Staten Island Brokerage Firm, Chelsea Financial Services, Sanctioned By FINRA For Failure To Supervise
Chelsea Financial Services is a Brokerage Firm based in Staten Island, New York with 68 registered representatives and and 19 branch office locations. According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), on December 4, 2019, Chelsea Financial Services and one its securities principals with supervisory responsibility, Christopher Vetrano, were sanctioned by FINRA for supervisory failures.
Specifically, FINRA found the following:
“During the Relevant Period, Vetrano was CB’s direct supervisor. As set forth below, Vetrano observed multiple red flags indicating that CB was recommending excessive and unsuitable trading in the customer accounts of three customers, but Vetrano failed to reasonably respond to these red flags. The accounts for the three customers had annualized turnover ratios ranging from 39.37 to 43.51, and annualized cost-to-equity ratios ranging from 80.74% to 206.52%, during the Relevant Period. After these accounts appeared on the Firm’s monthly exception report, Vetrano performed manual cost-to-equity calculations for each account. Vetrano’s calculations revealed cost-to-equity ratios ranging from 27% to 94.7%.”
Excessive trading often occurs when a Financial Advisor puts his or her interests ahead of the clients and makes transactions solely for the purpose of generating commissions. Financial Advisors have a regulatory duty to recommend suitable investment strategies. One of the components of the suitability analysis is quantitative suitability.
Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.
The sanction, which was consented to by Chelsea Financial Services, required the brokerage firm to, among other things, pay a fine of $10,000, restitution of $68,899 and revise its supervisory policies and procedures.
For a copy of the FINRA sanction against Chelsea Financial Services, click https://www.finra.org/sites/default/files/fda_documents/2018059111001%20Chelsea%20Financial%20Services%20CRD%2047770%20and%20Christopher%20Vetrano%20CRD%202476447%20AWC%20va.pdf
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