the staff of the Ridgewood blog
Red Bank NJ, Attorney General Gurbir S. Grewal today announced several actions by the New Jersey Bureau of Securities in its ongoing investigation of the now-defunct First Standard Financial Company, LLC, of Red Bank, a broker-dealer whose agents defrauded customers as part of an excessive trading scheme.
Earlier this month, First Standard agreed to relinquish the lion’s share of its liquid assets – about $400,000 – to provide restitution to investors. The Bureau previously revoked First Standard’s broker-dealer registration after finding that First Standard was complicit in its agents’ unlawful conduct, and took action against a number of the agents individually.
In addition, the Bureau today revoked the registrations of two more agents who participated in the scheme, including the firm’s top agent. The two agents were also collectively assessed more than $1 million in civil penalties for their roles in the scheme.
Andre P. Davis, of Freehold, who at one time generated nearly a quarter of First Standard’s revenues, had his registration summarily revoked and was assessed a $1 million civil penalty. Frank Venturelli, of Brooklyn, also had his registration revoked and was assessed $120,000 in civil penalties.
“New Jersey’s Bureau of Securities is committed to protecting investors,” said Attorney General Grewal. “When unscrupulous broker-dealers and their corrupt agents cheat customers out of their life savings, we will hold every last one of them accountable.”
According to the Bureau’s findings, First Standard routinely hired agents with a history of customer complaints and regulatory problems involving excessive, unsuitable, and unauthorized trading. First Standard and these agents then defrauded the firm’s clients through unsuitable and frequently unauthorized “in-and-out trading” of a single security over a short period for the purpose of generating sales commissions at their clients’ expense. This included short-term trading in bonds and other securities for which active trading is unsuitable.
The Bureau found that Davis and Venturelli violated the New Jersey Securities Law by fraudulently engaging in unsuitable, high-cost, excessive trading strategies that generated commissions and fees for themselves and First Standard, while simultaneously causing huge losses for their customers. Among their unsuspecting customers were farmers, electricians, and truck drivers, often retired or nearing retirement, who had trusted the agents with their life savings.
Davis and Venturelli’s trades were made on behalf of customers in commissioned-based accounts, meaning that the agents and First Standard were paid commissions on each trade (both purchases and sales) that they executed on the customers’ behalf. This trading strategy reduced the potential gains of any profitable trades and exacerbated the losses on unprofitable trades. It also caused the customers’ accounts to generate exorbitant transaction costs and fees that far exceeded any benefit to the customers.
Despite the harmful impact to his customers, between January 2016 and May 2019, Davis benefited by generating at least $7.5 million in commissions and fees for himself, First Standard, and the other First Standard agents with whom he shared accounts. These commissions and fees represented almost a quarter of First Standard’s total revenue during the same period.
“Instead of fulfilling its responsibility to supervise its agents to ensure they were complying with securities laws, First Standard reaped the illicit revenues from their unlawful conduct,” said Paul R. Rodríguez, Director of the Division of Consumer Affairs. “As this case demonstrates, brokerage firms cannot close their eyes to the fraudulent activities of their agents and expect to avoid the consequences.”
“These agents, like many others on First Standard’s roster, took advantage of unsophisticated and novice investors, some of whom trusted them with their life savings and retirement,” said Christopher W. Gerold, Chief of the Bureau of Securities. “This kind of predatory conduct will not be tolerated in New Jersey. With every new action, we demonstrate that we will not only target rogue firms, but also those individuals who are responsible for the actions of those rogue firms.”
Davis and Venturelli are just the latest First Standard agents to have their registrations revoked in connection with pervasive illegal trading activities at First Standard that unjustly enriched the firm and its agents at the expense of their customers.
The Bureau has also taken action against other First Standard agents for excessive, unsuitable trading activities:
In February 2020, the Bureau denied and revoked the registration of former First Standard agent Jeffrey Broten and assessed him $100,000 in civil penalties.
In October 2019, the Bureau revoked the registration of First Standard agent Philip J. Sparacino, who was the last producing agent at First Standard, and assessed him $250,000 in civil penalties.
In May 2019, the Bureau revoked the registration of former First Standard agent Gabriel Block and assessed him $750,000 in civil penalties.
Deputy Bureau Chief Amy Kopleton, Director of Examinations Stephen Bouchard, and Investigators Perry Traina, Dorian Gross, and Judith Keilp investigated the matter for the Bureau. Assistant Attorney General Brian F. McDonough, Deputy Attorneys General Alex Schmidt, Andrew H. Yang, and H. Onno Chekemian of the Securities Fraud Prosecution Section within the Division of Law’s Affirmative Civil Enforcement Practice Group represented the Bureau in these matters.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors “Check Before You Invest.” Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contracting the Bureau toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at 973-504-3600, or by visiting the Bureau’s website. Investors can also contact the Bureau for assistance or to raise issues or complaints about New Jersey-based financial professionals or investments.