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Articles Tagged with margin calls

Last week, the Financial Industry Regulatory Authority (FINRA) filed charges against Newport Coast Securities, Inc. (“Newport Coast”) and some of its current and former registered representatives, accusing them of using margin and risky securities to artificially generate huge commissions for themselves while wiping out most of their customers’ investment capital.

Newport Coast, a New York-based broker-dealer, by and through brokers Douglas Leone, Andre LaBarbera, David Levy, Antontio Costanzo, and Donald Bartlet, allegedly churned the accounts of twenty four customers — many of whom are retirees — causing more than $1,000,000 in losses to the investor-clients.  “Churning,” as it is known in the industry, is the act of a broker who excessively and needlessly engages in trading in a client’s account primarily to generate commissions for the broker on each trade without regard for the client’s financial well-being.  Churning is an illegal and unethical practice that violates SEC rules and securities laws.  The brokers are also purported to have created new account forms for their victimized clients that misstated the clients’ net worth, investment experience, and objectives; and two of the brokers (Levy and Costanzo) attempted to dissuade several customers from cooperating with FINRA’s investigation into the matter — all of which was done to cover up the illegality of the brokers’ excessive activity in the client accounts.

According to FINRA, former Newport Coast supervisors Marc Arena and Roman Luckey saw what was transpiring but took no meaningful steps to curtail the misconduct.  To the contrary, the firm’s managers, supervisors, and the former President of the company allegedly profited through overrides on the churned accounts.

FINRA, the securities industry watchdog, recently updated an Investor Alert for investors who purchase securities with “borrowed funds.”   According to the alert, investments made with borrowed funds by investors grew substantially in 2013.  Investors are warned that the risk of margin calls is significant and they should better educate themselves about these risks before investing with borrowed funds.  Investors must understand investing with borrowed funds and the risks of a margin call, in the event, securities used as collateral decline in value.  The risks investors should understand about margin calls include:

  • the forced sale of securities;
  • no prior notification required;
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