Former Aegis Capital And Joseph Stone Capital Broker, Steven Luftschein, Has 17 Disclosed Customer Complaints And A Pending FINRA Enforcement Action
Steven Luftschein (CRD # 2690117) was a Financial Advisor at Aegis Capital in Melville, NY between 2013-2016 and Joseph Stone Capital in Huntington, NY between 2017-2018. Steven Luftschein has been in the securities industry since 1995 and previously worked at myriad brokerage firms in the New York area.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), on May 13, 2020, FINRA filed an enforcement action against Steven Luftschein, alleging various securities laws violations. Specifically, the complaint alleges:
“Luftschein was named a respondent in a FINRA complaint alleging that he willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and violated FINRA Rule 2020 by churning in customers’ accounts at his member firm. The complaint alleges that Luftschein controlled the volume and frequency of trading in the customers’ accounts, deciding what securities to buy and sell, the quantities, the price, and when each transaction would occur. Luftschein also frequently made unauthorized trades in these accounts. Luftschein deliberately incurred unreasonably high trading costs in the customers’ accounts, which made it virtually impossible for the accounts to be profitable. Indeed, Luftschein’s trading in the customers’ accounts caused more than $261,000 in losses, while Luftschein received substantial income from trading the accounts. Luftschein also masked the true costs of his trading from customers by placing a high percentage of the trades as riskless principal trades. The complaint also alleges that Luftschein’s trading in the customers’ accounts was excessive and quantitatively unsuitable for the customers, as evidenced by high annualized turnover rates and cost-to-equity ratios, the size and frequency of the transactions, the transaction costs incurred and the customers’ investment objectives and needs. Luftschein did not have a reasonable basis to believe that his trading was suitable. The complaint further alleges that Luftschein effected trades in the customer accounts without first discussing with, and obtaining authorization from, the customers. None of the customer accounts were listed as discretionary accounts. The customers never gave Luftschein discretionary trading authority.”
The enforcement action remains pending. For a copy of the complaint, click https://www.finra.org/sites/default/files/fda_documents/2016051704303%20Steven%20Robert%20Luftschein%20CRD%202690117%20Complaint%20va.pdf
In addition to the FINRA sanction, Steven Luftschein has been the subject of six17 customer complaints during his career, alleging sales practice misconduct. Among the complaints include the following:
• January 2020—” TIME FRAME: UNSPECIFIED. CLAIMANT ALLEGES EXCESSIVE AND UNSUITABLE TRADING, FALSE AND MISLEADING STATEMENTS.” Alleged damages are $200,000 and the matter remains pending.
• May 2018—”TIME FRAME: 2013. CLAIMANT ALLEGES NEGLIGENCE, UNAUTHORIZED TRADING, CHURNING, UNSUITABILITY, BREACH OF CONTRACT, BREACH OF FIDUCIARY DUTY.” The matter was settled for $132,500.
• February 2018—”TIME FRAME: UNSPECIFIED. CLAIMANT ALLEGES UNAUTHORIZED TRADING AND UNSUITABLE INVESTMENT RECOMMENDATIONS.” The matter was settled for $569,962.
• August 2017—”Customers allege unsuitable investment recommendations, unauthorized trading, negligence, negligent supervision, federal securities law violations, Georgia blue sky law violations, control person liability and respondeat superior, breach of fiduciary duty and excessive trading from January 2010 through August 2011.” The matter was settled for $800,000.
• April 2017—”TIME FRAME: 04/24/2014 TO 05/31/2016. CLAIMANT ALLEGES UNSUITABLE INVESTMENT RECOMMENDATIONS, UNAUTHORIZED TRADING, EXCESSIVE TRADING, MISREPRESENTATIONS AND OMMISSIONS, BREACH OF CONTRACT AND BREACH OF FIDUCIARY DUTY.” The matter was settled for $100,000.
• June 2015—”TIME FRAME: June 2013 to January 2016. Clients allege unsuitable recommendations and mishandling of their accounts.” The matter was settled for $782,000.
• October 2010—”FAILURE TO SUPERVISE.” The matter was settled for $275,000.
• April 2010—”CUSTOMER ALLEGES REPRESENTATIVE FAILED TO FOLLOW INVESTEMENT OBJECTIVES, RESULTING IN SUBSTANTIAL LOSSES TO PORTFOLIO VALUE.” The matter was settled for $275,000.
