Initiated By
FINRA
Allegations
Kozi was named a respondent in a FINRA complaint alleging that he willfully violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder and violated FINRA Rule 2020 by churning a customer's account. The complaint alleges that Kozi exercised de facto control over the trading in a customer's account. Kozi knew that the customer lacked experience trading equities and options and did not sufficiently understand the nature of the options trades that he was recommending to the customer to make an independent evaluation. Kozi engaged in high-pressure sales tactics and the customer routinely followed Kozi's recommendations, including which securities to buy and sell, the amount of money to invest and when to buy and sell. The complaint also alleges that the level of trading Kozi recommended in the customer's account was excessive, quantitatively unsuitable and inconsistent with the customer's moderate risk tolerance and balanced growth investment objective, as evidenced by the account's annualized cost-to-equity ratio of 53 percent. The customer deposited a little over $200,000 in his account at Kozi's member firm. Within the span of about a year and a half, Kozi recommended equity and options transactions, with a principal value of over $3 million. Kozi's recommended transactions for the customer's account generated gross commissions totaling over $135,000, of which Kozi himself received over $87,000, which caused the customer's account to incur losses of nearly $72,000. Commissions from this customer's account made up 95 percent of Kozi's commission income. The complaint further alleges that Kozi's recommended options transactions were qualitatively unsuitable given the high level of speculation involved as well as the transaction costs incurred when considered in the context of the customer's investment objective, risk tolerance and financial situation and needs. Kozi lacked a reasonable basis to believe that the customer was aware of and understood the risks associated with the options trading he recommended, as the customer had no experience trading options and many of the options trades Kozi recommended were speculative and intended for sophisticated options investors. Kozi also lacked a reasonable basis to recommend that the customer purchase stock in quantities that caused the stock at one point to make up 85 percent of the customer's account value.
Resolution
Decision & Order of Offer of Settlement
Sanctions
Suspension
Registration Capacities Affected
All Capacities
Duration
two years
Start Date
4/6/2020
End Date
4/5/2022
Sanctions
In light of Kozi's financial status, no monetary sanction has been imposed.
Regulator Statement
Without admitting or denying the allegations, Kozi consented to the sanction and to the entry of findings that the level of trading Kozi recommended in the customer's account was excessive, quantitatively unsuitable and inconsistent with the customer's moderate risk tolerance and balanced growth investment objective, as evidenced by the account's annualized cost-to-equity ratio of 53 percent. The findings stated that the customer deposited a little over $200,000 in his account at Kozi's member firm. Within the span of about a year and half, Kozi recommended equity and options transactions, with a principal value of over $3 million. Kozi's recommended transactions for the customer's account generated gross commissions totaling over $135,000, of which Kozi himself received over $87,000, while causing the customer's account to incur losses of nearly $72,000. Commissions from this customer's account made up 95 percent of Kozi's commission income. The findings also stated that Kozi's recommended options transactions were unsuitable given the high level of speculation involved as well as the transaction costs incurred when considered in the context of the customer's investment objective, risk tolerance, and financial situation and needs. Kozi lacked a reasonable basis to believe that the customer was aware of and understood the risks associated with the options trading he recommended, as the customer had no experience trading options and many of the options trades Kozi recommended were speculative and intended for sophisticated options investors. Kozi also lacked a reasonable basis to recommend that the customer purchase stock in quantities that caused the stock at one point to make up 85 percent of the customer's account value.
