After FINRA suspended Birkelbach Investment Securities, Inc. founder Carl Max Birkelbach for six months and fined him $25,000 for failing to supervise a broker who engaged in a series of excessive trades, he appealed the sanctions and wound up with a lifetime ban from the securities industry.
According to an SEC opinion dated July 2, 2013, Birkelbach failed to supervise broker William J. Murphy who engaged in excessive trading activity, generating commissions in excess of $1 million while placing an investor in financial jeopardy.
The findings state that Murphy additionally effected discretionary trades without written authorization from his client or firm, churned multiple customers' accounts, traded beyond approved levels including unauthorized trading and misled customers through inaccurate or unbalanced communications.
Both FINRA and the SEC charged that this excessive activity was a red flag that Birkelbach, as a supervisor, should have recognized and addressed. Instead, they say, he willfully looked the other way, thereby allowing the misconduct to continue.
The SEC stated the account associated with the $1+ million commissions was worth $1.5 million when it opened, but lost $871,000 in trades with as much as $1.2 million owed at one point in the customer's margin account.
Following a lengthy investigation, FINRA barred broker Murphy and fined him $591,933.67, an amount representative of disgorgement owed to the wronged customer. On appeal, the amount was reduced to $585,174.67, accounting for a $5,000 Illinois Securities Department fine and $1,759 that was reimbursed.
According to an Office of Hearing Officers order dated July 8, 2013, Birkelbach additionally personally effected excessive and unsuitably risky trades in several accounts whose risk tolerance was deemed "moderate" with a secondary preference of "low."
The OHO also found that Birkelbach, either directly or indirectly, "knowingly or recklessly employed a device, scheme or artifice to defraud." The OHO further stated that Birkelbach made false statements and/or omitted material facts and in doing so violated the Securities Exchange Act of 1934 and both FINRA and SEC rules.
A BrokerCheck report for Birkelbach shows that including the present action, Birkelbach had 11 customer disputes and 5 regulatory events lodged against him.
After reviewing these facts during Birkelbach's appeal of the six-month suspension, the National Adjudicatory Council increased the penalty to a lifetime bar.
The decision affirms that firms and managers have a duty and responsibility to supervise brokers, including maintaining adequate written supervisory procedures and confronting "red flags" when they appear.
If you have invested with Birkelbach Investment Securities, its founder Carl Max Birkelbach, broker William J. Murphy or with any other firm or broker that has engaged in improper trading activity—such as discretionary or unauthorized trading, providing misleading or false statements or excessive trading—and this misconduct has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.