Coastal Equities, Inc.
Background Of Coastal Equities, Inc. (CRD No. 23769)
Coastal became a FINRA member in 1989 and conducts a general securities business.
The Firm is headquartered in Wilmington, Delaware, and has 104 registered
representatives across 50 branches.
Respondent does not have any relevant disciplinary history with the Securities and
Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization.
Activity(s) Reported – Coastal Equities, Inc.
A. Applicable Law
FINRA Rule 3110 requires that a member firm take reasonable steps to: ensure that the
activities of each registered representative comply with applicable securities laws,
regulations, and FINRA rules; investigate red flags of potential misconduct; and take
reasonable action when misconduct has occurred. A violation of FINRA Rule 3110 is
also a violation of FINRA Rule 2010, which requires FINRA members to “observe high
standards of commercial honor and just and equitable principles of trade.”
FINRA Rule 2111 requires member firms or their associated persons to have a reasonable
basis to believe that a recommended securities transaction or investment strategy is
suitable for a customer, based on information obtained through the reasonable diligence
of the firm or associated person to ascertain the customer’s investment profile. A
customer’s investment profile includes, but is not limited to, the customer’s age, other
investments, financial situation and needs, investment objectives, investment experience,
investment time horizon, liquidity needs, and risk tolerance.
Recommended securities transactions may be unsuitable if, when taken together, they are
excessive and the level of trading is inconsistent with the customer’s investment profile.
No single test defines when trading is excessive, but factors such as the turnover rate and
the cost-to-equity ratio may provide a basis for finding that a member firm or associated
person has violated FINRA’s suitability rule. Turnover rate represents the number of
times that a portfolio of securities is exchanged for another portfolio of securities. The
cost-to-equity ratio measures the amount an account has to appreciate just to cover
commissions and other expenses; in other words, it is the break-even point where a
customer may begin to see a return. A turnover rate of 6 or a cost-to-equity ratio above
20% generally indicates that excessive trading may have occurred.
In addition, recommendations to use margin to purchase securities may be unsuitable if
the use of margin is inconsistent with the customer’s investment profile. Indeed, trading
on margin increases the risk of loss because a customer may lose more than the amount
invested and also requires the customer to pay interest on a margin loan, thereby
increasing the amount the investment must appreciate before realizing a net gain.
B. Coastal’s Failure to Reasonably Supervise Representative SA
From October 2016 to July 2018, Coastal failed to reasonably supervise registered
representative SA. SA’s supervisor became aware of multiple indicia that SA was
recommending excessive and unsuitable trading in the accounts of four customers, and
that SA was making unsuitable recommendations to purchase securities using margin in
the accounts of two of those customers. The Firm failed to reasonably respond to these red flags.1
SA was registered through Coastal from September 2015 to July 2018. During this
period, Coastal supervised securities recommendations, including those of SA, primarily
through the review of daily trade blotters. Those blotters showed each trade entered by
each representative, including SA, as well as the turnover rate and the amount of
commissions charged to each account for the preceding 12-month period. Supervisors
also would, at times, calculate the cost-to-equity ratio for certain accounts.
In September 2016, Coastal, through daily trade blotter review by SA’s immediate
supervisor, became aware that SA had recommended frequent transactions in preferred
stock that resulted in significant losses in the account of one customer. SA’s supervisor
Coastal thereafter sampled other customer accounts of SA and identified additional
accounts showing indicia of potential excessive trading. When asked about this trading,
SA claimed that the customers approved of his trading strategy. Coastal accepted that
explanation at face value and as a result took no further steps at that time.
Following that initial supervisory meeting with SA, starting in October 2016, Coastal,
through supervisory review of the daily trade blotter, was on notice of additional red flags
that SA was recommending unsuitable and excessive trading in the accounts of four
customers, and that that he was making unsuitable recommendations to purchase
securities using margin in two of those customers’ accounts. Each customer was a retired,
senior investor with moderate risk tolerance, and a summary of SA’s securities
recommendations to those customers is set forth below.
• Customer 1 was 75 years old as of January 1, 2017, and had two accounts at
Coastal, one of which was an individual retirement account. Both accounts had a
moderate growth objective. From October 2016 to July 2018, SA recommended
more than 100 trades in Customer 1’s accounts, resulting in commissions totaling
$84,525 during this time period.
