The Financial Industry Regulatory Authority has charged a Texas firm with churning customer accounts to the tune of $1 million in excess commissions.
In a complaint filed December 31, Finra alleges that beginning in 2011, Caldwell International Securities Corp. based in Fischer, Texas, took on a number of offices of supervisory jurisdiction that operated like bucket shops.
Finra alleges that the firm’s founder, Greg Caldwell, and supervisors Paul Jacobs and Lennie Freiman, looked the other way as four OSJs (two in New York City including Brooklyn, and two others in East Meadow, N.Y., and Englewood Cliffs, N.J.) churned customer accounts, generating annual commission revenues of 100 percent or more of the customers’ equity.
In late 2013, Finra began investigating Caldwell International, the complaint says.
Finra claims that brokers working out of the OSJs cold called foreign investors for purposes of engaging in speculative stock and option trading.
Despite a number of warnings, including 15 customers who lost $1.1 million and paid more than $1 million in commissions and fees, Caldwell and the firm’s supervisors took no action, the complaint says.
Finra claims the cost-to-equity ratios in customer accounts ranged from 18 percent to more than 100 percent.
In late 2012, a compliance consultant hired by the firm warned that one of the offices “really is starting to sound like and look like a chop shop,” the complaint says.
Finra also says the firm failed to report 36 customer complaints.
In addition to charging the three supervisors, Finra is going after five registered reps who were formerly associated with the firm.
Reached by phone, Greg Caldwell declined comment.
The firm presently has nine branches and 20 brokers New York, New Jersey, Illinois, Texas, Florida and Nevada, Finra says.