Joseph C. Farah, of Irvine, California, a stockbroker formerly registered with Gold Coast Securities, Inc., has been charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that Farah excessively traded and churned a customer’s investment account. Department of Enforcement v. Joseph C. Farah, No. 2014041432401 (May. 8, 2017).
According to the Complaint, a Gold Coast Securities customer, LN, met Farah in 2011. Farah then solicited the customer’s opening of a Gold Coast brokerage account in October of 2012. Apparently, LN relayed to Farah by this point that her objective was to invest long term and that her risk tolerance was moderate. A variable annuity was then reportedly bought by LN and held within her Gold Coast account pursuant to LN’s recommendations. The Complaint stated that LN was also solicited at this time by Farah to create a TD Ameritrade investment account in 2012, where he facilitated the account documentation and authorization for his trading in LN’s account.
Critically, Farah was alleged to have made an arrangement with LN whereby Farah would be paid a cut of the profit by LN based upon LN’s positive investment performance, and LN would in return be reimbursed by Farah for future losses that extended beyond five percent. Yet, FINRA alleged that between November of 2012 and October of 2013, at least six hundred trades were effected by Farah in LN’s account, in which the customer’s account suffered at least twenty-five percent in investment losses. FINRA Department of Enforcement alleged that Farah’s conduct amounted to excessively trading and churning in LN’s account; conduct violative of Securities Exchange Act of 1934 Section 10(b), Securities and Exchange (SEC) Rule 10b-5, as well as FINRA Rules 2010, 2020 and 2111.
The Complaint stated that Gold Coast was never notified by Farah that he exercised discretion in LN’s account. Moreover, Gold Coast was reportedly uninformed about Farah’s authority to exercise discretion in at least four more accounts held at TD Ameritrade which were owned by an entity and three individuals. Farah purportedly falsely represented that he never had the authority to exercise discretion in customer accounts when prompted for information within the firm’s annual compliance questionnaires. FINRA Department of Enforcement alleged that Farah’s failure to inform his firm in this regard was conduct violative of FINRA Rule 2010 and NASD Rule 3050.
The Complaint also alleged that Farah lied about his outside business activities. Particularly, Gold Coast was apparently not informed about Farah & Neal Executive Benefits – a company which Farah created and partly owned which provided business owners with financial advisory services. Consequently, FINRA Department of Enforcement alleged that Farah’s failure to notify Gold Coast Securities concerning his activities was conduct violative of FINRA Rules 2010 and 3270.
Financial Industry Regulatory Authority (FINRA) Public Disclosure reveals that on August 4, 2015, a customer filed an investment related written complaint involving Farah’s conduct, based upon allegations that Farah caused the customer’s investment losses at an outside brokerage account, and made faulty representations concerning guarantees associated with the customer’s investments.
Farah was terminated from Gold Coast Securities, Inc. on September 15, 2015, based upon allegations that he effected unauthorized trades in customer accounts and pursued unapproved outside business activities.
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