The US Securities and Exchange Commission has filed civil charges against two brokers for allegedly carrying out broker fraud in the form of unsuitable trades that made them money while costing investors. According to the regulator’s complaint, Zachary Berkey and Daniel Fischer engaged in in-and-out trading—a strategy that was “almost certain” to cause customers losses.
As a result, contends the SEC, 10 Four Points Capital Partners LLC customers collectively lost almost $574K while Fischer earned $175K in commissions and Berkey earned $106K. Four Points is a Texas LLC headquartered in NYC.
The Commission accused the two brokers of churning customer accounts while hiding material information from clients, including facts about commissions, fees, and other costs. Because the securities were only held for a brief time and the costs for these transactions were “significant,” the investments’ share prices would have had to go up substantially for even a “minimal profit” to be made.
In addition to charging a commission for each trade, which was determined on a trade-by-trade basis, Fischer and Berkey also purportedly charged a $75 Fixed Transaction Commission fee on every trade.
As brokers, Fischer and Berkey have a duty to make sure that they have reasonable grounds to believe that the investments they are recommending are suitable for each customer. This means they need to understand both a customer’s investment goals and the degree of risk that the investor can handle. The SEC said that neither trader had any reason to believe that the recommendations they made to the customers affected were suitable for them, or for that matter, for anyone.
Unauthorized Trading and Churning Allegations
Also, because the accounts overseen by the two traders were non-discretionary accounts, it was mandatory that they get the authorization of the customers involved before every transaction. Fischer is accused of broker fraud by way of unauthorized trading.
Berkey and Fischer allegedly made material misrepresentations and omissions to clients, including not telling them that the transaction expenses involving the strategy they recommended would “almost certainly” exceed “potential gains.” Certain customers also were allegedly the victims of churning when Fischer and Berkey engaged in excessive trading in their accounts.
To resolve the regulator’s charges, Fischer agreed to a final judgment which permanently enjoins him from committing similar violations in the future. He also must pay back the allegedly ill-gotten gains plus interest, as well as a $160K penalty. Fischer is barred from penny stock trading and the securities industry.
The SEC’s case against Berkey will move forward.
In its press release announcing the broker fraud charges against the two men, the Commission said that it was continuing to crack down on brokers that bilk customers. The regulator has filed several broker fraud cases alleging excessive trading this year.
If you are a Four Points Capital Partners customer and you believe that your investment losses may be due to broker fraud, call Shepherd Smith Edwards and Kantas, LTD LLP today. Our stockbroker fraud attorneys represent investors throughout the US. Your initial call is a free, no obligation case assessment. We would be happy to help you explore your legal options.
The SEC Complaint (pdf)
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