According to FINRA, Ian Phillip Lowrey was assessed a deferred fine of $5,000, suspended for three months, and ordered to pay $48,116 plus interest in deferred restitution to customers for excessively trading two customer accounts.
Lowrey recommended high frequency trading in the customers' accounts. The customers routinely followed his recommendations, giving Lowrey de facto control over their accounts. His trading resulted in high turnover rates and cost-to-equity ratios as well as significant losses. The trading was excessive and unsuitable given the customers' investment profiles.
As a result of Lowrey's excessive trading, the customers suffered collective realized losses of $103,253 while paying total trading costs of $55,036, including commissions of $48,116. This means that more than half of the customers' losses went directly to commissions, demonstrating how excessive trading can enrich the representative while devastating customer accounts.
Excessive trading, also known as churning, occurs when a representative trades a customer's account excessively to generate commissions rather than to benefit the customer. High turnover rates indicate that securities are held for short periods before being sold and replaced with other securities. High cost-to-equity ratios indicate that the account must generate substantial returns just to break even after paying trading costs.
In this case, the customers' investment profiles evidently did not call for the high-frequency trading strategy Lowrey employed. Representatives have an obligation to make recommendations suitable for each customer based on their individual circumstances, investment objectives, risk tolerance, and financial situation. Trading that might be appropriate for a sophisticated trader seeking short-term gains is unsuitable for investors with different profiles.
The de facto control Lowrey exercised over the accounts is particularly concerning. While the accounts may not have been formally discretionary, Lowrey's customers followed his recommendations so routinely that he effectively controlled trading decisions. This created a duty to trade the accounts prudently and appropriately, which he violated through his excessive trading.
For investors, this case illustrates the importance of monitoring account activity and questioning frequent trading. High levels of trading activity, particularly in accounts meant for long-term growth or conservative investors, should raise red flags. Investors should review their account statements carefully and question why securities are being frequently bought and sold. The suspension is in effect from May 16, 2022, through August 15, 2022.
