Aegis Capital Stockbroker Barred By FINRA For Churning

James Bradley Schwartz (also known as Jim Schwartz) of Melville New York a stockbroker formerly employed by Aegis Capital Corp has been barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity according to an Order Accepting Offer of Settlement containing findings that (1) Schwartz executed trades in the customer’s account on an excessive basis and (2) Schwartz churned the customer’s investment portfolio. Department of Enforcement v. James Bradley Schwartz Disciplinary Proceeding No. 2016051704302 (Apr. 16, 2019).

According to the Order, between August of 2014 and May of 2016, while registered with Aegis Capital Corp, accounts of four customers, DN, MN, KK and FP, were excessively traded and churned by Schwartz. Evidently, a total of five hundred thirty-five trades were placed by him in the customers’ accounts. Apparently, Schwartz’s trading caused customers to have cost-to-equity ratios that ranged between eighty-seven percent and one hundred twenty percent, and annual turnover rates which ranged between 19.9 and 54.7.

Evidently, Schwartz took steps to conceal the costs by effecting riskless principal trades rather than agency trades. This caused the costs of the trades to be disguised as postage fees, markdowns and markups, where customers were left in the dark about the total costs. Apparently, ninety percent of the total costs were assessed through hidden markdowns and markups.

Customers reportedly sustained $660,000.00 in investment losses because of the excessive trading and churning. Yet, Schwartz produced $277,705 in commissions for the firm, $194,000.00 of which was paid out to Schwartz personally.

The Order additionally revealed that Schwartz controlled the customers’ accounts to effect deceptive and fraudulent activities, including effecting trades in their accounts without their permission. In particular, a total of two hundred sixty-one trades, which totaled $10,000,000.00 in principal, had been placed by Schwartz without him having any authorization from the customers.

FINRA found Schwartz’s conduct violative of Securities Exchange Act of 1934 Section 10(b), Securities and Exchange Commission (SEC) Rule 10b-5 and FINRA Rules 2010, 2020 and 2111.

FINRA Public Disclosure confirms that Schwartz is referenced in nine customer initiated investment related disputes pertaining to allegations of his violative conduct during the time that he was associated with Aegis Capital Corp and Rockwell Global. Specifically, on September 20, 2016, a customer initiated investment related complaint concerning Schwartz’s conduct was settled for $782,000.00 in damages founded on accusations of bad advice and the negligent handling of the customer’s assets.

Thereafter, a customer initiated investment related arbitration claim concerning Schwartz’s activities was resolved for $180,000.00 in damages based upon allegations that investment recommendations made to the customer were not suitable; the customer’s account was handled in a negligent fashion; fiduciary duties had been breached; and trades were placed in the customer’s account on an excessive basis. FINRA Arbitration No. 15-03428 (Jan. 17, 2017). In addition, a customer filed an investment related arbitration claim regarding Schwartz’s conduct in which the customer requested $1,694,099.00 in damages supported by accusations of unsuitable investment recommendations being made to the customer and unauthorized trades being effected in the customer’s account. FINRA Arbitration No. 18-00408 (Jan. 31, 2018).

Another customer initiated investment related arbitration claim involving Schwartz’s activities was resolved for $132,500.00 in damages founded on allegations including breach of fiduciary duty, breach of contract, unsuitability, churning, unauthorized trading and negligence. FINRA Arbitration No. 18-01797 (Jan. 22, 2019).

Since 1998, Schwartz has been associated with fourteen different broker dealers, nine of which have been expelled by securities regulators for violation of federal securities laws or are otherwise defunct. #cockroach