SEC Charges Firm for Failing to Supervise Rogue Brokers

Broker-dealer Alexander Capital has agreed to be censured and pay a fine of more than $400,000 for failing to supervise brokers who “churned accounts,” made unsuitable recommendations, and made unauthorized trades that resulted in substantial losses to clients while generating large commissions. 

SEC regulations require broker-dealers to supervise their employees through procedures and systems designed to prevent and detect violations of federal securities laws.  In particular, broker-dealers must guide supervisors on how to identify and address potential misconduct by its registered representatives who sell securities to the public.

“Broker-dealers must protect their customers from excessive and unauthorized trading, as well as unsuitable recommendations,” Marc Berger, director of the SEC’s New York Regional Office, said in a release.  “Alexander Capital’s supervisory system – and its personnel – failed its customers, and today’s actions reflect our continuing efforts to protect retail customers by holding firms and supervisors responsible for such failures.”

The SEC said Alexander Capital did not reasonably supervise brokers William Gennity, Rocco Roveccio, and Laurence Torres, who were charged with fraud in September 2017.  According to the SEC’s order instituting administrative proceedings, the firm neglected to develop and implement reasonable supervisory policies and procedures, and “failed to put in place reasonable mechanisms for supervisors to use to monitor registered representatives.”

The charges also say the company didn’t train two supervisors, nor did it implement any procedures designed to identify whether they were reviewing customer accounts for churning. Churning is when a broker engages in excessive trading in a client’s account in order to generate commissions that benefit the broker without considering the customer’s investment goals. 

Alexander Capital agreed to pay $193,775 for allegedly ill-gotten gains, another $193,775 in penalties, and another $23,437 in interest. Alexander Capital also agreed to hire an independent consultant to review its policies and procedures and the systems to implement them.

In separate orders, the SEC found that supervisors Philip Noto and Barry Eisenberg ignored red flags indicating excessive trading. Noto agreed to a permanent supervisory bar, and to pay a $20,000 penalty, while Eisenberg agreed to a five-year supervisory bar, and to pay a $15,000 penalty. 

Alexander Capital, Noto and Eisenberg neither admitted, nor denied the findings in the SEC’s orders.