According to FINRA, Peter N. Girgis was fined $7,500, suspended from association with any FINRA member in all capacities for nine months, and ordered to pay $169,677 in restitution to customers for engaging in excessive and quantitatively unsuitable trading in customer accounts.
Girgis was found in violation of FINRA's suitability rule through a practice known as churning. He recommended high-frequency trading in customer accounts, with each customer often holding concentrated positions in one or two securities for short periods of time. Girgis' customers routinely followed his recommendations, giving him de facto control over the accounts. This means that while the accounts were technically non-discretionary, the customers consistently accepted Girgis' recommendations without question, effectively giving him control over trading decisions.
The trading resulted in high turnover rates and cost-to-equity ratios, which are key metrics for identifying excessive trading. Turnover rate measures how frequently the securities in an account are replaced, while cost-to-equity ratio measures the total trading costs as a percentage of the account's equity. High values for these metrics indicate that an account must generate substantial returns just to break even, suggesting that the trading is excessive and unsuitable. As a result of Girgis' excessive trading, his customers suffered collective realized losses of $224,573 while paying total trading costs of $199,622, including commissions of $181,877.
This case illustrates a classic churning scenario where a representative generates substantial commissions for himself while causing significant losses for customers. The high-frequency trading strategy benefited Girgis through commissions on each trade but was unsuitable for the customers given the costs involved. Churning is one of the most serious sales practice violations because it represents a clear conflict of interest—the representative profits from trading activity regardless of whether customers benefit.
Investors should be alert to warning signs of excessive trading, including frequent buy and sell recommendations, high commissions relative to account size, and account values that decline despite normal market conditions. Regular review of account statements and confirmations can help identify these red flags. The restitution order requires Girgis to compensate customers for a portion of their losses, though customers suffered substantial harm. This case demonstrates that representatives who engage in churning face significant sanctions including lengthy suspensions and restitution obligations.
