeping LP in the dark pertaining to the basis behind his investment decisions.
In any event, given that Palkowitsh was terminated in 2013, this all may be ancient history.
While it took four years. on April 18, 2016, FINRA settled its complaint with Palkowitsh and Equinox Securities Inc. Department of Enforcement v. Equinox Securities Inc. et al, No. 2012031496501 (Apr. 18, 2016). However, FINRA’s enforcement actions do nothing to toll the statute of limitations for Palkowitsh and Equinox’s customers.
Even where FINRA orders restitution, which it did not here, FINRA has never attempted to collect restitution from otherwise insolvent expelled firms, or their registered representative.
Public disclosure records reveal that arbitration claims are begining to pile up. Conventional wisdom is that even if Palkowitsh or Equinox Securities has Errors and Omissions Insurance, that these policies have dollar aggregate claim limitations.
More importantly, customers bringing claims against Palkowitsh and Equinox have time limitations.
Under the federal securities laws, all such claims must be brought within three (3) years from the date of discovery of any such claim, or five (5) years from the date of the occurrence of the events giving rise to the claim(s), whichever is shorter.
Under state law, generally, all claims for common law fraud, breach of fiduciary duty, or other tort claims, must be brought within two (2) years of the date of discovery upon the exercise of reasonable diligence. If you fail to bring your claims within these proscribed times, no matter what FINRA does, these claims may be forever lost or time barred.
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