FINRA Expels Brokerage SW Financial for Misrepresenting Fees

The Financial Industry Regulatory Authority announced on Friday its expulsion of Salomon Whitney Financial LLC, a brokerage and investment bank based in Melville, New York, for allegedly misrepresenting its fees and commissions to clients, inadequately supervising and training its representatives, and churning customer accounts.

SW Financial signed a notice of acceptance, waiver and consent in which it neither denied nor accepted FINRA’s findings. Its website indicated it is no longer conducting securities or brokerage activity.

Between January 2018 and December 2021, FINRA found that SW Financial, which serves small businesses, among other clients, misrepresented information related to the sale or private placement offerings “of pre-IPO securities.” Specifically, SW Financial said it would receive only a 10% commission on sales of these securities. Yet it allegedly collected this commission, plus an additional 5% from the issuer and half of any carried interest. Receiving payment from an issuer for sales is a potential conflict of interest, since it can incentivize sales that are not in a client’s best interest. SW Financial never disclosed this fee structure with its clients, according to FINRA.

Additionally, FINRA alleged that from January 2016 to May 2019, SW Financial churned nine customer accounts. Churning is a practice in which an adviser trades client assets with unreasonable frequency in order to drive up commissions or other trading fees. FINRA says this churning cost clients $350,000 in total trading costs and realized losses of more than $465,000. One 75-year-old retiree lost the majority of his retirement savings as a result.

In the AWS notice, FINRA also documented SW Financial’s history of difficulties following the law. For example, the advisory was fined $60,000 for charging an improper handling fee that had no relation to services or expenses incurred; and it was also fined $12,500 plus restitution by Connecticut for not disclosing that a transaction handling fee included a profit to the firm not based on costs.

FINRA alleged that these violations violated the Securities and Exchange Commission’s Regulation Best Interest because SW Financial did not disclose material conflicts and broke its care obligation to clients. The AWS notice affirming its expulsion is dated April 17.

The CEO of SW Financial, Thomas Diamante, was given a nine-month suspension from engaging with FINRA members in any capacity, followed by three months of not engaging with them in a principal capacity. He was also assessed a $50,000 fine. On SW Financial’s website, a message now reads that as of May 12, the firm is “no longer conducting securities or brokerage business.” Clients are told to contact a former representative or clearing firm Axos Clearing LLC.