According to FINRA, Joseph Brian LaScala Jr. was fined $7,500 and suspended for four months on January 24, 2022, for engaging in excessive and quantitatively unsuitable trading in a customer's account and exercising unauthorized discretionary authority.
LaScala engaged in short-term trading in a customer's individual 401(k) account. He decided which stocks to trade and when to trade them, exercising discretionary authority over the trades. He controlled the volume and frequency of trading, giving him de facto control over the customer's account. LaScala's short-term trading resulted in $90,720 in trading costs and $116,194 in losses for the customer.
Additionally, LaScala exercised discretionary authority to effect trades without obtaining prior written authorization from the customer or approval from his member firm to treat the account as discretionary. Under FINRA rules, discretionary trading requires both written customer authorization and firm acceptance of the account as discretionary.
Excessive trading, also known as churning, occurs when a broker engages in trading primarily to generate commissions rather than to benefit the customer. Trading costs of $90,720 combined with losses of $116,194 demonstrate the devastating impact of LaScala's trading strategy on this customer's retirement savings.
The 401(k) account context makes this misconduct particularly harmful. 401(k) accounts contain retirement savings that many investors depend on for financial security in retirement. Excessive trading that generates substantial costs and losses in a retirement account can significantly impair an investor's ability to retire comfortably.
Short-term trading strategies that generate high trading costs are rarely suitable for retirement accounts. Most retirement investors benefit from long-term, buy-and-hold strategies that minimize trading costs and allow investments to grow over time. High-frequency trading that generates substantial commissions typically benefits the broker more than the customer.
For investors, this case illustrates several warning signs of excessive trading: frequent trades, high trading costs relative to account value, short holding periods, and persistent losses despite high trading activity. Investors should review their 401(k) and other account statements carefully and question advisors who recommend frequent trading.
If your account shows high turnover and substantial commission charges without corresponding positive performance, seek a second opinion from another financial professional or consider filing a complaint with FINRA.
