Former Leerink Swann & Co. broker, Richard Grant Cody of Boston, Massachusetts, was fined and suspended from association with any Financial Industry Regulatory Authority FINRA member in any capacity for one year. The United States Court of Appeals for the First Circuit affirmed a Securities and Exchange Commission (SEC) decision, which had sustained a National Adjudicatory Council (NYSE:NAC) decision. The sanction was based on findings that Mr. Cody engaged in unsuitable and excessive trading in customers' accounts at Boston, Massachusetts based Leerink Swank & Co., gave his customers account summaries that contained materially misleading account values, and failed to timely update his Form U4 to disclose settlements with customers. The fine imposed totaled $27,500, and the suspension is in effect from January 7, 2013 through January 6, 2014.
Excessive trading or "churning" involves excessive trading by a broker in a client's account mainly to generate commissions. Churning is considered an illegal and unethical practice that violates SEC rules and securities laws. Although there is no quantitative measure for churning, frequent buying and selling of securities that does little to meet a client's investment objectives may be construed as evidence of churning. Churning may result in substantial losses in a client's account, and even if profitable, may generate a tax liability for a client.
Broker-dealers must establish and implement a reasonable supervisory system to protect customers from churning and similar abuses. If broker-dealers do not establish a reasonable supervisory system, they may be liable to investors for damages. Therefore, investors who have suffered damages can bring forth claims to recover losses against Leerink Swann & Co. due to Mr. Cody's churning.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.