According to FINRA, Richard S. Siminou was fined $5,000, suspended from association with any FINRA member in all capacities for four months, and ordered to pay $17,021 plus interest in restitution to customers on August 31, 2023. The suspension was in effect from September 18, 2023, through January 17, 2024.
FINRA found that Siminou excessively and unsuitably traded two elderly customer accounts. This trading resulted in an annualized cost-to-equity ratio of over 29 percent and 34 percent, respectively. As a result of Siminou's unsuitable recommendations, the customers paid $17,021 in commissions and fees.
Excessive trading, also known as churning, occurs when a broker places trades in a customer's account primarily to generate commissions rather than to benefit the customer's investment objectives. This harmful practice can rapidly deplete customer accounts through unnecessary trading costs and commissions while providing little or no investment benefit to the customer.
The cost-to-equity ratio is a key metric used to identify excessive trading. It measures the total costs (commissions, fees, and other charges) as a percentage of the average equity in the account. A cost-to-equity ratio over 29 percent means that the customer would need to earn returns of more than 29 percent just to break even after paying trading costs. Such high cost-to-equity ratios are generally considered excessive and unsuitable unless there are exceptional circumstances.
In this case, both accounts had annualized cost-to-equity ratios exceeding 29 percent, with one reaching 34 percent. These extraordinarily high ratios indicate that Siminou was placing far more trades than could reasonably be justified by the customers' investment objectives and that he was generating substantial commissions at the customers' expense.
The fact that the accounts belonged to elderly customers makes Siminou's conduct particularly concerning. Elderly investors may be more vulnerable to abusive sales practices and may be less able to recover from investment losses. They may also be more trusting of their financial advisors and less likely to question excessive trading activity.
Brokers have an obligation to recommend only those transactions that are suitable for their customers based on the customers' investment objectives, financial situation, and needs. When brokers recommend excessive trading that generates high commissions but provides little benefit to customers, they violate their suitability obligations and place their own financial interests ahead of their customers' interests.
The restitution of $17,021 plus interest that Siminou was ordered to pay represents the commissions and fees that the customers paid as a result of the excessive trading. This restitution is intended to make the customers whole for the harm they suffered.
Investors, particularly elderly investors, should be alert to signs of excessive trading in their accounts, such as frequent trading activity, high commission charges relative to account value, or trading that does not align with their investment objectives. They should review their account statements carefully and question any trading activity that seems excessive or inconsistent with their needs.
