James Brett Stuart of Castle Rock, Colorado, a stockbroker previously registered with Richfield Orion International Inc., was barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity because he failed to create and implement a supervisory system designed to comply with securities laws and FINRA rules; he failed to supervise stockbrokers’ trading in customer accounts at Richfield Orion International Inc.; and he refused to appear for testimony in a FINRA investigation into his activities. Department of Enforcement v. James Brett Stuart, Default Decision No. 2019062948102 (March 15, 2024).
According to the Decision, Stuart’s written supervisory procedures were deficient for monitoring and preventing excessive trading. The procedures provided no clear guidelines for calculating turnover rates and cost-to-equity ratios, which are important metrics for identifying excessive trading activities.
Also, after Regulation Best Interest (Reg BI) became effective, Stuart failed to update these procedures to align with the new regulatory standards, failing to ensure the securities broker dealer’s compliance with investor protection rules.
FINRA noted specific instances of Stuart’s failure to supervise trading activities in customer accounts. Despite receiving over 500 alerts from the securities broker dealer’s clearing house indicating excessive trading, Stuart failed to take investigative or corrective steps. This caused the continuation of excessive trading practices, resulting in customer losses and excessive commissions.
For example, over a period of two and a half years, 900 trades were executed in a 62-year-old customer’s account, leading to customer losses exceeding $368,000.00 and total costs of $236,500.00. Stuart’s failure to supervise enabled these excessive trading activities without intervention, despite multiple alerts indicating a problem.
Another account was held by a 77-year-old retiree with a moderate risk tolerance, who did not seek an actively traded account. 102 trades were made within a year, generating an annualized cost-to-equity ratio of 31 percent and resulting in customer losses. Like the first customer’s account, this account received numerous alerts for excessive trading, which Stuart disregarded.
Therefore, Stuart violated FINRA Rules 3110 and 2010.
The Decision stated that Stuart refused to appear for testimony under FINRA Rule 8210, despite multiple requests and scheduled dates for testimony. His refusal obstructed FINRA’s ability to conduct an investigation into the supervisory failures and the harm caused to customers because of excessive trading.
Stuart was associated with Richfield Orion International Inc. in Castle Rock, Colorado from December 10, 2007, to November 3, 2022.
