Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers who churn customer accounts. One of the most perennial abuses in the brokerage industry is when broker-adviser “churn” accounts to generate extra commissions or fees. When that happens, it’s difficult for clients to make money because their accounts are consumed by transaction fees.
Marc Augustus Reda, a registered representative for Spartan Capital Securities in New York City, was recently charged by FINRA, the securities industry regulator, with overcharging clients some $2 million. “From 2017 through 2019,” reports fa-mag.com, “Reda, among other things, recommended unsuitable investments to his clients and traded excessively in those accounts, the FINRA complaint said. His activities resulted in 66 clients paying a total of $952,764 in commissions and fees, while incurring total net losses of $934,482,” FINRA said.
Reda generated the excessive fees through an “active trading” strategy in which he made trades without his clients’ specific permission. FINRA noted that “Reda failed to consider that the substantial commissions and costs associated with his investment strategy made it unlikely his customers could make any profits.”
“The active trading strategy he recommended to customers resulted in customers paying Reda and Spartan Capital substantial commissions and fees and caused his customers to almost always lose money,” the complaint said. “Indeed, aggregate customer losses closely mirrored aggregate commissions and fees paid to Reda and Spartan Capital. Reda executed 10 or more trades in the accounts of 66 customers in the three years to generate the fees. The accounts had an average of nearly $2.5 million in assets each.”
In other words, the more Reda traded, the more his customers lost. He did it consistently, so their losses mounted over a period of time. He also neglected to perform “due diligence” on the securities he was buying, meaning that many of the trades were unsuitable for his clients.
Like many brokers accused of churning accounts, this was not a first offense for Reda. “Reda had a spotted career even before he became associated with Spartan Capital Securities,” the complaint said. “He was associated with 18 firms since 1999 and was discharged from at least two of them. He filed for bankruptcy in 2017.” FINRA also said he failed to disclose customer complaints, federal and state tax liens filed against him.
Jumping from firm to firm, bankruptcies and a trail of customer complaints are often telltale signs that brokers are leaving behind burned customers. You can search their records through FINRA’s Brokercheck or through your state securities regulator. If you are considering a broker with a checkered past, then you may be in for trouble.
FINRA brokerage firms are legally required by FINRA to monitor and supervise what their brokers are selling and their trading strategies – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about strategies and recommendations. Investors can file FINRA arbitration complaints if these rules are broken.
If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!