The Financial Industry Regulatory Authority has accused a former registered representative with Aegis Capital Corp. for causing one customer to lose thousands of dollars through unauthorized, excessive and unsuitable trading in the customer's accounts.
The complaint alleged that from July 2014 through June 2015, the rep, Daniel O’Neill, executed 456 trades, many of which were unauthorized, totaling about $22.9 million. The trades caused the customer to suffer about $147,000 in losses, Finra said. It's the seventh agency complaint against an Aegis rep this year, and Aegis itself was the subject of an $80,000 fine in March. The complaints accused various reps of excessive trading or unsuitable or authorized trades.
The complaint against O'Neill concerned a 59-year-old college basketball coach, who became a customer while O’Neill was employed with another broker-dealer and then followed O’Neill to Aegis. (O’Neill was previous with Ladenburg Thalmann & Co. before moving to Aegis in April 2013, according to his BrokerCheck profile.)
Finra said the customer opened a brokerage account with about $425,000, of which about 35% was invested in equities and 65% in mutual funds. Finra said the customer’s investment objective was recorded as “speculation,” even though he was not a speculative investor and wanted to preserve capital while allowing for moderate risk.
O’Neill, the complaint said, “exercised de facto control over the trading in the customer's account, controlling the volume and frequency of trading, deciding what securities to buy and sell, the quantities, the price and when each trade would occur. O'Neill also exercised control when he executed unauthorized trades in the customer's account.”
He executed 183 of the 456 trades without the customer’s prior knowledge or authorization, Finra said, noting that trades in the customer’s account totaled about $8.1 million in principal.
The complaint said O’Neill traded in the account without calculating cost-to-equity or turnover rates or considering the cumulative trading costs the customer incurred. He also did not consider the interest costs associated with his use of margin, which allowed him access to additional funds so he could trade more frequently, the complaint said.
Finra said O’Neill’s active short-term trading resulted in the customer’s account dropping to $150,071.52, consisting of $169,559.28 in securities and a negative $19,487.16 cash balance by the end of June 2015.
In the end, Finra said O’Neill’s intentional, active trading caused the customer to incur $140,109 in costs and $147,411 in losses, while generating at least $66,000 in commissions for O’Neill.
Finra said O’Neill did not have a reasonable basis to believe that the level of trading he recommended was suitable for the customer. He is accused of violating Finra Rule 2010 and Rule 2111.
“Unauthorized trading is a breach of the duty to observe high standards of commercial honor and just and equitable principles of trade and, thus, a violation of Finra Rule 2010,” Finra said.