SEC Charges Broker Trio Over Churning

Harriet Davies

11 September 2012

The Securities and Exchange Commission has charged three former brokers at Atlanta-based JP Turner & Company for churning customer accounts to boost their fees. Senior figures at the firm have been charged with related compliance failings.

In a busy period for the SEC, which has lately charged a number of firms and individuals, the regulator has alleged that brokers Ralph Calabro, Jason Konner, and Dimitrios Koutsoubos engaged in churning while they worked at JP Turner. Churning is a practice where brokers excessively trade through their customer accounts to generate commissions and fees, disregarding their customers’ investment objectives. The trio in this case racked up commissions, fees and margin interest of $845,000 through churning, while customers lost a total of $2.7 million, the SEC says. This happened between January 2008 and December 2009.

Meanwhile, the SEC has charged head supervisor Michael Bresner and president William Mello, along with the firm itself, for compliance failures. Mello and JP Turner will settle the charges while proceedings continue against Bresner and the three brokers.

Bresner allegedly failed to review trades after Konner and Koutsoubos generated such high commissions that, in line with the firm’s compliance process, they should have triggered a supervisor to look into their activities. Mello was charged because, as president, he “was ultimately responsible for establishing and implementing the firm’s supervisory policies,” the SEC’s statement said.

In the case of the firm, it had a monitoring system in place to identify actively traded accounts, but these were lacking in guidance for supervisors to review such accounts and take “meaningful action.”

“Broker-dealers’ supervisory systems must provide customers with reasonable protection from churning and similar abuses. JP Turner’s supervisory systems failed to do that,” said William Hicks, associate director of the SEC’s Atlanta regional office.

Without admitting or denying charges the firm will hire an independent consultant to review its supervisory procedures and pay $200,000 in disgorgement plus $16,051 in prejudgment interest and a $200,000 penalty. Mello is suspended from holding a supervisory role at a broker, dealer, or investment advisor for five months and will pay a $45,000 penalty.

Last week the SEC froze the US assets of Nikolai Battoo, an asset manager, along with those of two of his firms for fraudulently telling investors he had a track record of “exceptional risk-adjusted returns” in 2008 when in fact he had suffered heavy Madoff-linked losses.

The same day, the Commission said it froze the assets of San Diego-based Western Financial Planning Corporation and its owner Louis Schooler for real estate investment fraud. It also reached a settlement with ICP Asset Management, a New York-based investment advisory firm, and its founder and president Thomas Priore over charges that they defrauded several collateralized debt obligations which they managed.