Spartan Capital Securities a securities broker dealer headquartered in Manhattan New York—along with John D. Lowry (co-founder and CEO of Spartan) and Kim M. Monchik (CCO of Spartan)—have been charged by Financial Industry Regulatory Authority Department of Enforcement with failing to disclose reportable events concerning Spartan stockbrokers, including customer complaints and arbitrations. Department of Enforcement v. Spartan Capital Securities et al. Disciplinary Proceeding No. 2019061528001 (October 19, 2021).
Forms U4 (Uniform Applications for Securities Industry Registration or Transfer) and Form U5 (Uniform Termination Notices for Securities Industry Registration) contain information that investors find important. This includes customer disputes lodged against a stockbroker, disciplinary actions taken by FINRA and other securities regulators, employment separations based on misconduct allegations, and any criminal matters of the stockbrokers. Investors can access and review this information through FINRA, and they rely upon those disclosures to be accurate and current.
According to the Complaint, between January 1, 2015, and December 31, 2020, the securities broker dealer neglected to timely file 223 amendments to Forms U4 and Forms U5 in reference to 72 Spartan stockbrokers. The Complaint alleges that 162 instances of nondisclosures related to the filing or the resolution of a customer initiated investment related arbitration.
The regulator contends that 49 customer initiated investment related arbitrations had been filed by customers of Spartan. 65 of the stockbrokers employed by Spartan had allegedly been referenced in these disputes, and sales practice violations were alleged against them. The regulator alleges that 152 amendments to Forms U4 and U5 were supposed to be filed by Spartan Capital Securities regarding its stockbrokers pertaining to the arbitration claims.
The Complaint states that 60 of the 152 amendments were not filed at all. In 59 of those nondisclosures, the arbitration claims supposedly involved a branch manager or executive of the company. In 55 of the 152 amendments, Spartan allegedly delayed filing by 216 days on average. The regulator pointed out that the amendments were due 30 days after learning of the arbitration filings. The securities broker dealer purportedly made one filing 1,121 days after it was due.
According to the Complaint, Spartan did not timely amend Forms U4 and Forms U5 regarding how customer arbitrations were revolved. The regulator alleges that in nine cases, a customer received an arbitration award based on the arbitrator finding a Spartan stockbroker liable on the customer’s claims of sales practice violations. The securities broker dealer did not make the required filings on time in six of the nine cases.
The regulator also alleges that there were 42 occasions where a customer initiated investment related FINRA securities arbitration claim was settled for at least $15,000.00 or more. The securities broker dealer did not disclose 22 amendments to reflect this. Eleven of the filings were late. Spartan also purportedly misclassified the resolutions of four disputes as closed, withdrawn, or dismissed when the resolutions consisted of settlements.
FINRA Department of Enforcement alleges Spartan violated FINRA Rules 2010 and 1122, and FINRA By-Laws Article V Sections 2(c) and 3(b).
The Complaint alleges that some of the Forms U4 and Forms U5 pertained to a branch manager or executive officer. Among those executives were Lowry and Monchik. Spartan failed to disclose that these executives were facing customer arbitrations.
The regulator argues that Lowry and Monchik had a duty to make sure that their Forms U4 contained the complete and correct information. According to the Complaint, Lowry deliberately did not make mention of arbitration filings and resolutions on 38 occasions, and Monchik deliberately failed to disclose 15 arbitration filings or resolutions. FINRA warned the securities broker dealer, Lowry, and Monchik between 2017 and 2018 to make these required disclosures. Department of Enforcement alleges that Lowry and Monchik violated FINRA Rules 2010 and 2111 and FINRA By-Laws.
John Lowry has been identified in nine customer initiated investment related disputes involving allegations of his sales practice violations. FINRA Public Disclosure shows that Lowry is the subject of a customer initiated investment related FINRA securities arbitration claim where the customer was awarded $210,000.00 in damages based on Lowry and Spartan being found liable on causes of action, including violation of FINRA rules, control person liability, vicarious liability, and negligent supervision. FINRA Arbitration No. 16-03605 (August 24, 2018). The Statement of Claim also alleges negligence, unauthorized trading, fraud, conversion, unsuitable and excessive trading, and excessive commissions.
On February 26, 2019, another customer initiated investment related complaint regarding Lowry’s conduct was resolved for $300,000.00 in damages founded upon accusations of sales practice violations against Lowry as it relates to private placement transactions. FINRA Arbitration No. 18-03217.
