A broker who was fired for allegedly churning and excessively trading in clients’ accounts for his own benefit has agreed to a bar by the Financial Industry Regulatory Authority.
Christopher Booth Kennedy, without admitting to or denying the allegations of the complaint, submitted an offer of settlement to Finra, which alleged that he violated Reg BI rules, lied to clients and provided false testimony to the agency.
Kennedy had previously worked on and off for Western International Securities Inc. in Woodland Hills, Calif., including a stint from December 2019 until September 2021. He was fired after clients “alleged unauthorized options trading and failure to adhere to discretionary options sales orders,” according to BrokerCheck.
According to the Finra complaint, between July 2020 and July 2021, Kennedy churned and excessively traded four accounts of six customers, which included two couples. Finra said he directed more than 5,300 trades, which represented net trading of more than $350 million in the four accounts. His average monthly trades for each account were 102, which netted more than $6.9 million per account, or about 13 times the average account value, the complaint noted.
The trades resulted in annualized cost-to-equity ratios ranging from 27% to 39% for an average cost-to-equity ratio of more than 31% across all their accounts, the complaint said. It added that the trading “resulted in annualized turnover rates ranging from 31 to 58, for an average turnover rate of more than 47 across all their accounts, even excluding options.” (According to Finra, the turnover rate is the number of times a portfolio of securities is exchanged for another.)
The complaint further noted that the excessive trading of the four accounts resulted in a loss of more than $2.3 million in value and the customers had to pay more than $715,000 in total trading costs and margin interest, including more than $595,000 in commissions, the complaint said.
Kennedy supposedly controlled the volume and frequency of the trading in the accounts. Finra said he “claimed to rely on technical analysis to speculate on intraday price movement.” He also supposedly used special technical indicators “to determine if, and when to enter and exit long or short positions throughout a trading day.” The complaint also noted that Kennedy “used specialized trading software to calculate, visualize, and evaluate these technical indicators in order to make his trading decisions.”
The complaint noted that the six clients were ordinary retail investors whose investment goals were not served by trading; they lacked experience in day trading and investing strategies and placed significant trust and confidence in Kennedy, who relied on that trust and took liberty with the accounts.
For example, one of the couples, a husband and wife in their 30s with two young kids, opened an account as trustees of a trust for the benefit of themselves and their children in 2018. The account, the complaint said, was worth $781,978.85 at the beginning of July 2020. Finra said that from July 2020 to July 2021, Kennedy directed 1,779 trades in the account that he marked as solicited.
Kennedy’s use of margins caused the couple to incur $275,093.47 in total costs, including $243,580.45 in commissions and $17,504.72 in margin interest. “The overall cost-to-equity ratio for the trading that Kennedy marked solicited was 27% and the overall turnover rate, excluding options trades, was 58,” the complaint said.