BD Violated Reg BI With Excessive Trading That Cost Clients $1M: SEC

Reg BI Violations

The relevant period encompasses conduct both before and after Regulation BI’s compliance date of June 30, 2020.

During the Pre-Reg BI period, PHX failed reasonably to supervise Cabalar when he began recommending a short-term, high-volume investment strategy to at least five of PHX’s retail customers without a reasonable basis, the SEC states.

Cabalar, according to the SEC, “recommended this strategy to three additional retail customers during the Reg BI Period. Each of the accounts had high cost-to-equity ratios and annual turnover rates, both of which are indicative of excessive trading.”

Further, during the Reg BI period, PHX violated the Reg BI care obligation when Cabalar “recommended a series of transactions to retail customers without a reasonable basis to believe that the recommended transactions, even if in the customers’ best interests when viewed in isolation, were not excessive and in the customers’ best interests when taken together in light of the customers’ investment profiles,” the order states.

In addition, PHX violated the Reg BI compliance obligation, by failing to establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI’s care obligation, the SEC said.

Credit: Chris Nicholls/ALM