Summit Brokerage Services, a Boca Raton, Fla.-based broker/dealer of Cetera Financial Services, failed to review warnings about a representative who was making an excessive number of trades and boosting commission fees in the process, according to a FINRA action released Tuesday. The broker (named only as “CJ” in the action) had been barred in a separate and previous FINRA action.
The firm will pay more than $880,000, including about $558,000 for restitution to affected clients, according to FINRA.
FINRA charged that between January 2012 and March 2017, Summit failed to review alerts about CJ’s excessive securities trading for 14 different clients. Over the course of three years, CJ made 533 separate trades for one retired customer, for which she paid more than $171,000 in commissions, with an annualized cost-to-equity ratio greater than 32%.
“In this matter, the affected customers paid hundreds of thousands of dollars in commissions as a result of the excessive trading that occurred in their accounts,” Susan Schroeder, FINRA’s executive vice president for the Department of Enforcement said.
CJ’s excessive trading led to 150 separate alerts “for potentially excessive turnover rates and court-to-equity ratios,” but according to FINRA, no one at Summit took action. In all, the affected clients paid more than $650,000 in commissions, taking on more than $300,000 in losses.
A representative for Summit reiterated that while Summit did not admit or deny the charges, it consented to the entry of FINRA’s findings; he stated the issues had been addressed by the firm.
Additionally, between June 2015 and March 2018 Summit failed to supervise how its representatives used “consolidated reports,” which are documents brokers can send to clients with information about their financial holdings and assets, according to FINRA. In 2010, FINRA sent notice to firms that consolidated reports could inadvertently mislead clients if advisors were not “rigorously supervised” in preparing them, and that firms should consider outlawing them if firms could not properly scrutinize what was sent to clients.
While Summit prohibited representatives from sending clients consolidated reports unless they were structured in a template that was reviewed and approved by the firm’s compliance department, Summit had no system to track whether representatives complied with the mandate, according to FINRA.
“Of the 103 Summit representatives who sent consolidated reports to their customers during this period, only eight submitted templates to the firm’s compliance department for prior review and approval,” the action read. “One consolidated report distributed by a registered representative of the firm materially misstated the value of a customer’s investment.”