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Beating a Dead Statutorily Disqualified Horse on Wall Street
October 17, 2022
Nearly two years ago, for the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Terry Tzagarakis submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.
In the Matter of Terry Tzagarakis, Respondent (FINRA AWC 2019061510101 / January 4, 2021) (the "2021 Tzagarakis AWC")
https://www.finra.org/sites/default/files/fda_documents/2019061510101
%20Terry%20Tzagarakis%20CRD%202796055%20AWC%20va%20.pdf
Also read: "FINRA Imposes Fine and Suspension for Willful Untimely Amendment of Form U4 for Tax Liens" (Securities Industry Commentator / January 4, 2021)at https://www.rrbdlaw.com/5624/securities-industry-commentator/#tzagarakis.
The 2021 Tzagarakis AWC alleged that Terry Tzagarakis was first registered in 2000 with J.P. Turner & Company, L.L.C., then registered with six different FINRA member firms; and by January 2013, he was registered with Spartan Capital Securities, LLC until his association with another firm in May 2020. The 2021 Tzagarakis AWC alleged that Terry Tzagarakis "does not have any relevant disciplinary history."
Willful Violation -- Statutory Disqualification
In accordance with the terms of the 2021 Tzagarakis AWC, FINRA found that Tzagarakis willfully violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010; and the self regulator imposed upon him a $5,000 fine and an three-month suspension from association with any FINRA member in all capacities. The 2021 Tzagarakis AWC included this paragraph:
Respondent understands that this settlement includes a finding that he willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes him subject to a statutory disqualification with respect to association with a member.
2016/2017 IRS Liens / 2017 NYS Lien
As alleged in part in the 2021 Tzagarakis AWC:
Between March 9, 2016 and March 21, 2017, the IRS filed two tax liens against Tzagarakis, in the amounts of $73,681.24 and $39,218.11, respectively. The IRS mailed notice of each lien to Tzagarakis's residential address within one day of filing the lien. Tzagarakis has not satisfied either of the tax liens. Nonetheless, Tzagarakis failed to amend his Form U4 to disclose the March 2016 tax lien until August 30, 2016, over five months after the lien was imposed, and failed to disclose the March 2017 tax lien until March 19, 2019, almost two years after the lien was imposed.The New York State Department of Taxation and Finance filed a tax warrant against Tzagarakis on February 17, 2017, which resulted in the imposition of a lien against Tzagarakis for $59,010.91. The tax warrant was mailed to Tzagarakis's residential address on or about the date of filing. Tzagarakis has not satisfied the New York State tax lien. Nonetheless, Tzagarakis failed to amend his Form U4 to disclose the New York State tax lien until February 13, 2018, approximately two years after the lien was imposed.Despite his knowledge of these liens and the need to disclose them on his Form U4, Tzagarakis failed to timely amend his Form U4.Therefore, Tzagarakis willfully violated Article V, Section 2(c) of FINRA's By-Laws and FINRA Rules 1122 and 2010
Down AND Out
So . . . y'know, like, what's left to say, right? In January 2021, FINRA punched Tzagarakis' industry ticket with an AWC that not only fined him $5,000 and suspended him for three months; however the statutory-disqualification admonition set out in the quoted paragraph above means that even after Tzagarakis pays his fine and serves his three months in the penalty box, he can't just walk back into any FINRA brokerage firm because his willful nondisclosure of the cited IRS and NYS tax liens resulted in a statutory disqualification from registration. Except, FINRA can't quite seem to pass by a dead horse without giving the expired beast a couple of extra kicks.
2022 Tzagarakis AWC
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Terry Tzagarakis submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.
In the Matter of Terry Tzagarakis, Respondent (FINRA AWC 2018056490305 / October 14, 2022) (the "2022 Tzagarakis AWC")
https://www.finra.org/sites/default/files/fda_documents/2018056490305
%20Terry%20Tzagarakis%20CRD%202796055%20AWC%20gg.pdf
%20Terry%20Tzagarakis%20CRD%202796055%20AWC%20gg.pdf
Yes, it's the same Terry Tzagarakis from the 2021 Tzagarakis AWC! In FINRA's re-beating-of-a-dead-horse, the 2022 Tzagarakis AWC alleges in part that:
From October 2015 through December 2019, Tzagarakis engaged in quantitatively unsuitable trading in three customer accounts. Tzagarakis recommended high frequency trading in the three customer accounts. Tzagarakis's customers routinely followed his recommendations and, as a result, Tzagarakis exercised de facto control over the three customers' accounts.Tzagarakis's trading resulted in high turnover rates and cost-to-equity ratios as well as significant losses, as set forth below:
1. From October 2015 through December 2019, Tzagarakis and his partner, with whom he shared a joint representative code, effected 248 transactions in Customer A's account, resulting in an annualized turnover rate of 20.8 and an annualized cost-to-equity ratio of 67%. Tzagarakis's trading in Customer A's account generated total trading costs of $138,510, including $122,433 in commissions, and caused $300,951 in realized losses.2. From March 2019 through December 2019, Tzagarakis effected 57 transactions in Customer B's account, resulting in an annualized turnover rate of 33.4 and an annualized cost-to-equity ratio of 175%. Tzagarakis's trading in Customer B's account generated total trading costs of$27,160, including $23,397 in commissions, and caused $42,944 in realized losses.3. From February 2016 through April 20 19, Tzagarakis effected 185 transactions in customer C's and D's joint account, resulting in an annualized turnover rate of 17.3 and an annualized cost-to-equity ratio of 79%. Tzagarakis' s trading in Customer C's and D's account generated total trading costs of $113,294, including $100,950 in commissions, and caused $498,345 in realized losses.
