The Financial Industry Regulatory Authority’s Department of Enforcement has filed a disciplinary proceeding complaint against financial advisor Marc Reda. The complaint alleges that from January 2017 to December 2019, while associated with Spartan Capital Securities, LLC, Mr. Reda recommended to all of his customers an investment strategy – actively trading in anticipation of corporate announcements – that was unsuitable because he failed to consider that the substantial commissions and costs associated with his investment strategy made it unlikely that his customers could profit from it.
The recommended strategy and its high total costs allegedly harmed his customers. The complaint alleges that across 66 customer accounts in which Mr. Reda executed ten or more trades connected with his unsuitable investment strategy, Mr. Reda charged $952,764 in commissions and fees, while the customers lost $934,482.
If you or a loved one were a customer of broker Marc Augustus Reda or Spartan Capital Securities, LLC, contact securities arbitration law firm Iorio Altamirano LLP for a free and confidential review of your legal rights.
FINRA Disciplinary Proceeding No. 2019063526901
On June 15, 2021, the FINRA Department of Enforcement filed a complaint against broker Marc Augustus Reda. The complaint includes the following allegations:
- From January 2017 to December 2019, while associated with Spartan Capital Securities, LLC, Mr. Reda recommended a highly speculative investment strategy to his customers that involved active trading of a company’s stock in anticipation of corporate announcements that could potentially impact the price of the company’s stock.
- Reda typically recommended that hat his customers acquire a position shortly before the anticipated corporate announcement and then sell the position shortly after the announcement. Mr. Reda would then recommend the customer use the proceeds of the sale to repeat the process and purchase one or more new positions in one or more other companies with pending announcements.
- Reda primarily implemented his strategy in two ways. For one, he purchased the common stock of biotech companies in his customers’ accounts in anticipation of public announcements regarding, for example, drug trial results or U.S. Food and Drug Administration (FDA) approval.
- For example, Mr. Reda recommended that many of his customers acquire a position in Histogenics Corporation from October to December 2018 in advance of an anticipated public announcement on the company’s discussions with the FDA on a clinical trial of a knee replacement product in development. When Histogenics announced in late December 2018 that it would the discontinue development of the product in response to discussions with the FDA, Mr. Reda recommended his customer sell their positions at a significant loss and reinvest the proceeds in Novavax Inc.
- Reda also implemented his strategy by recommending that his customers purchase the common stock of public companies in advance of quarterly earnings announcements.
- For example, in July and August 2019, Mr. Reda recommended that certain of his customers acquire positions in large-cap companies such as CSX Corporation, PayPal Holdings Inc., Avis Budget Group Inc., Cisco Systems Inc. on, or shortly before, the day of each company’s scheduled quarterly earnings call and then sell the positions (at a loss, as it relates to the companies previously identified) after the earnings announcement to acquire positions in other companies with pending earnings announcements.
- Reda’s recommended strategy often involved the use of in-and-out, active trading.
- Based on Mr. Reda’s recommendations, his customers’ accounts were actively traded and generally concentrated in one or two positions at any given time.
- Reda did not conduct any diligence and did not consider how the costs associated with his active trading strategy would affect the performance of his customers’ accounts.
- The active trading strategy he recommended to customers resulted in customers paying Mr. Reda and Spartan Capital substantial commissions and fees and caused his customers to almost always lose money.
- Indeed, during the relevant period, aggregate customer losses closely mirrored aggregate commissions and fees paid to Reda and Spartan Capital. Across the 66 customer accounts in which Mr. Reda executed ten or more trades in connection with his unsuitable investment strategy during the relevant period, Mr. Reda charged $952,764 in commissions and fees while the customers lost $934,482.
- Fifty-four of those 66 accounts, or 82 percent, experienced cost-to-equity ratios (annualized when account funded for at least one year, otherwise non-annualized) of 20 percent or more during the relevant period.
- In executing his investment strategy, Mr. Reda churned and excessively traded 21 customer accounts he controlled, causing the customers to pay $264,734 in commissions and fees. Accounts funded for one year or more experienced annualized cost-to-equity ratios of 30 percent to 130 percent with annualized turnover rates of 4.6 to 23.5, while those accounts funded for less than one year experienced non-annualized cost-to-equity ratios of 74 percent to 334 percent and non-annualized turnover rates of 11.2 to 100.6 (or, if annualized, cost-to-equity ratios of 88 percent to 717 percent and turnover rates of 13.4 to 276.7).
- Reda’s investment strategy and the trades he recommended to implement the strategy were also unsuitable for three of his customers based on their specific investment objectives, risk tolerances, and financial needs.
- Reda also executed 98 trades in connection with his strategy in the accounts of six customers without first obtaining authorization from the customers.
- In September 2018, when executing buy transactions in 22 customer accounts using the proceeds of sale transactions three days earlier, Mr. Reda charged excessive commissions averaging 8.6 percent on the “proceeds” transactions. Mr. Reda intentionally waited three days to execute the buy transactions to circumvent his firm’s supervisory review of commissions of more than five percent on proceeds transactions.
