Spartan Capital Financial Advisor Sanctioned by FINRA in Wake of Excessive Trading Allegations
On April 9, 2020, Spartan Capital Securities, LLC (Spartan Capital) financial advisor, Mack Leon Miller (Mack Miller, CRD# 2822317), was suspended from associating with any FINRA-member broker-dealers or other affiliated persons for a period of five months. In addition, Miller was ordered to pay partial restitution to a certain customer in the amount of $2,500, plus statutory interest. Pursuant to a Letter of Acceptance, Waiver & Consent (AWC), Mr. Miller consented to the sanctions, without admitting or denying any wrongdoing, in connection with allegations by FINRA Enforcement that Miller had purportedly excessively traded a certain customer’s account, “resulting in a high turnover rate and cost-to-equity ratio, as well as significant losses.”
Mack Miller first entered the securities industry as a stockbroker around 2004. From 2016 until April 2017, he was affiliated with Dawson James Securities, Inc. in that firm’s New York, NY office. Most recently, since April 2017, Miller has been affiliated with New York, NY-headquartered Spartan Capital. According to FINRA BrokerCheck, Mr. Miller has disclosed a total of three customer complaints over the course of his career, including one customer complaint which settled in July 2014, concerning allegations of “churning and unsuitability.”
According to FINRA’s findings of fact, as set forth in the AWC, Mack Miller allegedly engaged in quantitatively unsuitable trading in the account of certain customer who was 79 years of age and retired. Furthermore, FINRA alleged that Miller’s active trading in that customer’s account resulted in a high turnover rate, and a high cost-to-equity ratio within the account. According to those allegations set forth in FINRA’s AWC, the pattern of trading was unsuitable, as the costs of the trading strategy, in the form of various fees and commissions, made it difficult if not impossible for the customer to profit from the trading. In total, FINRA determined that the customer allegedly lost $69,633 as a result of excessive trading.
Excessive trading occurs where (1) a financial advisor exercises control over a customer’s account, and (2) the level of activity in that account is inconsistent with the customer’s investment objectives, financial situation, and needs. Excessive trading constitutes a violation of industry standards under FINRA Rule 2111 (Suitability). In determining whether trading is excessive, and therefore quantitatively unsuitable, the use of certain factors and corresponding statistical formulas is commonplace, including analyzing an account’s turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account.
Moreover, under applicable FINRA rules, brokerage firms like Spartan Capital have a legal duty to supervise their employees and affiliated persons. Specifically, under FINRA Rule 3110 (NASD Rule 3010), firms like Spartan Capital must “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance” with applicable FINRA rules, in addition to state and federal securities laws. It is critical for broker-dealers to not only establish such a supervisory system, but further to properly maintain their supervision, by among other things, periodically meeting with individual financial advisors to discuss, among other things, the products they are selling and their sales methods, as well as account activity including trading activity relative to a customer’s investment objectives, stated risk tolerance, and financial situation and needs.
In instances where a customer suffers losses due to excessive trading, or account churning, then the brokerage firm may be held liable for any failure to adequately supervise their employee. The attorneys at Giarrusso Law Group LLC have significant experience in working closely with investors to resolve all manner of issues concerning investment losses, including losses suffered due to excessive trading or other misconduct. Investors may pursue a claim to recover monies through securities arbitration before FINRA, or in some instances, through litigation. Investors who wish to discuss a possible claim may contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation.