The self-regulatory body for the brokerage industry, Finra, has taken action against a New Jersey-based broker accused of accruing millions of dollars in excessive commissions. Monmouth Capital Management, the firm in question, employed an aggressive trading strategy that resulted in significant losses for over 100 clients. Shockingly, some of these clients were relatives of fallen service members who had used military benefits to fund their accounts.
Finra asserts that Monmouth failed in its duty to adequately supervise its representatives’ trading activities, resulting in substantial harm to customers, including Gold Star families. Christopher Kelly, the acting head of Finra’s Department of Enforcement, stated, “The egregiousness of the firm’s sales practices and supervisory violations necessitated expulsion from Finra membership.”
Monmouth accepted the expulsion from Finra on June 13, without admitting or denying the charges, and a settlement was announced on Friday. Bryan Ward, the attorney who represented Monmouth in the Finra proceeding, declined to comment.
Attempts to reach representatives of Monmouth for comment were unsuccessful. Furthermore, the firm’s website is currently inactive and calls to their listed phone number go unanswered.
It is worth noting that Robert Meyer, the former CEO of Monmouth, is no longer registered as a broker. However, he is now affiliated with Monmouth Advisory Services as a registered investment advisor. Meyer did not respond to a request for comment.
Unethical Conduct Results in Expulsion
In a disturbing revelation, it has been revealed that Monmouth Capital Management exploited its clients by engaging in an aggressive trading strategy that prioritized excessive commissions over their interests. Finra’s investigation into this matter uncovered that the firm made $3.9 million in commissions and trading costs while leaving its clients burdened with significant losses.
Failure to Supervise and Protect Customers
One of the most distressing aspects of this case is the fact that Monmouth failed to adequately supervise its representatives’ trading activities. This lapse in supervision had severe consequences, particularly for Gold Star families who entrusted their accounts to the firm. By neglecting their supervisory duties, Monmouth endangered the financial well-being of its clients.
Expulsion from Finra Membership
Given the extent of the firm’s sales practice and supervisory violations, Finra had no choice but to expel Monmouth from its membership. This significant step serves as a clear message that such unethical behavior will not be tolerated within the brokerage industry.
Firm Remains Silent
Despite the serious allegations that have been leveled against Monmouth, the firm has chosen to remain silent. Representatives could not be reached for comment, and calls to their phone number went unanswered. It is evident that they are unwilling to address the concerns raised by Finra and the affected clients.
A Change in Leadership
While Monmouth may be facing expulsion, it is important to note that Robert Meyer, the former CEO, has moved on to a registered investment advisory firm called Monmouth Advisory Services. Unfortunately, he did not respond to requests for comment regarding the allegations against his former firm.
As this case unfolds, it is crucial that regulators continue to hold brokerage firms accountable for their actions. The protection of investors and prevention of financial harm should always be a top priority in the industry.
Distinctive Reimagination: Troubling Revelations in Monmouth Case
Raymond Clark, formerly Monmouth’s chief compliance officer, has now registered with Alexander Capital. However, there has been no response from Alexander Capital as of yet.
In BrokerCheck, Finra’s online database, the third individual associated with Monmouth is Hasnain Naveed. Naveed is currently registered with Neon Money, where he works as an outsourced consultant. Unfortunately, Naveed has not responded to a voice message left at ACI—Accounting and Compliance International, a firm he is also associated with.
Army Connection
On Friday, an alarming turn of events unfolded as the Securities and Exchange Commission (SEC) and the Department of Justice filed civil and criminal charges against Caz Craffy, a former representative of Monmouth. Craffy, who had already been banned from the industry by Finra, had been fulfilling the role of a financial counselor for the U.S. Army and serving as a major in the Army Reserve.
According to the SEC, during his tenure as a financial counselor from May 2018 to November 2022, Craffy took advantage of grieving family members by manipulating them into transferring their benefits into brokerage accounts that were outside his official duties with the U.S. Army. Shockingly, over a span of 54 months with Monmouth and another firm, Craffy’s clients incurred losses amounting to $1.79 million, while paying a staggering $1.64 million in commissions and fees.
The Justice Department has charged Craffy with six counts of wire fraud, one count of securities fraud, making false statements in a loan application, committing acts to further personal financial interests, and making false statements to a federal agency. His deceitful actions have affected two dozen Gold Star families.
Remember to stay vigilant and cautious in your financial dealings, ensuring that you entrust your assets to reputable professionals.
Stealing from Gold Star Families: A Shameful Crime
Attorney General Merrick Garland has condemned the act of stealing from Gold Star families, calling it a shameful crime. The defendant in this case, who held a position as an Army financial counselor, is accused of defrauding these families, stealing their money, and enriching himself. The Justice Department assures that predatory behavior targeting the families of fallen American service members will be met with the full force of the law.
Violation of Regulation Best Interest
According to Finra, Monmouth’s conduct in this case violated Regulation Best Interest (Reg BI), a rule implemented by the SEC to govern broker conduct. Through excessive trading in 110 customer accounts, all of which suffered significant losses, Monmouth breached their care obligation under Reg BI.
False and Misleading Statements
Finra also revealed that Monmouth made false and misleading statements on its Form CRS, a summary document detailing the practices of broker and advisor firms. On their Form CRS, Monmouth claimed to monitor client accounts through daily reports, despite never actually utilizing such reports, as per Finra’s findings.
Churning Accounts
Additionally, Finra discovered that representatives from Monmouth engaged in churning with 42 accounts. Churning is a form of excessive trading where a security is repeatedly sold and repurchased to generate higher commissions.
The actions taken against Monmouth serve as a stern warning to those who exploit vulnerable individuals and commit financial crimes.
Monmouth’s Negligence in Handling Inexperienced Investors and Seniors
Introduction
Allegations against Monmouth
Finra states in a settlement letter that these clients blindly followed the recommendations of Monmouth’s representatives, effectively giving the institution control over their accounts. This raises concerns about Monmouth’s responsibility towards its clients, especially those lacking experience in financial investments.
Excessive Trading: A Matter of Concern
In one case investigated by Finra, a client’s account at Monmouth had a striking cost-to-equity ratio of over 103%. This staggering percentage implies that the client would need to achieve returns of over 103% on their portfolio solely to cover the commissions and trading costs incurred. Such a high ratio indicates the potential financial burden on clients due to Monmouth’s excessive trading activity.
Neglecting the Vulnerable: 13-year-old and 14-year-old Sisters
Tragically, Monmouth was also tasked with managing the investment accounts of two young sisters, aged 13 and 14, whose father had sadly passed away while serving in the military. According to Finra, three Monmouth representatives collectively recommended short-term and frequent trading in both siblings’ accounts.
Over a period of 20 months, Monmouth executed numerous trades for the 13-year-old sister with an annualized cost-to-equity ratio of 32%. Similarly, the 14-year-old sister’s account had a ratio of 27%. It is important to note that their average monthly funded equity was $149,409 and $111,741, respectively.
The representatives purchased $1.9 million worth of stocks on behalf of the 13-year-old. Unfortunately, this resulted in $79,696 in trading costs and net losses of $8,936 for the young client. The situation was even worse for the 14-year-old sister, as Monmouth representatives traded $1.3 million in stocks within her account, leading to $50,859 in trading costs and losses amounting to $122,816.
Conclusion
Finra’s allegations against Monmouth shed light on the institution’s negligent practices in handling the accounts of inexperienced investors and seniors. These cases highlight the potential financial harm caused by excessive trading activities and the disregard for vulnerable clients. It is crucial for institutions like Monmouth to prioritize the well-being and best interests of their clients.
