Joseph Farah, a former registered representative with Gold Coast Securities, was named a Respondent in a Financial Industry Regulatory Authority (FINRA) complaint for allegedly engaging in a fraudulent churning scheme, causing his customer to suffer substantial losses. Joseph C. Farah, of Hacienda Heights, California, is alleged by FINRA to have acted with intent to defraud and reckless disregard for his customer’s interests by churning his customer’s account.
According to FINRA, Mr. Farah allegedly executed more than 600 trades in his customer’s account, causing the account to diminish in value by over 25%. The FINRA complaint alleges that Mr. Farah failed to inform his member firm that he had discretionary authority over the customer’s account, which Mr. Farah suggested she open at TD Ameritrade. FINRA’s complaint notes that the customer’s annual income was listed as just $25,000 – $49,999, which was correct, but her investment experience was incorrectly described as 1-2 years of experience. FINRA found that she actually had no investing experience.
The complaint alleges that Mr. Farah linked his customer’s TD Ameritrade account to his personal account, which is when he quickly began buying and selling securities and day-trading in the customer’s account. In total, FINRA alleges that from November 2012 through October 2013, Mr. Farah executed more than 600 trades in the customer’s account, involving purchases and sales totaling more than $32 million. His customer’s account value allegedly declined by more than 25%.
Excessive trading or “churning” involves excessive trading by a broker in a client’s account mainly to generate commissions. Churning is a violation of Federal and state securities statutes, industry rules and regulations and a breach of fiduciary duty to investors under common law. Churning can occur if a stockbroker exercises control over the investment decisions in your account and purchases stocks or recommends that you purchase and sell stocks for his/her benefit, i.e., commissions, not yours! These trades rarely, if ever, make the investor any money. In fact, the additional commissions raise the break-even point for the investor to the level where the stock must perform at an extremely high level in order for the investor to make any money. 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 financial losses in a client’s account, and even if profitable, may generate a tax liability for a client.
Stockbrokers have been known to engage in many types of practices that may be in violation of industry and firm rules, practices, and procedures. In order to protect investors from stockbroker misconduct, FINRA rules require brokerage firms to establish and implement a reasonable supervisory system. The implementation of the rules require supervisors to monitor employees to ensure they comply with federal and state securities laws, securities industry rules and regulations, and the brokerage firm’s own policies and procedures. If broker-dealers and their supervisors fail to establish and implement these protective measures, they may be liable to investors for damages flowing from the misconduct. Therefore, investors who have suffered losses stemming from excessive trading (churning), unsuitable recommendations and/or other stockbroker misconduct by their broker can bring forth claims to recover damages against broker-dealers, like Gold Coast Securities, which should consistently oversee its brokers’ activities in order to prevent the above-described prohibited conduct.
Have you suffered losses in your Gold Coast Securities account due to your stockbroker’s excessive trading? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against Gold Coast Securities stockbrokers who may have engaged in excessive trading and caused investors’ losses.
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. For over 35 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The securities fraud lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at email@example.com for answers to any of your questions about this blog post and/or any related matter.