According to FINRA, Michael Ciro Colletti (CRD #4577898) of Glen Head, New York, is facing charges for unauthorized trading and excessive trading in a customer's Individual Retirement Account (IRA). A FINRA Office of Hearing Officers (OHO) decision issued on March 21, 2024, found that Colletti allegedly engaged in unauthorized transactions without obtaining proper customer authorization, and that he exercised de facto control over the account in question. The decision has been appealed to the National Adjudicatory Council (NAC), and all sanctions remain pending review.
The customer at the center of this case was a man in his 60s who was nearing retirement and had a moderate risk tolerance. Despite these conservative investment objectives, Colletti is accused of engaging in quantitatively unsuitable and excessive trading activity in the customer's IRA. The account in question never exceeded $10,000 in value, yet during the relevant period the customer lost $5,417 while Colletti received $5,081 in commissions. This pattern, where a broker earns nearly as much in commissions as the customer loses, is a hallmark of churning, which is a serious violation of securities regulations.
The OHO decision imposed a $10,000 fine, an eight-month suspension from association with any FINRA member firm, an order to pay $5,417 plus interest in restitution to the affected customer, and a requirement that Colletti requalify by examination before returning to the industry. However, because Colletti has appealed the decision to the NAC, none of these sanctions are currently in effect. The appeal process allows for a full review of the findings and the appropriateness of the sanctions imposed.
This case is instructive for investors on several levels. First, it highlights the dangers of allowing a broker to exercise effective control over your account without a formal discretionary trading agreement. When a broker makes trades without explicit authorization, it removes the investor's ability to make informed decisions about their own money. Second, the concept of quantitative unsuitability, also known as churning, is an important protection for investors. FINRA rules require that recommendations made by brokers be suitable for the customer based on factors including age, risk tolerance, financial situation, and investment objectives. An IRA for a pre-retiree with moderate risk tolerance should not be subjected to aggressive or excessive trading.
Investors should monitor their account statements carefully and question any trades they did not authorize. If commissions and fees consume a significant portion of the account's value, that is a warning sign of potential churning. This matter is tracked under FINRA Case #2019061942901.
