FINRA Takes Action Against Advisor for Violating Regulation Best Interest
From the desk of Jim Eccleston at Eccleston Law
The Financial Industry Regulatory Authority (FINRA) has sanctioned a former advisor at Network 1 Financial Securities for breaching Regulation Best Interest (Reg BI) through excessive trading in a client's account.
As reported by ThinkAdvisor, Charles V. Malico was suspended for six months and fined $5,000 for his actions. Additionally, FINRA imposed a $200,000 fine on Network 1Financial Securities and ordered restitution of $533,587 plus interest for the firm's failure, along with its Chief Compliance Officer, to establish adequate supervisory procedures to ensure compliance with Reg BI.
From July 2020 to November 2021, Malico allegedly violated the Reg BI obligation by recommending numerous transactions in a client's account that were deemed excessive, given the client's investment profile. Despite the client being a 63-year-old tax preparer with modest financial resources, Malico advised over 350 trades in the account, resulting in excessive commissions and trading costs exceeding $54,000.
According to ThinkAdvisor, Malico's recommendations involved frequent buying and selling the same securities within short time frames, exacerbating the client's losses while generating substantial commissions for himself and Network 1. For instance, he advised the client to buy and sell shares of a biotechnology company on six occasions within six months, resulting in significant financial detriment to the client.
The cumulative effect of Malico's actions led to an annualized cost-to-equity ratio exceeding 158 percent, making it exceedingly challenging for the client to achieve profitability. The client suffered losses exceeding $17,500 during the relevant period due to Malico's recommendations.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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