What Are the Complaints & Regulatory Actions Against Spartan Capital Securities?

Spartan Capital Securities has garnered regulatory and investor scrutiny due to numerous complaints and regulatory actions that spotlight its trading and compliance issues, including churning, excessive trading and significant compliance failures. As a firm registered under the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC), these allegations have shaken the trust of individual investors and financial advisors.

We’ve compiled this guide to help you understand the complex accusations surrounding Spartan Capital Securities, detailing the charges against the firm and providing actionable advice if you’ve been impacted.

What is Spartan Capital Securities?

Spartan Capital Securities, LLC (CRD# 146251), based in New York, is a prominent financial services firm known for providing various investment options and advisory services. Registered as a broker-dealer, Spartan Capital Securities operates under the regulatory oversight of bodies such as the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) and is subject to their rules and regulations. These regulatory bodies enforce compliance with industry standards and regulations to safeguard clients’ interests.

The firm offers its services to individual investors and financial advisors, aiming to assist its clients in achieving their investment goals through various financial products and strategies. Spartan Capital Securities has encountered several regulatory challenges and customer complaints, primarily related to its trading practices and compliance procedures.

What Are the Complaints Against Spartan Capital Securities?

Spartan Capital Securities has faced numerous complaints and regulatory actions for misconduct, leading to significant scrutiny. Since 2017, FINRA, state regulatory organizations and other investors have filed multiple customer complaints, citing allegations of fraud, negligence and breach of fiduciary duty.

Churning and Excessive Trading

Churning is when a broker makes excessive trades in a client’s account, aiming to generate higher commission fees rather than advance the client’s investment goals. It’s highly unethical and is strictly monitored by regulatory bodies like FINRA. This practice directly contradicts the principle of acting in the client’s best interest, a core tenet of financial regulation. It also erodes the client’s portfolio value through unnecessary fees and the adverse impacts of excessive market transactions. 

The implications of churning are severe, often resulting in substantial losses within the client’s account. Even if the trades seem profitable, they can result in high tax liabilities from short-term capital gains. Churning can be challenging to detect, as it may be mistaken for an active investment strategy. However, it becomes apparent when the frequency of trades doesn’t align with the client’s investment goals, resulting in high commission costs without corresponding benefits. 

Compliance Issues

Spartan Capital Securities has faced criticism for its lax compliance practices, particularly regarding handling mandatory regulatory reporting. The firm has repeatedly failed to promptly amend Forms U4 and U5, essential documents that disclose customer-initiated arbitrations and the outcomes of these disputes. Such delays and inaccuracies in reporting are not just administrative oversights; they critically undermine transparency and can mislead clients and regulators about the broker’s history and customer grievances.

Spartan Capital Securities has also been accused of misclassifying the outcomes of customer disputes, labeling cases as closed, withdrawn or dismissed when, in fact, they were settled. This misrepresentation can significantly impact potential and current clients’ decision-making, as it presents a misleadingly positive view of the broker’s professional conduct and dispute resolution. 

There have also been allegations against individuals like Spartan Capital Securities Co-Founder and CEO John Lowry, including churning, unsuitability, breach of fiduciary duty, misrepresentation, unauthorized trading and failure to supervise. These issues compromised client interests and violated regulatory standards, further damaging the firm’s standing with regulatory bodies.

FINRA Steps In — The Case Against Spartan Capital Securities

Spartan Capital Securities has come under significant scrutiny from FINRA for the allegations of compliance failures and trading practices we’ve covered. This has raised serious concerns about the firm’s adherence to regulatory standards. The firm’s systemic non-compliance with regulatory standards has led to multiple interventions by FINRA to enforce compliance and protect investor interests. Here are key examples of the firm’s compliance failures and their broader impacts:

• Reporting Failures: The firm was charged for its repeated failures to promptly amend Forms U4 and U5, which are crucial for accurately reporting customer complaints and arbitration outcomes. Specifically, the firm was responsible for these oversights:
  • Underreporting Amendments: They failed to report 223 required amendments for 72 brokers, encompassing 162 instances related to customer-initiated arbitrations.
  • Non-Disclosure of Settlements: They also failed to disclose nine cases in which customers successfully won their disputes in arbitration against the firm’s brokers. John Lowry and Chief Administrative Officer Kim Monchik were implicated for not filing the forms promptly to disclose arbitration filings and resolutions, which contributed directly to the firm’s systemic reporting issues.
• FINRA Arbitration Case (Case No. 18-04117): Initiated on January 15, 2019, this case involved serious allegations such as breach of fiduciary duty, churning, unauthorized trading and lack of supervision related to Exchange Traded Funds (ETF). The arbitration concluded on June 27, 2019, with Spartan Capital Securities being ordered to pay the complainant, the party who filed the grievance, $15,806.45.

Spartan Capital Securities has faced significant financial and operational penalties due to these compliance failures and unethical practices. The firm was fined $600,000 and required to engage an independent consultant to overhaul its supervisory procedures. Additionally, John Lowry and Kim Monchik were fined $40,000 and $30,000, respectively, and both were suspended from associating with any FINRA member firm for two years.

