The news today that a licensed US securities broker-dealer has had their license revoked and its traders/agents have been sanctioned by the Securities and Exchange Commission (SEC) raises alarms regarding the protection of investors and their funds in regulated markets, such as the US.
It turns out that First Standard Financial Company in New Jersey was employing traders with a long history of regulatory misconduct and questionable dealings. As a result, the firm was accused of “churning” trades – in order to secure high commission fees. This resulted in customer losses of more than $28.7 million due to unauthorized, unsuitable and excessive trading.
Such situations have been known to take place in offshore regions, where the regulatory oversight is lacking, which is why this particular case raises some serious concerns, including how the firm’s traders did not bring the regulatory authorities’ attention for so long, given that the firm “routinely hired agents with a history of customer complaints and regulatory problems”, according to the New Jersey Bureau of Securities.
This case should be a wake up call to all investors in regulated markets to check and double check the investment products being offered to make sure they have a tangible investment strategy with solid risk management in place.