FINRA Imposes First Fine For Reg BI Violation
From the Desk of Jim Eccleston at Eccleston Law.
The Financial Industry Regulatory Authority (FINRA) has issued a six-month suspension and a $5,000 fine to a former financial advisor in the regulator’s first disciplinary action related to Regulation Best Interest (Reg BI).
The former advisor, Charles Malico, violated Reg BI’s Care Obligation “by recommending a series of transactions in the account of one retail customer that was excessive in light of the customer’s investment profile and therefore was not in that customer’s best interest”, between July 2020 and November 2021, according to FINRA. According to BrokerCheck, Malico worked for Network 1 Financial Securities in Huntington Station, New York, at the time of the violation. The client, whose average account balance was less than $30,000, is a 63-year-old tax preparer with an annual income of around $100,000. According to FINRA, Malico recommended that the client make at least 350 trades in his account, which required the client to pay nearly $54,000 in commissions and other costs.
FINRA’s complaint alleged that Malico “frequently recommended” that the client buy and then subsequently sell a security, only to repurchase the same security within weeks. For instance, Malico recommended that the client buy and then subsequently sells shares of the same biotechnology company on six separate occasions between January and July 2021. According to FINRA, Malico’s recommendations “resulted in an annualized cost-to-equity ratio exceeding 158% — meaning that [the customer’s] account would have had to grow by more than 158% annually just to break even. Thus, Malico’s recommendations made it virtually impossible for [the customer] to realize a profit and, in fact, [the client] lost more than $17,500 during the relevant period.”
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.
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