Coastal Equities to pay back $280,000 for unsuitable trades

Coastal Equities to pay back $280,000 for unsuitable trades
The firm failed to flag excessive trading in four client accounts, according to Finra
NOV 10, 2020

Coastal Equities Inc., a mid-sized broker-dealer with 104 registered reps, on Monday said it would pay back $280,000 in restitution to clients for allegedly failing to supervise a series of alleged unsuitable trades in elderly and retired clients' accounts.

According to the settlement with the Financial Industry Regulatory Authority Inc., from 2016 to 2018, Coastal Equities "failed to reasonably supervise a registered representative, who recommended excessive and unsuitable trades in the accounts of four customers."

"Coastal became aware of numerous red flags that [the rep] was making unsuitable recommendations, but failed to take reasonable action to investigate them," according to the Finra settlement.

The firm neither admitted to or denied Finra's findings. The name of the adviser who made the trades, and who was registered with Coastal Equities from September 2015 to July 2018, was not disclosed. Finra also censured the firm.

Last year, Finra issued a report that said some firms lacked adequate supervisory systems for detecting red flags that would indicate unsuitable transactions.

A spokesperson for Coastal Equities said declined to comment.

From October 2016, the firm's daily trade blotter showed the rep's frequent trading and the correspondingly high turnover rates and commissions in the accounts of the four customers, according to Finra.

Despite red flags, from October 2016 through December 2017, no one at Coastal Equities reviewed the accounts the clients to determine whether the rep's recommendations were suitable, according to Finra.

And no one at the firm over that same time period questioned the rep about the trading in any of his customer's accounts, contacted any of his customers, or took any steps to reduce the commissions that he was charging his customers or the frequency with which the rep was recommending securities transactions, according to Finra.

Meanwhile, Coastal Equities said in a recent filing with the Securities and Exchange Commission that investors have filed arbitration claims seeking in the neighborhood of $3 million in damages.

"The customers generally allege that products sold to them by registered representatives of the firm were unsuitable," according to the SEC filing. "The company believes that the matters will settle for substantially less than the amounts claimed. The company has accrued $228,500 against possible exposure."

The firm declined to comment on pending investor claims.

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.