Investors with Gilder Gagnon Howe & Co. Allegedly Lost Money Due to Excessive Trading
Investors with portfolios at Gilder Gagnon Howe & Co. (GGHC) should be aware that this firm has multiple regulatory disclosures on its FINRA BrokerCheck record. Brokerage firms must disclose specific criminal matters or judicial proceedings where the firm has involvement, and GGHC has been required to report five.
Most recently, the firm faced regulatory action related to allegedly excessive trading, also known as commission abuse. This type of trading causes investors to lose profits through broker fees. If you have questions about your investment portfolio at Gilder Gagnon Howe & Co., do not hesitate to contact one of our securities attorneys for a free consultation.
Two brokers who are currently registered with GGHC, Karen Langdon and Sarah Holmes, both have investor disputes on their record alleging that they engaged in excessive trading. The customers wronged by these actions settled for amounts ranging from $60,000 to135,000.
Gilder Gagnon Howe & Co. LLC Reviews
Gilder Gagnon Howe & Co. was the subject of an SEC cease-and-desist order alleging that the firm failed to conduct reviews of its accounts for commission abuse and excessive securities transactions. Supervisory reviews are especially important for clients of Gilder Gagnon Howe & Co., since the firm charges commissions per transaction, instead of charging a percentage of assets managed by the firm. Also, all GGHC account types allow discretionary trading, meaning that the broker can buy and sell securities without the investor’s authorization. These account features make supervision especially crucial.
Excessive Trading and Commission Abuse
FINRA Rule 2111 requires that brokers only recommend investments that suit their investor’s financial goals. Excessive trades violate this rule because they result in unnecessary losses for investors while benefitting the stockbrokers and associated brokerage firms.
Every trade in GGHC’s Growth Accounts comes with a commission for the broker, according to the firm’s Form CRS Relationship Summary. The more transactions there are, the more fees there are – fees that will eventually make it impossible for the investor to generate a return.
To establish excessive trading, FINRA looks primarily at three factors:
- The Cost-to-Equity Ratio measures the total trading fees and compares them to the total value of the account. It is also called a “break-even” ratio because it indicates by what percentage the portfolio would need to grow before the investor would see a return. FINRA considers a cost-to-equity ratio of 20% or more as indicative of excessive trading.
- The Turnover Rate is the rate at which your broker exchanges one portfolio of securities for another portfolio of securities. As a rule of thumb, if a portfolio has a turnover rate of 6 or more for the year, FINRA may conclude that excessive trading has occurred.
- In-and-Out Trading is a pattern of trading where a security is bought and sold multiple times over a short period. Although these trades can be legitimate depending on the trading strategy, this type of trading is typically a red flag.
Gilder Gagnon Howe Performance
Bonnie Haupt, the Chief Compliance Officer during the relevant period, allegedly failed to conduct monthly reviews of cost-to-equity ratios, turnover rates, and in-an-out trading.
FINRA had previously instructed Gilder Gagnon Howe & Co. to bring any accounts with a cost-to-equity ratio of over 6% up to the managing members of the firm for additional review. When the FINRA exam staff asked for cost-to-equity and turnover reviews for January through November 2017, Bonnie Haupt allegedly provided monthly reports that she had altered to make them look as though she had reviewed them at the appropriate time.
As a result of these allegations, FINRA imposed a fine of $1.7 million.
Bonnie Haupt was fined $45,000 and barred by FINRA from the securities industry.
Other BrokerCheck Disclosures
Gilder Gagnon Howe & Co’s BrokerCheck record reveals additional regulatory action. The firm has faced FINRA fines for the unregistered sale of securities in New Mexico, Vermont, and Indiana.
FINRA’s Supervisory Rule
In addition to the suitability rule, GGHC allegedly violated FINRA Rule 3110. FINRA Rule 3110 requires brokerage firms to have supervisory systems in place. If adequate, these systems would flag a cost-to-equity ratio of over 6%. Once flagged, the designated supervisor would review the transaction and make a final determination as to whether one of its registered representatives violated securities law.
How Do I Know if I Have a Case for a Securities Lawyer?
Review your account statements for suspicious fees and call a Securities Attorney if you have any concerns. Case evaluations are free. Call (877) 600-0098 or email firstname.lastname@example.org