Joseph Stone Capital Broker Todd Kling Suspended by FINRA – New York, NY — Securities Arbitration Lawyer Blog

FINRA has suspended Joseph Stone Capital L.L.C. broker Todd Kling from the securities industry for three months. Kling consented to the sanction and to the entry of findings that he engaged in excessive and unsuitable trading, including the use of margin, in a senior customer’s account.

Kling’s suspension is scheduled to begin on January 18, 2022, and end on April 17, 2022.

If you have lost money with Todd Kling, or Joseph Stone Capital L.L.C., contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.

Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms.

FINRA Letter of Acceptance, Waiver, and Consent No. 2019063821606

Todd Kling and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on December 17, 2021, after FINRA alleged that between March 2018 and November 2019, Kling excessively and unsuitably traded one customer’s account, in violation of FINRA Rules 2111 and 2010.

Between March 2018 and November 2019, Kling engaged in excessive and unsuitable trading, including the use of margin, in a senior customer’s account. Specifically, Kling recommended that the customer place 115 trades in his account, and the customer followed Kling’s recommendations.

Although the customer’s account had an average month-end equity of $259,633, Kling recommended trades with a total principal value of more than $5,414,465, which resulted in an annualized turnover rate of more than 12. Collectively, the trades that Kling recommended caused the customer, a retired psychiatrist, to pay $153,879 in commissions, trading costs, and margin interest, which resulted in an annualized cost-to-equity ratio in excess of 35 percent—meaning that the customer’s account would have had to grow by more than 35 percent annually just to break even.

Kling’s recommended securities transactions in the customer’s account were excessive and unsuitable. Therefore, Kling violated FINRA Rules 2111 and 2010.

FINRA Rules 2111 & 2010

FINRA Rule 2111 requires, in pertinent part, that member firms or their associated persons “have a reasonable basis to believe that a recommended securities transaction or investment strategy involving a security or securities is suitable for the customer, based on information obtained through the reasonable diligence of the firm or associated person to ascertain the customer’s investment profile.” The rule imposes a “quantitative suitability” obligation that requires a member or associated person who has actual or de facto control over trading in a customer account to have a reasonable basis for believing that a series of recommended securities transactions are not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile.

The Supplementary Material to FINRA Rule 2111 at Rule 2111.05(c) also states that “[n]o single test defines excessive activity, but factors such as the turnover rate, the cost-to-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.” Turnover rate represents the number of times that a portfolio of securities is exchanged for another portfolio of securities. The cost-to-equity ratio is the percentage of return on the customer’s average net equity needed to pay commissions and other expenses. A turnover rate above six or a cost-to-equity ratio above 20 percent generally indicates that an account has been excessively traded.

A violation of FINRA Rule 2111 also constitutes a violation of FINRA Rule 2010, which requires FINRA members and associated persons to “observe high standards of commercial honor and just and equitable principles of trade” in the conduct of their business.