FINRA Charges Hank Mark Werner with Churning Customer Accounts

A FINRA registered broker-dealer lands on the regulator's 'bad guys' list for rampant churning of customer accounts.

The Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all securities firms ‎in the United States, on Monday filed charges against a New York-based broker-dealer who allegedly engaged in excessive trading on the accounts of a 77-year old blind widow to obtain unlawful commissions of nearly $250,000, according to a FINRA statement.

The complaint alleges that Hank Mark Werner of Northport, New York, engaged in a deceptive and fraudulent scheme by churning the widow’s accounts over a three-year period to maximize his compensation. Churning is considered a species of securities fraud. The elements of the claim are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions.

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FINRA found that from October 2012 to December 2015, Werner excessively traded and churned the accounts of his customer, generating more than $243,000 in commissions. At the same time, the excessive trading activity in these accounts resulted in over $184,000 in customer losses.

According to regulatory documents, Werner placed over 700 trades in more than 200 different securities, and charged the widow either a markup or commission on every purchase and sale. He initially charged a markup or commission between 2.50 percent and 3.00 percent, but later increased commissions on her trades to 3.75 to 4.25 percent, an increase of over 40 percent.

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According to the complaint, Werner began aggressively trading the victim’s accounts a few weeks after the customer’s husband passed away. He had been the elderly customer’s broker – and that of her blind husband until his 2012 death – since 1995.

Possible remedies include fines

FINRA’s complaint triggered by ‘red flags’ in Werner’s trading at his former firm. These included large numbers of trades where commissions exceeded 3 percent, the high turnover rates and cost-to-equity ratios which ranged from 64.40 percent to 97.73 percent. The claim stated further examples such as recommending an unsuitable variable annuity exchange in July 2015 to earn a commission of more than $10,000 on the transaction.

According to the regulator: “The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint.”

“Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution,” the statement further stated.

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