Chelsea Financial Services and Supervisory Principal Agree to FINRA Sanctions for Failing to Supervise Representatives’ Excessive TradingThursday, January 2, 2020
The Financial Industry Regulatory Authority (FINRA) Department of Enforcement recently approved a Letter of Acceptance, Waiver and Consent (AWC) submitted by Staten Island brokerage firm Chelsea Financial Services and its associated general securities representative to resolve allegations of violating securities industry rules. Chelsea Financial has approximately 68 registered brokers and 19 branch offices.
From January 2016 through July 2018, Chelsea Financial allegedly failed to establish and maintain a supervisory system, including written supervisory procedures (WSPs) that were not reasonably designed to detect potential excessive trading. The firm’s designated supervisory principal responsible for conducting suitability reviews, was allowing unsuitable and excessive trading in three customer accounts.
FINRA Department of Enforcement claims that not only were the firm’s WSPs confusing and contradictory in terms of how to assess whether trading may be excessive, but the firm also failed to provide guidance to supervisors on how they should monitor for potentially excessive trading, whether using automated exception reports, review of daily blotters, or other means of detection. Though it was not mentioned in the WSPs, the firm had a supervisory procedure to flag potential excessive trading that involved a manual review of the firm’s daily trade blotter and a review of the monthly automated exception report, which highlighted all customer accounts in which ten or more trades were executed during the prior month period.
Moreover, Chelsea Financial failed to provide guidance to supervisors on how to properly investigate the activity. The AWC states that Chelsea sent customers an “active account letter” that stated their investment objectives and their trading strategy could result in greater gains or losses than alternative methods of investing, but the letter did not states the level of trading in or the amount of commissions charged to the account. Although Chelsea limited the amount of per-transactions commissions that could be charged to the account to either $50 or $100 per trade when he identified circumstances of potential excessive trading, various representatives circumvented this restriction by simply trading more often at lower amounts per trade.
Based on the foregoing, Chelsea Financial and its associated general securities representative violated FINRA Rules 3110 and 2010. By signing the AWC, Chelsea Financial agreed to a censure, $15,000 fine, $68,899 in restitution to the customers, plus interest, and to review and revise its supervisory system and WSPs regarding supervision of excessive trading.
If a broker was not properly supervised while registered at a brokerage firm, the firm can be held liable for the broker’s misconduct. Did you lose money while investing at Chelsea Financial Services and you suspect wrongdoing? If so, you may be able to recover from your broker or the brokerage firm. Since 1998, the attorneys at ChapmanAlbin have been representing victims of investment fraud and broker misconduct. Call us at 1-877-410-8172 today for a free, no obligation consultation.