FINRA Reid & Rudiger expulsion closed the case against the New York broker-dealer, with FINRA removing the firm from membership and barring cofounders Clifford Reid and Edward Rudiger Jr.
FINRA said the firm and its cofounders excessively traded 20 customer accounts over nearly six years. Several of those accounts were also churned. According to FINRA, the conduct led to about $2 million in commissions and trading costs and about $2.7 million in losses.
The regulator said the firm used a high-volume, high-cost market-timing strategy. It marketed that approach mainly to high-net-worth investors through cold calling. FINRA said that strategy made it virtually impossible for customers to earn a profit.
FINRA Reid & Rudiger Expulsion Details
The firm had already been winding down. It filed a broker-dealer withdrawal request at the end of April. Then FINRA canceled its registration in early June after the firm did not pay industry fees.
This month’s settlement formalized that exit. It also imposed permanent bars on Reid and Rudiger, who served as chief executive. Meanwhile, FINRA said the firm and Rudiger failed to keep a supervisory system that could detect and address churning.
FINRA pointed to trading data across the affected accounts. Annualized turnover rates ranged from 6.92 to 17.33. Annualized cost-to-equity ratios ran from 34.9% to 111%.
Supervisors Face Suspensions and Fines
FINRA also sanctioned majority owner Marc Harrison and chief compliance officer Kelli Mezzatesta. Each received a three-month suspension in all principal capacities. In addition, each must pay a $5,000 fine and complete 20 hours of supervision-related continuing education.
FINRA said both failed to respond to repeated signs of excessive trading. They also did not include customers’ cost-to-equity ratios in their supervision and did not use available exception reports. In one account, FINRA said a customer needed a 111% return just to break even on commissions and costs.
Two other accounts had cost-to-equity ratios of about 69% and 67%. Those accounts posted losses of more than $345,000 and nearly $400,000, respectively. The case ended through a 43-page settlement, with the firm and the individuals consenting to FINRA’s findings without admitting or denying them.
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