The SEC has charged Atlanta-based securities brokerage firm JP Turner & Company, as well as its executive vice-president and head of supervision, Michael Bresner, and its president William Mello, with compliance violations and failure to supervise. JP Turner and Mello have reportedly agreed to settle with the SEC, but administrative proceedings remain pending against three former brokers and Michael Bresner. The three brokers were charged with “churning” the accounts of customers, who had conservative investment objectives and low or moderate risk tolerances. The brokers involved are Ralph Calabro of Matawan, N.J., and Jason Konner and Dimitrios Koutsoubos, both of Brooklyn, N.Y. All work at different firms today.
Churning is excessive trading that is unsuitable in light of the customer’s investment objective and financial profile, and is done for the purpose of generating commissions and other revenue for the broker or the firm. Churning is recognized as an intentional act of fraud under the securities laws. Frequent in-and-out trading is per se unsuitable for most investors.
In this case, customers of JP Turner suffered severe losses while the brokers collected handsome fees. The SEC alleged that the brokers’ churning generated commissions, fees, and margin interest totaling approximately $845,000, while the defrauded investors lost approximately $2.7 million.
The brokers’ churning raised “red flags” that triggered provisions in JP Turner’s procedures manual requiring that Bresner personally review the underlying trading activity, but he failed to take appropriate action, according to the SEC.
The SEC further found that, although JP Turner had a monitoring system to identify actively traded accounts, it imposed few requirements and no meaningful guidance for supervisors to review these accounts and take meaningful action to investigate active trading.
“Broker-dealers’ supervisory systems must provide customers with reasonable protection from churning and similar abuses. JP Turner’s supervisory systems failed to do that,” William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office, was quoted as saying.
In settling with SEC, JP Turner agreed to hire an independent consultant to review the firm’s supervisory procedures, and pay $200,000 in ill-gotten commissions and fees, plus $16,051 in prejudgment interest, as well as a $200,000 penalty. Pursuant to the settlement, Mello cannot hold any supervisory position with a broker-dealer or investment adviser for a period of five months, and must pay a $45,000 penalty.
Investors who suspect that they may be victims of broker churning should immediately contact counsel experienced in representing investors in such matters.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.