According to FINRA, Marc Augustus Reda was barred from association with any FINRA member in all capacities on March 21, 2022, for willfully violating securities laws by churning customer accounts that he exercised de facto control over.
Reda made trading decisions for customers' accounts, including which securities to trade, the volume, and timing. Customers relied on Reda's recommendations and consistently followed them. Reda also made unauthorized transactions in customer accounts. His trading was excessive and quantitatively unsuitable, generating costs of $264,734 and causing realized losses of $232,043 on accounts with an aggregate average monthly value of $262,234.
Reda recommended his costly active trading strategy without understanding its potential risks and rewards. He failed to consider the strategy's costs on customers' ability to generate profits and conducted no research on whether the strategy could be profitable given cumulative costs. Reda did not understand cost-to-equity ratios or turnover rates and failed to calculate these metrics when executing his trading strategy.
Additionally, Reda executed unauthorized transactions in non-discretionary accounts, charged excessive and unreasonable commissions without prior disclosure, and intentionally circumvented his firm's supervisory procedures to charge commissions exceeding five percent. Reda also willfully failed to timely disclose eight customer complaints alleging sales practice violations and failed to disclose an unsatisfied tax lien and warrant totaling $225,929.49 on his Form U4.
Churning occurs when a broker excessively trades a customer's account to generate commissions rather than benefit the customer. It represents one of the most serious forms of broker misconduct because it prioritizes the broker's financial interests over the customer's welfare.
Investors should monitor their accounts for signs of excessive trading, including frequent buying and selling, high commission charges relative to account value, and declining account balances despite market gains. Understanding basic metrics like cost-to-equity ratios can help identify churning.
