The Financial Industry Regulatory Authority (“FINRA”) has suspended former Aegis Capital Corp. financial advisor Douglas Szempruch from the securities industry for 12 months. Mr. Szempruch consented to the suspension after FINRA alleged that between August 2014 and June 2017, while associated with Aegis Capital Corp., he (1) recommended and executed excessive and unsuitable trades in six customer accounts; (2) exercised discretionary authority without prior written authorization to effect trade in seven accounts; and (3) sent email communications containing misleading statements about an investment opportunity from his firm-approved email account. FINRA also ordered Mr. Szempruch to pay nearly $100,00 in restitution to customers. However, it is unclear whether Mr. Szempruch will be able to satisfy the restitution order.
Mr. Szempruch, who was associated with Aegis Capital Corp. (“Aegis Capital”) from June 2011 to June 2021, is the sixth Aegis broker, or former broker, to be disciplined by FINRA this year. Separately, in March 2021, the firm itself was sanctioned by FINRA and ordered to pay restitution to customers.
Customers of Mr. Szempruch or Aegis Capital, including customers that have been notified that they may be receiving restitution, should consult with a securities arbitration law firm. If you or a loved one were a customer of Douglas Szempruch or Aegis Capital, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation and review of your legal rights.
Iorio Altamirano LLP represents investors that have disputes with their financial advisors or brokerage firms, such as Aegis Capital Corp.
FINRA Letter of Acceptance, Waiver, and Consent No. 2017054317401
FINRA and Mr. Szempruch entered into a Letter of Acceptance, Waiver, and Consent No. 2017054317401 on July 9, 2021, after FINRA alleged that between August 2014 and June 2017, while associated with Aegis Capital Corp., he (1) recommended and executed excessive and unsuitable trades in six customer accounts; (2) exercised discretionary authority without prior written authorization to effect trade in seven accounts; and (3) sent email communications containing misleading statements about an investment opportunity from his firm-approved email account.
Specifically, with regard to excessive trading, FINRA alleged the following:
- Between August 2014 and September 2016, Mr. Szempruch engaged in quantitatively unsuitable trading in six customer accounts.
- Each customer had an investment objective of growth (five customers) or balanced growth (one customer) and a risk tolerance of moderate.
- Szempruch recommended the trading in the six customers’ accounts, and the customers routinely followed his recommendations.
- Additionally, Mr. Szempruch exercised discretion when executing trades in the six customers’ accounts. As a result, Mr. Szempruch exercised de facto control over the customers’ accounts.
- Szempruch’s trading in the six customers’ accounts was excessive and unsuitable given the customers’ investment profiles.
Accordingly, Mr. Szempruch violated FINRA Rules 2111 and 2010.
Excessive trading occurs when a financial advisor makes many trades in a customer’s account, not to benefit the customer but to generate commissions for the broker.
There are two primary indicators used to evaluate whether a financial advisor excessively traded an account. The first is turnover rate, which represents the number of times a portfolio of investments is replaced for another portfolio of investments. Generally, a turnover rate of six suggests excessive trading, but a turnover rate below four can be excessive in some cases. According to FINRA, the accounts at issue had a turnover rate between 7.69 and 48.08.
The second indicator used to assess whether trading is excessive in an investment account is its cost-to-equity ratio. The cost-to-equity ratio measures the amount an account must appreciate to cover commissions and other expenses. That is, how much the account needs to grow just to break even. A cost-to-equity ratio of 20% generally indicates excessive trading has occurred. According to FINRA, the accounts at issue had cost-to-equity ratios between 34.3% and 109.14%.
Specifically, with regard to exercising discretion without authorization, FINRA alleged the following:
- Between August 2014 and October 2016, Mr. Szempruch exercised discretion to execute 578 trades in seven customers’ accounts without prior written authorization.
- Six of the seven customer accounts were also excessively traded by Mr. Szempruch.
- None of the seven customers provided written authorization for Mr. Szempruch to exercise discretion in their accounts, and Aegis Capital did not accept any of the seven accounts as discretionary accounts.
Accordingly, Mr. Szempruch violated NASD Rule 2510(b) and FINRA Rule 2010.
Unauthorized trading often occurs in non-discretionary accounts, where a customer retains discretion. In non-discretionary accounts, brokers must obtain a customer’s permission every time before placing a trade.
The practices of excessive trading customers’ accounts and placing unauthorized trade are unethical and illegal. Such conduct is also a violation of securities rules and regulations and can cause enormous harm to customers.
