Spartan Capital Securities: FINRA Files Fraud Allegations

Spartan Capital Securities (CRD# 146251) allegedly engaged in a years-long fraud in which it “defrauded customers by engaging in widespread churning, generating millions in revenue and causing customers millions in harm,” according to a complaint filed by the Financial Industry Regulatory Authority. In addition to the firm, the enforcement action also names as respondents the following representatives and/or executives: Kim Monchik (CRD# 2528972), Frederick Cammarano (CRD# 2277307), James Pecoraro (CRD# 2440231), John Stapleton (CRD# 2791194), and Michael Darvish (CRD# 3243141).

Not only does FINRA’s complaint allege that Spartan Capital orchestrated this fraud over a period of four years, it alleges further that the firm’s “business model depended on this misconduct – approximately two-thirds of the firm’s trading revenue and one-third of its overall revenue, more than $46 million in 2 total, was generated from more than 1,200 accounts with a cost-to-equity ratio greater than 20% from January 2018 to April 2022.” Dozens of representatives allegedly churned 114 accounts, resulting in trading costs of almost $10 million and investment losses of nearly $8 million. Of those 114 accounts, per FINRA, 53 belonged to senior customers.

The firm’s alleged churning and excessive trading violated FINRA rules as well as the SEC’s Regulation Best Interest, according to FINRA. The complaint asserts that Monchik, the firm’s Chief Administrative Officer and at times its Chief Compliance Officer, as well as Camarano, its Regional Branch Manager and the supervisor of many representatives described in the complaint, “ignored numerous red flags of excessive trading and churning in hundreds of Spartan customer accounts.” These red flags included high turnover rates, frequent use of margin, and “representatives who were experiencing significant financial pressures and who were the subject of customer complaints.”

The complaint alleges further that the firm allowed its representatives to conduct excessive trading in customer accounts even when it received complaints or regulatory inquiries about the allegedly excessive trading in customer accounts. It also notes that in2020 the firm placed Pecoraro under a heightened supervision plan as a result of his “extensive regulatory history,” which included customer complaints and allegations of churning, as well as a FINRA enforcement action over allegations of excessive trading. Even while under heightened supervision, according to FINRA, he “o excessively traded eight customer accounts at issue in this Complaint, resulting in cost-to-equity ratios ranging from 53% to 167%, turnover rates ranging from 8 to 27, total trading costs of approximately $440,000, and total realized losses of approximately $340,000.” Spartan then ended his heightened supervision in September 2021.

FINRA has requested various forms of relief in its complaint against Spartan Capital Securities and the named respondents, including sanctions and the disgorgement of ill-gotten gains. More information on the action can be found in the complaint itself.