Articles Posted in Churning Fraud

Merrill Lynch has paid $40,000,000 to settle a case involving Boston financial advisor Charles Kenahan.  According to his FINRA BrokerCheck Report, two other clients have pending claims, one for over $42,000,000.  These cases all allege that, for many years, Charles Kenahan excessively traded and churned their accounts, resulting in extraordinary losses. Pursuant to an article published in InvestmentNews, one of those clients was the former New Hampshire governor, Craig Benson.

Churning or excessive trading is an all too common tactic used by unscrupulous brokers and financial advisors to generate commissions.  Especially in consistently “up” stock markets like the one currently being experienced, clients may not notice the deleterious impact this volume of trading has on their accounts. Churning/Excessive trading is considered a fraudulent act under state securities statutes.

Whether an account has been churned or excessively traded starts with the numbers. The two key components are turnover rate – meaning the rate at which the balance of the account is traded on an annualized basis.  The second important number is the cost/equity ratio, which is the rate of return your account must generate simply to cover fees and commissions. Courts traditionally look to the “2-4-6” rule to determine firstly whether trading is in fact excessive. The higher the number, the more likely a trier of fact will determine the account has been churned. Similarly, the higher the cost/equity ratio, the more likely there could be a finding of churning. If your account has to generate 15% returns just to pay your broker, chances are you’re being churned.

Stoltmann Law Offices is investigating Patrick Teutonico, who is accused of churning, unsuitable options trading, among other securities violations. Our office has filed a case against Network 1 Financial, which is the brokerage firm that Agent Teutonico has been registered with since December 2012. It is alleged that the Firm’s lack of supervision over Agent Teutonico facilitated this trading.

Agent Teutonico allegedly churned securities in the account of an elderly customer engaging in aggressive options trading on margin. The Statement of Claim alleges he over concentrated the Claimant’s account in small-cap technology stocks and invested a substantial portion of the account in the 3D printer market. Churning is excessive trading by a broker in a client’s account to generate commissions for himself and his broker/dealer. It often results in substantial losses in the client’s account.

According to his online Financial Industry Regulatory Authority (FINRA) BrokerCheck report, Teutonico was registered with W.J. Nolan & Co., Ryan, Beck & Co., Gruntal & Co., National Securities Corporation, Gunnallen Financial, First Midwest Securities, A&F Financial Securities, QA3 Financial Corp and Obsidian Financial Group. He is currently registered with Network 1 Financial Securities in Lynbrook, New York and has been since December 2012. He has nine customer disputes against him, six of which are currently pending. He has one criminal disposition against him. If you lost money with Patrick Teutonico, please call our securities law firm in Chicago for a free consultation with a securities attorney to review your claims against Network 1 Financial and Mr. Teutonico.

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