Securities Arbitration Lawyers BlogFINRA Orders Aegis Capital Corp. To Repay Certain Customers
Terms of a recent letter of Acceptance, Waiver, and Consent (AWC) that Aegis Capital Corp. submitted to FINRA require the New York-based broker-dealer to repay customers for alleged rule violations related to churning or excessive trading in customer accounts.
Aegis was also ordered to pay monetary sanctions, and the AWC settled the claims, and Aegis does not admit or deny FINRA’s findings.
The AWC states that restitution is to be paid to certain customers “in the total amount of $1,692,256.44.”
Churning/Excessive Trading
Churning, or excessive trading to generate commissions for the broker, is a violation of securities laws and FINRA (Financial Industry Regulatory Authority) rules.
Brokers are supposed to have a basis for making suitable recommendations for securities transactions based on an investor’s liquidity needs, risk tolerance, age, and other factors.
Cost-equity ratio and turnover ratio can be calculated to determine if trading activity was suitable.
The cost-equity ratio is determined by adding all costs, including fees, interest, and commission, and dividing by the average balance in the account. FINRA considers a cost-equity ratio of more than 20% to be a potential sign of churning.
The turnover ratio is calculated by dividing all annual purchases by the average annual balance. A turnover ratio of six or mor may indicate churning, according to FINRA.
AWC Allegations
The recent letter of AWC alleges that excessive trading in 31 Aegis customer accounts caused losses of $4.6 million with an annual cost-equity ratio of 71.6% and a turnover rate of 34.9.
The letter, which was submitted to FINRA’s Department of Enforcement, alleges that Aegis didn’t have an effective supervisory system in place “reasonably designed to supervise actively traded accounts and excessive and unsuitable trading,” and therefore didn’t recognize churning in hundreds of customer accounts.
“Aegis also received more than 50 complaints from customers alleging excessive, unsuitable or unauthorized trading in their firm accounts…Aegis failed to take reasonable steps to investigate these numerous red flags of potentially excessive and unsuitable trading,” according to the AWC.
Aegis has been registered with FINRA since 1984 and has hundreds of registered representatives in 23 branch offices. The firm has been subject of multiple regulatory investigations and related disciplinary actions. Their publicly-available BrokerCheck report shows 37 disclosures.
According to the AWC, more than 10% of Aegis’ representatives have disclosures on their report for financial issues such as liens, bankruptcies, and judgments.
Recovering Aegis Capital Corp. Investment Losses
Aegis investors may be able to recover their investment losses through FINRA’s arbitration forum. Common reasons for filing arbitration claims include excessive trading, unreasonable fees, unsuitable recommendations, lack of due diligence, and other causes.
Silver Law Group’s attorneys represent investors nationwide in securities arbitration claims against broker-dealers such as Aegis. Scott Silver, Silver Law Group’s managing partner, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice. Contact us today for a no-cost consultation at ssilver@silverlaw.com or at (800) 975-4345.