FINRA’s Department of Enforcement investigated Torres’ alleged misconduct and determined he violated various federal securities laws in his dealings with clients. Specifically, Torres made material misrepresentations, churned and excessively traded customer accounts, and recommended unsuitable investments to clients.
With respect to misrepresentations, FINRA alleged Torres recommended to customers that they invest in junk bonds that were trading at substantial discounts to par value, and then “made baseless predictions that the bonds would be called or bought back at par.” FINRA also alleged Torres churned and excessively traded numerous customer accounts over which he exercised de facto control in order to generate commissions and markups.
Based upon the foregoing alleged misconduct, FINRA contends Torres violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and also violated FINRA Rules 2020 and 2010. 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, Torres’ unsuitable excessive trading and churning in the Sixth Avenue Branch’s customer accounts constitutes fraud.
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