• Customer 2 was a married couple, both of whom were retired and living on a
fixed income, as of January 1, 2017. They had a joint account at Coastal, which
reflected a long-term growth objective. From October 2016 to April 2017, SA
recommended 65 trades in Customer 2’s account, including recommendations to
purchase securities using margin. The commissions charged to Customer 2’s
account during this time period were $97,587; the account also incurred $11,845
in margin interest. SA’s recommendations concerning the use of margin were not
suitable for Customer 2 given the couple’s investment profile, particularly their
investment objectives and risk tolerance.
• Customer 3 was 91 years old as of January 1, 2017. Customer 3 was living on a fixed income and his new account paperwork listed his annual income and other
investments as less than $50,000. He had an individual account at Coastal with a
moderate growth and income objective. From October 2016 to July 2018, SA
recommended 31 trades in Customer 3’s account, resulting in $61,657 in
commissions. The account also incurred $580 in margin interest. SA’s
recommendations concerning the use of margin were not suitable for Customer 3
in light of his investment profile, particularly his limited resources to meet any
potential margin call and moderate investment objective and risk tolerance.
• Customer 4 was 82 years old as of January 1, 2017, and had one account at
Coastal with a moderate growth and income objective. SA recommended 39
trades in Customer 4’s account from October 2016 to December 2017, resulting in
$14,126 in commissio
1 In March 2019, SA entered into an AWC in which he agreed to a bar from associating with any FINRA member firm in any capacity for his failure to appear and provide on-the-record testimony in connection with FINRA’s investigation of, inter alia, his recommendations of excessive and unsuitable trading, including his recommendations involving the use of margin.
From October 2016, the Firm’s daily trade blotter showed SA’s frequent trading and the
correspondingly high turnover rates and commissions in the accounts of Customers 1
through 4. The turnover rate for each of the four customers’ accounts was well over 6,
while the cost-to-equity ratio was in excess of 20%, which, as noted above, are
benchmarks indicating potential excessive trading. In certain of the accounts, the turnover
ratio exceeded 20 and the cost-to-equity ratio exceeded 50%.
Additionally, in August 2017, the Firm began utilizing exception reports from its clearing
firm as a part of its supervisory system. Those exception reports included a report for
accounts with turnover rates over 6 and a report for accounts with margin-to-equity ratios
over 50%. Each of the five accounts of Customers 1 through 4 generated multiple
turnover exceptions, and Customer 3’s account generated two margin exceptions.
Despite these red flags, from October 2016 through December 2017, no one at Coastal
reviewed the accounts of Customers 1 through 4 to determine whether SA’s
recommendations were suitable, questioned SA about the trading in any of his customer’s
accounts, contacted any of SA’s customers, or took any steps to reduce the commissions
that SA was charging his customers or the frequency with which SA was recommending
securities transactions. In December 2017, Coastal suggested that SA move some actively
traded accounts to fee-based accounts, and in February 2018, Coastal began sending
activity letters to some of SA’s customers. Nonetheless, SA continued to recommend
excessive trading and/or unsuitable use of margin to certain customers. In April 2018,
Coastal sent SA a letter of admonishment, which SA did not sign until June 2018.
Effective May 30, 2018, Coastal limited the commissions SA could charge to his
customers’ accounts. SA left Coastal in July 2018.
The Firm’s failure to investigate and reasonably respond to the red flags of SA’s
unsuitable recommendations and to take reasonable action in response to those red flags
allowed SA to solicit trading that resulted in Customers 1 through 4 paying $257,895 in commissions and $12,425 in margin interest during the relevant period.
2 As a result of the foregoing, Respondent violated FINRA Rules 3110 and 2010.
2 This AWC requires Coastal to pay as restitution the commissions charged to Customers 1 through 4 as a result of SA’s excessive trading, as well as the margin interest charged to Customers 2 and 3 as a result of SA’s unsuitable recommendations concerning the use of margin.
