In its first disciplinary action related to Reg BI, the Financial Industry Regulatory Authority has levied a $5,000 fine and a six-month suspension on a broker for allegedly causing a client to pay tens of thousands in commissions on an account of less than $30,000.
Charles V. Malico, who worked for Network 1 Financial Securities of Huntington Station, N.Y., at the time of the alleged violation, accepted and consented to the agency’s findings without admission or denial, according to a copy of the agreement released by Finra.
It is the first time Finra has taken action against a broker for alleged violations of the SEC's Reg-BI fiduciary rule, Finra spokesman Ray Pellechia confirmed.
Neither Malico nor his attorney could be reached for comment by press time.
According to those findings, between July 2020 and November 2021, Malico violated Reg BI when he recommended a series of trades in the account of a retail customer that was considered excessive given the customer’s investment profile and therefore not in the customer’s best interest.
Finra learned of the alleged conduct through a review of a customer-initiated arbitration, according to Finra. That still-pending arbitration stemmed from a Dec. 6, 2021, customer complaint alleging negligence, breach of fiduciary duty and negligent supervision, and asking for $65,000 in damages, according to BrokerCheck.
The customer was a 63-year-old tax preparer with an annual income of about $100,000 and a liquid net worth of about $50,000, according to Finra.
“Although Customer A’s average account balance during the relevant period was less than $30,000, Malico recommended that he make more than 350 trades in his account, which caused Customer A to pay more than $54,000 in commissions and other trading costs,” the Finra order stated.
In addition, Malico allegedly recommended the customer buy and sell a security, only to repurchase the same security days or weeks later.
“On four of those occasions, Malico recommended that Customer A buy shares of the company only to sell them on the same day or the next day. Such in-and-out trading caused Customer A to lose more than $6,000, while generating more than $3,200 in commissions and trading costs to Malico and Network 1,” Finra said.
The trading Malico recommended meant that the customer’s account would have had to grow by more than 158% annually just to break even, the agency said. Not only could the client not make a profit, he realized a loss of $17,500 during the period, according to the order.
Malico has a history of complaints involving churning, unauthorized trades and unsuitability, according to BrokerCheck, with six such complaints in addition to the December 2021 incident. Since entering the industry in 1987, Malico has worked for 19 different firms, according to the Finra database.