Three former brokers at the independent broker-dealer J.P. Turner & Co. LL C churned client accounts and racked up more than three-quarters of a million dollars in commissions and fees for themselves and the brokerage, the Securities and Exchange Commission has alleged.
The brokers generated commissions, fees and margin interest totaling $845,000 while the customers caught in the scheme lost $2.7 million, according to an SEC administrative complaint filed Monday.
The SEC alleged that registered representatives Ralph Calabro, who worked at a Parlin, N.J. branch of the broker-dealer, and Jason Konner and Dimitrios Koutsoubos, both working in a Brooklyn, N.Y., office, disregarded the conservative investment objectives and low risk tolerances of seven customers and traded excessively in their accounts between January 2008 and December 2009. The affected accounts had annual turnover rates that were so high during the two-year period that investment returns would have had to have been 73.3% for the accounts to break even.
The complaint also charges Michael Bresner, an executive vice president and head of supervision at J.P. Turner’s Atlanta headquarters with failing to supervise two of the brokers. Mr. Bresner ignored red flags that pointed to the brokers’ churning tactics, the commission said.
The firm and its former president, William Mello, also were charged but agreed to settle without admitting to or denying the charges.
J.P. Turner will pay penalties and return ill-gotten gains totaling about $416,000 and Mr. Mello will pay a $45,000 penalty, according to the SEC. Mr. Mello, who helped found the firm in 1997, also is suspended from associating with a firm in a supervisory capacity for five months.
“Broker-dealers’ supervisory systems must provide customers with reasonable protection from churning and similar abuses,” said William Hicks, associate director of the SEC’s Atlanta office. “J.P. Turner’s supervisory systems failed to do that.”
In a statement, the firm said it terminated the registered representatives involved in the misconduct “long ago” and its executive leadership team is “committed to making JP Turner a market leader” focused on client service.
“The firm enhanced its procedures and cooperated fully with the SEC during both the commission's comprehensive routine examination of our firm as well as the resolution of this matter,” the JP Turner statement said.
Calls to an attorney for Messrs. Konner and Koutsoubos, Ted Poretz in New York, and to a lawyer for Mr. Calabro, J. Christopher Albanese of New York, were not returned.
Mr. Calabro is currently working as a rep at National Securities Corp. Mr. Konner is a rep and DPEC Capital Inc. and Mr. Koutsoubos is working at Caldwell International Securities.
Peter Anderson, an Atlanta-based attorney for Mr. Bresner, said he was "completely surprised" by the action because he and his client haven't heard from the SEC staff for almost a year.
"We believe the charges against Mr. Bresner are unwarranted given his efforts to continually upgrade the supervisory processes within JP Turner," Mr. Anderson said in an email.
JP Turner has about 513 representatives in 203 U.S. offices, according to the SEC complaint.