World Equity Group, Inc. (WEG) of Arlington Heights, Illinois submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for alleged supervisory failures in connection with excessive equity securities trading. WEG, a FINRA member since 1992, has been the subject of similar FINRA disciplinary actions. According to FINRA, between 2009 and 2012, WEG failed to detect and prevent excessive trading, also known in the securities industry as “churning.” Churning is excessive trading in client accounts by a stockbroker to generate commissions. Churning is an illegal activity that violates SEC and FINRA rules. During the relevant time period (2009 through 2012), FINRA alleged that WEG’s supervisory failures led to an ongoing practice of churning. FINRA found a pattern of excessive unsuitable trades in WEG customer accounts, therein violating NASD Rules 3010, 3310, 2310, 2110, and FINRA Rule 2010.
It is the responsibility of the investment advisor and his/her associated member firm to ensure clients are treated fairly and not taken advantage of. Firm representatives are required to recommend investment strategies that comply with multiple criteria regarding an individual including investment objectives, financial status and age. Excessive trading is a violation of FINRA Rules as it generally disadvantages the customer in order for the broker to generate additional commissions.
FINRAs investigation found that WEG used trade blotters to detect unsuitable trades. A trade blotter is a record used by traders that includes every trade and transaction for a given day. These trade blotters, however, didn’t specifically address traditional indicators of excessive trading in customer accounts, such as turnover and/or cost-to-equity ratios, nor did these blotters aggregate the trading or commissions generated by customer accounts over any period of time. FINRA found that WEG failed to supervise its firm staff on proper procedures for reviewing trade blotters. These supervisory deficiencies led to WEG allegedly violating several NASD Conduct and FINRA Rules. Without admitting or denying the FINRA allegations, WEG agreed to the sanctions and was ordered to pay a $50,000 fine.
Stockbrokers, registered representatives, and other financial industry professionals have been known to engage in many types of fraudulent and unlawful behavior which are in violation of industry rules and procedures. In order to protect customers from broker misconduct, FINRA rules require brokerage firms to establish and implement a reasonable supervisory system. The implementation of the rules requires supervisors to monitor its employees to ensure compliance with federal and state securities laws, securities industry rules and regulations, as well as 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 held liable to account holders for losses flowing from the employees’ misconduct. As a result, account holders who have suffered losses stemming from a broker’s unauthorized and excessive trading, and/or unsuitable recommendations by their broker or registered representative can bring forth claims to recover damages against broker-dealers like the World Equity Group, which have a duty to supervise its employees in order to prevent these types of misconduct.
Have you suffered losses in your World Equity Group account due to your registered representative or stockbroker’s unauthorized, excessive trades, unsuitable recommendations, or other misconduct? 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 financial professionals for unsuitable recommendations, and/or other unauthorized and fraudulent misconduct.
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 lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please post a comment, call (800) 732-2889, send Mr. Pearce an email at email@example.com, and/or visit our website atwww.secatty.com for answers to any of your questions about this blog post and/or any related matter.