The Financial Industry Regulatory Authority took enforcement action against Reid & Rudiger LLC, expelling the firm and permanently barring cofounders Clifford Reid and Chief Executive Officer Edward Rudiger Jr. from association with any member firm for churning and excessively trading customer accounts. FINRA found that the firm and its cofounders excessively traded 20 customer accounts over six years, with several accounts also churned, in conduct that violated the Care Obligation under Regulation Best Interest as well as federal securities law and FINRA rules. Customers incurred about USD 2 million in commissions and trading costs and about USD 2.7 million in losses. According to FINRA, Reid and Rudiger recommended a high-volume, high-cost market-timing strategy that made it virtually impossible for customers to profit. The misconduct was reflected in very high cost-to-equity ratios, including one account that would have needed annual returns of more than 111% just to break even, and other accounts with ratios above 69% and 67% that produced losses of more than USD 345,000 and nearly USD 400,000. FINRA also found supervisory failures. The firm and Rudiger failed to establish and maintain a supervisory system reasonably designed to detect and respond to churning and excessive trading, while supervisors Marc Harrison and Kelli Mezzatesta failed to investigate red flags, did not consider customers’ cost-to-equity ratios and did not use available exception reports. Harrison and Mezzatesta were suspended for three months in all principal capacities, fined USD 5,000 each and required to complete 20 hours of supervision-related continuing education. In settling the matter, the firm, Reid, Rudiger, Harrison and Mezzatesta accepted and consented to FINRA’s findings without admitting or denying them.

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