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FINRA Suspends Ex-Rep Over Regulation Best Interest Violations

The Financial Industry Regulatory Authority (FINRA) has suspended broker Joseph Desapio for 15 months due to violations of Regulation Best Interest (Reg BI). Desapio’s misconduct involved recommending unsuitable trades in four accounts held by three customers, one of whom was over 70 years old. This case underscores the critical role of compliance with Reg BI and the importance of safeguarding investors’ interests. At Bakhtiari & Harrison, our securities attorneys are dedicated to helping clients navigate such regulatory challenges.

Background of the Case

From June 2017 through June 2021, Joseph Desapio recommended “quantitatively unsuitable trades” in four accounts. During this period, he was registered as a general securities representative (GS) through Spartan Capital Securities LLC. His actions resulted in excessive trading, leading to high turnover rates and cost-to-equity ratios that significantly exceeded traditional benchmarks of six and 20 percent, respectively.

Unsuitable Recommendations and Excessive Trading

Desapio’s clients included a 58-year-old paralegal, a 57-year-old widowed yoga instructor, and a 71-year-old insurance agent. These customers relied heavily on Desapio’s advice and routinely followed his recommendations, giving him de facto control over their accounts. As a result, Desapio’s trading generated substantial costs and losses for his clients, which were not aligned with their investment profiles.

For example, in the 71-year-old insurance agent’s account, Desapio recommended 131 transactions, leading to an annualized turnover rate of 12 and an annualized cost-to-equity ratio of 72%. The total trading costs in this account amounted to $27,527, including $19,778 in commissions, and resulted in $24,454 in realized losses.

Additional Violations and Termination

In addition to the unsuitable trading practices, Desapio borrowed $20,000 from one of his customers in September 2019 without Spartan’s prior approval, violating FINRA Rules 3240 and 2010. Spartan Capital Securities filed a Uniform Termination Notice for Securities Industry Registration (Form U5) on July 27, 2022, terminating Desapio’s registration. The Form U5 noted that an arbitration had been filed against Desapio, alleging that he borrowed money and executed a promissory note for funds from a customer, and that he owed the firm $22,992.38.

Although Desapio is no longer registered or associated with a FINRA member firm, he remains subject to FINRA’s jurisdiction.

Ensuring Compliance with Reg BI

The suspension of Joseph Desapio highlights the importance of adhering to Reg BI, which requires brokers to act in the best interest of their clients when making investment recommendations. At Bakhtiari & Harrison, our securities attorneys are committed to helping financial professionals understand and comply with regulatory requirements to protect their clients and their careers.

Key Takeaways for Financial Professionals

  1. Understand Client Profiles: It is crucial to fully understand the investment profiles of your clients and ensure that all recommendations align with their financial goals and risk tolerance.
  2. Avoid Excessive Trading: Excessive trading can lead to high costs and losses that are not in the best interest of clients. It is essential to maintain reasonable turnover rates and cost-to-equity ratios.
  3. Adhere to Borrowing Rules: Always seek prior approval from your firm before borrowing money from clients to avoid violations of FINRA rules.
  4. Document and Review: Maintain thorough documentation of all client interactions and review recommendations regularly to ensure compliance with Reg BI and other regulatory standards.

Contact Bakhtiari & Harrison for Expertise in FINRA Matters 

If you are a financial professional seeking guidance on compliance with Reg BI or facing regulatory challenges, contact Bakhtiari & Harrison. Our team of experienced securities attorneys is dedicated to providing the support and representation you need to navigate these complex issues. Visit our website or call us today to learn more about our services and how we can assist you.