Aegis Capital’s Joseph LaScala Excessively Traded Customer Account

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Updated on: January 25, 2022

National investment fraud lawyers KlaymanToskes is investigating (“Joseph LaScala Aegis Investigation”) Excessive Trading Investigation”) Aegis Capital broker Joseph LaScala in light of his recent settlement with the Financial Industry Regulatory Authority’s (“FINRA”) relating to excessive trading allegations.  

What is Excessive Trading?

Excessive trading occurs when a broker recommends a high number of trades that, in the aggregate, do not align with the customer’s investment goals and financial circumstances. Where it involves the intent to defraud the customer or was carried out with reckless disregard for a customer’s interests, it is considered “churning”—a form of securities fraud.

Joseph LaScala Excessive Trading Allegations

According to a FINRA Letter of Acceptance, Waiver and Consent, between July 2014 and April 2016, LaScala engaged in short-term trading in a customer’s individual 401(k) account at Aegis. LaScala placed 235 trades over this period, generating an annualized cost-to-equity ratio of 29.16% and an annualized turnover rate of 5.8.

Because LaScala decided which stocks to trade and when to trade them, and exercised discretionary authority in connection with 139 of the trades, LaScala controlled the volume and frequency of trading in the account.

FINRA alleges that LaScala’s short-term trading in the customer account was excessive and unsuitable given the customer’s investment profile. The alleged misconduct resulted in $90,720 in trading costs and $116,194 in losses.

LaScala Exercised Discretion Without Customer Authority

LaScala allegedly did not obtain prior written authorization from his customer and Aegis to exercise discretion in the customer’s retirement account. LaScala exercised discretionary authority in the account when he placed 139 trades over this 16-month period with a total principal value of approximately $2 million.

 Although LaScala discussed his short-term trading with the customer generally, he did not speak with the customer about the specific trades on the dates of the transactions.

FINRA Fines Suspends Joseph LaScala

Joseph LaScala consented to the following sanctions:

  • A Four Month suspension from associating with any FINRA member in all capacities; and
  • A $7,500 fine

FINRA Launches Investigation into LaScala in July 2021

According to FINRA BrokerCheck, FINRA made a preliminary determination to recommend that disciplinary action be brought against Joseph LaScala alleging the following violations:

  • FINRA Rules 2111 and 2010 in that LaScala engaged in excessive trading in the Aegis Capital Corp. account of his customer;
  • FINRA Rule 2010 in that LaScala placed unauthorized trades in the customer’s account;
  • FINRA Rule 2010 in that LaScala entered into an undisclosed agreement with the customer to prevent the customer from reporting his excessive and unauthorized trading to the firm; and
  • NASD Rule 2510(b) and FINRA Rule 2010 in that LaScala exercised discretionary trading authority authorization when he executed transactions in the firm account of another customer without contacting the customer beforehand.

Customer Disputes Against William Athas

According to FINRA BrokerCheck, William Athas has 9 customer disputes on his record. The most recent customer dispute, which as of time of writing is a May 2020 customer dispute, is currently pending. The dispute alleges Athas conducted unsuitable trading, and alleged common law fraud; churning; breach of contract; negligent supervision; breach of fiduciary duty.

How to Protect Against Excessive Trading

FINRA suggests 3 steps to protect against excessive trading:

  1. Review Your Account Documents—Whether you are opening your account in person at your registered financial professional’s office or filling out your forms at home or online, take time to carefully review and verify the information before you sign—especially your risk tolerance and investment objectives.
  2. Check Your Trade Confirmations and Account Statements—Regularly review account statements and trade confirmations as they’re issued, including to take note of:
    • Unauthorized Trading—Are you noticing unauthorized trades in your account or receive confirmation of a trade you never approved? To guard against unauthorized trading, take notes of trades you have approved at the time you communicate your approval to your broker.
    • High Volume or In-And-Out Trading—Is there a high volume of trading activity and repetitive transactions in securities that are inconsistent with your investment objectives? If you’re pursuing a conservative strategy, you would not expect to see a high volume of trading or as many trades in your account as a customer with a higher risk tolerance.
    • Excessive Fees or Commissions—If the total amount of fees or commissions you’re paying seems high, or if one segment of your portfolio is consistently generating higher fees than any other, there’s a chance you’re being saddled with commissions or other expenses as a result of excessive trading. 
  3. Ask Questions— If you have questions about your account, ask questions, including the rationale for trading activity, the basis for commissions and fees, and amount of return on your investment.

What Happens in a FINRA Arbitration in an Excessive Trading Case?

In a FINRA arbitration claim of excessive trading or “churning” in a brokerage account, Claimants may allege a breach of fiduciary duty and conflict of interest for recommended investment strategies whose sole purpose is to enrich the brokerage firm and/or its financial advisor through excessive commissions, fees or costs.

FINRA arbitrations will generally be successful in an excessive trading or “churning” claim if a customer can prove two case facts. First, the panel must conclude the financial advisor controlled or solicited the activity in the account and second, the activity in the account was excessive based on the Claimant’s risk tolerance and investment objectives.

There are many factors an arbitration panel will consider to determine whether a financial advisor had control over the activity in a financial brokerage account. Several factors that may be considered include:

  • Client Level of Sophistication;
  • Unsuitable Investment Strategy Based on Objectives;
  • Prior Transactions of a Similar Nature and Frequency;
  • Client Trust and Reliance Upon a Financial Advisor;
  • Time Client Devotes to Independent Research;
  • Number of Transactions Solicited vs. Unsolicited;
  • Similar Positions with Different Brokerage Firms; and
  • Client Understanding of Investment Strategy.

Recover Joseph LaScala Excessive Trading Losses

Former and current customers of Joseph LaScala at Aegis Capital with losses in excess of $250,000, and those who have information relating to the manner in which he handled customer accounts, are encouraged to contact Lawrence L. Klayman, Esq., at (561) 542-5131, and download our Special Investor Report.

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