A For a full copy of Steven Luftschein’s FINRA disclosure report, click https://brokercheck.finra.org/individual/summary/2690117#disclosuresSection
Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.
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.
Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s:
• Age
• Other investments
• Financial situation and needs
• Tax status
• Investment objectives
• Time horizon
• Liquidity needs
• Risk tolerance
• Any other information disclosed by the customer
The Wolper Law Firm, P.A. represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, P.A., is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at 800.931.8452 or by email at mwolper@wolperlawfirm.com.
Former Aegis Capital Corp. Investment Advisor Steven Luftschein Permanently Barred for Alleged Excessive and Unauthorized Trading
Steven Luftschein (CRD No. 2690117), was an investment advisor employed by broker-dealer Aegis Capital Corp. from June 2013 to October 2016. He later worked for Joseph Stone Capital LLC from May 16, 2017, until May 21, 2018. He was also known as Steven Lerner.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), on January 13, 2021, Steven Luftschein, also known as Steve Lerner, was permanently barred from association with any member firm in any capacity for unauthorized trading and excessive and quantitatively unsuitable trading.
According to the FINRA sanction, “Under the terms of the Offer, Respondent has consented, without admitting or denying the allegations of the Complaint, and solely for the purposes of this proceeding and any other proceeding brought by or on behalf of FINRA, or to which FINRA is a party, to the entry of findings and violations consistent with the allegations of the Complaint, and to the imposition the sanctions set forth below, and fully understands that this Order will become part of Respondent’s permanent disciplinary record and may be considered in any future actions brought by FINRA.”
The sanction continues with a summary of the complaint: “Respondent Steven Robert Luftschein, while associated with Aegis Capital Corp. (Aegis or the Firm), a FINRA-regulated broker-dealer, churned and excessively traded the accounts of three of his Firm customers, Customers A, B and C (collectively, the Customers), from July 2014 through June 2016 (the Relevant Period). During this period, Luftschein executed approximately 430 trades in the Customers’ accounts — resulting in annualized turnover rates ranging from 12.5 to 96.3 and annualized cost-to-equity ratios (or break-even points) ranging from 35.6% to 123.8%. Luftschein’s churning and excessive trading was unsuitable and caused combined losses of more than $261,000 in the Customers’ accounts. At the same time, Luftschein’s trading in the Customers’ accounts generated gross sales credits and commissions of approximately $136,200, with Luftschein receiving a substantial percentage of this amount. By churning and excessively trading the Customers’ accounts, Luftschein willfully violated Section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act) and Rule 10b-5 thereunder, and also violated FINRA Rules 2111, 2020 and 2010. Also during the Relevant Period, Luftschein executed 88 trades with a total principal value of approximately $3 1 million in the three Customers’ accounts without the Customers’ prior authorization. By engaging in unauthorized trading in the Customers’ accounts, Luftschein violated FINRA Rule 2010.”
For a copy of Steven Luftschein’s FINRA disciplinary action details, click here.
Summary Detail of Allegations
The most recent disciplinary proceeding against Steven Luftschein was filed on May 13, 2020. Although at that time, he had already ended his employment with a member firm, because the complaint was received within two years of his separation from a member firm and the complaint alleged misconduct while he was associated with a member firm, it was actionable.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), Steven Luftschein began his securities career in 1995. Prior to his association with Aegis Captial Corp. in June 2013, Steven Luftschein had been associated with nine other member firms since 1995. Those included John Thomas Financial (expelled by FINRA on October 31, 2013); Rockwell Global Capital LLC; Paulson Investment Company, Inc.; Gunnallen Financial, Inc.; Maxim Group LLC; Investec Ernst & Company; Josephthal & Co., Inc; J.W. Barclay & Co., Inc. Metropolitan Life Insurance Company; and MetLife Securities, Inc.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), there are multiple complaints that date back to 1999:
• On January 13, 2020, a customer dispute alleged that Steven Luftschein made excessive and unsuitable trades and also made false and misleading statements. The customer requested damages of $200,000.00.
• On May 11, 2018, a customer complaint was settled in response to allegations that in 2013, Steven Luftschein carried out negligent and unauthorized trades, churned, made unsuitable trades, and demonstrated a breach of contract and breach of fiduciary duty. The customer requested damages of $150,000.00; it was settled for $132,500.00.
