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

ADMINISTRATIVE PROCEEDING

File No. 3-21762

September 28, 2023 – The Securities and Exchange Commission today announced settled charges against the broker-dealer Salomon Whitney LLC, which operated under the name SW Financial.  According to the SEC’s order, SW Financial, through five of its registered representatives, recommended a short-term, high-volume investment strategy to at least sixteen of its customers without a reasonable basis.

According to the SEC’s order, from at least August 2018 through June 2022, SW Financial recommended and executed more than 2,000 trades in these customers’ accounts without regard for the high transaction costs incurred by the customers.  The order states that, as a result of this high volume of recommended transactions and the attendant commissions and fees, it would have been virtually impossible for these customers to achieve a profit in their accounts.  The order states that, while these customers were left with aggregate losses in these accounts exceeding $1 million, SW Financial and its registered representatives collectively received more than $660,000 in commissions and fees as a result of the excessive trading they recommended.  

The order finds that, as a result of this conduct, SW Financial violated the antifraud provisions of the securities laws as well as Regulation Best Interest’s Care Obligation. The order also finds that SW Financial violated Regulation Best Interest’s Compliance Obligation by failing to establish, maintain and enforce policies and procedures reasonably designed to achieve compliance with Regulation Best Interest’s Care Obligation concerning excessive trading.

SW Financial consented to the entry of an SEC order finding that the firm violated the antifraud provisions of 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, as well as Regulation Best Interest.  Without admitting or denying the findings, SW Financial agreed to a censure and to pay disgorgement of $216,896 and prejudgment interest of $19,277.  On May 12, 2023, SW Financial was expelled from FINRA membership pursuant to a settlement with FINRA finding that the firm willfully violated securities laws for conduct separate from that described in the SEC’s order.

The SEC’s investigation was led by Craig Welter and supervised by Alison Conn and Tejal D. Shah, all of the New York Regional Office.  The examination that led to Enforcement’s investigation was conducted by Dee-Ann DiSalvo, John Celio, David Jaffe, and Ronald Krietzman of the Division of Examinations.