3 Pursuant to the General Principles Applicable to all Sanctions Determinations contained in the Sanction Guidelines, FINRA imposed no fine against Coastal in this case, and agreed to assess interest on the restitution owed at a rate below that set forth in Section 6621(a)(2) of the Internal Revenue Code, after it considered, among other things, the Firm’s revenues and financial resources, as well as its agreement to pay full restitution (with partial interest) to the affected customers. See Notice to Members 06-55
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Penalties And Sanctions
A censure; and Restitution in the amount of $270,320, plus interest in the Amount of $9,588.80
Restitution is ordered to be paid to the customers listed on Attachment A hereto in the
total amount of $270,320, plus interest in the amount of $9,588.80.
A registered principal on behalf of Respondent Firm shall submit satisfactory proof of
payment of restitution and pre-judgment interest (separately specifying the date and
amount of each paid to each customer listed on Attachment A) or of reasonable and
documented efforts undertaken to effect restitution. Such proof shall be submitted by
email to En***************@FI***.orgfrom a work-related account of the registered
principal of Respondent Firm. The email must identify the Respondent and the case
number and include a copy of the check, money order or other method of payment. This
proof shall be provided by email to En***************@FI***.orgno later than 120
days after acceptance of the AWC.
If for any reason Respondent cannot locate any customer identified in Attachment A after
reasonable and documented efforts within 120 days from the date the AWC is accepted,
or such additional period agreed to by a FINRA staff member in writing, Respondent
shall forward any undistributed restitution and interest to the appropriate escheat,
unclaimed property or abandoned property fund for the state in which the customer is last
known to have resided. Respondent shall provide satisfactory proof of such action to the
FINRA staff member identified above and in the manner described above, within 14
calendar days of forwarding the undistributed restitution and interest to the appropriate
state authority.
Respondent specifically and voluntarily waives any right to claim an inability to pay, now
or at any time hereafter, the monetary sanction imposed in this matter.
The imposition of a restitution order or any other monetary sanction herein, and the
timing of such ordered payments, does not preclude customers from pursuing their own
actions to obtain restitution or other remedies.
Restitution payments to customers shall be preceded or accompanied by a letter, not
unacceptable to FINRA staff, describing the reason for the payment and the fact that the
payment is being made pursuant to a settlement with FINRA and as a term of this AWC.
As noted above, pursuant to the General Principles Applicable to all Sanction
Determinations contained in the Sanction Guidelines, FINRA imposed no fine against the
Firm in this case after it considered, among other things, the Firm’s revenues and
financial resources. See Notice to Members 06-55.
Recent Activity(s)Of The Individual/Firm
From October 2016 to July 2018, Coastal failed to reasonably supervise a registered
representative, SA, who recommended excessive and unsuitable trades in the accounts of
four customers. Coastal became aware of numerous red flags that SA was making
unsuitable recommendations but failed to take reasonable action to investigate them.
As a result of the foregoing, Coastal violated FINRA Rules 3110 and 2010.
How To Spot A Fraud Finance Advisor (Infographic)
Help For Victims Of Coastal Equities, Inc.
If you have lost funds because of misrepresentation, unsuitable investment, or unsuitable investment strategy from Coastal Equities, Inc.. Then you can take legal action and get justice. Fraud, Malpractice & dereliction of duty should not be taken lightly, especially in this industry. We highly suggest that you notify authorities or seek legal action if your financial advisor or brokerage firm fails to abide by FINRA’s rules are regulations.
Check out the review for: HotForex
Financial advisors are regulatory & legally obligated to suggest (recommend) the most suitable investments/investment strategies to their clients. Their suggestions should have their client’s best interests and should be appropriate for their client’s goals and needs. Similarly, the brokerage firm which hires financial advisors also has a regulatory & legal obligation to keep a close watch and supervise their Financial Advisors’ practices & behavior. They need to make sure that the financial advisor is not being manipulative or having an unreasonable bias towards certain investments. If the financial advisor and/or the brokerage firm breaches these duties, then the client/customer may be entitled to a full or partial recovery of their losses.
Financial advisors need to have the interest of their clients when giving suggestions related to investments and investment strategies. Reasonable basis suitability requires the advisor to do their best to analyze & identify the risks and rewards associated with their suggested investment and/or investment strategy.
Richard Michael Wesselt
Bill Grous
Dr. Henrique Duck, PhD in Media Studies and Critical Theory, specializes in writing detailed critics stories and reviews. He has contributed to prominent newspapers and websites, providing insightful analysis of media content and its effects on society.
Violates federal and state laws that prohibit unsolicited and unwanted telephone sales calls.