The New Jersey Bureau of Securities isn’t done with the now-defunct First Standard Financial Company LLC of Red Bank, a broker-dealer that agreed to relinquish the lion’s share of its liquid assets earlier this month after agents allegedly defrauded customers as part of an excessive trading scheme.
Attorney General Gurbir Grewal announced Tuesday that the Bureau revoked the registrations of two agents who participated in the scheme, including the firm’s top agent. Both agents were collectively assessed more than $1 million in civil penalties for their roles in the scheme, Grewal announced.
First Standard agreed earlier in December to relinquish about $400,000 to provide restitution to investors. First Standard’s broker-dealer registration was revoked after the Bureau found that First Standard was complicit in its agents’ unlawful conduct.
Andre 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 had his registration revoked and was assessed $120,000 in civil penalties.
“New Jersey’s Bureau of Securities is committed to protecting investors,” said Grewal in a prepared statement. “When unscrupulous broker-dealers and their corrupt agents cheat customers out of their life savings, we will hold every last one of them accountable.”
The Bureau found in its investigation that First Standard often hired agents with a history of customer complaints and regulatory problems involving excessive, unsuitable, and unauthorized trading. Then, First Standard and these agents defrauded 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, the Bureau found, which included short-term trading in bonds and other securities for which active trading is unsuitable.
Davis and Venturelli violated the New Jersey Securities Law by fraudulently engaging in high-cost, excessive trading strategies that generated commissions and fees for themselves and First Standard while also causing great losses for their customers including farmers, electricians, and truck drivers, often retired or nearing retirement and trusting the agents with their life savings.
Davis, Venturelli, and First Standard were paid commissions on each trade that they executed on the customers’ behalf, reducing the potential gains of any profitable trades and exacerbated the losses on unprofitable trades. Additionally, it caused the customers’ accounts to generate transaction costs and fees that exceeded any benefit to the customers.
While his customers were suffering, Davis generated at least $7.5 million in commissions and fees for himself, First Standard, and other First Standard agents between Jan. 2016 and May 2019. These commissions and fees represented almost a quarter of First Standard’s total revenue during the same period, the Bureau found.
“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 Rodríguez, Director of the Division of Consumer Affairs in a prepared statement. “As this case demonstrates, brokerage firms cannot close their eyes to the fraudulent activities of their agents and expect to avoid the consequences.”
Davis and Venturelli are just the latest First Standard agents to have their registrations revoked in connection with pervasive illegal trading activities. In Feb. 2020, the Bureau denied and revoked the registration of former First Standard agent Jeffrey Broten and assessed him $100,000 in civil penalties; revoked the registration of First Standard agent Philip Sparacino in Oct. 2019 and assessed him $250,000 in civil penalties; and revoked the registration of former First Standard agent Gabriel Block in May 2019 and assessed him $750,000 in civil penalties.
“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 Gerold, chief of the Bureau of Securities in a prepared statement. “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.”