According to FINRA, Lon Charles Faccini Jr. was fined $5,000, suspended for six months, and ordered to pay $18,770 plus interest in restitution to a customer after engaging in excessive and unsuitable trading using margin in customer accounts. Faccini separately settled an arbitration claim with another customer agreeing to pay restitution for his unsuitable recommendations.

For one customer, Faccini recommended trades that resulted in purchases totaling approximately $2,410,300 in an account with average equity of only $116,900 over 19 months. This generated an annualized turnover rate just over 13, meaning the entire account value was turned over 13 times in a year. The customer suffered losses of approximately $36,700 and paid approximately $55,389 in commissions and fees plus $12,997 in margin interest—totaling $68,385 in costs.

For another customer, Faccini recommended purchases totaling approximately $522,438 in an account with average equity of approximately $26,856 over 16 months, resulting in an annualized turnover rate of 14.59. This customer lost approximately $17,395 and paid approximately $16,074 in commissions and fees plus $2,696 in margin interest—totaling $18,770 in costs.

Both customers routinely accepted Faccini's recommendations, and all of the second customer's trades were executed using margin, as were most of the first customer's trades. Excessive trading, also known as churning, occurs when a representative exercises control over customer accounts and trades excessively to generate commissions rather than to serve customers' investment objectives. The extraordinarily high turnover rates—meaning the accounts were completely turned over 13 to 14 times annually—are strong evidence of excessive trading.

Using margin compounds the harm from excessive trading. Margin allows customers to borrow money to purchase securities, but incurs interest charges and amplifies both gains and losses. When representatives excessively trade accounts using margin, customers pay both excessive commissions and margin interest, while taking on elevated risk.

Suitability rules require that representatives have a reasonable basis to believe their recommendations are suitable for customers based on their financial situation, investment objectives, and risk tolerance. Excessive trading that generates substantial commissions and losses while subjecting customers to unreasonable risk is inherently unsuitable.

For investors, this case demonstrates the dangers of excessive trading and margin. Turnover rates above 6 are generally considered excessive, and rates of 13-14 are extraordinarily high. The fact that both customers combined lost over $54,000 while paying over $87,000 in commissions and margin interest illustrates how excessive trading enriches the representative while harming customers. Investors should monitor account turnover and question any representative who recommends frequent trading, especially using margin. The six-month suspension and restitution order reflect the serious harm Faccini caused to customers through his unsuitable trading strategy.