What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: April 19, 2024

Stoltmann Law Offices, P.C., a Chicago-based securities, investment fraud, and investor rights law firm that offers victims representation on a contingency fee basis nationwide, filed a case on behalf of an investor in connection with unsuitable and excessive stock trading in a retirement account.  The case, filed in FINRA Arbitration, alleges that the B. Riley Wealth Management financial advisor, Mark Bruscianelli, traded the account at an annualized rate of four times, resulted in a cost-equity ratio of 10%, and caused realized losses of more than $250,000, which was about 30% of this retired investor’s retirement savings.

What is Excessive Trading and How Do I know if It Has Happened to Me?

Excessive trading or churning is simply put, where the investments in your account are turned over or traded so much that it is difficult to earn enough return on your investment, to even pay for the commissions or mark-ups charged by the brokerage firm for the transactions.  There is a fairly simple formula that regulators and attorneys use to determine if your account has been “churned”.  It is called the Looper Formula, and it goes back to an SEC enforcement case, Looper & Co., 38 SEC 294, 297 n.6 (1958).  The Looper Formula says that an annualized turnover rate of two times is “suggestive” of excessive trading; a turnover rate of four times is “indicative” of excessive trading; and a turnover rate of six times is “conclusive” of excessive trading.

In a traditional brokerage account, the firm like B. Riley Wealth Management, will charge a commission or “markup” for every transaction that it places. The more trading there is, the more income it generates for the brokerage firm and the financial advisor. This is where “cost-equity” ratio comes into play. Fundamentally, if the advice and recommendations you are receiving from your financial advisor means that your return on investment has to meet or exceed the historical rate of return of the S&P 500 index, you have got a serious issue.  If taken back to 1928, the annualized rate of return of the S&P 500 is 9.9%.  If your costs just to cover the advice you are receiving and to pay transaction fees is 10%, then the advice you are getting is unsuitable, violates the “Quantitative Prong” of Regulation Best Interest, and is also a violation of the Illinois Securities Law which prohibits transactions that are excessive in size or frequency, and that are unsuitable.

Riley Wealth Management Has a Duty to Supervise Its Financial Advisor

The Financial Advisor at issue in this case, Mark Bruscianelli, has nine complaints on his FINRA BrokerCheck Report, including one complaint that resulted in a FINRA arbitration award. When a financial advisor has a history of customer complaints, it is incumbent upon the brokerage firm that maintains his license, to put him on a heightened supervision plan. This advisor should have been placed under a microscope. FINRA Rule 3110 requires firms to adequately supervise the conduct of its financial advisors.  Failing to do so can be grounds for a negligence claim.

Riley Wealth Sells Inventory Stocks So That It Can Offload Risk to its Customers

Some of the positions that B. Riley recommended included:

  1. Ironnet
  2. Applied Blockchain
  3. The Necessity Retail REIT
  4. BlueRock Total Income Real Estate Fund
  5. United Natural Gas Fund
  6. Star Bulk Carriers
  7. Univar Solutions

Most positions in the account were marked as “principal” trades.  What this means is, the client basically bought shares that the brokerage firm held in -house. This creates an inherent conflict of interest.  It allows the firm to profit from the bid-ask spread and to unload positions that are losing money on the firm’s books, in addition to earning commissions.  The other method of executing trades is the agency method, which is more traditional trading, where you put up your shares and a secondary party matches it and accepts to buy your shares.  There, the firm is a traditional broker, earning only traditional commissions.

What Should I Do if I Think My Account Has Been Excessively Traded?

If you are concerned that your account has been excessively traded by your financial advisor, you should call Stoltmann Law Offices, P.C. at 312-332-4200 for a no-obligation, initial consultation with an experienced securities arbitration attorney.  We will review your account statements, free of charge, and run an in-house analysis to calculate your turnover and cost-equity ratio and advise you whether we believe you have a legal claim to pursue through FINRA Arbitration.  We are a contingency fee law firm which means we do not get paid unless you do.

Disclaimer

The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices (161 N Clark Street 16th Floor Chicago, IL 60601). The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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Chicago Investment Fraud Attorneys Offering Nationwide Representation to Investors

If you have suffered financial losses because of the negligence or fraud of your financial advisor or broker through unsuitable investment recommendations, over-concentration, churning, misrepresenting risks, conversion or selling away, you have legal rights and options to pursue recovery of those losses.

Stoltmann Law Securities Investment Fraud Attorneys