Former Aegis Stockbroker Sanctioned by FINRA for Excessive Trading
On July 9, 2021, former Aegis Capital Corp. (Aegis) stockbroker Douglas Edward Szempruch (Szempruch, CRD# 4159318), was suspended from associating with any FINRA-member broker-dealers or other affiliated persons for a period of twelve months. In addition, Szempruch was ordered to pay restitution to impacted customers in the amount of $99,720.87, plus statutory interest. Pursuant to a Letter of Acceptance, Waiver & Consent (AWC), Mr. Szempruch consented to the sanctions, without admitting or denying any wrongdoing, concerning allegations that “Between August 2014 and June 2017, while associated with Aegis, Szempruch: (1) recommended and affected excessive and unsuitable trades in six customer accounts; (2) exercised discretionary authority without prior written authorization to effect trades in seven customer accounts…” in violation of FINRA Rules, including Rules 2111 and 2010.
Douglas Szempruch first entered the securities industry as a broker around 2000. From 2011 until his separation from employment in June 2021, Szempruch was affiliated with Aegis in that firm’s Melville, Long Island offices. According to FINRA’s factual determinations, as set forth in the AWC, Szempruch purportedly “engaged in quantitatively unsuitable trading in six customer accounts.” According to FINRA’s factual findings, in one instance a former client of Szempruch’s maintained an investment account that was subject to an annualized turnover rate of 25.51 and an annualized cost-to-equity ratio of 109.14%. As disclosed in the AWC, this impacted customer paid $9,517 in commissions and suffered $9,966 in losses over a two year period.
When a brokerage firm or financial advisor has actual or de facto control over a customer’s account, then the broker-dealer and financial advisor must meet a quantitative suitability obligation. Simply put, the broker must have a reasonable basis to believe that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer when taken in the aggregate. While no single test defines excessive trading activity, certain factors including the turnover rate, the cost-equity ratio, and a pattern of in-and-out trading in a customer’s account may rise to the level of violating the quantitative suitability obligation.
Under FINRA Rule 2111 (Suitability), brokers must ensure that their investment recommendations are suitable, by considering a host of factors including a customer’s investment objectives and risk profile, as well as financial circumstances and liquidity needs. Brokers and brokerage firms also must perform adequate due diligence on an investment before it is recommended to a customer. In addition, brokerage firms such as Aegis have a legal obligation under FINRA Rule 3010 (Supervision) to ensure that their employees are adequately supervised. In this regard, brokerage firms must take reasonable steps to ensure that their brokers follow applicable securities rules and regulations, as well as adhere to the firm’s internal policies. In those instances when a brokerage firm fails to adequately supervise its brokers, the firm may be held liable for losses suffered by investors.
The attorneys at Giarrusso Law Group LLC have extensive experience with handling all manner of claims related to investment losses. Investors may pursue claims to recover monies through securities arbitration or, in some instances, through litigation. Investors who have suffered losses with Douglas Szempruch, or another broker, may contact our office by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation to learn more about their legal rights.