Summit Brokerage Services Agrees to Fines and Restitution to Resolve Allegations of Failing to Properly Supervise its Registered RepresentativesMonday, July 22, 2019
Summit Brokerage Services, Inc. (Summit) recently consented to sanctions imposed by the Financial Industry Regulatory Authority (FINRA) Department of Enforcement for allegedly failing to establish a supervisory system that was designed to comply with FINRA Rules pertaining to excessive trading. Summit has approximately 739 registered employees throughout 311 branch offices. The company is headquartered in Boca Raton, Florida.
According to the Letter of Acceptance, Waiver and Consent (AWC), Summit hired three to six compliance principals between January 2012 and March 2017 who were supposed to review registered representatives’ trading activity when certain trade alerts were triggered through Summit’s clearing firms. The Department of Enforcement claims that during this period of time, trade alerts relevant to identifying excessive trading, including alerts related to turnover and cost-to-equity ratios in commission-based accounts, were not placed in the trade review blotter used by compliance principals. Thus, the principals could not review registered representatives’ securities recommendations.
On at least one occasion, principals had to do a manual review of trading activities and failed to identify that a registered representative excessively traded 14 customers’ accounts. The representative placed 533 trades over three years in the account of one customer whose net worth was $1 million. This trading activity caused the customer to pay over $171,000 in commissions and resulted in annualized cost-to-equity ratios in excess of 32%.
This representative’s trading activities generated over 150 alerts for potential excessive trading and the firm failed to review any of them. As a result, 14 customers paid $641,405.23 in commissions over three years and suffered realized losses of more than $300,000.
FINRA also asserts that from June 2015 to March 2018, Summit failed to establish and maintain a supervisory system and enforce written supervisory procedures that were reasonably designed to achieve compliance with FINRA Rule 3110 regarding the creation and dissemination of consolidated reports. Specifically, Summit representatives were required to use one of the firm’s approved templates for their consolidated reports, but only 8 out of the 103 representatives that sent reports during this time used the approved templates. Other representatives used third-party vendors to disseminate these reports, in violation of Summit’s written supervisory procedures.
As a result of the foregoing, Summit violated FINRA Rules 3010, 3110, and 2010. By signing the AWC, Summit consented, without admitting or denying the allegations made against it, to a censure, $325,000 fine and over $558,000 in restitution, plus interest.
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 Summit Brokerage Services and you suspect wrongdoing? 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.