Initiated By
FINRA
Allegations
Beyn was named a respondent in a FINRA complaint alleging that he excessively traded and churned customers' accounts and as a result of his churning, Beyn willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and FINRA Rules 2020 and 2010. The complaint alleges that Beyn aggressively traded his customers' accounts without regard to the suitability of his recommended trading. While some of Beyn's customers listed -speculative- as the investment objective on new account forms, Beyn traded actively even in instances when his customers did not identify on new account forms that they had a speculative investment objective. Beyn implemented this aggressive active trading in the accounts of the customers. Beyn used a short-term trading strategy in the customers' accounts as a means to turn over the accounts quickly and generate outsize commissions for himself and his member firm. To do this, Beyn relied heavily on buying and selling equities of companies releasing their earnings reports as a catalyst for excessively trading accounts. Based on the level of trading and commissions charged, there was little to no possibility that the customers would profit from such trading. The churning and excessive trading in the accounts of the customers resulted in annualized turnover rates as high as 188 and annualized cost-to-equity ratios as high as 573 percent. Beyn made the recommendations for the customers' accounts. The overwhelming majority of the trades in the customers' accounts were marked solicited. Beyn, with scienter, engaged in a manipulative, deceptive and fraudulent scheme by churning the customers' accounts. Beyn acted with intent to defraud and/or with reckless disregard of the customers' interests by seeking to maximize his own remuneration in disregard of the interests of them. The complaint also alleges that Beyn exercised control over the customers' accounts. The customers did not question Beyn's trading strategies and were not fully aware of the nature of trading in their accounts. The trading was executed at such a volume and pace that it was difficult for the customers to follow the activity despite receiving confirmations and monthly statements. The customers believed that Beyn had their best interests at heart, that he was providing them with sound investment advice, and managing their accounts in line with their intentions. Beyn abused their trust by excessively and fraudulently trading the accounts. The trading in the accounts of the customers was excessive, as evidenced by the high turnover rates and cost-to-equity ratios, and inconsistent with the customers' investment objectives and financial situations. Beyn did not have reasonable grounds or a reasonable basis to believe that the recommended transactions were suitable for the customers in light of their investment objectives and financial situations. The complaint further alleges that Beyn exercised control over one of the customers' account. He relied on Beyn for investment recommendations and advice. He was unfamiliar with the securities that were being purchased and sold in his account. Beyn concealed the true cost of trading by executing the majority of the trades on a riskless principal basis even though he did not discuss or explain to the customer what riskless principal trading was and how the cost of such trades was reflected on the trade confirmations. Beyn also executed exchange traded note (ETN) transactions in the customer's account. The customer had not traded previously in ETNs and was unfamiliar with the products. Beyn purchased of ETN for the customer's account resulted in unrealized losses. Beyn recommended the ETN transactions to the customer. Beyn's recommendations lacked reasonable grounds for believing that these risky and speculative securities were suitable for the customer and that the customer understood and was willing to assume the risks particular to these securities.
Resolution
Pending Appeal
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Duration
Indefinite
Start Date
1/29/2019
Regulator Statement
Extended Hearing Panel decision rendered July 31, 2017, wherein Beyn was barred from association with any FINRA member in all capacities. Because Beyn had filed for bankruptcy, FINRA did not impose any monetary sanctions against him. The sanction was based on findings that Beyn exercised de facto control over the trading in the customer accounts and engaged in excessive, quantitatively unsuitable trading in the accounts. The findings stated that the trading in the customers' accounts was excessive, as evidenced by the high turnover rates and cost-to-equity ratios, and inconsistent with the customers' investment objectives and financial situations. In the accounts at issue, FINRA calculated that the customers paid total commissions (including markups, markdowns, and firm commissions) of more than $1.5 million, of which Beyn's share amounted to almost $650,000, and they suffered total losses of more than $2.9 million. In employing an earnings play strategy, Beyn and three other registered representatives at their firm effected frequent short-term trades in their customers' accounts, placing the trades primarily as "riskless principal transactions," for which the customers were charged markups and markdowns, rather than as agency transactions, for which the customers would have been charged commissions. At Beyn's firm, there were more than 9,000 trades in the customers' accounts with total costs of just under $6 million, and the overwhelming majority of the trades were marked as solicited by these representatives. The turnover rates in the accounts combined with the cost-to-equity ratios in the accounts made it highly unlikely that the customers would realize any profits on the trading in their accounts. Indeed, in the customers' accounts analyzed by FINRA, the customers incurred total losses of more than $9 million. Not one of the accounts realized overall profits from the trading. On the other hand, the firm and the four representatives, including Beyn, earned millions of dollars in commissions from the trading, suggesting that these representatives were trading to further their own interests and the interests of their firm, rather than the interests of their customers. These circumstances constituted red flags indicating that Beyn and the other representatives were, or might be, exercising de facto control over and excessively trading the accounts. The findings also stated that Beyn churned the accounts of his firm's customers in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, FINRA Rule 2020 and NASD Rule 2120. The cost-to-equity ratios and turnover rates for most of the customers' accounts support a finding that Beyn churned the accounts. Again, Beyn's share of the commissions on the trades in the customers' accounts at issue was nearly $650,000, which also supports a finding that he churned the accounts. The findings also included that Beyn recommended ETNs transactions to a customer without having a reasonable basis to believe that the transactions were suitable for the customer. On August 9, 2017, Beyn appealed the decision to the National Adjudicatory Council (NAC). NAC decision rendered January 29, 2019 wherein the findings made are affirmed and the sanctions imposed by the Hearing Panel are affirmed. On February 26, 2019, Beyn appealed the decision to the SEC. The bar is in effect pending the review. Admin. Proc. File No. 3-19007: SEC decision rendered April 19, 2023 wherein the findings made are held and the sanctions imposed by the NAC are sustained. The decision is final on June 19, 2023. On May 19, 2023 Beyn appealed the SEC decision to the US Circuit Court of Appeals for the 2nd Circuit, USCA Case #23-6526. The bar is in effect pending the review.
