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FINRA fines firm $1M for Failing to supervise brokers

On Behalf of | Nov 19, 2021 | FINRA

It all started with a customer complaint. In some situations, such a complaint can trigger an investigation by the Financial Industry Regulatory Authority (FINRA), which, in a recent case, was sufficient to warrant such action.

FINRA began its investigation against New York-based Aegis Capital Corp. and dug into how Aegis handled its brokers, with a focus on 2014 through 2018. Ultimately, it found Aegis’ lack of oversight led to unacceptable practices that put clients at unnecessary risk. As such, FINRA fined the broker-dealer $1.1 million and required Aegis pay an additional $1.7 million in customer restitution.

What did the firm do wrong?

FINRA states the group’s use of boilerplate recommendations for managing brokers was inappropriate. Instead, FINRA states the group should have required the broker supervisors to regularly calculate cost-to-equity ratios and address any potential findings that were above 20%.

FINRA claims its probe found that Aegis’ failure to properly supervise its representatives led to excessive trades in at least 68 customer accounts. This cost the customers almost $3 million in trading expenses and led to a cost-to-equity ratio of 71.6%, which is very significant, considering that cost-to-equity ratios in excess of 20% are suggestive of excessive trading.

Did FINRA take any other action in this case?

But that wasn’t all. In addition to holding the firm itself responsible, FINRA also held brokers personally accountable. FINRA placed one, with over two decades of experience, on suspension for six-months. That broker is also required to pay a $10,000 fine. FINRA also held a second broker, with 17 years’ experience, personally accountable. The group fined the second $5,000 and placed him on a three-month suspension. FINRA also required both men to attend 20 hours in continuing education as part of the penalty.