The SEC charged two brokers with fraud for allegedly recommending unsuitable, high-cost trading strategies to customers in order to generate significant commission fees.
In a Complaint filed in the U.S. District Court for the Southern District of New York, the SEC asserted that two registered representatives of a New York-based broker-dealer recommended a high-risk, high-cost in-and-out trading strategy to numerous customers. The SEC determined that the defendants were or should have been aware that the strategy was extremely likely to lose money, and had no reasonable basis for recommending it. Further, the SEC charged that the defendants provided unsuitable customer-specific recommendations, and made various omissions and misrepresentations in communicating that there was a reasonable basis to invest using such a strategy. The defendants allegedly engaged in excessive trading, and conducted unauthorized trades in customer accounts.
According to the SEC, the defendants received $106,000 and $175,000, respectively, in commissions resulting from the violations. Accordingly, the SEC charged the defendants with violating Securities Act Section 17(a), and Exchange Act Section 10(b) and Rule 10b-5.
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