FINRA’s Department of Enforcement investigated Bader’s alleged misconduct and determined he violated various federal securities laws in his dealings with clients. Specifically, Bader allegedly churned and excessively traded customer accounts, and recommended unsuitable investments to clients. According to FINRA, from February 2012 to July 2013, Bader recommended that three customers buy various stocks shortly before their respective earnings announcement and then sell them shortly thereafter. This was part of Craig Scott Capital’s “earnings program”. However, FINRA alleged Bader excessively and unsuitably traded those accounts in a manner that was inconsistent with those customers’ investment objectives, financial situations and needs.
In addition to excessively trading stocks, Bader also unsuitably recommended the purchase of the iPath S&P 500 VIX Short Term Futures ETN (“VXX”), which is an exchange-traded note that exposes investors to the returns of one and two-month futures contracts on the CBOE Volatility Index (the “VIX Index”). The VIXX Index is generally regarded as a bearish investment and is typically negatively correlated with overall marker returns. The VIX Index measures expectations of volatility in large cap U.S. stocks over the next 30-day period. FINRA advises that since the value of futures contracts on the VIX Index decreases over time, the VXX exchanged-traded notes will inevitably lose value over time, and should only be held for brief periods.
According to FINRA, Bader did not understand the mechanics of the VXX and had not conducted adequate due diligence to determine that the VXX was suitable at least for some investors. Bader earned approximately $31,000 in commission from the purchase and sale of the VXX to 21 Craig Scott Capital customers. Further, it is presently unclear whether any of these 21 customers suffered investment damages and losses due to their investments in the VXX.
Based upon the foregoing alleged misconduct, FINRA contends Bader violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, NASD Conduct Rule 2310, and also violated FINRA Rules 2010, and 2020 2111. For example, Section 10b-5, provides that in connection with the purchase or sale of any security, “[i]t shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange … to employ any device, scheme or artifice to defraud…” Here, Bader’s unsuitable excessive trading and churning in his customers’ accounts constitutes fraud.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you suffered investment losses and damages investing with Bader through Craig Scott Capital, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please complete the contact form below or contact one of our attorneys at (800) 627-2179 to schedule a free consultation.