- Over the course of his association with Spartan Capital, Mr. Reda willfully failed to disclose eight customer complaints alleging sales practice violations on his Uniform Application for Securities Industry Registration or Transfer (Form U4).
- Reda also willfully failed to timely amend his Form U4 to disclose an unsatisfied tax lien and an unsatisfied tax warrant, totaling $225,929.49.
- Based on the foregoing conduct, Reda willfully violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rule 10b-5, and violated FINRA Rules 2020 and 2010 [Churning]; FINRA Rules 2111(a) and 2010 [Quantitative Suitability / Excessive Trading]; FINRA Rules 2111(a) and FINRA Rule 2010 [Reasonable Basis Suitability]; FINRA Rules 2111(a) and FINRA Rule 2010 [Customer-Specific Suitability]; FINRA Rule 2010 [Unauthorized Trading]; FINRA Rules 2121 and 2010 [Excessive Commissions]; and Article V, Section 2(c) of FINRA’s By-Laws and FINRA Rules 1122 and 2010 [Form U4 Disclosure Failures].
FINRA’s current enforcement complaint is not the first time that Mr. Reda has been the subject of regulatory sanctions. In 2017, Mr. Reda consented to a three-month suspension after FINRA alleged that he exercised discretion in customers’ accounts without written authorization from the customers and without having obtained his firm’s approval to treat those accounts as discretionary. FINRA’s findings also stated that Mr. Reda failed to timely disclose on this Form U4 a federal tax lien against him in the amount of $575,101.
Financial Advisor Marc Augustus Reda (CRD No. 2757330)
Mr. Reda had 21 years of experience in the securities industry and has been associated with 15 different firms, including three firms that have been expelled from the industry by FINRA:
- Johnson Thomas Financial.
- Prestige Financial Center, Inc.
- Clark Street Capital, Inc.
According to his public disclosure report, Mr. Reda’s employment has also been terminated at least twice after allegations of wrongdoing. In January 2016, Mr. Reda was “permitted to resign” from PHX Financial, Inc. after the firm alleged that he violated the firm’s cell phone policy. In 2001, Mr. Reda “voluntarily resigned” after a customer complaint. Mr. Reda denied that a customer complaint existed.
Mr. Reda’s public disclosure report also discloses that he has been the subject of at least 12 customer disputes, including:
- Customer Dispute (January 2020): A customer filed a securities arbitration complaint alleging $72,026 in damages as a result of misrepresentations and unsuitable investment recommendations. The alleged conduct occurred when Mr. Reda was employed by Spartan Capital Securities, LLC. The dispute is pending.
- Customer Dispute (January 2018): A customer filed a securities arbitration complaint that alleged unauthorized trading and churning. An arbitration panel found Spartan Capital Securities, LLC liable and awarded the customers monetary compensation.
- Customer Dispute (July 2017): A customer filed a complaint with PHX Financial, Inc. alleging that Mr. Reda inappropriately managed the customer’s account and charged excessive commissions. The matter was settled by PHX Financial, Inc. for monetary compensation.
- Customer Dispute (June 2016): A customer filed a securities arbitration complaint against Mr. Reda and PHX Financial, Inc., alleging that Mr. Reda made unsuitable investment recommendations and breached his fiduciary duty. The customer alleged $100,000 in damages. The matter was reportedly settled by PHX Financial, Inc. for $26,000.
- Customer Dispute (April 2016): A customer filed a complaint with PHX Financial, Inc. alleging $580,0000 in damages as a result of unauthorized trading. The firm settled the matter for $85,000.
- Customer Dispute (March 2016): A customer filed a complaint with PHX Financial, Inc. alleging that Mr. Reda did not place two stop-loss orders as had been instructed. The customer alleged $31,250 in damages. The firm settled the matter for $14,800.
- Customer Dispute (March 2016): A customer filed a complaint with Phoenix Financial Services. alleging $500,000 in damages. The complaint alleged unauthorized trades, poor communication, and overconcentration of investments. The firm settled the matter for $112,500.
- Customer Dispute (January 2016): A customer filed a complaint with Phoenix Financial Services. alleging $400,000 in damages. The complaint alleged unauthorized trades. The firm settled the matter for $120,000.
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.
Churning is a more egregious variation of excessive trading. Churning refers to a situation where the broker executed an excessive number of trades and did so with the intent to defraud or reckless disregard for the customer’s interest.
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.
Excessive trading, churning, and unauthorized trading are unethical and illegal practices. They are all also violations of securities rules and regulations and can cause enormous harm to customers.
Spartan Capital Securities, LLC – Supervisory Duties
Brokerage firms like Spartan Capital Securities, LLC must properly supervise financial advisors and customer accounts. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity, such as excessive trading, churning, and unauthorized trades, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise its financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.
How to Recover Financial Losses or Obtain a Free Consultation
If you or a loved one were a customer of broker Marc Augustus Reda or Spartan Capital Securities, LLC, and either sustained financial losses or suspect that Mr. Reda did not have your best interest in mind when recommending investments or making account transactions, 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 or annuity.
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.