The Financial Industry Regulatory Authority (FINRA) has recently enforced a stringent action against a former advisor and broker, imposing an industry bar for engaging in excessive trading activities that contravened Regulation Best Interest (Reg BI).
This case revolves around the former advisor, Christopher Kennedy, associated with Western International Securities in Pasadena, California. Kennedy's actions, involving thousands of trades across a limited number of client accounts, resulted in substantial commissions for himself, simultaneously causing millions in losses for the clients.
FINRA's decision to settle the allegations with Kennedy, who neither admitted nor denied the misconduct, underscores the seriousness of the violation. Despite repeated attempts, neither Kennedy nor Western International Securities were available for immediate comment on the matter.
From July 2020 to July 2021, Kennedy is alleged to have conducted an average of 102 trades monthly in each of four client accounts, belonging to six clients. This high-frequency trading practice, known as churning, not only breached Regulation Best Interest but also contradicted FINRA's principles on maintaining standards of commercial honor in trading.
Kennedy's trading volume, exceeding $350 million, resulted in more than $6.9 million being traded per account each month – a staggering 13 times the average account value. Consequently, the clients incurred net losses totaling approximately $2.3 million, largely due to what FINRA describes as an "aggressive day-trading strategy." The trading costs borne by the clients, including over $595,000 in commissions, surpassed $715,000.
Adding to the severity of the case, Kennedy is accused of obscuring some of these losses by issuing false account statements to clients and providing misleading information to FINRA investigators.
Kennedy's dismissal from Western International in August 2021 followed client complaints regarding unauthorized options trading. This is reflected in the BrokerCheck online database, which lists 11 customer disputes involving him.
While Western International Securities is not directly implicated in Kennedy's misconduct, the firm has previously faced challenges related to Reg BI compliance. In a separate case, the Securities and Exchange Commission (SEC) has taken legal action against the firm and five of its brokers. This ongoing litigation involves allegations of selling high-risk bonds, deemed suitable only for very wealthy investors, to clients. The case continues to unfold in the federal district court in California.
This situation highlights the critical importance of adhering to industry regulations and ethical standards, underscoring the need for vigilance and integrity within the wealth advisory and RIA communities.
