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.
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