Yong Soo Kim (also known as Yong Kim) of Los Angeles, California, a securities principal registered with Kayan Securities Inc., has been fined $5,000.00 and suspended for two months from associating with any Financial Industry Regulatory Authority (FINRA) member in any principal capacity because Kim failed to supervise certain representatives who engaged in excessive trading in customer accounts. Letter of Acceptance, Waiver, and Consent No. 2019064935602 (May 16, 2024).
From 2018 through 2021, Kayan Securities and Kim did not have a supervisory system or written supervisory procedures (WSPs) that were reasonably designed to comply with the Care Obligation of Regulation Best Interest (Reg BI) and FINRA Rule 2111. These requirements pertain to excessive trading and require that broker-dealers act in the best interest of their retail customers without placing their own interests ahead of those of their customers.
Kim was designated as the principal responsible for supervising potentially excessive trading. However, the firm’s procedures were inadequate. Until September 2018, the WSPs required Kim to monitor exceptional or questionable activity without showing how to identify such activities. By July 2019, the procedures were updated to include benchmarks for commission-to-equity ratios and turnover rates. The regulator indicated that despite these updates, the procedures remained insufficient.
Kim was supposed to send letters to customers whose accounts exceeded these benchmarks, but the letters did not provide specific details about the trading activities or confirm the customers’ awareness.
In July 2020, the securities broker dealer added sections regarding Reg BI to its written procedures but did not enhance its procedures for supervising excessive trading. This failure to establish a proper supervisory system resulted in violations of FINRA Rules 2010 and 3110 and Reg BI.
Kayan and Kim also failed to supervise a former registered representative (Stockbroker 1), who engaged in unauthorized and excessive trading in the accounts of three customers (Customer 1, Customer 2, and Customer 3). Kim was responsible for reviewing and supervising Stockbroker 1’s trading activity. Despite multiple red flags, such as high turnover rates, in-and-out trading patterns, and customer complaints, Kim did not take appropriate action.
For example, Kayan’s clearing firm labeled Customer 1’s account as a day trading account, indicating high daily trading volume. The trading reports from 2018 through 2020 showed that the three customers’ accounts had turnover rates exceeding an excessive trading benchmark of six. Stockbroker 1 also executed in-and-out trading in these accounts.
Despite these red flags, Kim failed to contact Customer 1 or Customer 3. After Customer 1 complained about unauthorized trading in June 2019, Kayan and Kim did not investigate the trading activity. When Stockbroker 1 engaged in similar trading in Customer 3’s account, Kim only had Stockbroker 1 obtain a revised account application to change the investment objective and risk tolerance to match the trading.
Kim only sent a letter to Customer 2 after three monthly active account reports showed a high turnover rate. The AWC stated that Customer 2 complained about unauthorized trading.
In September 2020, after Stockbroker 1 admitted to Kim that he had engaged in unauthorized trading in accounts of Customer 1 and Customer 2, the firm fined Stockbroker 1 but did not conduct a thorough investigation. Stockbroker 1 continued trading in other customers’ accounts until FINRA barred him in April 2021. After Stockbroker 1 was barred, Customer 3 also reported unauthorized trading in his account.
Kayan also failed to report two written customer complaints regarding Stockbroker 1 to FINRA, violating FINRA Rule 4530. In September 2019, Customer 1 sent a written complaint about Stockbroker 1’s trading, and in January 2021, Customer 2 did the same. Furthermore, after determining in September 2020 that Stockbroker 1 had engaged in unauthorized trading, Kayan failed to disclose this information. Kayan also did not update Stockbroker 1’s Forms U4 and U5 to disclose three written customer complaints. Therefore, the securities broker dealer violated FINRA Rule 1122.
Kim has been associated with Kayan Securities Inc. in Los Angeles, California since November 28, 2011.
