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FINRA Bars Broker Over Reg BI Violations

By Melanie Waddell

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The Financial Industry Regulatory Authority has barred a broker for excessive churning in the accounts of multiple customers, resulting in more than $2.3 million in losses and thereby violating the Securities and Exchange Commission’s Regulation Best Interest.

According to FINRA’s order, between July 2020 and July 2021, Christopher Kennedy churned and excessively traded four accounts of six customers as a registered rep of Western International Securities.

“Kennedy used his control over these accounts to direct an excessive series of transactions in each account that generated commissions for his own benefit at the customers’ expense,” the order states.

In all, between July 2020 and July 2021, Kennedy directed over 5,300 trades representing net trading of more than $350 million in the four accounts of six customers, the order states.

“Each month, Kennedy made an average of 102 trades per account representing net trading of more than $6.9 million per account or approximately 13 times the average account value,” according to FINRA.

Kennedy’s trading for six customers “resulted in annualized cost-to-equity ratios ranging from 27% to 39% for an average cost-to-equity ratio of more than 31% across all their accounts,” FINRA said.

Kennedy’s trading resulted in annualized turnover rates ranging from 31 to 58, for an average turnover rate of more than 47 across all their accounts, even excluding options purchases.

As the result of Kennedy’s excessive trading, “Customers 1–6 collectively lost over $2.3 million in value from their accounts and paid more than $715,000 in total trading costs and margin interest, including over $595,000 in commissions,” the order states.

Moreover, according to the order, in March 2021, “Kennedy began making fake account statements to hide the results of his trading from Customers 1 and 2, the husband and wife co-trustees of a family trust account.”

Over the next six months, the order continued, “Kennedy prepared and sent six fake account statements to Customers 1 and 2 from his personal email. Kennedy supplemented these fake account.”

Reg BI’s care obligation applies to a series of recommended transactions regardless of whether the broker-dealer or associated person exercises control over the customer’s account. Failure to comply with the care obligation constitutes a violation of Regulation BI’s general obligation.

As the order states, between July 2020 and July 2021, Kennedy “explicitly recommended or used discretion to make, and thereby implicitly recommended, a series of 1,779 securities transactions to Customers 1–2; a series of 1,288 securities transactions to Customer 3; a series of 1,038 securities transactions to Customers 4–5; and a series of 1,224 securities transactions to Customer 6.”

Kennedy was first registered with FINRA in March 2002 through his association with RBC Dain Rauscher Inc., later moving to other member firms. He was last registered with FINRA through Western as a general securities representative beginning December 2019, FINRA states.

Western filed a Form U5 notice to terminate Kennedy’s registration on Sept. 27, 2021, disclosing that Kennedy had been discharged.

Although Kennedy is no longer registered or associated with a FINRA member, he remains subject to FINRA’s jurisdiction, according to the order.

Melanie Waddell

@Think_MelanieW

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