In the Matter of Department of Enforcement v. Alan Jay Davidofsky
Financial Industry Regulatory Authority National Adjudicatory Council
Complaint No. 2008015934801 (2013)
- Written by Sharon Feldman, JD
Facts
Alan Davidofsky (defendant) was a registered representative associated with Oppenheimer & Co., Inc. (Oppenheimer), a broker-dealer and member firm of the Financial Industry Regulatory Authority (FINRA). Oppenheimer had given Davidofsky a signing bonus of a five-year forgivable loan, a portion of which was forgiven each month that Davidofsky remained with Oppenheimer. After two years, Davidofsky began to have financial problems. Oppenheimer agreed to approve Davidofsky’s bankruptcy plan and continue Davidofsky’s employment if Davidofsy maintained certain commission levels and did not seek to discharge Oppenheimer’s loan. Davidofsky began managing JL’s retirement account. JL had limited investment experience, annual income of $50,000, and a total net worth of about $300,000. JL’s account-information form described her investment objectives as conservative with respect to current income and capital appreciation. JL’s account had minimal activity and an average monthly balance of $127,000 and held positions in mutual funds, corporate bonds, and one individual stock. Davidofsky reviewed the account activity and implemented a revised trading strategy. Davidofsky discussed the revised strategy with JL, but JL did not authorize him to implement it. Over a 10-month period, Davidofsky executed 104 transactions in 38 different securities in JL’s account and traded in and out of various securities. A sales assistant changed the investment objectives on JL’s account-information form to aggressive with respect to current income and capital appreciation and indicated that JL had approved the use of short-term trading. JL did not initiate or approve the changes. Davidofsky’s transactions in JL’s account amounted to over $1.4 million. The account lost 90 percent of its value. The annualized turnover ratio was 10.89, and the annualized cost-to-equity ratio was 44.86 percent. Davidofsky earned nearly $12,000 in commissions from the account. After the market declined, JL reviewed her account statements and filed a complaint with Oppenheimer. FINRA’s enforcement department filed a complaint against Davidofsky, and a hearing panel found that Davidofsky engaged in unauthorized trading, excessive trading, and churning in violation of National Association of Securities Dealers (NASD) rules and the antifraud provisions of the securities laws. Davidofsky appealed.
Rule of Law
Issue
Holding and Reasoning ()
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