SEC Bans Broker and Supervisor for Excessive Trading

The U.S. Securities and Exchange Commission (SEC), recently upheld a penalty which banned from the securities industry for life, Carl Birkelbach, now 72, the founder of now-defunct Chicago firm, Birkelbach Investment Securities Inc., for failing to supervise a broker who generated more than $1 million in commissions during 3-1/2 years in the early 2000s while handling an account for Chicago artist, Amy Lowry.

In a recent article in Reuters, Birkelbach, who has worked in the securities industry for thirty years, said he properly supervised Lowry's broker, who was also barred from the industry. "I felt as though, in this instance, I had done everything I could for the client."

This case illustrates the conflicts of interest that can arise for a supervisor of an account that is lucrative for both the broker and firm. Birkelbach says commissions from the account totaled about $250,000, but the firm presented the figures to Lowry, who did not object. Although, the SEC refutes that point.

Lowry opened an account at Birkelbach with about 20,000 shares of her P&G stock, worth $1.5 million. A new broker, William Murphy, took over the account a year later, and trading increased dramatically. Murphy made about 2,600 options trades in Lowry's account between mid-2002 and early 2006, according to the SEC. That frequency is excessive for a covered call strategy, an options trader told Reuters. The account ultimately had $871,000 in trading losses. At one point, Lowry owed as much as $1.2 million in her margin account.

Supervisors need to take warning signs seriously, especially concerns from compliance officers viewed as a significant red flag.

If you feel your account has had excessive trading by your broker call Soreide Law Group for a free consultation at (888) 760-6552.