According to FINRA, Leonid Yurovsky was suspended from association with any FINRA member in all capacities for five months and ordered to pay $10,648.61 in restitution to a senior customer. In light of Yurovsky's financial status, no monetary fine or prejudgment interest has been imposed.
Yurovsky excessively and unsuitably traded customer accounts. Yurovsky recommended that one customer, a farmer with limited investment experience, place trades in his account that resulted in an annualized cost-to-equity ratio of approximately 30 percent. The customer's average monthly equity in his account was approximately $158,600, yet Yurovsky's recommended trades resulted in the customer paying approximately $165,000 in commissions and other trade costs.
Additionally, Yurovsky recommended that a senior customer place trades in his account that resulted in a cost-to-equity ratio of approximately 25 percent. In several instances, Yurovsky recommended that the senior customer sell a security shortly after purchasing it, even though his recommendation to purchase the security had resulted in paying a substantial commission. Although the senior customer's account had an average monthly equity of approximately $42,000, Yurovsky's recommended trades caused him to pay over $10,600 in commissions and other trade costs. Both customers relied on Yurovsky's advice and accepted his recommendations.
Yurovsky is only required to pay restitution to the senior customer since his member firm has paid as restitution the commissions and other trading costs charged to the other customer.
The suspension is in effect from January 17, 2023, through June 16, 2023.
Excessive trading, also known as churning, occurs when a broker engages in trading that is excessive in frequency or amount in light of the customer's investment objectives and financial situation, with the intent to generate commissions. The harm to customers from churning is twofold: the trading costs erode the account value, and the frequent trading may not align with the customer's investment goals.
The cost-to-equity ratios in Yurovsky's customers' accounts were extraordinarily high. A 30 percent cost-to-equity ratio means that 30 percent of the account's average value was consumed by commissions and other trading costs in a single year. At this cost level, the investments would need to appreciate by more than 30 percent just to break even, which is an unrealistic expectation for most investment strategies.
The first customer, a farmer with limited investment experience, had average account equity of approximately $158,600 but paid approximately $165,000 in commissions and trading costs. This means the customer paid more in costs than the average account value—the account would need more than 100 percent appreciation just to recover the costs, which is virtually impossible. This level of trading costs is never appropriate and clearly constitutes churning.
The senior customer's account had a 25 percent cost-to-equity ratio, with average equity of about $42,000 but over $10,600 in trading costs. Again, this level of costs is excessive and unsuitable. The fact that Yurovsky recommended the senior customer sell securities shortly after purchasing them, despite the substantial commissions paid on the purchase, is a classic sign of churning. Such rapid-fire trading generates commissions on both the buy and sell sides but provides no reasonable investment benefit to the customer.
Both customers relied on Yurovsky's advice and accepted his recommendations, which establishes the control element necessary to prove churning. The customers were not independently deciding to engage in frequent trading; rather, they were following Yurovsky's recommendations.
The fact that one customer was a farmer with limited investment experience makes the churning particularly problematic. Such a customer would likely have conservative investment needs and limited sophistication to recognize excessive trading. The fact that the other victim was a senior customer is also aggravating, as seniors are often targeted for financial exploitation and have limited ability to recover from investment losses.
The five-month suspension and restitution requirement reflect the seriousness of the churning, though the absence of a fine due to financial status suggests Yurovsky may not have substantial assets. The firm's payment of restitution to one customer demonstrates that the firm recognized the impropriety of the trading and took responsibility for allowing it to occur.
For investors, this case illustrates the critical importance of monitoring trading frequency and costs in your account. Review your account statements monthly and calculate what percentage of your account value is being consumed by commissions and fees. If commissions are more than a few percent of your account value annually, question whether the trading is appropriate.
