New Jersey securities regulator has barred First Standard Financial Company, LLC, in Red Bank, from the industry for excessively trading customer accounts, which led to $28.7 million in losses for clients but generated hefty commissions for the firm’s agents.
The core allegations are centered around the broker’s hiring of agents with “a history of customer complaints and regulatory problems.” Those agents excessively traded and churned the accounts of the firm’s clients through unauthorized trades for the purpose of generating sales commissions.
“This included short-term trading in bonds and other securities for which active trading is unsuitable,” the New Jersey Bureau of Securities said.
The bureau said the victims were “inexperienced, unsophisticated investors,” including seniors and customers whose risk tolerances and investment objectives should have otherwise prohibited such problematic trading.
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The regulator pursues individual cases against former agents
As part of the enforcement action, the regulator obtained a court-ordered freeze of the firm’s assets and asked the judge to assess civil monetary penalties against First Standard for not keeping tabs on its brokers, who for several months churned client accounts.
For instance, the watchdog found that a former registered agent, who was barred by the regulator this month, generated nearly $1.5 million in commissions and fees between June and October. By comparison, the same agent made only $24,258 during the prior two months. The bureau identified a similar pattern of unsuitable trading that caused hundreds of thousands of dollars in unjustified commissions paid by customers and diminished the overall return on their portfolios.
The state regulator has been separately pursuing individual cases against First Standard’s agents and in May revoked the registration of Gabriel Block and fined him $750,000 in civil penalties. Also last month, it took similar actions against Philip J. Sparacino, who was the last producing agent at First Standard and assessed him $250,000 in civil penalties for defrauding clients.
“Investors are exposed to significant risks when financial services firms turn a blind eye to excessive, unauthorized trading on clients’ accounts and happily profit from the commissions and fees generated by such misconduct,” said Attorney General Gurbir S. Grewal.