FINRA has suspended Joseph Stone Capital L.L.C. broker Douglas Rosenberg from the securities industry for seven months. Rosenberg consented to the sanctions and to the entry of findings that he excessively and unsuitably traded the accounts of three customers. As a result of Rosenberg’s unsuitable recommendations, his customers suffered a total of over $154,000 in realized losses and paid a total of $89,652 in commissions, trading costs, and margin interest.
Rosenberg’s suspension is scheduled to begin on January 3, 2022, and end on August 2, 2022. He was also ordered to pay partial restitution to the three customers of $25,000.
If you have lost money with Douglas Rosenberg, 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. 2019063821605
Douglas Rosenberg and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on December 1, 2021, after FINRA alleged that between June 2017 and May 2020, Rosenberg excessively and unsuitably traded three customers’ accounts, in violation of FINRA Rules 2111 and 2010.
The FINRA AWC identified the three customers as Customers A, B, and C.
Customer A
Between June 2017 and January 2019, Rosenberg engaged in excessive and unsuitable trading in the account of Customer A. During the relevant period, Rosenberg recommended that Customer A place 47 trades in his account, and Customer A accepted Rosenberg’s recommendations. Although Customer A’s account had an average month-end equity of approximately $12,077, Rosenberg recommended trades with a total principal value of more than $597,236, which resulted in an annualized turnover rate of more than 16. Collectively, the trades that Rosenberg recommended caused Customer A to pay $18,137 in commissions, trading costs, and margin interest, which resulted in an annualized cost-to-equity ratio in excess of 94 percent—meaning that Customer A’s account would have had to grow by more than 94 percent annually just to break even. As a result of Rosenberg’s unsuitable recommendations, Customer A suffered more than $12,000 in realized losses.
Customer B
Between December 2017 and March 2020, Rosenberg engaged in excessive and unsuitable trading in the account of Customer B. During the relevant period. Rosenberg recommended that Customer B place 96 trades in his account, and Customer B accepted Rosenberg’s recommendations. Although Customer B’s account had an average month-end equity of approximately $51,697, Rosenberg recommended trades with a total principal value of more than $2,723,600, which resulted in an annualized turnover rate of more than 11. Collectively, the trades that Rosenberg recommended caused Customer B to pay $57,494 in commissions, trading costs, and margin interest, which resulted in an annualized cost-to-equity ratio in excess of 49 percent—meaning that Customer B’s account would have had to grow by more than 49 percent annually just to break even. As a result of Rosenberg’s unsuitable recommendations, Customer B suffered more than $100,000 in realized losses.
Customer C
Between February 2019 and May 2020, Rosenberg engaged in excessive and unsuitable trading in the account of Customer C. During the relevant period, Rosenberg recommended that Customer C place 42 trades in his account, and Customer C accepted Rosenberg’s recommendations. Although Customer C’s account had an average month-end equity of approximately $15,846, Rosenberg recommended trades with a total principal value of more than $487,857, which resulted in an annualized turnover rate of more than 13. Collectively, the trades that Rosenberg recommended caused Customer C to pay $14,021 in commissions, trading costs, and margin interest, which resulted in an annualized cost-to-equity ratio in excess of 70 percent—meaning that Customer C’s account would have had to grow by more than 70 percent annually just to break even. As a result of Rosenberg’s unsuitable recommendations, Customer C suffered more than $42,000 in realized losses.
Rosenberg’s recommended securities transactions in the accounts of Customers A, B, and C were excessive and unsuitable. Therefore, Rosenberg 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.
You can read more about excessive trading here.
Douglas Rosenberg (CRD#: 3214215)
Rosenberg first became registered with FINRA in 2000. He has 21 years of experience in the securities industry. Since November 2013, Rosenberg has been registered as a General Securities Representative through an association with Joseph Stone Capital L.L.C.
Rosenberg’s public FINRA CRD shows a total of four prior customer complaints. The most recent customer complaint dated May 6, 2013, which was settled, alleged, among other things, excessive and unnecessary trading on margin.
How to Recover Losses or Obtain a Free Consultation
If you have lost money with Douglas Rosenberg, or Joseph Stone Capital L.L.C., contact FINRA arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.