Halil Kozi (also known as Hal Kozi) of New York New York a stockbroker, options trader and supervisor formerly registered with PHX Financial Inc. has been charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that (1) Kozi recommended bad trades to a customer of PHX and (2) Kozi churned the customer’s account. Department of Enforcement v. Halil Kozi Disciplinary Proceeding No. 2016048921102 (Sept. 17, 2019).
According to the Complaint, between June of 2013 and February of 2015, Kozi serviced the account of an OBGYN, Customer A. Kozi allegedly controlled the trading in Customer A’s account given Customer A’s lack of experience with options trading. This allegedly enabled Kozi to determine what securities to trade, how much to invest and when to effect the trades.
FINRA Department of Enforcement contended that Kozi excessively and inappropriately traded Customer A’s account given the cost-to-equity ratio; the costs of transactions; and the customer’s needs and objectives for investing. Specifically, the Complaint stated that in less than eighteen months from the time that Customer A established the account, a total of two hundred eight options and equities trades, totaling $3,000,000.00 in purchases and sales, had been recommended by Kozi.
Allegedly, Kozi’s trading led Customer A’s account to contain an annual cost-to-equity ratio of fifty-three percent. The Complaint stated that at least $135,000.00 in commissions had been generated as a result of those trades, $87,000.00 of which went to Kozi. Customer A’s account allegedly sustained almost $72,000.00 in losses. The Complaint alleged that Kozi sought to maximize his own benefit at Customer A’s expense, demonstrating his fraudulent intentions or a complete lack of regard for Customer A’s interests. FINRA Department of Enforcement alleged that Kozi’s conduct was violative of Securities Exchange Act of 1934 Section 10(b), Securities and Exchange Commission (SEC) Rule 10b-5 and FINRA Rules 2010 and 2020.
The Complaint also alleged that Kozi effected qualitatively unsuitable trades. Allegedly, one hundred three of the options transactions recommended by Kozi for Customer A’s account failed to be suitable given the speculative nature of the transactions and the costs of the trades when taking into account Customer A’s needs, financial situation, tolerance for risk and objectives for investing. The Complaint stated that Kozi lacked an adequate foundation to conclude that Customer A was cognizant of the risks of the options trading strategy that Kozi advised especially because the majority of trades Kozi recommended had been geared for sophisticated investors.
The Complaint also alleged that Kozi lacked an adequate foundation in advising Customer A to buy large amounts of stock of one securities issuer. FINRA Department of Enforcement indicated that the issuer’s stock comprised eighty-five percent of Customer A’s account value at one point. Allegedly, for seventeen of the eighteen months that the stock position had been held by Customer A, it represented between thirty and sixty percent of Customer A’s account balance. The Complaint stressed that overconcentration of Customer A’s account in one security conflicted with Customer A’s moderate risk tolerance and investment objectives. FINRA Department of Enforcement alleged that Kozi’s conduct in this respect was violative of FINRA Rules 2111 and 2360.
Kozi’s employment with PHX Financial Inc. has been terminated as of March 2, 2016. The stockbroker has been employed by at least fourteen different securities broker dealers which have been expelled by securities regulators for violation of federal securities laws or are otherwise defunct.
