Three general securities representatives have been suspended and fined thousands of dollars by Finra after settling charges that they excessively and unsuitably traded customer accounts.
Two of those representatives—Sebastian Wyczawski and Michael May—worked in Mineola, N.Y., at Joseph Stone Capital. The third, Leonard Marzocco, worked in Nesconset, N.Y., at Woodstock Financial Group, at the time of the alleged infractions.
Wyczawski consented to a five-month suspension, a $5,000 fine, customer restitution of $21,644 plus interest and additional training on representatives’ suitability obligations; May consented to a three-month suspension, a $5,000 fine and customer restitution of $10,349 plus interest; and Marzocco consented to a three-month suspension, a $5,000 fine and customer restitution of $27,078 plus interest, according to Finra.
Finra’s benchmark for “excessive” trading is when the turnover rate—the number of times that a portfolio of securities is exchanged for another portfolio of securities—is above six, and the cost-to-equity ratio, or the percentage of return on the customer’s average net equity needed to pay commissions and other expenses, is greater than 20%.
Between June 2016 and September 2017, Wyczawski placed 20 trades on a customer account that on average had month-end equity of about $51,340, Finra said. The principal value of those trades amounted to more than $528,759, and the expense to the client of those trades was $10,397 in commissions, trading costs and margin interest. According to Finra, the turnover rate for this account was 17, and the cost-to-equity ratio was more than 34%, “meaning that Customer 1’s account would have had to grow by more than 34% annually just to break even.”
Between September 2016 and September 2017, Wyczawski also placed 45 trades in another customer account, one that had month-end equity of about $14,831, Finra said. The principal values of those trades added up to more than $300,524 and cost the client $11,247 to make, according to the regulator. Finra pegged this account’s turnover rate to 17 and the cost-to-equity ratio in excess of 65%. “Customer 2’s account would have had to grow by more than 65% annually just to break even,” Finra said.
May, who also worked at Joseph Stone Capital, also traded excessively and unsuitably, according to Finra. The filing stated that between June 2017 and May 2018, May recommended 21 trades for a customer whose average month-end equity was about $25,331. Those trades had a total principal value of more than $265,044, and collectively cost the client $10,349 in commissions and fees, Finra claimed, adding that the turnover rate was 10 and the annualized cost-to-equity ratio was in excess of 40%.