← Broker database 2022-07-15
David Gene Menashe Barred for Refusing Testimony About Excessive Trading
According to FINRA, David Gene Menashe was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony requested in connection with an investigation into potential unsuitable and excessive trading in customer accounts.
Excessive trading, also known as churning, occurs when a broker executes trades in a customer's account primarily to generate commissions rather than to benefit the customer. This practice violates FINRA suitability rules and can cause significant financial harm to investors through unnecessary transaction costs and tax consequences. For churning to occur, the broker must have actual or de facto control over the account, the trading must be excessive given the customer's investment objectives, and the broker must act with fraudulent intent.
FINRA's investigation sought to determine whether Menashe engaged in this prohibited practice. Testimony from the broker would be crucial to understanding the nature of trading activity, the basis for investment recommendations, how trading decisions were made, and the broker's intent. By refusing to appear for testimony, Menashe prevented FINRA from fully investigating these serious allegations.
The refusal to cooperate with a regulatory investigation is treated as a standalone violation that warrants severe sanctions. In this case, FINRA imposed a permanent bar, which means Menashe can no longer work in any capacity with any FINRA member firm. This sanction protects investors by removing from the industry an individual who refused to participate in the regulatory process.
This case highlights important investor protections. Excessive trading allegations are taken seriously because they represent a fundamental breach of a broker's duty to act in accordance with a customer's best interests. Investors should monitor their accounts for unusual trading frequency and question advisors about the rationale for frequent transactions. High trading costs and frequent turnover may indicate churning. When brokers refuse to answer questions from regulators about their trading practices, it raises serious concerns about their conduct.