Summit Brokerage Services Inc. on Tuesday was hit with $880,000 in sanctions for a variety of supervisory failures, including not keeping tabs on a broker who for three years churned client accounts.
In fact, compliance employees at Summit failed to take heed of automated alerts to review brokers' trading, according to the
Financial Industry Regulatory Authority Inc.
The broker's excessive trading caused 14 customers to pay more than $650,000 in commissions while they suffered more than $300,000 in losses.
According to the settlement between Summit Brokerage and Finra, from January 2012 to March 2017, the firm did not establish and maintain a supervisory system in line with Finra's suitability rule, particularly as the rule pertained to excessive trading or churning.
When a broker churns a client's account, it drives up the costs to the client, pays the broker excessive commissions and diminishes the overall return on the client's portfolio and holdings.
Summit Brokerage had half a dozen compliance principals who were supposed to use automated trade alerts provided by clearing firms to review brokers' trades, according to Finra. During the relevant time period, the firm received a number of trade alerts, but the compliance officials failed to review certain ones, according to Finra.
As a result, the firm failed to detect that one representative in particular, identified by Finra as "CJ" in its settlement, excessively traded securities in the accounts of 14 customers, according to Finra.
"For example, CJ placed 533 trades for a retired customer over a three-year period, causing her to pay more than $171,000 in commissions,"
Finra noted in a statement. "For the 14 customers whose accounts were excessively traded, CJ's trading generated more than 150 alerts for potentially excessive trading. Summit received those alerts, but no one at the firm reviewed them."
Summit Brokerage, which agreed to the settlement without admitting or denying Finra's findings, agreed to pay more than $550,000 in restitutions to the clients whose accounts were excessively traded and a fine of $325,000.
The broker had previously been barred from the securities industry, according to Finra. Summit Brokerage also failed to reasonably supervise advisers' use and creation of consolidated reports of client assets, according to Finra.
A spokesperson for Summit Brokerage, Adriana Senior, did not return a call to comment.
Summit Brokerage is one of the six Cetera Financial Group broker-dealers. The firm has 472 advisers and more than $15 billion in client assets,
according to InvestmentNews data.
