Securities Arbitration Lawyer Blog
On June 29, 2021, the Financial Industry Regulatory Authority (“FINRA”) and a Joseph Stone Capital L.L.C. stockbroker entered into a Letter of Acceptance, Waiver, and Consent No. 2020066888001 whereby the broker consented to a three-month suspension, $5,000 fine, and to pay $7,653.21 in restitution to a customer. The broker consented to the sanctions after FINRA alleged that between May 2018 and March 2019, the broker excessively and unsuitably traded a customer’s account in violation of FINRA Rules 2111 and 2010.
FINRA previously suspended the broker in 2019 after FINRA alleged that he exercised discretion in customers’ accounts without prior authorization from the customers and without seeking or obtaining approval from his firm.
If you have suffered financial losses investing with Joseph Stone Capital L.L.C., or suspect that Joseph Stone Capital L.L.C. did not have your best interest in mind when recommending investments or making account transactions, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential review of your legal rights.
Iorio Altamirano LLP represents investors that have disputes with their financial advisors or brokerage firms, such as Joseph Stone Capital.
Joseph Stone Capital L.L.C.
According to a 2017 investigation by Reuters, out of all of the brokerage firms in the country, Joseph Stone Capital hired the second most brokers with a history of significant disclosures. In 2021, Iorio Altamirano LLP set out to update that analysis.
The investigation revealed that seventy-six percent (76%) of Joseph Stone Capital’s brokers and supervisors have significant red flag public disclosures. Significant red flag disclosures include:
- regulatory sanctions,
- terminations of employment after allegations of misconduct,
- customer disputes that result in an award or settlement, and
- prior association with a firm that FINRA has expelled.
You can read the full investigative report here: Investigative Report: Iorio Altamirano LLP Investigation into Joseph Stone Capital L.L.C. Reveals Troubling Pasts for Owners, Executives, and Brokers
The suspended broker was one of the brokers who had serious incidents reported on his BrokerCheck report.
FINRA Letter of Acceptance, Waiver, and Consent No. 2020066888001
FINRA and the Joseph Stone Capital broker entered into a Letter of Acceptance, Waiver, and Consent No. 2020066888001 on June 29, 2021, after FINRA alleged that between May 2018 and March 2019, the financial advisor excessively and unsuitably traded a customer’s account in violation of FINRA Rules 2111 and 2010. Specifically, FINRA alleged:
- Between May 2018 and March 2019, while he was registered through Joseph Stone Capital, the broker engaged in excessive and unsuitable trading in a customer’s account.
- During the relevant period, the broker recommended that the customer place 33 trades in his account, and the customer accepted the broker’s recommendations.
- Although the customer’s account had average monthly equity of approximately $33,600, the broker recommended trades with a total principal value of more than $588,000, which resulted in an annualized turnover rate of more than 15.
- Collectively, the trades that the broker recommended caused the customer to pay $7,653.21 in commissions and other trading costs, which resulted in an annualized cost-to-equity ratio in excess of 20 percent—meaning that the customer’s account would have had to grow by more than 20 percent annually just to break even.
- The broker’s recommended securities transactions in the customer’s account were excessive and unsuitable. Therefore, the broker violated FINRA Rules 2111 and 2010.
Excessive trading occurs when a financial advisor makes many trades in a customer’s account, not to benefit the customer but to generate commissions for the broker.
There are two primary indicators used to evaluate whether a financial advisor excessively traded an account. The first is turnover rate, which represents the number of times a portfolio of investments is replaced for another portfolio of investments. Generally, a turnover rate of six suggests excessive trading, but a turnover rate below four can be excessive in some cases. According to FINRA, the account at issue had a turnover rate of 15.
The second indicator used to assess whether trading is excessive in an investment account is its cost-to-equity ratio. The cost-to-equity ratio measures the amount an account must appreciate to cover commissions and other expenses. That is, how much the account needs to grow just to break even. A cost-to-equity ratio of 20% generally indicates excessive trading has occurred. According to FINRA, the account at issue had a cost-to-equity ratio of 20%.
Excessive trading is an unethical and illegal practice. It is also a violation of securities rules and regulations and can cause enormous harm to customers.
Joseph Stone Capital – A Duty to Supervise
Financial institutions like Joseph Stone Capital must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as excessive trading, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.
How to Recover Financial Losses or Obtain a Free Consultation
If you have suffered investment losses with Joseph Stone Capital or suspect other inappropriate activity occurred in your investment or retirement account, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (855) 430-4010 for a free and confidential review of your legal rights.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.