A compliance officer at an independent broker-dealer that was shuttered for a $28.7 million excessive trading scheme has been ordered by Finra to pay $2.8 million in compensatory damages to former customers.

Michael Leahy of the now defunct First Standard Financial Company was also deemed responsible for interest on the damages, $25,000 in reimbursement for expert witness fees, the $600 claimant portion of the filing fee and $6,050 in Finra hearing fees, Finra said in a recent filing.

Leahy, who represented himself in the matter, could not be reached for comment by press time.

According to Brian Hamburger, chief counsel at New York's Hamburger Law Firm, the panel's decision was appropriate because Leahy at the time was also the sole principal and accepted supervisory responsibility and oversight over the trading activity. 

“It is not uncommon for a supervisor to be held jointly and severally culpable for the acts of those they are charged with supervising," he said. "Had his role been limited to that of a chief compliance officer and nothing more, I suspect the result would have been different.”

First Standard Financial, which was in business in Red Bank, N.J., from April 2013 to November 2019, had its registration revoked by the New Jersey Bureau of Securities in 2019 for pervasive unauthorized, unsuitable and excessive trading.

Leahy joined the firm in December 2015 and left a year later, then rejoined in July 2017 and stayed through its collapse at the end of 2019, according to BrokerCheck. He was barred permanently from the industry in January 2020.

Leahy was one of several compliance officers at the firm from January to August 2019, when he was promoted to chief compliance officer, according to Finra. When he started, the firm had about 58 registered employees and five branch offices. The firm was majority-owned by Carmine Berardi. Among the registered reps was Philip Sparacino, who was barred in October 2019 when he would not cooperate with an investigation into trading violations at the firm, Finra said. Berardi died before the onset of the hearing into the matter on Nov. 29, 2021, according to Finra.

In mid-September 2019, there was a mass exodus of registered reps and principals from the firm until only Sparacino remained as the last registered representative, who traded all the customer accounts that had been left behind, according to Finra. At this point, Leahy allegedly was the firm’s sole general securities principal and the only person at the firm acting in a supervisory capacity, the regulator said.

“Accordingly, Leahy received a copy of the firm's daily trade blotter, which showed all of the firm's transactions for the prior day. Every day from September 19, 2019, to October 8, 2019, every trade appearing on the daily trade blotter was entered by [Sparacino] (or, occasionally, by Leahy, who placed trades for certain customers after they complained to Leahy about [Sparacino]),” the Finra filing stated. “And, every day from September 19, 2019 to October 8, 2019, Leahy reviewed and initialed the firm's daily trade blotter. However, Leahy—who failed to even read the firm's written supervisory procedures to confirm the scope of his supervisory responsibilities—failed in many ways to reasonably supervise [Sparacino].”

In March 2020, a group of 10 former customers filed a claim with Finra that First Standard Financial and a dozen named employees were responsible for $1,363,023 in losses and $1,620,935 in costs connected to negligence; qualitative and quantitative unsuitability; failure to supervise; breach of fiduciary duty; breach of contract; negligent misrepresentations; omissions; and lost opportunity damages.

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