Financial advisor Joseph C. Farah (CRD# 2978633), who was most recently affiliated with Gold Coast Securities, Inc. (CRD# 110925) (hereinafter, Gold Coast), has voluntarily consented to a bar from the securities industry pursuant to an Order Accepting Offer of Settlement (hereinafter, the Settlement) entered into on or about January 25, 2018. Without admitting or denying any wrongdoing, Mr. Farah consented to the industry bar following FINRA Enforcement’s investigation into certain allegations including, inter alia, that Mr. Farah purportedly engaged in excessive trading in a customer’s account, and further, allegedly failed to inform his employer, Gold Coast, that the customer had opened a brokerage account at another broker-dealer at Mr. Farah’s behest.
Beginning in 1998, Mr. Farah began working as a registered representative for Financial Network Investment Corporation in El Segundo, CA. Subsequently, he worked at National Planning Corporation (CRD# 29604) from July 1998 – September 2002. From September 2002 until September 2015, Mr. Farah was affiliated with Gold Coast as a registered representative. In September 2015, Mr. Farah was discharged from his employment with Gold Coast. According to publicly available information, this termination was due, in part, to allegations raised by FINRA that “[t]he representative had discretionary authority over a customer’s account at another broker-dealer without notifying the firm of his affiliation….”
As alleged in the Settlement, in October 2012 Mr. Farah opened a Gold Coast brokerage account on behalf of a self-employed artist – identified by the initials ‘LN’. At around the same time, Mr. Farah allegedly suggested that LN also open a brokerage account with TD Ameritrade. According to FINRA, Mr. Farah allegedly “promised to reimburse LN for any losses in her TD Ameritrade account that exceeded five percent and, in exchange, would take 30 percent of the trading profits as compensation.”
By November 2012, Mr. Farah purportedly began engaging in an ongoing pattern of heavy day-trading in LN’s TD Ameritrade account. For example, in February 2013 alone, a total of 147 settled trades were effectuated in LN’s TD account (purchases and sales totaling more than $8.2 million). As alleged by FINRA, by the end of September 2013, LN’s TD account had declined by approximately 25% in value.
Excessive trading, or churning, occurs where: (i) a registered representative exercises control over a customer’s account; and (ii) the level of activity in that account is inconsistent with the customer’s investment objectives, financial situation, and needs. Excessive trading constitutes a violation of FINRA’s suitability standards set forth under FINRA Rule 2111. In this instance, FINRA Enforcement’s allegations would suggest that Mr. Farah engaged in an unsuitable trading program in the TD brokerage account, in light of the sheer number of trades, the exorbitant turnover rate, and the cost-to-equity ratio.
Brokerage firms like Gold Coast have a duty to ensure that their registered representatives are adequately supervised. Brokerage firms must also take reasonable steps to ensure that their financial advisors follow all applicable securities rules and regulations, in addition to internal policies and procedures. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.
Law Office of Christopher J. Gray, P.C has experience representing investors in cases against stockbrokers and financial advisors, including cases involving excessive trading or churning, and related broker misconduct. Investors may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at email@example.com for a no-cost, confidential consultation.