Massachusetts Secretary of the Commonwealth William Galvin has filed charges against broker-dealer Janney Montgomery Scott accusing the firm of not properly supervising broker Stephen Querzoli during his trading of Class A mutual fund shares from 2012 to 2017. According to the state regulator, these alleged mutual fund sales violations caused investors, mostly older customers, to pay nearly $200K in unwarranted commissions that were shared between Janney and Querzoli.
Class A mutual fund shares usually charge higher fees of up to 5.7% at the front-end. They also lead to higher commissions for the investment advisers and brokers selling them compared to what other mutual fund class shares would render.
Although Class A shares are meant to be held for at least five years, according to the Massachusetts regulator, Querzoli would sell clients’ Class A shares within months of their acquiring them, thereby engaging in short-term trading. This resulted in higher and additional commissions charged to customers.
Client proceeds from the transactions would sometimes be used to buy more Class A shares, allegedly earning Querzoli more commissions. He is accused of switching, which involves selling a mutual fund with a sales charge to buy another mutual fund, also with sales charges. For certain transactions involving switching, tax consequences can result.
Querzoli allegedly traded in at least one client’s account without written authorization. This customer reportedly was an inexperienced investor and dependent upon Querzoli to provide the proper investment advice. 26 trades that occurred in the client’s Janney account were reportedly unsolicited.
Querzoli also allegedly continued to buy Class A mutual fund shares for clients even after a firm branch manager recommended that he trade in other mutual funds with lower front-loaded fees for these customers instead. According to Galvin’s complaint, Janney Montgomery Scott did not do much to stop Querzoli’s improper sales practices, even failing to clamp down on him after the broker-dealer conducted an internal probe into the broker in 2015. The investigation found that typically Querzoli would hold Class A shares for clients for under 12 ½ months.
The probe into Janney Montgomery Scott was concluded after six months and no additional action was taken against Querzoli. Meantime, he allegedly kept buying Class A mutual fund shares for clients until he was fired last year.
According to his BrokerCheck record, Querzoli is no longer a registered broker. He worked for more than three decades in the securities industry and also was previously a registered broker with RBC Capital Markets, Advest, Morgan Stanley DW (MS), Gruntal & Co., LF Rothschild and Co., and Mosley, Halgarten, Estabrook and Weden.
Janney Montgomery Scott’s own BrokerCheck record shows 118 disclosures, including 48 regulatory events and 64 arbitration cases. In addition to inadequate supervision involving Querzoli, Janney is accused of failing to enforce its written policies and procedures in a “meaningful” way and of violating Massachusetts laws.
Now, Galvin’s office is seeking disgorgement, restitution to customers that were harmed, certain remedies, and other relief.
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