Joseph Scott Audia, Formerly with Joseph Stone Capital, Suspended by FINRA – Hauppauge, NY — Securities Arbitration Lawyer Blog

FINRA has suspended Joseph Scott Audia, formerly with Joseph Stone Capital L.L.C., from associating with any FINRA member in all principal capacities for two months. Audia consented to the sanctions and to the entry of findings that he failed to reasonably supervise a registered representative, who excessively and unsuitably traded certain customer accounts.

Audia’s suspension is scheduled to begin on January 18, 2022, and end on March 17, 2022. He was fined $5,000 and agreed to complete 20 hours of continuing education concerning supervisory responsibilities.

If you have been harmed by Joseph Scott Audia, 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. 2019063821604

Joseph Scott Audia and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on December 20, 2021, after FINRA alleged that from approximately December 2017 to May 2020, Audia failed to reasonably supervise a registered representative (“Representative 1”), who excessively and unsuitably traded certain customer accounts.

Audia was the manager of the Joseph Stone branch office located in Hauppauge, New York. As branch office manager, Audia was responsible for supervising Representative 1’s trading activity, including monitoring Representative 1’s accounts for compliance with FINRA’s quantitative suitability rule. FINRA’s suitability rule imposes a quantitative suitability obligation that requires a member or associated person who has actual or de facto control over 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 firm’s written supervisory procedures stated, [n]o single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and- out trading in a customer’s account may provide a basis for a finding that the firm or associated person has violated the quantitative suitability obligation.

Audia carried out his supervisory obligation by reviewing daily trade blotters and by using active account reports generated by the firm. On a quarterly basis, Audia received active account reports that flagged accounts with high turnover rates and cost-to-equity ratios. The active account reports also identified commission restrictions, or limits on future commissions charged to a customer, that the firm imposed on accounts that it had identified as active accounts. Audia had responsibility for reviewing the reports and enforcing the commission restrictions.

According to the AWC, Audia did not reasonably investigate those red flags or otherwise take appropriate action to reduce the cost to equity ratios and turnover rates in those accounts.

First, although Audia reviewed the branch’s daily trade blotters, he failed to identify or investigate red flags that Representative 1 was excessively trading customer accounts, including certain instances of in-and-out trading.

Second, on certain occasions, Audia failed to enforce commission restrictions imposed on Representative 1 by the firm and reflected on the active account reports that Audia received.

As a result, Audia violated FINRA Rules 3110 and 2010.

FINRA Rules 3110 & 2010

FINRA Rule 3110 requires that member firms “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.” To comply with this obligation, a firm’s designated supervisors must reasonably investigate red flags of potential misconduct and take appropriate action when misconduct has occurred.

A violation of FINRA Rule 3110 also is a violation of FINRA Rule 2010, which requires associated persons to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.