In accordance with the terms of the 2022 Tzagarakis AWC, FINRA imposed upon the Respondent a $10,000 fine, a 12-month-suspension from associating with any FINRA member in all capacities, and $246,780 in restitution. Yup, that's a 12-month suspension imposed in 2022 on someone who was statutorily disqualified in 2021.Tzagarakis's trading in these three customers' accounts was excessive and unsuitable given the customers' investment profiles. As a result of Tzagarakis's excessive trading, the customers suffered collective realized losses of $842,240, while paying total trading costs of $278,964, including commissions of $246,780.Therefore, Tzagarakis violated FINRA Rules 2111 and 2010.
Bill Singer's Comment
2016 to 2019 Misconduct Sanctioned in January 2021 AWC
The 2021 Tzagarakis AWC sanctioned Tzagarakis' non-disclosure of tax liens that were filed against Tzagarakis in 2016/2017 (IRS) and 2017 (NYS) and for which he only first filed a Form U4 Amendment on March 19, 2019 (IRS) and February 13, 2018 (NYS). Nearly three years after Tzagarakis filed the conforming 2018 U4 amendment, in January 2021, FINRA imposed a fine and suspension on the Respondent, and the charges triggered a statutory disqualification. Why did it take FINRA three years from the date of the 2018 amended U4 to settle charges of willful nondisclosure of tax liens going back to 2016? Tzagarakis' 2018/2019 U4 amendments pretty much proved FINRA's non-disclosure case, and it's hard to imagine that it required three exhaustive years of investigation to determine whether the non-disclosures were willful or not.
2015 to 2019 Misconduct Sanctioned in October 2022 AWC
And then January 2021 turns into January 2022, as in a whole year comes and goes. And then January 2022 turns into mid-October 2022, as in another ten months. Here we are, just shy of two years since the 2021 Tzagarakis AWC; and, what, pray tell, does the shiny, new 2022 Tzagarakis AWC resolve?
The 2022 Tzagarakis AWC addresses 248 transactions from October 2015 and December 2019; and 57 transactions from March 2019 through December 2019; and 185 transactions from February 2016 through April 2019. The most recent AWC is charging Tzagarakis for excessive and unsuitable trading in three customers' account to the tune of $842,340 in realized losses and $378,964 in trading costs.
Everything cited in the 2022 Tzagarakis AWC should have been flashing alarms and sending up smoke signals of warning when FINRA was in the midst of negotiations attendant to the 2021 Tzagarakis AWC. After all, the last excessive/unsuitable trade cited in the 2022 AWC took place no later than December 2019, over a full year before the 2021 AWC was executed -- the first cited trade arose in 2015, which is a date that pre-dates the earliest occurrence cited in the 2021 AWC! Not sure if you noticed what I'm pointing at, so let me point again and jab my fingers at the issue:
In a January 2022 regulatory settlement, FINRA resolved misconduct from 2015 through 2019 despite the fact that FINRA had entered into a prior settlement with the same Respondent in January 2021 for misconduct that occurred from 2016 to 2019.
In 2021, did any FINRA examiner bother to make a rudimentary inquiry about transactions in Tzagarakis' customer accounts during the investigation that resulted in the 2021 AWC?
After all, if a stockbroker willfully fails to disclose tax liens, that suggests that the stockbroker might be financially pressed; and, here's a wild thought: That same stockbroker might have an incentive to generate some cash via excessive/unsuitable trades.
To be clear, I have no sympathy or empathy for Tzagarakis. FINRA's two AWCs make compelling cases and he voluntarily entered into both settlements. That being said, when we look at the 2021 and the 2022 AWCs together, it looks like quite a bit of lazy, sloppy, belated regulation.