Sutter Securities Subject Of FINRA Complaint After Churning Allegations

Investment bank Sutter Securities has been served with a complaint by FINRA that it engaged in churning an elderly investor’s account. Former Sutter part-owner and CEO Keith Moore was also named in the complaint for making recommendations to the unnamed broker on behalf of this customer.

FINRA’s complaint details how Sutter engaged in churning—excessive trading to generate higher commissions—that brought in $2.9 million in commissions to the firm. This figure represents 35% of the firm’s commissions during the period. The firm generated over $8 million in total commissions during the relevant period.

The charges include violations of Regulation Best Interest by both Sutter and Moore, holding them responsible for allowing the broker to engage in excessive trading, failing to supervise the broker, and ignoring multiple warnings and red flags.

The Customer

Sutter’s customer is an 89-year-old retired semiconductor executive with a long-term growth objective and risk tolerance listed as “moderate.” From March 2020 to July 2021, the unnamed broker made 2,217 trades on behalf of this customer in two trust accounts.

FINRA’s Enforcement Division alleges that Sutter’s brokers’ trading was “excessive, quantitatively unsuitable, and not in the customer’s best interest,” citing high costs, turnover, use of margin, and realized losses as part of the violations. Over 90% of the trading for this customer allegedly involved the use of margin. By November 2020, the customer’s margin debit balance topped $7.66 million.

The broker sold shares almost as soon as they were purchased, generating commissions while losing the customer’s principal. The broker frequently re-purchased the same shares later. The complaint stated, “the average weighted holding period for securities in Customer 1’s accounts was 17.3 days—a timeframe inconsistent with the stated long-term growth objective and indicative of short-term speculative trading rather than investment.”

The elderly customer paid more than $2.9 million in trading costs and experienced about $1.2 million in realized losses over the 17-month period from the unsupervised trading.

Sutter’s Failings

The complaint states that Sutter failed to have sufficient supervisory controls in place to detect and issue alerts for excessive trading, nor to ensure compliance with electronic communications. The firm’s written supervisory procedures also failed to detail any necessary processes or metrics, nor any instructions on dealing with the appearance of problems. Furthermore, the firm had no instructions on quantitative reviews using turnover or cost-to-equity measures.

Even with written instructions stating that compliance officials and other principals would conduct reviews, they were rarely carried out. There were few or no reviews of the email system or other electronic communications for compliance. The firm’s email review process was mostly undocumented, disjointed, and uneven, and had no standard methodology or accountability.

Did You Invest With Sutter Securities? 

Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.