During the appeal process, which temporarily paused the enforcement of certain sanctions, FINRA’s enforcement division implemented interim conditions to prevent further misconduct. These included:

• Mandatory Corrective Disclosures: Ensuring all past reporting errors are addressed and corrected.
• Updates to Registration Information: Updating their brokers’ registration forms, U4 and U5. The updates ensure that all information is accurate and up-to-date for regulatory oversight and public transparency.

Highlighted Case: Thomas James Baumann

Thomas James Baumann, a broker who worked for Spartan Capital Securities from 2013 to 2022, is under FINRA investigation for serious allegations. He’s accused of churning and advocating aggressive trading strategies unsuitable for his clients’ needs or risk tolerances. These accusations suggest that Baumann may have prioritized commission earnings over his clients’ financial goals.

Here are key customer disputes involving Thomas James Baumann:

• September 2018: This dispute involved allegations of churning and unsuitable transactions with $6,645,956 claimed in damages, yet settled for $55,000.
• January 2020: Another case alleging misrepresentation and unsuitable advice settled for $18,000 from an initial claim of approximately $767,545.
• March 2020: A dispute regarding unsuitable investments and negligence was settled for just below $10,000 against a claim seeking over $42,000.

Throughout these proceedings, Baumann has consistently denied any wrongdoing. He maintains that the complaints stem from misunderstandings, asserting that the involved clients were sophisticated investors fully aware of the risks associated with their decisions.

Have You Been Impacted by Spartan Capital Securities’ Practices?

If you suspect Spartan Capital Securities’ practices have negatively impacted your investments, taking immediate action is important to protect your financial interests. Here’s a step-by-step guide on how to proceed:

1. Review Your Account Statements: Thoroughly examine your transaction history with Spartan Capital Securities. Look for any unauthorized or unusual activity, particularly trades you did not approve.
2. Identify Signs of Excessive Trading: Determine whether excessive trading, or churning, occurred in your account by looking for frequent buying and selling of securities, high turnover rates and unusually high broker commissions, all of which could indicate that your broker was making trades to earn commissions, not to benefit your financial goals.
3. Research Complaints and Regulatory Actions: Look into any public customer complaints or regulatory actions taken against Spartan Capital Securities to get context and see if others have experienced similar issues. Useful resources include:
   1. FINRA BrokerCheck for comprehensive broker and firm histories.
   2. SEC’s EDGAR Database for official filings and disclosures.
   3. Your State Securities Regulator for localized complaint and action records.
   4. Better Business Bureau (BBB) for customer satisfaction and complaints.
4. Seek Professional Advice: Consult with a financial advisor or legal professional who can offer guidance based on your circumstances. They can help clarify your rights and the next steps you can take if you’ve been adversely affected.
5. File a Complaint with FINRA: If you believe Spartan Capital Securities has engaged in unethical or illegal practices affecting your investments, you can file a complaint with FINRA — they can investigate the matter and offer resolutions.

Can I Sue Spartan Capital Securities?

If you’ve suffered financial losses because of Spartan Capital Securities, you likely want to know if you can take legal action. The answer is yes; you have the potential to sue for recovery of your losses, although there are specific pathways to do so.

Most agreements with financial firms, including Spartan Capital Securities, typically include a clause that requires disputes to be resolved through FINRA arbitration rather than through traditional court proceedings. Here’s what you can do if you find yourself in this situation:

1. Understand Your Rights: As an investor, you’re entitled to sound financial advice and ethical management of your investments. If Spartan Capital Securities’ actions or the actions of its employees have led to significant financial losses, you can seek compensation.
2. Consult a Specialist Attorney: Investment-related cases can be complex. It’s advisable to work with an attorney specializing in securities law who has experience with investment loss recovery. They can offer a detailed evaluation of your case and guide you through the arbitration process.
3. Prepare for Arbitration: If you pursue an arbitration claim with FINRA, you must present evidence that Spartan Capital Securities or its representatives acted improperly or against your best interests. Your attorney can help prepare your case, ensuring all necessary documentation and arguments are properly laid out.
4. Avoid Direct Negotiation Without Representation: Approaching Spartan Capital Securities directly without legal representation can be disadvantageous. Having an experienced attorney on your side ensures that your complaint is taken seriously and that you avoid common pitfalls that might weaken your position.

Consult With Our Attorneys About Spartan Capital Securities

You deserve fair and ethical management of your investments, and if Spartan Capital Securities has failed to provide that, Sonn Law Group is here to uphold your rights. Our attorneys specialize in securities and investment fraud, bringing over three decades of experience in arbitration and litigation. Whether your concerns involve churning, excessive trading or regulatory non-compliance, we’re equipped to navigate the complexities of FINRA arbitration to seek justice and compensation for your losses. 

Trust us to defend your interests against even the most formidable investment firms. To learn how we can assist in recovering your investment losses, contact us for a free consultation.