← Broker database 2023-09-25
Rodney Ferruso Barred for Failing to Testify About Mutual Fund Trading
According to FINRA, Rodney Michael Ferruso was barred from association with any FINRA member in all capacities for refusing to appear for on-the-record testimony requested by FINRA.
FINRA was investigating the circumstances described in a Form U5 submitted by Ferruso's member firm. The Form U5 stated that the firm had permitted Ferruso to resign after identifying short-term trading of certain mutual funds in his customer accounts. Short-term trading of mutual funds, also known as market timing, can violate fund prospectuses and harm other fund shareholders.
Many mutual funds, particularly those designed for long-term investment, prohibit or restrict frequent trading because it can disrupt the fund's investment strategy, increase transaction costs, and dilute returns for long-term shareholders. When brokers engage in or facilitate short-term trading of mutual funds in violation of fund policies, it can constitute a violation of securities laws and FINRA rules.
The fact that Ferruso's firm permitted him to resign after discovering this conduct suggests the firm viewed it as serious misconduct. Firms typically only permit resignations in lieu of termination when they have identified violations that would otherwise result in a termination for cause.
Ferruso's refusal to provide testimony to FINRA prevented the regulator from fully understanding what occurred, whether customers were harmed, and whether the conduct was more widespread than initially identified. By refusing to testify, Ferruso obstructed FINRA's ability to fulfill its investor protection mandate.
The permanent bar means Ferruso can never again work in the securities industry in any capacity. This protects investors from someone who not only allegedly engaged in improper mutual fund trading but also refused to account for his conduct to regulators. Investors should review their account statements carefully for unexpected trading activity and should understand the trading restrictions that apply to mutual funds they own.