According to FINRA, Stewart Ginn was named a respondent in a FINRA complaint alleging that he churned and excessively traded customer accounts. The complaint alleges that none of the customers was an aggressive investor, and included a customer in her late 80s suffering from a cognitive disability, a retired customer in her late 70s, and a retired customer between 69 and 71 years old. Ginn allegedly engaged in frequent in-and-out trades in the customer accounts while charging high commissions on both buys and sells.
Ginn's trading allegedly caused customers to incur realized losses of more than $2.22 million while generating more than $2.24 million in commissions for him and his member firm. The complaint alleges that Ginn routinely recommended that customers buy large equity positions, which he often quickly sold even when stock prices had changed only minimally. Because of the high commissions Ginn charged—generally three percent on buy transactions and two percent on sell transactions—customers routinely incurred losses on such trades. Acting with scienter and with de facto control over customer accounts, Ginn allegedly churned these accounts in willful violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The complaint also alleges that by excessively trading the accounts of retail customers, Ginn willfully violated the Best Interest Obligation under Regulation Best Interest. Additionally, the complaint alleges that Ginn recommended a series of transactions to one customer that was excessive and quantitatively unsuitable in light of the customer's investment profile. The complaint further alleges that in a majority of customer accounts, Ginn improperly traded on discretion and frequently engaged in buying and selling securities without obtaining customer authorization for each transaction.
Disregarding the cumulative impact of his excessive, high-cost trading, Ginn allegedly persisted in placing frequent trades in each of the customers' accounts even as each account incurred substantial realized losses. Ginn's trading allegedly resulted in annualized cost-to-equity ratios of between 14 percent to 27 percent in customers' accounts, making it unlikely they would realize a profit. Churning is one of the most serious violations in the securities industry because it involves brokers enriching themselves through commissions at the direct expense of customers.
The fact that alleged victims included an elderly woman with cognitive disability makes the allegations particularly egregious, as vulnerable seniors are often targets of financial exploitation. For investors, particularly seniors and retirees, this case highlights the importance of monitoring account activity carefully for signs of churning including frequent trading, in-and-out trading of the same securities, high commission costs relative to account value, and declining account values despite market conditions. Investors should review account statements carefully, calculate total commission costs, and question any trading patterns that seem excessive. High commission rates like the three percent and two percent allegedly charged by Ginn on buys and sells can make it virtually impossible to profit, as securities would need to appreciate substantially just to break even after commissions. While these are allegations that have not yet been proven, investors can protect themselves by checking BrokerCheck for complaints and regulatory actions, monitoring account activity carefully, and reporting concerns promptly to firm compliance and regulators.
