Caldwell International Securities Corp. will pay about $2 million to settle charges that the broker-dealer harmed investors while its founder agreed to an industry ban, according to the Financial Industry Regulatory Authority Inc.
Caldwell International will pay a $1 million fine, plus about $1 million in restitution to investors who lost money as result of excessive trading in their accounts, according to a Finra document dated Aug. 25.
Greg Caldwell, who founded the firm, will pay $50,000 under the settlement with brokerage industry's self-regulatory organization.
The firm failed to prevent unsuitable investment methods and churning as it expanded and shifted strategies, according to Finra. Its supervisory systems and procedures didn't evolve with the risks associated with its growth.
Caldwell was a small, regional broker-dealer operating its home office out of its former president Lennie Freiman's home on a ranch in Fischer, Texas until 2011, according to Finra. That year, the firm began to rapidly expand, primarily by opening new branches in New York and New Jersey. The newly associated brokers' primary business lines included cold calling investors, speculative equity trading and the solicitation of investors outside the U.S.
The expansion was a systemic shift in strategy, which traditionally focused on moderate or conservative equity trading for U.S. investors, according to Finra. The firm's supervisory failures included inadequate branch exams and a failure to review for unsuitable transactions and investment strategies.
Mr. Caldwell didn't immediately reply to an email seeking comment. Mr. Freiman also agreed to be barred and pay a $75,000 fine, according to Finra.
