Securities Arbitration Lawyer Blog
The Financial Industry Regulatory Authority (“FINRA”) has suspended financial advisor John Cangialosi from the securities industry for nine months. Mr. Cangialosi consented to the suspension after FINRA alleged that from October 2014 through December 2014, while associated with Legend Securities, Inc., and then Worden Capital Management LLC, Mr. Cangialosi excessively traded three customers’ accounts in violation of FINRA Rules 2111 and 2010. In addition to the suspension, Mr. Cangialosi is also subject to a $7,500 fine and an order to pay $271,622 in restitution to clients. However, it is unclear whether Mr. Cangialosi will be able to satisfy the restitution order.
Customers of Mr. Cangialosi or Worden Capital Management LLC, 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 John Cangialosi or Worden Capital Management LLC, 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 nationwide that have disputes with their financial advisors or brokerage firms, such as Worden Capital Management LLC.
Worden Capital Management
According to a 2017 investigation by Reuters, Worden Capital Management hired more brokers with a history of significant disclosures than all but twenty-three other firms in the country. In 2021, Iorio Altamirano LLP set out to update that analysis.
The investigation revealed that fifty-four percent (54%) of Worden Capital Management’s brokers and supervisors have significant “red flag” public disclosures. Significant red flag disclosures include:
- regulatory sanctions,
- terminations of employment after allegations of misconduct,
- customer disputes that result in an award or settlement, and
- prior association with a firm that FINRA has expelled.
You can read the full investigative report here: Investigative Report: Worden Capital Management LLC’s Owners, Executives, and Brokers Have Concerning Red Flag Disclosures
FINRA Letter of Acceptance, Waiver, and Consent No. 2017056432605
FINRA and Mr. Cangialosi entered into a Letter of Acceptance, Waiver, and Consent on August 13, 2021, after FINRA alleged that from October 2014 through December 2014, while associated with Legend Securities, Inc., and then Worden Capital Management LLC, Mr. Cangialosi excessively traded three customers’ accounts. Specifically, FINRA alleged:
- From October 2014 through December 2018, Mr. Cangialosi engaged in quantitatively unsuitable trading in three customer accounts.
- Cangialosi recommended high-frequency trading in the three customer accounts, with each customer often holding concentrated positions in one or two securities for short periods of time.
- Cangialosi’s customers routinely followed his recommendations, and, as a result, Mr. Cangialosi exercised de facto control over the three customers’ accounts. All of these transactions were solicited.
- Cangialosi’s trading of the three accounts resulted in high turnover rates and cost-to-equity ratios, as well as significant losses.
- From October 2014 to October 2016, Mr. Cangialosi effected 90 trades in Customer A’s account, resulting in an annualized turnover rate of 13.7 and an annualized cost-to-equity ratio of 58.38%. Mr. Cangialosi’s trading in Customer A’s account generated total trading costs of $173,337, including $169,342 in commissions, and caused $279,803 in realized losses.
- From January 2016 to December 2018, Mr. Cangialosi effected 83 trades in Customer B’s account, resulting in an annualized turnover rate of 20.23 and annualized cost-to-equity ratio of 95.74%. Mr. Cangialosi’s trading in Customer B’s account generated total trading costs of $116,442, including $102,280 in commissions and $10,472 in margin interest, and caused $93,834 in realized losses.
- From March 2017 to October 2017, Mr. Cangialosi effected 15 trades in Customer C’s account, resulting in a turnover rate of 5.62 (equivalent to an annualized turnover rate of 8.43) and a cost-to-equity ratio of 26.14% (equivalent to an annualized cost-to-equity ratio of 39.21%). Mr. Cangialosi’s trading in Customer C’s account generated total trading costs of $21,450, including $21,035 in commissions, and caused $31,618 in realized losses.
- Cangialosi’s trading in these three customers’ accounts was excessive and unsuitable given the customers’ investment profiles.
- As a result of Mr. Cangialosi’s excessive trading, the customers suffered collective realized losses of $405,255, while paying total trading costs of $311,229, including commissions of $292,657.
- Therefore, Mr. Cangialosi 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 5.62 and 13.7.
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 26.14% and 95.74%.
Financial Advisor John S. Cangialosi (CRD No. 3273830)
John Sebastian Cangialosi, who has 19 years of experience in the securities industry, has a history of customer complaints, regulatory discipline, associations with disreputable brokerage firms, and an employment termination after allegations of misconduct.
Mr. Cangialosi is currently registered as a broker with SW Financial in New York, New York. Previously, he had been affiliated with the following firms:
- Worden Capital Management LLC, from November 2016 to December 2019.
- Legend Securities, Inc. (expelled by FINRA), from August 2013 to November 2016.
- Joseph Gunnar & Co. LLC, from June 2012 to August 21013.
- Brookstone Securities, Inc. (expelled by FINRA), from October 2009 to June 2012.
- P. Turner & Company, L.L.C., from August 2006 to February 2009.
- GunnAllen Financial, Inc., from June 2004 to August 2006.
- Joseph Stevens & Company, Inc., from December 2001 to June 2004.
In February 2009, Mr. Cangialosi was “permitted to resign” from J.P. Turner & Company, L.L.C., after allegations of unauthorized trading in a customer’s account. Mr. Cangilosi denied the allegations.
In April 2013, Mr. Cangialosi entered into a Letter of Acceptance, Waiver and Consent with FINRA for violating NASD Conduct Rule 2110, IM-1000-I, and FINRA Rules 2010 and 1122. Between December 2008 and January 2013, Mr. Cangialosi failed to disclose, and in some instances to timely disclose, six unsatisfied judgments and/or liens on his Uniform Application for Securities Industry Registration. Cangialosi consented to a three-month suspension in all capacities and a $5,000 fine.
Between 2009 and 2018, Mr. Cangialosi has been the subject of seven customer complaints, several relating to allegations of excessive trading, churning, and unauthorized trading. Four of the disputes were resolved by paying a settlement to the harmed customer(s).
As mentioned above, 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. They are all also violations of securities rules and regulations and can cause enormous harm to customers.
FINRA’s BrokerCheck tool can be used to obtain Mr. Cangialosi’s complete and updated disclosure reports.
Worden Capital Management – A Duty to Supervise
Financial institutions like Worden Capital Management must properly supervise financial advisors and customer accounts. Brokerage firms must 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 supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.
How to Recover Financial Losses or Obtain a Free Consultation
If you have suffered investment losses with John Cangialosi or Worden Capital Management or suspect other inappropriate activity occurred in your investment or retirement account, contact securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.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.