Fines Alexander Capital For Failure To Supervise
Alexander Capital, L.P. (CRD #40077, New York, New York) is a broker-dealer registered with both Securities Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) that consented to an SEC Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions, whereby the firm was censured, disgorged of $193,774.86 and fined $193,774.86 for failing to supervise its registered representatives in a manner designed to identify and avert their unsuitable recommendations and churning of customer accounts. In the Matter of Alexander Capital, L.P. (Administrative Proceeding File No. 3-18561, June 29, 2018).
SEC’s Order stated that between 2012 and 2014, Alexander Capital did not adequately execute supervisory procedures and policies. The firm’s supervisory failures apparently resulted in three of the firm’s registered representatives making unsuitable investment recommendations to customers; executing transactions in customers’ investment accounts without authorization; and churning customers’ accounts in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
Evidently, some of the affected customers’ accounts had cost-to-equity ratios (a figure that determines the amount an investment account must appreciate on an annual basis to offset expenses and commissions) that exceeded over two hundred percent – ten times the percentage noted by SEC as a possible determinant of excessive trading. Customers’ accounts also reportedly suffered from turnover rates (the number of times annually that securities are replaced in a customer’s account) as high as fifty-seven – nearly ten times the number that typically corresponds to excessive trading.
According to the Order, the firm set forth written supervisory procedures in reference to suitability, in which registered representatives were required to have an adequate basis for making investment recommendations to customers. The firm’s supervisory personnel were apparently obligated to monitor suitability documentation and requirements pertaining to transactions recommended by registered representatives. The Order stated that the firm’s written supervisory procedures explicitly prohibited churning, and warned registered representatives that any instances of churning could result in termination. Further, the firm’s written supervisory procedures specifically disallowed registered representatives from executing any trades in customer accounts unless customers knew and approved of the transactions.
Nonetheless, the Order stated that the firm neglected to provide supervisory personnel with the means to review the activities of registered representatives to ensure that they were complying with the rules. Supervisors were seemingly left without sufficient guidance as it related to monitoring suitability. In addition, the firm set forth no procedures for determining whether supervisors reviewed customers’ investment accounts for suitability or discussed suitability concerns with registered representatives who made problematic recommendations.
The Order additionally stated that the firm neglected to create an adequate supervisory system for carrying out its anti-churning policies. Evidently, two of the firm’s supervisors lacked sufficient training in reference to monitoring customers’ investment accounts for instances of churning. Apparently, those supervisors lacked familiarity with reports or metrics meant to illustrate whether churning had occurred, and they did not reasonably rely upon alerts and exception reports to monitor the registered representatives’ trading activities.
Moreover, SEC indicated that the firm failed to engineer an adequate system for the implementation of procedures and policies pertaining to unauthorized trading in customer accounts. In one instance, written supervisory procedures referenced the use of a particular exception report for purposes of detecting instances in which trades were executed without authorization. Yet, the firm provided no direction to supervisory personnel regarding what exception reports were meant to be utilized by them.
SEC found the firm’s failure to supervise to constitute a violation of Section 15(b)(4)(E) of the Securities Exchange Act of 1934.
If you experienced losses while at Alexander Capital call Soreide Law Group today at 888-760-6552 for a free consultation. Representing investors nationwide.