Coastal Equities Inc., a mid-sized broker-dealer with 104 registered reps, on Monday said it would pay back $280,000 in restitution to clients for allegedly failing to supervise a series of alleged unsuitable trades in elderly and retired clients’ accounts.
According to the settlement with the Financial Industry Regulatory Authority Inc., from 2016 to 2018, Coastal Equities “failed to reasonably supervise a registered representative, who recommended excessive and unsuitable trades in the accounts of four customers.”
“Coastal became aware of numerous red flags that [the rep] was making unsuitable recommendations, but failed to take reasonable action to investigate them,” according to the Finra settlement.
The firm neither admitted to or denied Finra’s findings. The name of the adviser who made the trades, and who was registered with Coastal Equities from September 2015 to July 2018, was not disclosed. Finra also censured the firm.
Last year, Finra issued a report that said some firms lacked adequate supervisory systems for detecting red flags that would indicate unsuitable transactions.
A spokesperson for Coastal Equities said declined to comment.
From October 2016, the firm’s daily trade blotter showed the rep’s frequent trading and the correspondingly high turnover rates and commissions in the accounts of the four customers, according to Finra.
Despite red flags, from October 2016 through December 2017, no one at Coastal Equities reviewed the accounts the clients to determine whether the rep’s recommendations were suitable, according to Finra.
And no one at the firm over that same time period questioned the rep about the trading in any of his customer’s accounts, contacted any of his customers, or took any steps to reduce the commissions that he was charging his customers or the frequency with which the rep was recommending securities transactions, according to Finra.
Meanwhile, Coastal Equities said in a recent filing with the Securities and Exchange Commission that investors have filed arbitration claims seeking in the neighborhood of $3 million in damages.
“The customers generally allege that products sold to them by registered representatives of the firm were unsuitable,” according to the SEC filing. “The company believes that the matters will settle for substantially less than the amounts claimed. The company has accrued $228,500 against possible exposure.”
The firm declined to comment on pending investor claims.
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