FINRA has sanctioned Coastal Equities, Inc. for its failure to reasonably supervise a stockbroker who recommended excessive and unsuitable trades in the accounts of customers. Coastal Equities, Inc. was censured and ordered to pay $270,320 in restitution to clients, plus $9,589 in interest.
FINRA alleged that between October 2016 and July 2018, Coastal Equities, Inc. failed to reasonably supervise a financial advisor that recommended excessive and unsuitable trading in accounts of four customers. FINRA also alleged that the financial advisor was making unsuitable recommendations to purchase securities using margin in two of those accounts. According to the allegations, the financial advisor’s supervisor became aware of multiple instances of unsuitable trading but failed to respond reasonably.
Based on public records, it is believed that the financial advisor at issue is Sam Aziz. Mr. Aziz worked at Coastal Equities in the Dublin, Ohio branch from September 2015 through July 2018. In 2019, Mr. Aziz was barred by FINRA from the securities industry. He has also been the subject of numerous customer complaints.
Coastal Equities, Inc. is headquartered in Wilmington, Delaware, and has 104 registered financial advisors across 50 branches.
If you have lost money with Sam Aziz or Coastal Equities, Inc., contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential evaluation of your accounts.
Iorio Altamirano LLP represents investors who have disputes with their financial advisors or brokerage firms.
Coastal Equities, Inc.’s Letter of Acceptance, Waiver, and Consent
Coastal Equities, Inc. and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on November 9, 2020, over allegations that it failed to reasonably supervise one of its financial advisors. Specifically, the allegations include:
- From October 2016 to July 2018, Coastal Equities, Inc. failed to reasonably supervise a financial advisor, “SA.” Based on public records, it is believed that “SA” is a reference to Sam Aziz, a former financial advisor at Coastal Equities, Inc., who has been barred by FINRA from the securities industry.
- Sam Aziz’s supervisor became aware of multiple instances that he was recommending excessive and unsuitable trading four customers’ accounts.
- Aziz’s supervisor also became aware that he was making unsuitable recommendations to purchase securities using margin in the account of two of those customers.
- Coastal Equities, Inc. failed to respond reasonably to these “red flags.”
- Coastal Equities, Inc. supervised securities recommendations, including those made by Sam Aziz, primarily through the review of daily trade blotters.
- The daily trade blotters included each trade entered by the firm’s stockbrokers. In addition, the trade blotter report would provide the supervisors with the turnover rate and the amount of commissions charged to each account for the preceding 12-month period. Supervisors also would occasionally calculate the cost-to-equity ratio for certain accounts.
- In September 2016, Coastal Equities, Inc., through daily trade blotter review by Sam Aziz’s immediate supervisor, became aware that one of Mr. Aziz’s customers suffered significant losses as a result of numerous recommended transactions of preferred stock. In response, the supervisor reviewed other customer accounts and identified additional accounts showing indicia of potential excessive trading. When asked about this trading, Sam Aziz claimed that the customers approved of this trading strategy. Coastal Equities, Inc. accepted that explanation at face value and, as a result, took no further steps at that time.
- Starting in October 2016, Coastal Equities, Inc., through its supervisory review of the daily trade blotter, was on notice of additional red flags that Sam Aziz was recommending unsuitable and excessive trading in the accounts of four customers and that that he was making unsuitable recommendations to purchase securities using margin in two of those customers’ accounts.
- The customer accounts in question belonged to retired, senior investors with moderate risk tolerances.
- Customer 1 was 75 years old. Between October 2016 and July 2018, Mr. Aziz recommended more than 100 trades in the customer’s accounts, resulting in commissions totaling $84,525 during this period.
- Customer 2 was a married couple, both of whom were retired and living on a fixed income. Between October 2016 and April 2017, Mr. Aziz recommended 65 trades, including recommendations to purchase securities using margin. The account incurred $11,854 in margin interest and $97,587 in commissions.
- Customer 3 was a 91-year-old senior investor living on a fixed income. From October 2016 to July 2018, Mr. Aziz recommended 31 trades in this senior investor’s account, resulting in $61,657 in interest. The account also incurred $580 in margin interest.
- Customer 4 was an 82-year old senior investor. Aziz recommended 39 trades in this elderly investor’s account, resulting in $14,126 in commissions.
- Coastal Equities, Inc.’s daily trade blotter showed Mr. Aziz’s frequent trading, high turnover rates, and commissions in the accounts of Customers 1 through 4.
- The turnover rate for each of the investors’ accounts was well over 6. Generally, a turnover rate of 6 or above suggests excessive trading. In some accounts, the turnover ratio exceeded 20.
- The cost-to-equity ratio for each of the investors’ accounts was more than 20%, which is the benchmark that indicates excessive trading in investment accounts. In certain accounts, the cost-to-equity ratio exceeded 50%.
- Additionally, in August 2017, Coastal Equities, Inc. began using exception reports from its clearing firm as part of its supervisory system. A report would be generated for an account with a turnover rate of over six or accounts with margin-to-equity ratios over 50%. These reports act as red flags for supervisors.
- Multiple exception reports were generated for accounts held by Customers 1 through 4. Despite these red flags, between October 2016 and December 2017, Coastal Equities, Inc. failed to review the accounts at issue to determine whether Sam Aziz’s recommendations were suitable. In addition, no one at the firm attempted to contact Sam Aziz’s customers or took any steps to reduce the commissions that Mr. Aziz was charging his customers or the frequency with which Mr. Aziz was recommended transactions.
- It wasn’t until December 2017 when Coastal Equities Inc. began to take action.
- Coastal Equities, Inc.’s failure to investigate and reasonably respond to the “red flags” of Mr. Aziz’s unsuitable recommendations and take reasonable action in response to those “red flags” allowed Mr. Aziz to solicit trading that resulted in large commissions and unnecessary margin interest being incurred.
Coastal Equities, Inc. – A Duty to Supervise
Brokerage firms like Coastal Equities, Inc. must supervise financial advisors and customer accounts properly. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity, such as excessive trading, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise their financial advisors or the investment account activity, they may be liable for investment losses sustained by customers.
Sam Aziz – Public Disclosures
In March 2019, FINRA permanently barred Mr. Aziz from the securities industry after Mr. Aziz refused to cooperate with a FINRA investigation. An investigation was being performed by FINRA to assess whether he excessively traded his customer accounts, made unsuitable recommendations involving the use of margin, and attempt to settle a customer’s complaint away from his firm. FINRA was also investigating whether Mr. Aziz used an undisclosed personal email account and text messages to conduct securities business.
According to public records, Mr. Aziz has had at least nine customer complaints filed against him, including six customer complaints filed within the past two years. These customer complaints generally allege unauthorized, unsuitable, and excessive trading.
The following firms have employed Mr. Aziz since 2012:
- David a. Noyes & Company from July 2018 through November 2018 (Dublin, Ohio);
- Coastal Equities, Inc. from September 2015 through July 2018 (Dublin, Ohio); and
- Wells Fargo Advisors Financial Network, LLC from December 2012 through September 2015 (Dublin, Ohio).
Prior to these firms, Mr. Aziz was also employed by Merrill Lynch, Pierce, Fenner & Smith Incorporated from 1988 until 1997. In 1997, Merrill Lynch terminated Mr. Aziz, alleging that Mr. Aziz was involved in two personal financial transactions with a client, in contravention of firm policy.
Financial Loss Recovery
A FINRA partial restitution order does not preclude investors from pursuing their own claims to seek restitution or other available remedies.
If you have lost money with financial advisor Sam Aziz or Coastal Equities, Inc., contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP.
August Iorio can be reached at firstname.lastname@example.org or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.