An advisor was barred after FINRA accused him of scrubbing thousands of dollars out of his client’s account by trading Colgate-Palmolive stock without her permission.
Craig David Dima of K.C. Ward Financial cost the 73-year-old retiree $575,000 in charges and lost dividend payments by selling then buying back shares in her longtime employer, according to the regulator. Dima neither admitted nor denied the charges but consented to FINRA’s findings and accepted a permanent ban under a settlement this week.
The former Ronkonkoma, New York, broker carried out 82 unauthorized trades of Colgate stock worth $15 million between June 2010 and August 2015, according to FINRA investigators. He blamed the trades on a “computer glitch,” the regulator said.
“There is no place in this industry for brokers who take advantage of elderly customers,” acting head of enforcement Susan Schroeder said in a statement. “Protecting senior investors from predatory behavior such as unsuitable and unauthorized trading is part of our core mission and will always be a priority for FINRA.”
A CHECKERED RECORD
Dima left K.C. Ward on Feb. 21, more than six months after FINRA first made the allegations against him in its official complaint, according to BrokerCheck records.
It was not immediately clear whether the company has reimbursed the client. The settlement did not require a refund, and FINRA said in the filing this week that the company had not provided one.
Representatives for K.C. Ward did not respond to a phone call seeking comment.
Joan Hon, a lawyer who represented Dima in the proceeding, declined to comment on the particulars of the case. She did not make him available for an interview, and efforts to reach Dima directly were not successful.
Although FINRA settlements prohibit parties from speaking out publicly against the allegations in a case, Dima had initially denied them. He said his former client’s portfolio had more than doubled in value under his management, according to BrokerCheck.
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The self-regulator is modifying its much-maligned process, addressing transparency and arbitrator qualifications, among other concerns.
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The regulator said "significant deficiencies" affected hundreds of millions of records.
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Dima’s record shows a dozen disclosures over a 21-year career at 18 different firms, five of which the regulator has subsequently expelled from the industry. He has also paid over $108,000 in other settlements, fines and one tax lien through the years.
The regulator plans to ramp up scrutiny of bad brokers and electronic communications, among other new measures.
TRADING FOR FEES, NOT FREE
The victim opened her first account with Dima in 2006, following him to K.C. Ward in 2009, according to investigators. Dima started an IRA for her with K.C. Ward, using the 7,543 Colgate shares she had amassed during her 28 years with the company, investigators said.
The client became Dima’s largest account with K.C. Ward, representing about 80% of his overall commissions, documents from the investigation show.
His unauthorized trades led to $372,000 in markup and markdown fees, $4,000 in ticket charges and trading losses of $72,000, according to FINRA. The round-trip trades also caused the client to lose out on $127,000 in dividend payments, the regulator said.
Dima claimed that either K.C. Ward or its clearing firm, RBC Capital Markets, made a mistake whenever his client questioned him about the trades, according to FINRA. (Neither RBC nor Palmolive, her longtime employer, responded to requests for comment Wednesday.)
If Dima had refrained from the trading maneuvers and reinvested the dividends, his client’s position in Colgate would have been worth over $1.1 million by November 2015, investigators said. Instead, the value of the shares fell to $816,000, according to investigators.
REFUND QUESTIONS
Dima promised the victim that his company would pay her back, FINRA said. The regulator had originally accused Dima of securities fraud and demanded that he “discharge fully any and all ill-gotten gains and/or make full and complete restitution, together with interest.”
The settlement, though, omitted any refund or mention of the Securities Exchange Act. It alleged that Dima violated a FINRA rule against fraudulent misrepresentations to clients. The regulator also accused him of unauthorized trading, unsuitable recommendations and excessive markups or markdowns.
FINRA may still order further sanctions, including reimbursement, against K.C. Ward, and the regulator refers to a permanent ban as its harshest punishment.
A spokeswoman for the agency said she was unable to comment beyond the publicly released settlement. A spokesman for the U.S. Attorney’s Office for the Eastern District of New York, which covers Long Island, said he had no comment on any possible criminal case against Dima.
