If you’ve been following recent news, you’d probably have about the Financial Industry Regulatory Authority (FINRA) barring broker, Christopher Kennedy, from the securities industry. This seriously impacts investors and stirs up the already dynamic investment landscape. An understanding of this case will facilitate safeguarding your investments from similar issues in the future.
Alleged Wrongdoings, Financial Impact, and Investor Sentiment
The brass tacks of the allegations cite that Kennedy churned and excessively traded in four out of six of his clients’ accounts. This means he made multiple trades in these accounts, not for the investors’ benefits but for his own financial gain in the form of commissions. Some specific figures put the extent of his actions into perspective. In Kennedy’s time with Western International Securities, reports suggest his aggressive trading approach resulted in the average number of trades per account reaching 102 per month. This amounts to net trading of approximately $6.9 million per account, or 13 times the average account value.
One may ask why this is an issue. The problem stems from the fact that each trade incurs a commission by the broker, and these commissions add-up very quickly over multiple trades, often eroding the account’s value. It’s alleged that derogatory trading actions by Kennedy led his customers to lose over $2.3 million in total account value. On top of those losses, the customers reportedly paid more than $715,000 in total trading costs and margin interest, including over $595,000 in commissions. This evidences the grave financial implications for investors.
Beyond the financial harm, these actions erode investor trust in the investment advisory industry and financial markets, leading to investor apprehension when working with advisors. Warren Buffett once wisely noted, “It takes 20 years to build a reputation and five minutes to ruin it“. The ripple effects of such misdemeanors can be widely felt.
Christopher Kennedy – Background, Broker-Dealer, and Past Complaints
When researching advisors, due diligence goes a long way to protect ourselves from potential harm. Let’s delve into Kennedy’s background. Having been in the financial industry for a while now, Kennedy was associated with Western International Securities [FINRA CRD#: 4498061] at the time of these allegations.
- December 2, 2019 – September 27, 2021: Western International Securities, Inc. [CRD#:39262], Woodland Hills, CA
- July 10, 2019 – December 23, 2019: Spartan Capital Securities, LLC [CRD#:146251], New York, NY
- August 21, 2017 – July 10, 2019: Western International Securities, Inc. (CRD#:39262), Tarzana, CA
One of the elements which amplifies the seriousness of the allegations against Kennedy is his record of 11 customer complaints filed against him prior to his removal from Western International Securities. This highlights the importance of keeping tabs on your advisor’s past and staying vigilant.
The FINRA Rule and Explanation in Simple Terms
Given the complexity of the financial regulations, let me break down the core
issue in simple terms. According to FINRA, the act of “churning” is highly
prohibited. This is where a broker executes excessive trading in a client’s account with the primary intent of generating commissions for themselves. This fundamentally opposes brokers’ fiduciary duty to act in the best interests of their clients.
Consequences and Lessons Learned
Such actions by Kennedy have reportedly resulted in him being permanently barred from the securities industry. Despite this punitive action, the damage to the investors who trusted him with their funds cannot be fully reversed. It is a hard-hitting reminder that not all individuals in finance are acting in your best interest.
The case presents an important lesson for investors – always be aware of the activity in your accounts, question unexpected or unexplained transactions, and ensure regular communication with your advisor.
Here is a financial fact: According to the U.S. Securities Exchange Commission, 5% of US households fall victim to financial fraud each year. The securities industry is not devoid of bad actors. Your best defenses are vigilance and information.
