Michael William Leahy (also known as Mike Leahy) of Red Bank New Jersey a former Chief Compliance Officer of First Standard Financial Company LLC has been fined $5,000.00 and barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon findings that Leahy neglected to supervise a stockbroker of First Standard Financial who (1) provided unsuitable investment recommendations to customers of the securities broker dealer (2) effected trades without customer authorization and (3) charged excessive commissions. Letter of Acceptance Waiver and Consent No. 2019063631802 (Jan. 22, 2020).
According to the AWC, on August 12, 2019, Leahy became First Standard Financial Company’s Chief Compliance Officer and was responsible for supervising the trading of stockbroker PS. Among other things, Leahy was responsible for reviewing PS’s transactions listed on a trade blotter and was supposed to review and handle any customer complaints about him. The AWC stated that in this capacity, Leahy was alerted that PS was possibly engaging in unauthorized and unsuitable trades in customer accounts and charging customers unwarranted fees or commissions. Leahy failed to take appropriate action.
In particular, between January of 2019 and August of 2019, Leahy learned that PS had been accused of charging customers hefty commissions on trades which were made in their accounts on an excessive basis. FINRA reported that by September 18, 2019, a total of 850 accounts had been serviced by PS, 620 of which were assigned through Leahy. By then, Leahy’s monthly commissions grew to $500,000.00.
The AWC stated that between September 18, 2019 and October 8, 2019, Leahy was contacted by at least eight customers who alleged that trades had been effected in their accounts without their approval, and that margin use was unauthorized. Leahy cancelled commissions for sixty-three trades in response, but he also took PS’s word that the customers’ complaints were unwarranted. There was no further action taken by Leahy at that time to address PS’s allegedly unauthorized or unsuitable trading.
FINRA also indicated that Leahy failed to take appropriate action after reviewing the trade blotter during the September 18, 2019 to October 8, 2019 period which would have revealed that PS was effecting mass trades in customer accounts. For instance, on September 26, 2019, sixty-eight trades had been placed by PS in the accounts of thirty-nine customers. There was no attempt made by Leahy to assess whether PS’s trades lacked authorization, and Leahy took no steps to ensure that margin was used only with permission from customers. The AWC indicated that no customers were contacted by Leahy regarding this issue.
The AWC additionally stated that Leahy was apprised about PS recommending unsuitable transactions because customers received inconsistent recommendations from PS regarding what to do with the same security on the same day. PS also engaged in in-and-out trading on a frequent basis. In some cases, PS would purchase a large cap stock and then sell the security that day. Each transaction generated four percent commissions. In one case, PS’s in-and-out trading caused a ninety-two year old widow to sustain losses while having to pay commissions of $22,733.00. Leahy never bothered to ask PS why customers were receiving inconsistent recommendations, and he never spoke with customers who were exposed to PS’s high frequency trading.
According to the AWC, Leahy was aware of concerns about what PS charged for trades. Specifically, the trade blotter showed that PS’s transactions generated more than five percent in commissions – a sign of excessive commissions. In fact, on September 20, 2019, one customer was charged nearly twelve percent commissions. Leahy also knew about commissions PS charged being a problem for customers as those customers had complained directly to Leahy. He did not appropriately probe PS about his activities or otherwise put a stop to them. FINRA determined that Leahy’s collective failure to supervise PS was violative of FINRA Rules 2010 and 3110.
Leahy’s registration with First Standard Financial has been terminated as of December 31, 2019.
