Recently, I stumbled across a rather concerning piece of news involving one Sean Barakat (also known as Shadi Barakat)(CRD#: 5031281), who has found himself subjected to a complaint filed by the Financial Industry Regulatory Authority (FINRA) on September 9, 2024. As someone with years of experience in the financial and legal industries, I felt compelled to delve into this matter further and share my insights with you, dear reader.
Throwing Light on the Allegations
To offer you a picture of the seriousness of this issue, Sean Barakat reportedly failed to present himself for an on-the-record testimony requested by FINRA. This was in relation to the authority’s investigation into allegations of ‘churning’ and ‘excessive trading’ in his customers’ accounts. Some of you may be wondering what these terms mean; let me break them down for you.
Churning is when a broker, in this case, Barakat, excessively trades within a client’s account, not for the client’s benefit but to generate commissions or fees for himself. The trades often serve no legitimate investment purpose. Excessive trading, as the term suggests, refers to a high volume of trades that are more about the broker’s profit than the client’s financial welfare.
This practice not only contravenes securities laws and regulations but is also quite simply, unethical. If financial advisors engage in such activities, it signals a breach of their fiduciary duty to act in the client’s best interests. These cases of unethical dealing can lead to significant capital losses for the client due to repeated transaction costs.
About Sean Barakat’s History
Peering into the past of Sean Barakat brings up some interesting data. As compiled by FINRA BrokerCheck, Barakat reportedly has five customer complaints under his belt. These range from allegations of churning and negligent misrepresentation to breach of fiduciary duty and unsuitable investments. His association with multiple brokers over the years (including SPARTAN CAPITAL SECURITIES and ALEXANDER CAPITAL, L.P.) does little to boost his credentials.
I will delve more into this, but let’s take a pause to remember an astute observation by financial expert Richard Ketchum, “The trust between an investor and their financial service provider is fundamental to the success of the relationship, and ultimately to the investor’s financial success.”
Implications of The FINRA Rule
The significant trust vested in a financial advisor by a client should never be undermined, and this is where the rules set by FINRA come into play. FINRA Rule 2111, for example, requires a firm or associated person to have a reasonable basis to believe that a transaction or investment strategy involving securities is suitable for the customer. This rule, in simple terms, is designed to protect the investor and ensure that the advisor acts in the customer’s best interest.
However, when advisors like Barakat allegedly violate these principles, they not only shake investor trust but also put the investor’s financial future at risk.
Consequences and Lessons Learned
As this situation unfolds, investors must bear in mind the potential pitfalls of trusting financial advisors blindly. Not only does the investor risk losing money due to excessive transaction costs, but cases like these also remind us of the value of diligent research when selecting a financial advisor.
To those unfamiliar with the financial realm, here’s a sobering fact: according to a study by the Public Investors Arbitration Bar Association (PIABA), an astounding 7.3% of all financial advisors have been involved in legal disputes or faced disciplinary actions at some point in their careers.
In conclusion, I wish to emphasize the importance for every investor to vigilantly monitor their investments and the actions of their advisors, however trustworthy they may seem. As Warren Buffet wisely said, “Risk comes from not knowing what you’re doing.” So, remember to arm yourselves with knowledge and stay vigilant, because your financial well-being matters.
