FINRA Files Complaint against Westpark Capital Broker Alleging Unsuitable Treasury RecommendationsThursday, July 30, 2020
On July 20, 2020, the Financial Industry Regulatory Authority (FINRA) Department of Enforcement filed a Complaint against Stephen Sloane, a registered representative associated with Westpark Capital, Inc. in New York, New York since March 2016.
FINRA alleges in the Complaint that Sloane recommended fourteen retail customers engage in active, short-term trading of U.S. Treasuries with 10- and 30-year maturities that were unsuitable for these customers between January 2014 and January 2018. Sloane allegedly recommended buying Treasuries in the secondary market and recommended that his customers wait until “unspecified future geopolitical or economic event that would cause Treasury prices to rise” to sell the Treasuries. When Sloane decided that such an event occurred, he directed his customers to sell the Treasuries which resulted in commissions for him and losses for the customers.
Sloane allegedly failed to conduct reasonable due diligence to understand the effect of the strategy’s costs on the customers’ potential returns. Under Sloane’s guidance, the customers bought and sold long-term Treasuries every few months, with three-quarters of their sales occurring within nine months of purchase. Additionally, Sloane recommended that five customers use proceeds from sales of Treasury securities to purchase Treasury securities again the very next day. The markups for these trades ranged from 6.11 percent to 7.92 percent.
From June 2009 to March 2016, Sloane was associated with Morgan Stanley in New York, New York. Morgan Stanley instructed Sloane to reduce his Treasury trading costs. His FINRA BrokerCheck report reveals that the firm discharged him for “cost-related issues associated with [Sloane’s] trading of U.S. treasuries.”
Sloane received compensation at both firms, earning a $2,000 base salary at Morgan Stanley and additional compensation from a percent of the markups, markdowns and commissions he charged. Sloane received approximately $220,000 in compensation for his customers’ Treasury sales and purchases. The customers, however, experienced $329,811 in losses, exclusive of interest, as a result of Sloane’s investment strategy. Based on the foregoing, Sloane violated FINRA Rules 2111(a), 2121 and 2010.
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