Brokerage Firms Disciplined for Overcharging Customers

FINRA recently disciplined the brokerage firms J.P. Turner & Company, LLC, CP Capital Securities, Inc., Blackbook Capital, LLC, and INTL FCStone Securities, Inc. for rule violations related to those firms’ execution of customer trades.  Brokerage firms are not allowed to charge their customers “unreasonable” fees.  While there aren’t hard and fast numbers of what firms are and are not allowed to charge each customer to make money, firms are still regularly disciplined for charging excessive fees.  Generally speaking, firms make money on each trade they process for clients in one of two ways (if not both): (1) they charge a fee on the trade itself, either as a flat number or as a percent of the value of the trade, or (2) they buy or sell the security directly from their own inventory, and pay less than market value if they are buying a security, or charge more than market value if they are selling a security.  This is called a “markup” or “markdown.”  Both of these types of income for firms are both normal and permissible; it is when the amounts involved become excessive that firms get in trouble.

  • J.P. Turner & Company, LLC was disciplined by FINRA based upon finding that the firm was buying and selling bonds directly with customers, and was not using fair prices.  Essentially, FINRA found that J.P. Turner was not paying its customers a fair price for the bonds it was buying from them, and was overcharging customers for the bonds that it was selling to them.  As a result, J.P. turner was fined $35,000.
  • CP Capital Securities, Inc., a brokerage firm out of Miami, FL, was similarly disciplined for improperly underpaying customers for bonds that it bought directly from them.  Unlike with J.P. Turner, there does not appear to be any finding that CP Capital was similarly overcharging for bond it sold to its customers.  The firm was ordered to pay a fine of $5,000 and pay restitution to affected customers.
  • Blackbook Capital, LLC, a brokerage firm out of New York, NY, was disciplined for charging improper fees in connection with the sale of securities.  According to FINRA, Blackbook was charging its customers a $60.50 fee in addition to or in place of its normal commission fee.  This fee was identified to customers as “miscellaneous” or as an “additional fee.”  However, FINRA found that there was no identifiable cost to the firm that this charge was intended to cover; instead, this was effectively a minimum sales charge, without being identified as such to customers, as it should have been.  Blackbook was also disciplined for its failure to comply with the Bank Secrecy Act, which is a law aimed at preventing illegal money laundering.  Finally, Blackbook was disciplined for failing to properly preserve records of firm emails, as it is required to do.
  • INTL FCStone Securities, Inc., a brokerage firm out of Winter Park, FL, was disciple for failing to execute customer orders when it could have.  It is not uncommon for a brokerage firm to be trading some of the same securities that its customers are in its own account.  However, when that situation arises, brokerage firms are required to fill the customer orders first, as that gives the customer gets the more favorable price.  According to FINRA, FCStone failed to follow this rule, and placed the trade for its own account ahead of its clients in a number of instances, which either meant that the customer got a worse price on the trade.  FCStone was fined $70,000 and ordered to pay restitution to affected clients.   
If you believe your brokerage firm has charged improper fees, or failed to execute trades properly, contact us for a free, no obligation consultation to review your account.  You may have the right to file a claim to seek to recover some or all of the fees and/or losses you suffered as a result.

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