Finra fines broker-dealer $475k over churning supervision failures

investmentnews.com:

Finra has fined a California-headquartered broker dealer $475,000 for a years-long failure to establish and maintain adequate supervisory systems to prevent excessive trading that resulted in millions of dollars in trading costs across roughly one hundred accounts.

The sanction against the firm, Western International Securities, follows a Finra investigation regulator that revealed it did not properly supervise trading activities between January 2016 and June 2020.

According to the AWC document published Monday, Western operates as a full-service broker-dealer with approximately 390 registered representatives across over 100 branch offices.

Finra found that during the relevant period, Western’s written supervisory procedures (WSPs) were inadequate and did not provide supervisors with the necessary tools or guidance to recognize critical red flags of excessive trading, such as cost-to-equity ratios and turnover rates.

“As a result, Western failed to reasonably respond to trading in approximately one hundred accounts that appeared to be potentially excessive and unsuitable,” Finra said.

Among the scores of supervisory gaffes, Finra said four of Western’s registered reps engaged in excessive trading in nine customer accounts between January 2016 and December 2019. That high-octane churning, which produced an average cost-to[1]equity ratio of 30 percent and an average turnover rate of 8, led to more than $2.5 million in trading costs for the customers in those accounts, Finra estimated.

In one notable case, a senior customer’s accounts were subject to hundreds of in-and-out trades, generating a cost-to-equity ratio of 30 percent. That case alone accounted for over $1.5 million in commissions and trading costs.

Western’s