Finra announced today that it has sanctioned Summit Brokerage Services for more than $880,000 for failing to supervise excessive trading in client accounts, especially trading by one representative already barred by Finra.

Boca Raton, FL-based Summit, a boutique broker-dealer which has more than 700 registered reps nationwide, has been ordered to pay $558,000 in restitution to customers whose accounts were excessively traded. At the heart of the matter, Summit failed to “reasonably” review automated trade alerts that would have notified the firm its brokers were excessive trading in client accounts, Finra said.

“In this matter, the affected customers paid hundreds of thousands of dollars in commissions as a result of the excessive trading that occurred in their accounts,” Susan Schroeder, Finra's Executive Vice President, Department of Enforcement, said.

“This enforcement action reflects the fact that obtaining restitution for harmed customers remains our highest priority,” Schroeder added. 

A call placed to Summit for comment on the Finra censure was not immediately returned.

Finra found that from January 2012 through March 2017, Summit failed to review or take action on 150 automated trade alerts impacting 14 clients.

As a result, the firm failed to detect that one rep in particular, identified by Finra only as “CJ,” excessively traded securities in all 14 of the customers’ accounts.

“Summit received those alerts, but no one at the firm reviewed them,” Finra said in its statement on the censure.

In one example, CJ placed 533 trades for a retired customer over a three-year period, causing her to pay more than $171,000 in commissions, Finra uncovered.

Summit agreed to pay restitution to affected customers for at least $558,000--the commissions customers paid as a result of the excessive trading in their accounts.

Finra previously barred CJ in a separate disciplinary action, the regulator said.

Finra also found that from June 2015 through March 2018, Summit failed to reasonably supervise its representatives’ use of “consolidated reports,” customer documents the reps created an used to report all of a customer’s financial holdings, including assets held away from the firm.

Finra has issued a number of regulatory warnings (including http://www.finra.org/industry/notices/10-19) reminding broker-dealers that, if not rigorously supervised, consolidated reports can allow reps “to communicate inaccurate, confusing or misleading information to customers.”

Summit prohibited registered representatives from sending consolidated reports unless they used a template that the firm had reviewed and approved. Finra discovered, however, that the firm did not have a reasonable system to track whether its reps complied.

Although approximately 100 Summit representatives sent customers consolidated reports during this period, only eight of the reps received the required review and approval from Summit.

One consolidated report sent by a Summit broker to a customer “materially misstated the value of the customer’s investment,” Finra said.