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Industry Spotlight > Broker Dealers

Expelled New York BD to Pay $235K for Reg BI Violations

By Melanie Waddell

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What You Need to Know

  • FINRA expelled SW Financial in mid-May.
  • The SEC fined the BD for violating Reg BI's care and compliance obligations.
  • SW Financial and its reps recommended a high-volume trading strategy, collecting over $660,000 in commissions while clients lost over $1 million, the SEC said.

The Securities and Exchange Commission has ordered SW Financial, which was expelled by the Financial Industry Regulatory Authority in mid-May, to pay more than $235,000 for violating Regulation Best Interest’s compliance and care obligations.

FINRA expelled SW Financial for “multiple violations” related to Reg BI.

FINRA found that between January 2018 and December 2021, Melville, New York-based SW Financial and Thomas Diamante, the firm’s co-owner, made material misrepresentations and omitted material information in connection with the sale of private placement offerings of pre-IPO securities in violation of both FINRA rules and Reg BI’s disclosure obligation.

According to the SEC’s order, issued on Sept. 28, from at least August 2018 through June 2022 SW Financial, through several of its registered representatives, recommended a short-term, high-volume investment strategy to at least 16 of its customers without a reasonable basis.

High Transaction Costs

Specifically, these registered reps recommended and executed over 2,000 trades in these customers’ accounts during the relevant period “without regard for the high transaction costs incurred by the customers.”

The order states that “as a result of this high volume of recommended transactions and their attendant commissions and fees, it would have been virtually impossible for these customers to achieve a profit in their accounts.”

Customers, according to the SEC, “were left with aggregate losses in the affected accounts exceeding $1,000,000 for the relevant trading periods.” However, SW Financial’s registered reps collectively received over $660,000 in commissions and fees as a result of the excessive trading they recommended.

SW Financial and the registered reps, the order states, “knowingly or recklessly disregarded the fact that the high-cost pattern of frequent trading they recommended for these customer accounts had virtually no chance of generating any profit.”

SW Financial was ordered to pay disgorgement of $216,896 and prejudgment interest of $19,277.

Image: Bloomberg

Melanie Waddell

@Think_MelanieW

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