A Financial Industry Regulatory Authority arbitration panel has awarded 33 former investors of expelled New York-based SW Financial $13 million in actual and punitive damages, after finding the firm failed to supervise its representatives who aggressively churned client accounts for commissions.
The 35 investors who brought the claim alleged that SW Financial and its reps used their accounts “as personal slush funds, engaging in egregiously unsuitable trading, garnering over $4.5 million dollars in commissions and fees while costing nearly all of the investors out-of-pocket losses of over $6 million dollars,” according to the arbitration award issued August 23. (Two of the investors were not given awards since they did not file supporting documentation, the Finra award said, so only 33 received damages.)
The arbitrators also awarded the investors punitive damages in the amount of 30% of their claims, bringing the total awards made to the 33 investors to $13,195,832. The investors were represented by Jonathan E. Neuman, Fresh Meadows, New York.
In May 2023, SW Financial was expelled from Finra for similar violations, including churning customer accounts and failing to supervise its representatives.
SW Financial’s attorney withdrew in April 9, 2024, and the firm was subsequently represented by Bruce Boyle, CCO, AXOS Clearing LLC, Omaha, Neb. Boyle did not immediately respond to a request for comment.
On August 15 of this year, Finra filed a separate complaint against SW Financial’s former chief compliance officer, claiming he failed to curtail churning and unsuitable trading that cost clients more than $700,000.
Finra said Christopher Cacace, the chief compliance officer for SW from May 2017 through November 2019, failed to properly oversee and curtail the firm’s excessive trading and churning.
In its letter against Cacace, Finra said that the trading done by SW Financial’s reps ran up high costs that “were so egregious it was nearly impossible for customers to profit.” Finra said that the trading resulted in high annualized cost-to-equity ratios and high annualized turnover rates.
“Although Cacace was responsible for supervising the SWF [registered reps] and was aware of numerous red flags related to [the reps’] trading of their customer accounts, he failed to reasonably investigate and respond to red flags of churning, excessive trading and unsuitable trading,” the regulatory agency said. “Cacace never restricted or limited the trading by the SWF [reps] in their customers’ accounts or took any other meaningful steps to prevent their trading.”
Cacace couldn’t be reached for comment last week.