FINRA expels Reid & Rudiger, bars cofounders over excessive trading violations

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FINRA expels Reid & Rudiger

Highlights

FINRA expels Reid & Rudiger LLC and bars cofounders Clifford Reid and Edward Rudiger Jr. for excessive trading and churning 20 customer accounts over six years.
The misconduct generates about $2 million in commissions and trading costs and $2.7 million in customer losses, with some accounts suffering more than $345,000 and $400,000 individual losses.
Supervisors Marc Harrison and Kelli Mezzatesta receive three-month suspensions, $5,000 fines, and mandatory training for failing to detect and address red flags related to the trading violations.

Sanctions detail and misconduct findings

As reported by the FINRA, Reid & Rudiger LLC is expelled from membership and cofounders Clifford Reid and Edward Rudiger Jr. are barred from associating with any member firm for churning and excessively trading customer accounts in violation of Regulation Best Interest and FINRA rules.

FINRA says the firm and its cofounders excessively trade 20 customer accounts, several of which are also churned with intent to defraud or with reckless disregard for customers’ interests over a six-year period. The regulator says the misconduct causes about $2 million in commissions and trading costs and about $2.7 million in customer losses.

According to FINRA, both Reid and Rudiger recommend a high-volume, high-cost market-timing strategy that makes it virtually impossible for customers to earn a profit. The conduct violates the Care Obligation of Reg BI, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5, and FINRA Rules 2111, 2020 and 2010.

FINRA says the trading pattern is visible in elevated cost-to-equity ratios, a measure of the returns customers would need just to recover commissions and expenses. It cites one account with an annualized cost-to-equity ratio above 111%, another above 69% with a loss of more than $345,000, and a third above 67% with a loss of nearly $400,000.

Supervisory lapses and broader compliance impact

Separately, FINRA suspends supervisors Marc Harrison and Kelli Mezzatesta for three months in all principal capacities, fines them $5,000 each and requires 20 hours of supervision-related continuing education. The regulator says both fail to identify and investigate red flags tied to the trading activity by Reid and Rudiger.

FINRA also finds that the firm and Rudiger, as CEO, fail to establish and maintain a supervisory system reasonably designed to detect and address churning and excessive trading. In addition, the firm, Harrison and Mezzatesta do not take reasonable steps to supervise trading in affected accounts, do not consider customers’ cost-to-equity ratios and do not use available exception reports that could help flag problematic activity.

Bill St. Louis, FINRA’s executive vice president and head of enforcement, says the case underscores the self-regulator’s role in protecting retail investors from misconduct. In settling the matter, the firm and the individuals accept and consent to FINRA’s findings without admitting or denying them.

Our earlier article on the UK’s record Russia-sanctions enforcement action covered how Britain’s OFSI fined Sabre’s UK unit £1 million after it continued providing services to sanctioned Ural Airlines for months after restrictions took effect. We noted that the case reflected a tougher compliance environment, highlighting how attempts to route payments around restrictions can still amount to a sanctions breach and trigger significant penalties.

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