FINRA Sanctions Newbridge Securities Again, This Time for Margin Practices
Newbridge Securities Corporation, a Florida-based investment firm, has been censured and fined $60,000 by the Financial Industry Regulatory Authority for failing to reasonably supervise recommendations for margin use in multiple customer accounts. In addition to the fine, the firm has also been ordered to pay restitution of more than $45,000 to affected customers.
According to FINRA, from July 2015 through June 2020, Newbridge failed to reasonably supervise two registered representatives in one former branch office who recommended unsuitable margin use in five customer accounts. The customers, including a 62-year-old pastor with no prior experience using margin, were not experienced or sophisticated investors and did not understand the extent to which margin was used in their accounts or the costs associated with the margin use. The recommended extensive use of margin in the customers’ accounts allowed the customers to purchase more securities than they could have if they had paid for the securities in full, which in turn led to more commissions for the representatives.
FINRA reported that, in each of the five accounts, the recommendations resulted in month-end margin balances of 50% or more of the total gross portfolio value for many months. All five accounts realized losses as a result of margin calls. Collectively, the five customers paid $62,685 in margin interest, including the pastor who realized significant losses and paid $34,704.31 in margin interest.
FINRA also stated that Newbridge failed to reasonably respond to red flags related to the activity. For example, the pastor’s account had 31 margin calls, 21 of which caused sellouts of securities at losses. The firm’s response, instead, was to direct representatives to ask customers to deliver additional funds to cover the margin calls, but the firm failed to investigate whether the underlying recommendations that resulted in margin calls were suitable for the customer, even when the firm received notices indicating accounts were subject to multiple margin calls in a relatively short period of time.
Margin accounts allow investors to borrow money from a broker-dealer to purchase securities, increasing their purchasing power but also exposing them to the risk of losing more than they invested. Investors must repay the borrowed amount plus interest, regardless of investment performance. A margin call occurs when the investor’s equity falls below a certain percentage, requiring them to deposit funds or securities, or sell securities to cover the deficit.
Without admitting or denying the findings, Newbridge agreed to the sanctions. In addition to the censure and the $60,000 fine, the company will pay restitution of $45,442.21, plus interest based on the amount of margin interest paid by each customer.
This FINRA sanction follows on the previous sanction issued to the firm in September of last year when the firm was fined $125,000 for lax protocols and supervisory lapses.
As previously reported by Alts Wire, the firm was censured and fined $50,000 in March 2023 for lax due diligence, including failing to “reasonably supervise the representative’s recommendations of an alternative mutual fund.”
In September 2019, Newbridge was censured and fined $225,000 for multiple violations, including failing to establish, maintain, and enforce a system reasonably designed to supervise sales of complex securities, such as structured notes and non-traditional exchange-traded funds.
In 2017, the Pennsylvania Department of Banking and Securities fined Newbridge $499,000 for failing to supervise one Pennsylvania broker that sold structured products to his clients in the state.
According to brokercheck.finra.org, the Florida-based firm has 36 disclosures, including 32 regulatory events and four arbitration events.
Newbridge provides investment banking and wealth management services to retail and institutional investors. The firm has 140 registered representatives across 35 branches, including its headquarters in Boca Raton, Fla.
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