Michael May Investment Losses at Joseph Stone?
KlaymanToskes investigates New York-based broker in light of FINRA suspension (“Michael May Investment Loss Investigation”)
National investor fraud law firm KlaymanToskes is investigating (“Michael May Investment Loss Investigation”) former Joseph Stone broker Michael James May in light of his recent three-month suspension from the securities industry for excessive and unsuitable trading.
Michael May’s Excessive Trading at Joseph Stone
According to a FINRA Letter of Acceptance, Waiver, and Consent, between June 2017 and May 2018, Michael James May allegedly engaged in excessive and unsuitable trading, including the use of margin, in the account of a customer.
In short, the broker recommended that the customer place 21 trades in his account. The customer accepted the recommendation. Although the customer’s account had an average month-end equity of approximately $25,331, May recommended trades with a total principal value of more than $265,044.
As a result, the annualized turnover rate was more than 10.
Collectively, the trades that May recommended caused the customer to pay $10,349 in commissions, trading costs and margin interest. The activity resulted in an annualized cost-to-equity ratio in excess of 40 percent. Therefore, the customer’s account would have had to grow by more than 40 percent annually just to break even.
May consented to the following sanctions:
- a three-month suspension from associating with any FINRA member in all capacities;
- a $5,000 fine; and
- restitution of $10,349 plus interest
Michael May Investment Loss Investigation – What is Excessive Trading?
According to FINRA, brokerage firms and its financial advisors that excessively trade or “churn” a brokerage account are in violation securities industry rules and regulations.
In a FINRA arbitration claim of excessive trading or “churning” in a brokerage account, customers 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.
Generally, FINRA arbitrations will be successful in an excessive trading or “churning” claim if a customer can prove two case facts.
- The panel must conclude the financial advisor controlled or solicited the activity in the account.
- The activity in the account was excessive based on the Claimant’s risk tolerance and investment objectives.
Excessive Trading Factors
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. 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.
Arbitration panels must determine whether the financial advisor was in control of the transaction in the brokerage account at issue.
Moreover, an analysis of statistical measures of account activity can help determine whether the transaction history for a brokerage account was excessive.
The statistical measurements used are the turnover ratio and the cost-equity ratio of a trading strategy in a brokerage account.
Turnover Ration for Excessive Trading
The turnover ratio measures level of activity and is calculated based on total annual purchases divided by the average balance in the brokerage account during a year. Also, the cost-equity ratio measures the total annual costs incurred from an investment strategy calculated based on total annual costs (commissions and margin interest) divided by the average balance in the financial brokerage account. This is frequently referred to as the “breakeven” rate of return.
Importantly, an investor’s level of sophistication and their ability to understand the risks associated with the particular investment strategy will help determine whether the level of activity is considered excessive.
Background of Michael May
May currently is registered with VCS Venture Securities (New York, NY).
His recent previous registrations include:
- Joseph Stone Capital (03/04/2021 – 10/07/2021; Mineola, NY);
- Joseph Stone Capital (07/07/2015 – 06/17/2020; Center Moriches, NY);
- Cape Securities Inc. (08/13/2010 – 07/27/2015; Holbrook, NY); and
- Liberty Partners Financial Services (10/23/2008 – 08/16/2010; Holbrook, NY)
June 2016 Customer Dispute Against Michael May
According to FINRA BrokerCheck, a customer alleged $180,592 in damages against Michael May for unsuitable transactions, unauthorized transactions, and breach of fiduciary duty. The dispute settled for $5,000.
Michael May Investment Loss Investigation – Contact KlaymanToskes
Former customers of former Joseph Stone broker Michael May with investment losses exceeding $100,000, and those with information about how he handled accounts, is encouraged to contact Lawrence L. Klayman, Esq. at (561) 542-5131, and download our Special Investor Report.
KT is a leading national securities law firm which practices exclusively in the field of securities arbitration on behalf of retail and institutional investors throughout the world in large and complex securities matters. KT has recovered more than $225 million for investors in FINRA arbitrations. KT has office locations in California, Florida, New York, and Puerto Rico.