FINRA has suspended a registered representative for nine months and ordered restitution and fines after uncovering a pattern of excessive trading in customer accounts, resulting in significant losses and violations of Regulation Best Interest (Reg BI).

Between 2017 and 2023, the representative exercised de facto control over several retail customers’ accounts, as the clients routinely followed his recommendations. FINRA found that his trading activity far exceeded reasonable thresholds, generating large commissions while causing substantial investor losses.

Key findings included:

  • Turnover rates as high as 35, well above the typical red flag of 6.
  • Cost-to-equity ratios ranging from 42% to 171%, far beyond the 20% risk marker.
  • Over $365,000 in commissions generated, while customers realized more than $260,000 in losses.

FINRA determined that the trading strategy was not in the clients’ best interests and failed to meet the obligations set forth under Reg BI.

Why It Matters

Excessive trading remains a top regulatory concern. Even when clients agree to individual trades or have speculative goals, patterns of high-cost activity — especially when driven by rep recommendations — are viewed as misconduct under Reg BI.

This case reinforces FINRA’s expectation that firms not only supervise individual trades, but also track cumulative activity over time to prevent client harm.

Compliance Takeaways

This case highlights how excessive trading can slip through without the right checks in place. Compliance teams should focus on:

  • Monitor for high turnover or cost-to-equity ratios. Set thresholds and investigate when accounts trigger alerts.
  • Assess suitability over time, not just per trade. Review the overall impact of repeated transactions.
  • Maintain open communication with clients. Confirm they understand the risks, costs, and objectives behind the strategy.
  • Document escalation and reviews. When activity appears excessive, ensure follow-up steps and decisions are logged.

Reg BI is more than a disclosure requirement — it obligates firms to actively prevent trading patterns that generate high costs or losses for clients. This action reinforces FINRA’s continued focus on excessive trading and the expectation that firms have robust supervisory systems in place to detect and stop it before harm occurs.