Richard Randy Mireles, of San Diego, California, a stockbroker registered with Independent Financial Group LLC, has been fined $5,000.00 and suspended for four months from associating with any Financial Industry Regulatory Authority (FINRA) member in any principal capacity because Mireles failed to supervise a stockbroker who engaged in excessive trading in customer accounts. Letter of Acceptance, Waiver, and Consent No. 2023080627902 (September 13, 2024).
FINRA Rule 3110 requires that securities broker dealers establish and maintain a system to oversee the activities of those under their supervision. This includes creating and enforcing written procedures to ensure compliance with securities laws and FINRA rules. Supervisors must also investigate and act when they uncover any warning signs or “red flags” of potential wrongdoing.
Additionally, FINRA Rule 2111 requires that financial professionals recommend only those investments that are suitable for their customers. This means they need to understand the customer’s financial goals and risk tolerance and ensure that the recommended trades are in the customer’s best interest. Excessive trading occurs when a stockbroker engages in more buying and selling of securities than is appropriate for a customer’s investment strategy. This type of activity can lead to customers paying high fees and incurring substantial losses. Excessive trading, even if profitable, can violate FINRA Rule 2111.
From July 2020 to December 2022, Mireles was repeatedly notified about excessive trading by a stockbroker under his supervision. Mireles held a principal position at Independent Financial Group LLC, which meant he was responsible for ensuring that the stockbrokers he oversaw complied with FINRA rules and acted in the best interests of their customers.
During this period, several supervisors who worked under Mireles flagged concerns regarding the trading activity of one specific representative. This representative had been excessively trading the accounts of five customers.
When the supervisors brought this issue to Mireles’ attention, they noted that trading by the representative was large in volume and principal amount, suggesting that transactions were not aligned with the customers’ investment profiles or financial goals. For example, one supervisor raised concerns in May 2021 about the number of high-principal trades placed in the accounts of elderly customers. These types of red flags should have prompted Mireles to conduct a deeper review of the trading patterns, according to the regulator. However, Mireles instructed the supervisors to review each trade individually to ensure that it complied with Regulation Best Interest or Reg. BI, and suitability requirements. This approach missed the bigger issue—the overall pattern of excessive trading that was occurring.
Mireles’ failure to act on these red flags allowed the excessive trading to continue, causing financial harm to the affected customers. The accounts in question belonged to vulnerable individuals, including retirees with limited ability to recover from financial losses. For example, one customer, a 77-year-old retiree with an investment objective of capital preservation and moderate risk tolerance, experienced an annualized cost-to-equity ratio of 20.3 percent. This means that for every $100.00 invested, the customer was paying $20.00 in fees and commissions, a level of cost that was inappropriate given the customer’s conservative investment goals. This retiree ended up paying more than $490,000.00 in trading costs and losing over $550,000.00 as a result of the excessive trading. Another customer, an 88-year-old retiree who had passed away in 2022, experienced similar financial losses, with her account incurring a cost-to-equity ratio of 23.4 percent, paying over $650,000.00 in trading costs, and realizing losses exceeding $560,000.00.
Mireles violated FINRA Rule 3110 and 2111.
Mireles has been associated with Independent Financial Group LLC in San Diego, California, since May 25, 2010.
