← Broker database 2021-11-05
Sebastian Wyczawski Suspended for Excessive Trading in Two Customer Accounts
According to FINRA, Sebastian Wyczawski was fined $5,000, suspended from association with any FINRA member in all capacities for five months, ordered to pay $21,644 plus interest in restitution to customers, and required to complete 20 hours of continuing education concerning suitability obligations for engaging in excessive and unsuitable trading, including the use of margin, in customer accounts.
Wyczawski recommended trades to two customers who accepted his recommendations. However, the trading in both accounts was excessive and unsuitable, generating commission costs and margin interest that made it extremely difficult for the customers to profit.
In the first customer's account, Wyczawski's recommended trades caused the customer to pay $10,397 in commissions, trading costs, and margin interest. This resulted in an annualized cost-to-equity ratio in excess of 34 percent, meaning the customer's account would have had to grow by more than 34 percent annually just to break even.
The trading in the second customer's account was even more excessive. Wyczawski's recommendations caused that customer to pay $11,247 in commissions, trading costs, and margin interest, resulting in an annualized cost-to-equity ratio in excess of 65 percent. This means the second customer's account would have had to grow by more than 65 percent annually just to break even—an unrealistic expectation for virtually any legitimate investment strategy.
Cost-to-equity ratios above 20-30 percent generally raise red flags for excessive trading. When ratios reach 34 percent and 65 percent as in these accounts, it is clear that the trading was done primarily to generate commissions rather than to serve the customers' investment objectives. The use of margin compounded the problem by adding interest charges to the already-excessive commission costs.
FINRA ordered Wyczawski to pay full restitution of $21,644 ($10,397 + $11,247) plus interest to compensate both customers for the excessive costs they incurred. The five-month suspension is longer than in some other excessive trading cases, likely reflecting that two customers were harmed and one account had the extremely high 65 percent cost-to-equity ratio.
The requirement to complete 20 hours of continuing education on suitability obligations is designed to ensure Wyczawski understands his obligations before returning to the industry. However, given the egregious nature of the violations—particularly the 65 percent cost-to-equity ratio—investors should be cautious about working with Wyczawski even after his suspension ends.
This case reinforces that representatives must consider trading costs when making recommendations and cannot recommend trading patterns that make it unrealistic for customers to profit. Investors should monitor their accounts for high commission charges and margin interest, particularly in relation to account size, and should question representatives about the rationale for frequent trading.