New York-based brokerage Joseph Stone Capital LLC has been fined $1m by US regulator FINRA after it was found to have excessively traded some customers’ accounts. Eight current or former representatives of the firm have been suspended and required to pay restitution to the customers concerned, three supervisors suspended for “failing to reasonably identify or respond to red flags of excessive trading”, and two representatives barred for refusing to cooperate with the investigation.

The firm has been ordered to pay $825,000 to affected customers, with the eight suspended reps made liable for a further $211,000. The individuals agreed to FINRA publishing its findings while neither admitting nor denying the charges.

“Firms must ensure that they establish systems and procedures to supervise recommendations to retail customers; supervisors must use available tools to identify and address red flag of excessive trading; and representatives must ensure that the costs and commissions they charge are reasonable and not excessive,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement.

FINRA found that the firm failed to implement a supervisory system on 25 accounts between January 2015 and June 2020. Excessive trading was highlighted by Joseph Stone’s clearing firm, but the principal responsible rarely reviewed reports. In several cases, the firm responded to red flags on excessive trading by prospectively restricting the commission that could be charged for certain trades. But it did not restrict the number of trades that could be made or the aggregate commissions that could be charged.

Customers incurred approximately $1m in commissions and other trading costs, with trading in some of the accounts generating cost-to-equity ratios of between 21% and 96%. That ratio is the amount by which the account would need to increase in value to cover commissions and other trading expenses.