The Financial Industry Regulatory Authority (“FINRA”) has fined and censured Chelsea Financial Services, of Staten Island, New York.
FINRA found that, from January 2016 through July 2018, Chelsea Financial failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with FINRA’s rules related to suitability and excessive trading.
Specifically, FINRA found that a now-former Chelsea Financial broker, who was unnamed, recommended unsuitable and excessive trades (also known as “churning”) in three customer accounts.
FINRA Rule 3110 requires that each member firm establish and maintain a supervisory system, and establish, maintain, and enforce written supervisory procedures, that are reasonably designed to supervise the activities of each registered representative of the firm and achieve compliance with applicable securities laws and regulations.
FINRA Rule 2111 (the “suitability” rule) requires member firms or their associated persons to have a reasonable basis to believe that a recommended securities transaction or investment strategy is suitable for the customer in light of the customer’s investment profile.
FINRA found that Chelsea Financial violated FINRA’s rules by implementing written supervisory procedures which were confusing and contradictory; failing to clarify how to assess whether trading may be excessive. FINRA further found that Chelsea Financial’s procedures failed to guide supervisors on how to monitor for potentially excessive trading or what steps to take if they detected potentially excessive trading.
FINRA found that the excessive and unsuitable trading cost Chelsea’s customers over $102,000 in commissions and losses during the time period FINRA reviewed.
As a result of FINRA’s findings, Chelsea Financial was censured, fined and ordered to pay restitution to its customers to cover their losses, with interest. FINRA also suspended the broker’s direct supervisor, Christopher Ventrano, for three months.
According to its FINRA BrokerCheck report, this was Chelsea Financial’s third regulatory sanction since 2013.