The allegations read: On september 28, 2023, the u.s. District court for the eastern district of new york issued this complaint against defendants michael blumer ("blumer"), john kuprianchik ("kuprianchik"), david page ("page"), steven thompson ("thompson"), and joseph todaro ("todaro") (together, "defendants"). Plaintiff securities and exchange commission, for its complaint, alleges as follows: from at least august 2018 through june 2022 ("the relevant period"), defendants were registered representatives at salomon whitney llc, a broker-dealer in melville, new york doing business under the name sw financial ("sw financial"). As registered representatives, defendants each had an obligation pursuant to the federal securities laws to have a reasonable basis for the investment recommendations that they made to their customers. They failed to fulfill this obligation. During the relevant period, defendants recommended and executed a short-term, high-volume trading strategy in the accounts of at least sixteen retail customers ("the affected accounts") without a reasonable basis. These registered representatives recommended and executed more than 2,000 trades in the affected accounts without regard for the high transaction costs incurred by the customers. As a result of this high volume of recommended transactions and their attendant commissions and fees, it would have been virtually impossible for these customers to achieve a profit in their accounts. Indeed, the trading resulted in aggregate losses exceeding $1,000,000 in the affected accounts during the relevant period. As a result of the excessive trading they recommended, the defendants and sw financial profited; they collectively received more than $660,000 in commissions and fees from the excessive trading in the affected accounts. The excessive trading recommended by the defendants violated two separate obligations of the federal securities laws. First, each defendant had an obligation to have a reasonable basis for his recommendations to clients, which included the obligation to consider the costs imposed by the recommended trades in the client accounts. Defendants each violated the antifraud provisions of the federal securities laws because they knew or recklessly disregarded that their recommendations to their customers were unsuitable. Second, each defendant also violated the care obligation of regulation best interest ("reg bi") because they failed to exercise reasonable diligence, care and skill in order to have a reasonable basis to believe that the series of recommended transactions in the affected accounts, even if in the retail customer's best interest when viewed in isolation, was not excessive and was in the retail customer's best interest when taken together in light of the retail customer's investment profile, and did not place the financial or other interest of the broker, dealer, or associated person making the series of recommendations ahead of the interest of the retail customer, from the beginning of reg bi's effective period, june 30, 2020, through june 2022. As a result, the defendants, directly or indirectly, singly or in concert, violated and are otherwise liable for violations of section 17(a)(1) and (3) of the securities act of 1933, section 10(b) of the securities exchange act of 1934 and rules 10b-5(a) and (c) and 15l-1 thereunder.
