FINRA Orders Aegis Capital Corp. to Pay $1.7 Million in Restitution to Customers Whose Accounts Were Excessively and Unsuitably Traded; Two Supervisors Fined, Suspended for Failing to Respond to Red Flags; Representatives Sanctioned
Firm Also Fined $1.1 Million for Supervisory Failures
WASHINGTON—FINRA announced today that it sanctioned Aegis Capital Corp. approximately $2.8 million, including $1.7 million in restitution to 68 customers whose accounts were potentially excessively and unsuitably traded by the firm’s representatives. FINRA also imposed a $1.1 million fine for Aegis’ supervisory violations.
FINRA’s case originated from its examination of the firm and a review of a customer’s arbitration complaint. FINRA found that from July 2014 to December 2018, Aegis failed to implement a supervisory system reasonably designed to comply with FINRA’s suitability rule. As a result, Aegis failed to identify and address its representatives’ potentially excessive and unsuitable trading in customer accounts, including trading by eight Aegis representatives who excessively traded 31 customers’ accounts. The trading in these accounts generated average cost-to-equity ratios—that is, the amount the accounts must increase in value just to cover commissions and other trading expenses—of 71.6 percent, and caused the customers to incur more than $2.9 million in trading costs.
Aegis, and designated supervisors Joseph Giordano and Roberto Birardi, failed to take reasonable steps to investigate numerous “red flags” indicative of potentially excessive and unsuitable trading by the firm's registered representatives. The firm failed to act on more than 900 exception reports from its clearing firm that identified potentially unsuitable trading, and more than 50 complaints from customers alleging excessive, unsuitable or unauthorized trading in their accounts. Giordano and Birardi, who were responsible for supervising six of the representatives, failed to respond to 700 of the 900 exception reports. Also, when Aegis’ compliance personnel identified deficiencies with the firm’s systems and procedures used to monitor for potentially excessive trading, Aegis did not promptly address the deficiencies or improve its supervision.
For their supervisory violations, Giordano agreed to a six-month supervisory suspension and $10,000 fine, and Birardi agreed to a three-month supervisory suspension and $5,000 fine. Giordano and Birardi must also complete 20 hours of continuing education. Additionally, FINRA has to date reached settlements with four Aegis representatives, barring two individuals for churning and excessive and unauthorized trading1 and suspending and fining two individuals for excessive trading.2
“Recognizing and responding to red flags is the hallmark of proper supervision, and a critical component in preventing excessive and unsuitable trading in customer accounts,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement. “This matter demonstrates FINRA’s commitment to holding accountable the firm, supervisors and individuals responsible, and providing restitution to harmed customers.”
In settling this matter, Aegis, Giordano and Birardi accept and consent to the entry of FINRA’s findings without admitting or denying them.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.
1 See James Schwartz, Order Accepting Offer of Settlement, Discip. Proceeding No. 2016051704302 (Apr. 16, 2019); Steven Luftschein, Order Accepting Offer of Settlement, Discip. Proceeding No. 2016051704303 (Jan. 13, 2021).
2 See Anthony Tricarico, AWC No. 2016051704304 (Jan. 22, 2021); Kishan Parikh, Discip. Proceeding No. 2021070337401 (Default Granted July 7, 2021).