Florida Brokerage Firm Sanctioned By FINRA for Failure to Supervise, Churning

Summit Brokerage Services (CRD#: 34643/SEC#: 8-46310) is a brokerage firm that is regulated by the Financial Industry Regulatory Authority (FINRA). With headquarters in Boca Raton, FL, Summit Brokerage has been in the securities industry since 1993 and it is licensed to operate in 51 U.S. states and American territories.

On July 2nd, Summit Brokerage agreed to settle allegations that the firm violated securities industry rules (NO. 2016052655301). Among other things, investigators allege that Summit Brokerage failed to properly supervise one of its representatives who churned at least 14 different investor accounts. As a result, investors suffered more than $550,000 in financial losses. Here, our Miami churning attorney provides an overview of the settlement reached between FINRA and Summit Brokerage Services.

Summit Brokerage Services Fined, Ordered to Pay Restitution 

The Allegations 

The underlying misconduct at issue in the case involves the actions of an unidentified financial advisor that previously worked for Summit Brokerage Services. FINRA alleges that the advisor made excessive trades on customer accounts between early 2012 and the Summer of 2017. In total, FINRA determined that at least 14 investors that held brokerage accounts at Summit Brokerage Services were affected by the misconduct. The investors sustained losses ranging from $6,816.64 to $179,541.80.

Excessive trading — commonly referred to as churning — occurs when a broker-dealer executes trades at such a high rate that it is all but impossible for the investor to avoid losing money. At the same time that their customers are suffering major losses, financial advisors and brokerage firms who engage in this type of wrongful activity are raking in commission and fees. In this case, FINRA alleges that Summit Brokerage took in more than $300,000 in commissions as a result of their representatives churning customer accounts. 

Relevant FINRA Regulations 

Under FINRA Rule 2111, brokers must have a reasonable basis for recommending transactions. Also known as the ‘suitability rule’, this regulation strictly prohibits churning. By definition, excessive trading is unsuitable trading. FINRA contends that the unnamed securities representative in this case violated the suitability rule.

In addition, regulators allege that the misconduct was allowed to occur over a period of five years because Summit Brokerage Services did not have an adequate supervisory system in place. The firm should have identified and stopped the churning far earlier. Under FINRA Rule 3110, broker-dealers have a legal obligation to create effective supervisory procedures. 

The Sanctions  

Without admitting to or denying the findings, Summit Brokerage Services consented to the sanctions and penalties proposed by the Financial Industry Regulatory Authority. The penalties include a public censure, a fine of $325,000, and payment of $558,296.44 in financial restitution to the affected customers. 

Speak to Our Miami, FL Churning Lawyer Today

At ​Carlson & Associates, P.A., our Miami churning attorneys have extensive experience handling excessive trading claims. If you suffered losses as a result of ‘churning’ at Summit Brokerage Services, we are available to help. To arrange a completely confidential consultation, please call us at our Miami law office today.

Resources:

brokercheck.finra.org/firm/summary/34643

finra.org/sites/default/files/fda_documents/2016052655301%20Summit%20Brokerage%20Services%2C%20Inc%20CRD%2034643%20AWC%20sl.pdf