Broker-Dealer Litigation - Greenberg Traurig LLP

Aura’s Written Supervisory Procedures (“WSP”) required “immediate attention” to
customer accounts having turnover ratios greater than six, and “further review” of accounts
having such ratios greater than two and less than or equal to six.
Blum failed reasonably to supervise the representative based on a variety of findings,
including that the customer’s turnover rates and cost to equity ratios increased over time and
were reported in reports provided to Blum. Further, while Blum sent out active account letters
after receiving the quarterly compliance reports, evidence indicated that sometimes the letters
were returned signed but not completed. Moreover, Blum treated the letters as “negative
response letters,” such that if no response was received, he assumed that the customer approved
of the trading. He relied on the representative to follow-up with customers who did not return
the letter. In the face of these red-flags, and additional red-flags in the form of customer
complaints concerning the representative, the SEC found that Blum failed reasonably to
supervise the representative within the meaning of Section 15(b)(4)(E) of the Exchange Act.
As a result, Blum consented to a bar from association in a supervisory capacity with any
broker, dealer, investment adviser, municipal securities dealer, or transfer agent, with the right to
reapply for association after two (2) years. In addition, Blum agreed to pay disgorgement of $
4,753, plus prejudgment interest, and a civil penalty of $10,000.
Respondent Bellia was the owner of Aura’s branch office in Islandia, New York and
served as its branch manager. During his association with Aura, Bellia was under heightened
supervision due to a prior FINRA disciplinary action involving failing to supervise registered
representatives at another broker-dealer. Bellia was responsible for supervision of two
representatives, one of which was under heightened supervision. Bellia received quarterly
reports showing that certain customers of one of the representatives had annualized turnover
rations of between 20 and 94, and cost to equity rations of 87% to 2058%. Two customers of the
other representative had annualized turnover rates of 40 and 59 and cost to equity ratios of 144%
and 418%, respectively, according to reports that were reported to Bellia. In addition, to these
significant indications of churning, all these customers had their accounts aggressively traded by
the representatives, contrary to their risk tolerance and investment objectives.
The SEC found that despite Aura’s requirements for dealing with the extreme ratios
present in these accounts, Bellia and Aura were only able to produce a small number of Active
Account Letters. In addition, Bellia failed to track whether the letters were returned, and when
they were not, merely directed the representative to contact the customers. The SEC found that
the failure to contact the first representative’s customers was “particularly egregious” because he
was under heightened supervision, and had been subject to numerous current customer
complaints.
Bellia consented to findings that he failed reasonably to supervise the representatives
within the meaning of Section 15(b)(4)(E) of the Exchange Act. As a sanction, Bellia consented
to a bar from association in any capacity with any broker, dealer, investment adviser, municipal
securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating
organization, as well as a penny stock bar, and agreed to pay disgorgement of $ 5,959 and
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