In separate complaints, the Securities and Exchange Commission has charged two brokers, Emil Botvinnik of Florida and Jovannie Aquino of New York, with recommending excessive levels of short-term trades that appear to have generated lucrative commissions for the brokers, but were almost certain to lose money for their clients.
The SEC reports that clients, many of whom were at or near retirement age, lost approximately $3.6 million, while Botvinnik and Aquino accepted commissions totaling $4.6 million.
The SEC has warned retail investors in a previously issued Investor Alert to be on the lookout for excessive trading or churning that can occur in their brokerage accounts.
SEC Continues Crackdown on Dishonest Trading
Similar charges have been filed in at least 3 other cases since 2017.
Despite the burst of activity that clearly indicates an increasing regulatory focus on this sort of fraudulent activity aimed at aging investors, such disreputable trading and charging of commissions continue.
In a statement that confirms the increased scrutiny, Antonia Chion, Associate Director in the SEC’s Division of Enforcement and Chair of the Enforcement Division’s Broker-Dealer Task Force, states, “We are diligently pursuing deceitful brokers who prey on their customers.”
Chion also advised, “Brokers need to ensure that the level of trading they recommend is suitable for their customers, and investors should be on the lookout for frequent trading in their accounts.”
Adequate Written Supervisory Procedures and Supervisory Oversight
There are a few important takeaways for Broker-Dealer firms found in this case.
First, the overall takeaway is simply that adequate Written Supervisory Procedures (“WSP”) must be in place that requires the Firm’s assigned supervisory personnel to monitor the trades placed by Registered Representatives in the Firm’s client accounts. These WSPs should, among many areas, address supervisory reviews of trading for:
- Fraudulent trading activity (such as the above mentioned
- Unsuitable investment selection
- Trades that are outside of the parameters of the client’s stated risk tolerance or asset allocation
Second, adequate WSPs should be created to verify these subject supervisory reviews are actually being conducted by those assigned to do so. This can take the form of:
- Cross-Supervisory verifications (whereby a supervisory from another function or department verifies that the assigned trading supervisory has performed their assigned reviews)
- WSP Gap analysis testing, (whereby a Broker-Dealer Firm, in meeting its requirements under FINRA Rule 3130(b), tests the effectiveness of its WSPs on a periodic basis, and thus tests whether required supervisory trade reviews are being performed.
Contact Us for Help with Written Supervisory Procedures
Core Compliance & Legal Services, Inc., can help Broker-Dealer firms develop effective Written Supervisory Procedures reasonably tailored to address trade reviews. — contact us for assistance with any related questions, or for any other legal matters that might arise.