David M. Levy, of West Palm Beach, Florida, a stockbroker formerly registered with Newport Coast Securities, has been barred from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity per a FINRA Office of Hearing Officers’ Default Decision containing findings that Levy effected unsuitable trades and churned customer accounts, made recommendations to customers that were unsuitable, and obstructed a FINRA investigation into his misconduct. Department of Enforcement v. Levy, No. 2012030564701 (Oct. 17, 2016).
According to the Decision, Levy traded in an unsuitable manner in the account of customer NK, who held accounts with Newport Coast Securities between January of 2010 and June of 2012. Apparently, throughout this time frame, the account was subject to $894,000.00 in purchases and $860,000.00 in sales. FINRA stated that because of Levy’s trading, NK had a cost/equity percentage of 66.3% and a 16.15 annual turnover rate. NK reportedly experienced at least $36,000.00 in total costs and sustained an estimated $37,000.00 loss.
The Decision also stated that Levy traded unsuitably in the account of customer BNS, who held accounts with Newport Coast Securities between January of 2010 and April of 2012. According to the Decision, BNS was informed by Levy that BNS’s funds would be subject to short term trades, and that the only costs associated with such trades would be a small brokerage fee. Subsequently, BNS reportedly complained to Levy about significant costs associated with a trade that Levy effected. Levy seemingly took no action regarding BNS’s cost inquiry, and only reduced the cost for the trade that BNS complained about.
The Decision stated that BNS closed his account with Newport Coast Securities in 2012 after incurring significant losses. Apparently, BNS’s account was subject to purchases exceeding $647,000.00 and sales exceeding $627,000.00. BNS apparently had a cost/equity percentage of 68.82% and an annualized 14.42 turnover rate. FINRA reported that BNS’s costs accumulated to nearly $31,000.00 in total, and that BNS sustained approximately $27,000.00 in losses.
The Decision also indicated that Levy made faulty recommendations in the account of customer JS, who held his account with Newport Coast Securities between March of 2010 and May of 2010. Apparently, JS, who was not apprised of what markdowns or markups were, was subject to purchases exceeding $1,345,000.00 and sales estimated at $1,320,000.00. FINRA stated that JS experienced a cost/equity percentage of 50.75 and an annual 11.81 turnover rate. The Decision stated that JS incurred costs estimated at $58,000.00 and experienced nearly $37,000.00 in losses. JS reportedly lost monies which totaled more than his liquid net worth.
The Decision stated that Levy effected trades in customer accounts in a manner which was inconsistent and excessive when considering the investment objectives and financial circumstances of each customer. The Decision revealed that customers faced cost/equity percentages ranging from 50.7% to 68.82%. Further, customers experienced turnover rates ranging from 11.81 to 16.15.
FINRA determined that Levy’s trading was incapable of being suitable for any customers. Further, the Decision stated that despite such customers authorizing such aggressive active trading through the signing of account documents and letters, it did not justify Levy’s excessive trading. FINRA deemed Levy to have violated FINRA Rules 2010 and 2111, NASD Rules 2110 and 2310, and IM-2310-2.
Further, FINRA stated that Levy’s trading was indicative of churning. Particularly, the benefits afforded to Levy from such trading reportedly stripped away the customer’s expected returns. FINRA found that Levy’s trading was designed to benefit himself without consideration of how customers would benefit. FINRA found that Levy’s reckless and willful disregard of the customers constituted violations of Securities Exchange Act of 1934 Section 10(b), Rule 10b-5, FINRA Rules 2010 and 2020, and NASD Rules 2110 and 2120.
Further, FINRA found that Levy made qualitatively unsuitable investment recommendations to customer NK with regard to an ETF investment. Apparently, Levy made the recommendation for NK to invest in VXX, an exchange traded fund. Yet, Levy reportedly failed to assess NK’s suitability for such investment. Levy’s conduct in this regard was found by FINRA to be violative of FINRA Rule 2010, as well as NASD Rules 2110 and 2310.
FINRA also found that Levy obstructed a FINRA investigation into his misconduct. Particularly, Levy was issued a Wells notice in January of 2014, which informed Levy that FINRA would be recommending disciplinary action against him to due to his unsuitable trading and churning of NK’s account. Levy apparently contacted NK in February of 2014, where Levy attempted to encourage NK not to testify before FINRA in return for Levy offering to assist the customer in lodging a customer arbitration claim against his firm. FINRA found that Levy’s conduct in this regard was violative of FINRA Rule 2010.
FINRA Public Disclosure reveals that Levy has been subject to fourteen incidents regarding misconduct, eleven of which involve customer initiated arbitration claims. He is subject to a pending customer initiated arbitration claim on November 3, 2014, in which the customer requested $60,000.00 in damages based upon allegations against Levy of churning the customer’s account. Levy has settled numerous customer disputes based upon allegations against Levy of churning, unauthorized trading, misrepresentation, unsuitable investment recommendations, and breach of contractual and fiduciary duties.
Since 1992, Levy has been associated with eleven different broker dealers, six of which, including the notorious Stratton Oakmont, have been expelled by securities regulators for violation of federal securities laws or are otherwise defunct. After termination from Newport Coast Securities in August of 2012, he became registered with IFS Securities from July of 2012 through December of 2012, and later Titus Rockefeller, LLC, from January of 2013 through March of 2015.
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