NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.

J.P. Turner & Company, LLC and James Edward McGrath (Principal)
OS/2009016612701

McGrath failed to reasonably supervise a registered representative who recommended and effected unsuitable and excessive trading in a customer’s account. McGrath had supervisory responsibility over the registered representative and was responsible for reviewing his securities recommendations to ensure compliance with member firm procedures and applicable securities rules. McGrath failed to reasonably supervise the registered representative by, among other things, failing to enforce firm account procedures and failing to respond to red flags regarding the registered representative’s trading activity in the customer’s account.

The firm’s supervisory procedures required McGrath to review account transactions, such as the registered representative’s recommended transactions in the customer’s account, on a daily and monthly basis for, among other things, general suitability, excessive trading and churning, in-and-out trading and excessive commissions and fees; the firm’s procedures also required that McGrath review all exception reports related to the individuals who he supervised and take appropriate measures as necessary. Through these required reviews, McGrath was aware of red flags of possible misconduct in the customer’s account, including frequent short-term trading, excessive commission and margin charges, high turnover and cost-to-equity ratios, and substantial trading losses, and the account frequently appeared on the firm’s exception reports; McGrath failed to reasonably respond to and address the red flags in the customer’s account.

McGrath never spoke with the customer despite the fact that the firm’s compliance department sent several emails to McGrath advising him that the customer’s account needed customer contact as required by the firm’s WSPs; McGrath never spoke with the customer directly to confirm that he was aware of the activity level in his account or that such activity was appropriate in light of his financial circumstances and investment objectives.

McGrath failed to ensure that an Active Account Suitability Supplement and Questionnaire was sent to the customer within the time frame the firm’s WSPs required. Moreover, months after the registered representative began trading in the customer’s account, McGrath instructed the registered representative to curtail the short-term trading in the account and hold positions for a longer period; that was the only time McGrath spoke to the registered representative about the customer’s account. Furthermore, McGrath reduced the registered representative’s commissions for purchases in the customer’s account, but this measure did not have the desired impact; the registered representative actually increased the number of purchases and frequency of short-term trading to offset the effects of the commission reduction until the customer closed the account after suffering losses of approximately $120,000.

McGrath failed to take any action against the registered representative based on his failure to comply with his instructions; among other things, McGrath never restricted the trading in the customer’s account, spoke to the customer, placed the registered representative on heightened supervision, recommended disciplinary measures against him to address these concerns, or spoke with the firm’s compliance department regarding the supervision of the registered representative. The firm allowed the registered representative to effect transactions in the customer’s account for months without obtaining a signed and completed new account form from the customer, and failed to enforce its review of active accounts as the WSPs required. The firm failed to send a required suitability questionnaire to the customer until almost a year after the account had been opened and suffered significant losses, failed to qualify his account as suitable for active trading and failed to perform a timely quarterly review of the account.

J.P. Turner & Company, LLC: Censured; Fined $20,000

James Edward McGrath (Principal): Fined $5,000; Suspended 10 business days in Principal capacity only

Tags: Suitability  Supervision  Commissions