According to FINRA, William Nicholas Athas was named as respondent in a complaint filed on January 18, 2022, alleging that he willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and violated FINRA Rule 2020 by churning customer accounts.
The complaint alleges that Athas controlled trading in customer accounts, including the volume and frequency of trading, which securities to buy and sell, the quantity of each transaction, and the timing of each transaction. Athas also determined the commission he would charge for each transaction. The customers routinely followed Athas' recommendations.
The complaint further alleges that Athas deliberately incurred unreasonably high trading costs in these accounts, making it virtually impossible for them to be profitable. Athas allegedly persisted in this trading activity even after being warned about the excessive trading and high costs on several occasions.
The complaint also alleges that Athas' trading was excessive and quantitatively unsuitable for each customer based on their investment profiles, as evidenced by high turnover rates and cost-to-equity ratios, the frequency of transactions, and transaction costs incurred. Athas' alleged churning and excessive trading caused customers to pay approximately $1.6 million in commissions and other trading costs and to suffer approximately $1.1 million in losses. Conversely, Athas allegedly generated commissions of approximately $1.5 million for himself and his member firms.
The complaint further alleges that Athas recommended customers engage in short-term, in-and-out trading, often on margin, without having a reasonable basis to recommend that trading strategy. The complaint alleges Athas failed to perform reasonable diligence to understand the cumulative costs of his trading, including commissions, other trading costs, and margin interest, and failed to understand the impact of these costs on customers' accounts or their ability to earn profits. Athas also allegedly failed to understand turnover rates and cost-to-equity ratios, and therefore failed to calculate and consider these metrics when recommending and executing his trading strategy.
It is important to note that this is a complaint containing allegations that have not been proven. Athas is accused of but has not been found in violation of these charges.
For investors, the allegations in this complaint illustrate warning signs of potential churning: extremely high trading costs relative to account size, frequent trading that generates substantial commissions, persistent losses despite high trading activity, and trading that continues even after warnings about excessive costs. Investors should carefully monitor account statements for these red flags and question advisors who recommend high-frequency trading strategies that generate large commission charges.