JHS Capital, former broker slapped with $1.9M arb award

'Most egregious case of churning I've ever seen': Lawyer

Jul 17, 2012 @ 4:03 pm

By Bruce Kelly

JHS capital arbitration award churning
+ Zoom

JHS Capital Advisors Inc. and a former broker were hit with a $1.9 million Finra arbitration award last week stemming from allegations that the broker traded in a client's account excessively to generate commissions.

“This is the most egregious case of churning I've ever seen,” said Timothy Feil, attorney for John Sisk, who filed his arbitration claim last year against JHS Capital, which was formerly named Pointe Capital Inc. The broker, Enver R. Alijaj, who was forced to pay $500,000 to settle a previous charge of churning, was also named in the award, which was dated July 13.

“The [Finra arbitration] panel is sending a message that this type of sale-practice misconduct should not be tolerated and hopefully” will prevent any future misconduct, Mr. Feil said. The alleged excessive trading, which occurred from July 2009 to April 2010, required the client to generate returns of 160% “just to break even,” Mr. Feil added.

JHS Capital Advisors is owned by a holding company controlled by John Sykes, who made his fortune investing in call centers before entering the independent broker-dealer industry with the purchase of preferred shares of GunnAllen Holdings Inc. in 2008.

He later resigned from the board of GunnAllen. His firm, JHS Capital Holdings Ltd., then bought Pointe Capital Inc. in 2009 and renamed the broker-dealer JHS Capital Advisors.

The award is about five times the net capital JHS Capital held at the end of last year — $473,805 — according to a company filing with the Securities and Exchange Commission earlier this year. JHS Capital Advisors reported a net loss of $6.6 million in 2011, according to that filing.

According to the arbitration award, which was decided by a three-person Financial Industry Regulatory Authority Inc. panel, Mr. Sisk originally claimed $3.1 million in compensatory damages, alleging excessive trading and churning, common law fraud, gross negligence and other violations.

“We are extremely disappointed in this panel's award related to this legacy acquisition item,” said Eileen Canady, a spokeswoman for the broker-dealer's parent company, JHS Capital Holdings LLC. “The firm is currently reviewing all options and alternatives available to it associated with this matter. Due to the ongoing nature of this issue, we are unable to make any further comment at this time.”

Mr. Alijaj worked for Pointe Capital from May 2007 to December 2008, according to his BrokerCheck profile. He left to take a position with another independent brokerage, John Thomas Financial, but returned to Pointe Capital, now renamed JHS Capital, in June 2009.

According to BrokerCheck, Mr. Alijaj was ordered by a Finra arbitration panel in July 2009 to paid $500,000 as part of a $1.6 million churning settlement with a client he worked with at Pointe Capital and John Thomas Financial. Mr. Alijaj denied allegations in that settlement, and apparently the claim of churning during his time with John Thomas Financial was not substantiated, according to the BrokerCheck report.

“All claims asserted by [Mr. Sisk] against [Mr. Alijaj] while associated with/employed by John Thomas Financial are dismissed without prejudice,” according to the arbitration award.

Mr. Alijaj did not comment about last week's arbitration award.

As customary, the arbitration panel did not give any explanation for its decision, which awarded Mr. Sisk $1.5 million in compensatory damages plus interest, $100,000 in punitive damages, and attorneys' fees of $93,000.

Taking the interest into account, the award totals about $1.9 million, Mr. Feil said. Mr. Alijaj left JHS Capital in April 2010 and is now affiliated with Legend Securities.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Sep 26

Webcast

Investing 2017: Industry at a Crossroads

The advice industry is at a unique inflection point, as the way clients are investing has changed dramatically: Technology has evolved, access to innovative products has changed, and the active vs. passive debate continues to rage on. Advisers... Learn more

Featured video

Consuelo Mack WealthTrack

Thomas Russo: What it really takes to be a successful investor

Being a successful investor requires the ability to say no and the capacity to suffer, according to Thomas Russo, managing member of Gardner Russo & Gardner.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry

After a decade of litigation, fees are lower and retirement plans are more transparent. But have the lawsuits gone too far?

10 best financial adviser jokes

How many financial advisers does it take to screw in a lightbulb?

With margins crashing, broker-dealers look to merge: report

Increased regulation is straining profit margins among broker-dealers, sending many of them into the arms of their bigger brethren.

Hackers may have profited from SEC breach

The hack of the agency's Edgar filing system occurred in 2016, but the regulator didn't conclude until last month that the cybercriminals may have used their bounty to make illicit trades.

Top 10 financial firms ranked by investor satisfaction

Find out which firm took the top slot for overall investor satisfaction for the second year in a row.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print