• On February 12, 2018, a customer complaint was settled in response to allegations that Steven Luftschein made unauthorized trades and unsuitable investment recommendations. The customer requested $1,461,217.00 in damages and settled for $569,962.38.
• On August 15, 2017, a customer complaint was settled against Steven Luftschein. The complaint alleged unsuitable investment recommendations, unauthorized trading, negligence, negligent supervision, federal securities law violations, Georgia blue sky law violations, control person liability and respondeat superior, breach of fiduciary duty and excessive trading from January 2010 through August 2011. The complainant requested $2,172,561.00 in damages and settled for $800,000.00.
• On April 28, 2017, a customer complaint was settled against Steven Luftschein for allegedly making unsuitable investment recommendations, unauthorized and excessive trades, misrepresentations and omissions, and demonstrating a breach of contract and a breach of fiduciary duty between April 24, 2014 and May 31, 2016. The complaint requested $269,131.00 in damages; it was settled for $100,000.00.
• On June 3, 2016, a customer complaint against Steven Luftschein was settled. The client alleged that between June 2013 and January 2016, unsuitable recommendations were made and accounts were mishandled by Steven Luftschein. The customer requested $2,000,000.00 in damages and settled for $782,000.00.
• On November 16, 2012, a customer complaint against Steven Luftschein alleging unauthorized trading was denied.
• On March 1, 2012, a customer complaint alleging overuse of margin was settled against Steven Luftschein for $21,378.00, the exact amount of damages requested.
• On October 20, 2010, a customer complaint requesting damages of $1,000,000.00 was settled for $275,000.00 against Steven Luftschein, alleging failure to supervise.
• On April 8, 2010, a customer complaint against Steven Luftschein was settled in response to allegations that he failed to follow the client’s investment objectives which resulted in a substantial loss to the value of the portfolio. Damages of $179,066.00 were sought and a settlement of $275,000.00 was awarded to the customer.
• On July 10, 2006, a customer complaint was settled after allegations were made against Steven Luftschein for market loss, excessive commissions, unauthorized trading, unsuitable trading, and failure to follow instructions in 2002. The complainant sought $392,387.44 in damages and was awarded $15,000.00 in a settlement.
• On March 22, 2004, a complaint against Steven Luftschein was settled for damages requested, $15,000.00, after allegations were made regarding excessive commissions.
• On March 19, 2004, a complaint alleging excessive commissions that had been filed against Steven Luftschein was settled for $52,586.00, the amount requested in damages.
• On March 16, 2004, a customer complaint against Steven Luftschein requesting $31,400.00 in damages was settled for the same amount, alleging excessive commissions.
• On January 22, 2004, a customer complaint against Steven Luftschein alleging unauthorized, excessive, and unsuitable trading was settled for $40,000.00, less than the $73,752.00 in damages requested.
• On March 21, 2001, a customer complaint was denied; the customer alleged that Steven Luftschein made unauthorized trades in the customer’s account. The complaint sought $11,480.00 in damages.
• On June 29, 1999, a customer complaint against Steven Luftschein was denied after it was alleged that he violated regulation margin requirements to engage in excessive trading. Damages requested were $33,140.00.
For a copy of Steven Luftschein’s FINRA BrokerCheck in these cases, click here.
Excessive and Unauthorized Trading Harms Customers
FINRA’s anti-fraud rules include a prohibition on excessive trading, called churning, on broker-controlled accounts that’s not in alignment with the customer’s investment goals and is intended to defraud or act without regard for the customer’s best interests. When there are dozens of trades in a customer’s account that drive up the annualized turnover rate and the annualized cost-to-equity ratio, it’s a red flag, especially if the broker-dealer is handling customer accounts without the written authorization of the customer or the written approval of the member firm. Activity like this suggests that the broker-dealer may not be acting with the best interests of the customer in mind, including the customer’s investment goals and preferred trading strategy.
FINRA Rule 2010 requires that broker-dealers and those associated with them “observe high standards of commercial honor and just and equitable principles of trade.” Furthermore, FINRA Rule 2111 requires anyone associated with a member firm “who has actual or de facto control over a customer account to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer” according to their investment goals and strategy.
The Wolper Law Firm, P.A. represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, P.A., is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at 800.931.8452 or by email at mwolper@wolperlawfirm.com.