SEC Charges Broker-Dealer with Violations of Regulation Best Interest for Excessive Trading in Customer Accounts

ADMINISTRATIVE PROCEEDING
File No. 3-22259

October 16, 2024 – The Securities and Exchange Commission today announced settled charges against broker-dealer PHX Financial, Inc. for violating Regulation Best Interest when one of its registered representatives recommended a short-term, high-volume investment strategy to customers without a reasonable basis. 

According to the SEC’s order, from January 2019 to October 2021, a PHX registered representative recommended a strategy to eight of PHX’s retail customers that made it virtually impossible for those customers to achieve positive returns due to the attendant commissions and fees that PHX charged. These customers each lost money in their PHX brokerage accounts during that time, but PHX and the representative together made over $400,000 in commissions and fees from these customers. The order finds that PHX also failed to establish, maintain, and enforce policies reasonably designed to address and prevent violations of Regulation Best Interest. 

The order finds that, as a result of this conduct, PHX violated Regulation Best Interest by violating Regulation Best Interest’s Care Obligation and Regulation Best Interest’s Compliance Obligation. Additionally, the order finds that from January 2019 until June 2020 PHX failed reasonably to supervise the representative, who violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder with respect to the eight customer accounts. Without admitting or denying the findings, PHX was censured and agreed to cease and desist from future violations of these provisions and to pay disgorgement of $142,995, prejudgment interest of $24,993, and a civil penalty of $180,000.

The SEC’s investigation was led by Stewart Gilson, Christoper Dunnigan, and Roseann Daniello and was supervised by Judith Weinstock and Thomas P. Smith, Jr, all of the New York Regional Office.  The examination that led to Enforcement’s investigation was conducted by Matthew Chan, Stephen DeBella, Grzegorz Steckiewicz, and Ronald Krietzman of the Division of Examinations.