New Jersey Attorney General Gurbir S. Grewal has announced several actions by the New Jersey Bureau of Securities in its ongoing investigation of the now-defunct First Standard Financial Company, LLC, of Red Bank, a broker-dealer whose agents defrauded customers as part of an excessive trading scheme, according to a press release.
In early December, First Standard agreed to relinquish the lion’s share of its liquid assets – about $400,000 – to provide restitution to investors. The bureau previously revoked First Standard’s broker-dealer registration after finding that First Standard was complicit in its agents’ unlawful conduct, and took action against a number of the agents individually, according to the press release.
In late December, the bureau revoked the registrations of two more agents who participated in the scheme, including the firm’s top agent. The two agents were also collectively assessed more than $1 million in civil penalties for their roles in the scheme.
Andre P. Davis of Freehold, who at one time generated nearly a quarter of First Standard’s revenues, had his registration summarily revoked and was assessed a $1 million civil penalty, according to the press release.
Frank Venturelli of Brooklyn, N.Y., also had his registration revoked and was assessed $120,000 in civil penalties, according to the press release.
“New Jersey’s Bureau of Securities is committed to protecting investors,” Grewal was quoted as saying in the press release. “When unscrupulous broker-dealers and their corrupt agents cheat customers out of their life savings, we will hold every last one of them accountable.”
According to the bureau’s findings, First Standard routinely hired agents with a history of customer complaints and regulatory problems involving excessive, unsuitable and unauthorized trading.
First Standard and these agents then defrauded the firm’s clients through unsuitable and frequently unauthorized “in-and-out trading” of a single security over a short period for the purpose of generating sales commissions at their clients’ expense. This included short-term trading in bonds and other securities for which active trading is unsuitable.
The bureau found that Davis and Venturelli violated the New Jersey Securities Law by fraudulently engaging in unsuitable, high-cost, excessive trading strategies that generated commissions and fees for themselves and First Standard, while simultaneously causing huge losses for their customers.
Among their unsuspecting customers were farmers, electricians and truck drivers, often retired or nearing retirement, who had trusted the agents with their life savings.
Davis and Venturelli’s trades were made on behalf of customers in commissioned-based accounts, meaning that the agents and First Standard were paid commissions on each trade (both purchases and sales) they executed on the customers’ behalf.
This trading strategy reduced the potential gains of any profitable trades and exacerbated the losses on unprofitable trades. It also caused the customers’ accounts to generate exorbitant transaction costs and fees that far exceeded any benefit to the customers.
Between January 2016 and May 2019, Davis benefited by generating at least $7.5 million in commissions and fees for himself, First Standard, and the other First Standard agents with whom he shared accounts. These commissions and fees represented almost a quarter of First Standard’s total revenue during the same period.
The bureau has also taken action against other First Standard agents for excessive, unsuitable trading activities:
• In February 2020, the bureau denied and revoked the registration of former First Standard agent Jeffrey Broten and assessed him $100,000 in civil penalties;
• In October 2019, the bureau revoked the registration of First Standard agent Philip J. Sparacino, who was the last producing agent at First Standard, and assessed him $250,000 in civil penalties;
• In May 2019, the bureau revoked the registration of former First Standard agent Gabriel Block and assessed him $750,000 in civil penalties, according to the press release.