Vorpahl Wing Securities and Tim James Vorpahl (President and CCO), of Spokane, Washington, have been sanctioned by Financial Industry Regulatory Authority (FINRA) based upon findings that the firm and Vorpahl failed to supervise suitability of securities transactions and failed to supervise trading, resulting in excessive trading in Vorpahl Wing Securities customer’s accounts. Letter of Acceptance, Waiver, and Consent No. 2020065149802 (March 11, 2022).
According to the AWC, written supervisory procedures at Vorpahl Wing Securities required a supervision system to be created to address the suitability of customers’ transactions. The supervision system needed to be accompanied by written supervisory procedures to ensure compliance with FINRA Rule 2111. Vorpahl was responsible for supervising stockbrokers’ trading of accounts to determine if they were unsuitable or excessive, or potentially violative of FINRA Rule 2111. To do this, Vorpahl needed to undertake reviews of daily order tickets, monthly exception reports, and daily activity reports.
FINRA states that the monthly exception reports flagged accounts that had commissions exceeding $1,200 in a month and accounts with ten or more trades in a month. The reports produced both commission-to-equity ratios and turnover rates for that month as well as the preceding 12 months. Armed with this information, Vorpahl was supposed to identify whether he needed to take action against any stockbrokers for making excessive and unsuitable trades.
FINRA states that Vorpahl Wing Securities did not create written supervisory procedures identifying how the company and supervisors would review accounts to determine excessive and unsuitable trading. There was no written supervisory procedure that created or addressed thresholds for cost-to-equity ratios and annualized turnover rates. There was no written supervisory procedure for identifying and investigating possibly excessive trading. There was no instruction as to whether customers should be contacted by the principal regarding trades to ensure that trades were acceptable to customers. FINRA states that Vorpahl Wing Securities and Vorpahl violated FINRA Rules 2010 and 3110(a).
The AWC also states that a former stockbroker was not supervised by Vorpahl, resulting in unsuitable transactions. The regulator states that as the stockbroker’s supervisor, Vorpahl had to supervise their trading activities. Vorpahl determined that the stockbroker’s trading was potentially excessive and unsuitable but failed to reasonably address the issue.
FINRA states that red flags which Vorpahl Wing Securities and Vorpahl knew about included two customers’ accounts being listed on the exception reports, which displayed high commission-to-equity ratios and high annualized turnover rates. A second red flag concerned the stockbroker’s in-and-out trading. The securities broker dealer and Vorpahl were made aware that short-term trades were inappropriate given the customer’s objectives for investing and tolerance for risk. The AWC also states that Vorpahl Wing Securities and Vorpahl understood that the stockbroker caused the customers to experience losses.
The letters that Vorpahl Wing Securities sent to some customers did not show that excessive trading occurred in customers’ accounts. Those letters did not indicate the costs incurred by the trades or the number of trades placed in the accounts. FINRA states that two customer accounts had cost-to-equity ratios ranging between 20-24 percent and annualized turnover rates of 6. Those customers paid $35,223.82 in costs and commissions because of the stockbroker’s excessive and unsuitable trading, according to FINRA.
FINRA states that Vorpahl Wing Securities and Vorpahl failed to supervise in violation of FINRA Rule 2010 and 3110(a). The securities broker dealer was fined $25,000.00, and Vorpahl was fined $7,500.00 and suspended for three months from associating with any FINRA member in any principal capacity.