PHX Financial Inc. a securities broker dealer headquartered in New York New York and Robert Delaplain (branch supervisor and Chief Compliance Officer) have been censured and fined by Financial Industry Regulatory Authority (FINRA) supported by findings that PHX and Delaplain neglected to supervise stockbrokers who effected unsuitable transactions in customer accounts. Letter of Acceptance Waiver and Consent No. 2016048921103 (Dec. 10, 2020).
According to the AWC, between January of 2013 and April of 2019, PHX Financial neglected to create and implement a supervisory system and set of written procedures with a view towards complying with federal securities laws and FINRA rules on excessive trading in customer accounts. The AWC also stated that written supervisory procedures were not adequately enforced by the securities broker dealer as it pertained to options transactions. The securities broker dealer conducted manual reviews which did not accurately portray the cost-to-equity ratios and turnover ratios in customer accounts. FINRA determined that PHX Financial’s failure to supervise constituted the violation of FINRA Rules 2010, 3110 and 2360 as well as National Association of Securities Dealers (NASD) Rule 3010.
The regulator also stated that between June of 2013 and April of 2016, two stockbrokers of PHX Financial were not reasonably supervised by Robert Delaplain. The AWC revealed that Halil Kozi and another stockbroker collectively executed unsuitable options transactions and excessive trades in two customers’ accounts.
Delaplain was designated supervisory authority at PHX Financial. The securities broker dealer did not check to see if Delaplain was doing any of the supervisory tasks that had been assigned to him. FINRA noted that Delaplain’s responsibilities included reviewing options transactions for suitability. Kozi held these responsibilities during the same period that he was making recommendations of options trades and placing trades in customer accounts.
No one else at PHX Financial reviewed options trades for suitability. This caused those customers to experience $550,000.00 in losses when the stockbrokers brought in $350,000.00 in commissions. FINRA determined that Delaplain and PHX violated FINRA Rules 2010 and 3110(a) and NASD Rule 3010(a).
FINRA also noted that from July of 2017 to July of 2018, five private placement offerings were recommended and sold to PHX Financial customers. Before those transactions were effected, the securities broker dealer did not conduct a reasonable investigation into the issuers or the offerings. PHX Financial did not have any supervision system or written supervisory procedures to ensure that stockbrokers were not effecting private securities transactions. The AWC stated that the private placements were insufficiently supervised. PHX Financial violated FINRA Rules 2010, 3110(a) and 3110(b) in this respect.
The AWC also reported that from July of 2017 to July of 2018, private placements were recommended to 11 customers by PHX Financial stockbrokers without suitability information being procured before the transactions were effected. The securities broker dealer did not take into accounts customers’ risk tolerance, objective for investing, investment time horizon or tax concerns. PHX Financial’s conduct was violative of FINRA Rules 2010, 2111(a) and 3110(b).
PHX Financial was fined $50,000.00. Delaplain was fined $5,000.00 and suspended for six months from associating with any FINRA member in any principal capacity.