The Securities and Exchange Commission has charged J.P. Turner with churning which was conducted by three former brokers of the firm. The complaint alleges that the churning conducted by these three brokers lead to a loss of over $2.7 million for seven customers, while allowing them to collect commission fees and margin interests of around $845,000. The three brokers responsible for the scheme were “Ralph Calabro, who worked at a Parlin, N.J., branch of the broker-dealer, and Jason Konner and Dimitrios Koutsoubos, both working in a Brooklyn, N.Y., office” according to Investment News, and it allegedly took place between January 2008 and December 2009.
Churning is described as a fraudulent act which occurs when a broker disregards the investors risk tolerance and objectives and uses the funds for excessive trading which leads to higher commissions and revenue for himself and the firm. According to the SEC, “For churning to occur, the broker must exercise control over the investment decisions in the customer’s account”. Churning is a violation of SEC Rule 15c1-7 and many other securities laws, but also it violates FINRA rules.
William Hicks, who is the associate director of the SEC’s Atlanta Office, stated that “Broker-dealers’ supervisory systems must provide customers with reasonable protection from churning and similar abuses,”
According to Investment News, J.P. Turner and its former president, William Mello, were also charged in the complaint filed by the SEC, but decided to settle without admitting to or denying any of the charges. The settlement agreement stipulates that “J.P. Turner will pay penalties and return ill-gotten gains totaling about $416,000, and Mr. Mello will pay a $45,000 penalty”. Furthermore, Mr. Mello, who was one of the firm’s founders in 1997, has been suspended from associating with the firm in any supervisory capacity for five months.
The firm has agreed to hire an independent consultant to review supervisory procedures to prevent future violations according to an SEC statement. They have also stated that the three brokers charged had long been terminated.