Did Aegis Capital Corp. Churn Your Account?

Aegis Capital Corp. recently submitted a Letter of Acceptance, Waiver, and Consent (AWC) to settle claims with the Financial Industry Regulatory Authority (FINRA) over alleged rule violations regarding churning customer accounts.

Aegis is a brokerage and investment adviser firm based in New York City that has been a FINRA member since 1984. The firm operates 23 branch offices with over 350 registered representatives.

Trading To Generate Commissions

Churning, or excessive trading, is when a broker trades in a customer’s account just to generate commissions. It is a violation of FINRA’s rules and securities laws, and one of the leading reasons that customers file arbitration claims.

FINRA Suitability Rule 2111 states that brokers must have a “reasonable basis” for recommending transactions so that they are suitable for the investor’s profile, which includes factors such as the customer’s age, liquidity needs, risk tolerance, and more.

The statistical measures used to determine if trading in an account was excessive are the turnover ratio and the cost-equity ratio. The turnover ratio is determined by dividing total annual purchases by the average balance in an account over a year. Cost-equity ratio is calculated by adding all costs, including all fees, margin interest, and commissions, divided by the average balance of the account.

Aegis Letter Of Acceptance, Waiver, And Consent (AWC)

The recent AWC submitted to FINRA’s Department of Enforcement states that “Aegis failed to establish, maintain, and enforce a supervisory system reasonably designed to supervise actively traded accounts and excessive and unsuitable trading.”

Because of this, it is alleged that Aegis did not recognize excessive and unsuitable trading in hundreds of customer accounts. The AWC states that trading in accounts of 31 customers caused losses of $4.6 million, and average annual cost to equity ratio of 71.6%, with a turnover rate of 34.9.

According to FINRA, a cost-equity ratio over 20% and a turnover rate of six may indicate excessive trading/churning.

The letter goes on to state that from 2014 to 2019, Aegis violated FINRA Rules 3110 and 2010, and NASD Rule 3010 by not complying with FINRA Rule 2111 when selling leveraged, inverse, and inverse-leveraged Exchange Traded Funds (ETFs) to customers.

The AWC also states that over 10% of Aegis’ registered representatives have disclosures on their FINRA Central Registration Depository report for personal financial issues, including bankruptcies, outstanding liens, and judgments.

“Aegis also received more than 50 complaints from customers alleging excessive, unsuitable or unauthorized trading in their firm accounts…Aegis failed to take reasonable steps to investigate these numerous red flags of potentially excessive and unsuitable trading by its registered representatives,” the AWC states.

Making A FINRA Arbitration Claim For Churning

Investment-related disputes with registered brokers like Aegis must be brought to FINRA’s arbitration forum. An arbitration claim for churning or excessive trading may be successful if the trading was excessive based on the investor’s objectives and risk tolerance, and the broker controlled or solicited the trading in the account.

Whether the broker had control over trading in the account is determined by factors such as the client’s sophistication, number of transactions solicited compared to unsolicited, investor’s reliance on the broker, and other variables.

Recovering Aegis Churning Losses

Silver Law Group’s nationally-recognized attorneys represent investors across the country in securities arbitration claims against Wall Street firms for stockbroker misconduct.

Scott Silver, Silver Law Group’s managing partner, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice. Contact Scott Silver today for a no-cost consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.