Finally, with regard to sending misleading statements by email, FINRA alleged:
- Between May 2017 and June 2017, Mr. Szempruch sent the same or similar email to 34 prospective customers, making misleading statements concerning investments in a certain company.
- Szempruch inaccurately represented that he: (1) had visited the company’s production facility: (2) had met with and was in direct communication with the company’s management; (3) was participating in weekly calls with the company’s management, and (4) had first-hand information about the company.
- Although Szempruch was invited to visit the company’s facilities, he did not attend and was instead briefed later by colleagues who did make the trip. He also did not directly communicate with the company’s management but instead closely followed the company. Although Mr. Szempruch understood that his Aegis colleagues (as opposed to Mr. Szempruch himself) had begun conducting periodic status conferences with the company’s management, the company’s management ceased participating in the conferences shortly after executing a March 2017 agreement with Aegis. Mr. Szempruch thus did not have direct or first-hand information about the company and misleadingly described his relationship and interactions with the company and its management.
Accordingly, Mr. Szempruch violated FINRA Rule 2210(d)(1)B) and 2010.
Aegis Capital Corp: 2021 Disciplinary Actions
Mr. Szempruch worked out of the firm’s branch office in Melville, New York, just like brokers Corey Johnson (suspended in March 2021 for engaging in discretionary trading without written authorization) and Steven Luftschein (barred from the securities industry in January 2021 for churning and excessively trading customers’ accounts).
In January 2021, FINRA also suspended former Aegis Capital Corp. broker Anthony (Tony) Tricarico from the securities industry for six months for excessively and unsuitably trading three clients’ accounts registered with Aegis.
In March 2021, FINRA also suspended former Aegis Capital Corp. broker Edmund Zack for excessive trading and using discretion without prior authorization.
A sixth broker, Kishan (Sean) Parikh, was suspended by FINRA earlier this month for both excessive and unauthorized trading.
Separately, the firm itself was sanctioned by FINRA and ordered to pay restitution to customers for a series of violations.
|January 13, 2021||Steven Luftschein||Churning and Excessive Trading||Barred|
|January 22, 2021||Anthony (Tony) Tricarico||Excessive Trading||Suspended for 6 months|
|March 10, 2021||Aegis Capital Corp.||Best Execution Violations||Censured, Fined, Restitution|
|March 19, 2021||Edmund Zack||Excessive Trading and Exercising Discretion Without Authorization (Unauthorized Trading)||Suspended for 8 months|
|March 23, 2021||Corey Johnson||Exercising Discretion Without Authorization (Unauthorized Trading)||Suspended for 30 days|
|July 7, 2021||Kishan (Sean) Parikh||Excessive Trading and Unauthorized Trading||Suspended for 18 months|
|July 9, 2021||Douglas Szempruch||Excessive Trading and Exercising Discretion Without Authorization (Unauthorized Trading)||Suspended for 12 months|
Unfortunately, this is not new. Aegis Capital Corp has a long history of allegations of wrongdoing.
In 2017, Aegis was included in a Reuters study that analyzed FINRA data and identified 48 firms whose brokers have been flagged for serious incidents. The Reuters’ analysis showed that Aegis Capital had 39% of its brokers with at least one of the most serious red flags, per the study, on their public disclosure reports.
The alleged conduct by the brokers that have been sanctioned this year, such as excessive trading, churning, and unauthorized trading, are common practices for “boiler room” broker-dealers.
Aegis Capital Corp. – A Duty to Supervise
Financial institutions like Aegis Capital Corp. must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as annuity switches, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.
Financial Advisor Douglas Edward Szempruch (CRD No. 4159318)
Douglas Edward Szempruch has 21 years of experience in the securities industry and has been associated with six different firms, including three firms that have been expelled from the industry by FINRA.
His public disclosure report also discloses two customer disputes:
- Customer Dispute (February 2018): A customer alleged that Mr. Szempruch made unsuitable recommendations. The dispute was settled by Szempruch for $30,000. Szempruch stated that the dispute arose as a result of “an unfortunate miscommunication between [himself] and the client.”
- Customer Dispute (May 2004): A customer alleged that Mr. Szempruch made unauthorized trades. Szempruch denied wrongdoing but settled the matter with the customer.
How to Recover Financial Losses or Obtain a Free Consultation
If you have suffered investment losses with Douglas Szempruch or Aegis Capital Corp. or suspect other inappropriate activity occurred in your investment or retirement account, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at email@example.com or toll-free at (855) 430-4010 for a free and confidential review of your legal rights.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.