Cetera’s Summit to Pay $880,000 over Supervisory Lapses
Summit Brokerage Services, a unit of independent broker-dealer Cetera Financial Group, agreed to repay more than $558,000 of commissions to customers of a now-barred broker and a fine of $325,000 for supervisory violations, the Financial Industry Regulatory Authority said Tuesday.The Boca Raton, Florida-based firm failed to act on a clearing firm’s alerts about high trading turnover for five years or to identify the problems through manual reviews, Finra charged. It also allowed some of its brokers over almost three years to use unapproved formats for sending customers consolidated reports incorporating outside holdings, the regulator said.
Summit agreed to the sanctions, without admitting or denying Finra’s findings that it failed to reasonably supervise the suitability of the trades and the use of the reports.
The unsuitable trades stemmed from a single broker’s excessive trade recommendations that led 14 customers to pay $651,405 in commissions on investments that led to more than $300,000 of losses, Finra said in the letter of acceptance, waiver and consent signed by Summit.
One customer with a net worth of under $500,000 paid $61,000 in commissions over three years that equated to more than 27% of equity in the account. Another retired customer had annualized cost-to-equity ratios of more than 32%.
The consent letter identified the broker who recommended excessive trades by the initials CJ.
In May 2017, Finra permanently barred a broker named Christopher Jorgensen from affiliating with any member firm, saying he had refused to cooperate in its investigation of his discharge by Summit in April 2017. The firm alleged that he told a customer not to respond to Finra questions, according to his BrokerCheck report.
In April 2018, Jorgensen reached a $70,000 settlement with a customer who alleged unauthorized and frequent trading, and overconcentration, according to his BrokerCheck history.
CJ escaped scrutiny because Summit failed to feed turnover and cost-to-equity alerts from one of its two clearing firms into its trade review blotter, and its compliance professionals failed to identify the problems manually, Finra said.
Summit separately failed to stop 95 of 103 brokers who sent customers consolidated reports from mid-2015 through March 2018 from using unapproved formats in violation of the firm’s written supervisory procedures, Finra said. Several brokers also used unapproved third-party vendors to prepare the communications. One customer report materially misstated the value of a customer’s investment, the regulator said.
A lawyer for Summit said he could not immediately comment.
Spokespeople for Summit, which has 739 Finra-registered representatives in 311 branches, did not respond to a request for comment.