J.P. Morgan announced this week that it had terminated broker Trevor Rahn. Mr. Rahn’s U5 language, the regulatory filing made to the Financial Industry Regulatory Authority (“FINRA”) associated with any termination, stated the reason for termination as “unacceptable practices” related to the “timing and size of orders entered and resulting transaction charges in a client account.” This practice is referred to as “churning,” in the industry, when a broker repeatedly buys and sells securities in a clients account, not for strategic purposes in the interest of the client, but to generate fees and commissions.
J.P. Morgan reported Mr. Rahn’s date of termination as September 17, 2018. Mr. Rahn was terminated more than three months after reaching a settlement with a Tracey Dewart who filed a complaint against Mr. Rahn and J.P Morgan for the excessive fees charged to her elderly fathers account. Ms. Stewart, using a forensic accountant, found that Mr. Rahn had charged her father approximately $128,000 in commissions, in one year, on an account of approximately $1.2 million. Wealth management fees and commission fees are rarely supposed to exceed 2%, by industry standards, and FINRA has very specific rules regarding fee ratios to account size and profit. Mr. Rahn’s yearly fees exceeded 10% of the total account value.
Broker-dealers, especially large wire houses like J.P. Morgan, are intended to have compliance software that screens customer accounts for excessive churning. It is unknown why such flagrant activity by Mr. Rahn was not detected earlier. According to Ms. Stewart, there was irregular activity in her fathers account going back years. J.P. Morgan settled this churning case, and then continued to allow Mr. Rahn to trade customer accounts for three months before terminating him, a timeline that regulators may take issue with due to the possibility of members of the public being further exposed to Mr. Rahn’s sales practice abuses.