(FINRA Case #2015044823501)
Craig Scott Capital, LLC (CRD® #155924, Uniondale, New York) – An Office of Hearing Officers (OHO) decision became final in which the firm was expelled from FINRA® membership. In light of the expulsion, no monetary sanctions were imposed. The sanction was based on findings that the firm, acting through three registered representatives, excessively traded in customer accounts.
The findings stated the trading in the affected customer accounts was excessive based on the cost-to-equity ratios and turnover rates. The registered representatives had de facto control over the trading in the accounts. In light of the level of commissions, markups, markdowns and other charges to the customers, the level of trading was inconsistent with the customers’ objectives and financial situations. The firm was responsible for the excessive trading of customer accounts by its registered representatives and was responsible for the representatives’ excessive trading under principles of respondeat superior.
The findings also stated that the excessive trading in customer accounts constituted churning. Accordingly, by churning customer accounts, the firm violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5, and FINRA Rules 2010 and 2020. The findings also included that the firm failed to establish, maintain and enforce a reasonable supervisory system, including written supervisory procedures (WSPs) to prevent excessive trading and churning of customer accounts, and failed to reasonably supervise its registered representatives to prevent these behaviors. The firm’s owners were aware of “red flags” indicating that registered representatives were, or might be, excessively trading and churning customer accounts. Nonetheless, the owners failed to reasonably respond to those red flags and thus failed to exercise reasonable supervision.
FINRA found that the firm failed to establish a reasonable system and procedures to ensure that its sales force avoided contacting persons on the firm-specific do-not-call list and the national do-not-call list. The firm relied on an honor system, whereby members of the sales force would provide names to a sales assistant to place on the firm’s do-not-call list, which was periodically circulated to the registered representatives. Generally, the firm’s cold-callers routinely failed to check, or ignored, the internal list. FINRA also found that the firm provided false information to FINRA regarding the use of recording equipment and the recording of telephone calls at the firm.
If you feel you have been misled or taken advantage by Craig Scott Capital, LLC or any Broker or Brokerage firm and wish to discuss legal action, please contact Darren Blum at 1-877-786-2552 (1-877-STOCK LAW), www.stockattorneys.com for a free consultation.