Craig Scott Capital Subject Of FINRA Complaint

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Craig Scott Capital Subject Of FINRA Complaint

FINRA recently filed an amended complaint against Craig Scott Capital, LLC and its co-founders, Craig Scott Taddonio and Brent Morgan Porges, alleging, among other things, excessive trading, churning, failure to supervise.

Churning and Excessive Trading

According to the complaint, Respondents churned and excessively traded Craig Scott Capital customer accounts. They encouraged their sales team to recommend active trading in customer accounts to maximize commissions to the detriment of their customers.

FINRA claims that for nearly three years Craig Scott Capital fostered a culture of aggressive, excessive trading of customer accounts. By encouraging the firm’s representatives to recommend hundreds of short-term trades in customer accounts, the firm earned over $5 million in commissions while customers lost over $9 million dollars in losses in accounts where the annualized turnover rates were as high as over 200 and the annualized cost-to-equity ratios were as high as 800%.

Failure to Supervise

FINRA also alleged that Respondents failed to establish and enforce a reasonable supervisory system, including written supervisory procedures reasonably tailored to guard against excessive trading and churning. More specifically, the firm’s written supervisory procedures were inadequate and not tailored to its business model. Further, Taddonio and Porges routintely failed to follow up or ignored red flags of excessive trading and churning that were brought to their attention.

Instead, Craig Scott Capital allowed their brokers to trade accounts so frequently, often relying heavily on margin, that under any established metric it was nearly impossible for customers to profit in their accounts. FINRA claims that Respondents knew about but took no real steps to stop the active trading because to do so would have resulted in lower commissions and profits for them and the firm’s sales force.

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