James Brett Stuart (CRD #3022149, Castle Rock, Colorado)

April 9, 2024 – An Office of Hearing Officers (OHO) decision became final in which Stuart was barred from association with any FINRA member in all capacities. The sanction was based on findings that Stuart failed to establish, maintain, and enforce WSPs reasonably designed to achieve compliance with FINRA Rule 2111 and the Care Obligation of Reg BI. The findings stated that Stuart established and maintained his member firm’s WSPs and was responsible for reviewing and testing the WSPs on at least an annual basis. The WSPs were deficient in several respects. First, the firm’s WSPs recognized that factors such as the turnover rate and cost-to-equity ratio could provide a basis for finding that activity in a customer account was excessive, but they did not provide any guidance on how to calculate these ratios or identify what ratio levels suggested excessive trading. Second, the WSPs required the firm’s compliance department to review active accounts on a quarterly basis, but they did not describe what steps the firm should take to supervise trades recommended in such accounts. Third, the WSPs did not identify alerts the firm received from its clearing firm that were relevant to identify potential excessive trading, including turnover alerts that identified accounts in which the account turnover exceeded certain percentage thresholds, and a commission velocity alert that identified accounts in which commissions charged over the preceding 90 days exceeded certain percentage thresholds. Finally, after Reg BI went into effect, Stuart failed to update the WSPs to address this new rule. As a result, the firm’s WSPs did not explain how the firm or its registered representatives should determine whether recommended trades might improperly place the firm’s interest ahead of the customer’s interest, such as identifying what cost-to-equity ratio or turnover rate suggested excessive trading. The WSPs did not provide guidance on how the firm or its representatives should consider reasonably available investment alternatives in determining whether to recommend a transaction or series of transactions. The findings also stated that Stuart failed to reasonably supervise trading in customer accounts. Stuart failed to detect and investigate red flags of potential excessive trading in the accounts of two firm customers, one of whom was an elderly retiree. The firm received alerts form its clearing firm that identified accounts in which the commission charged over the preceding 90 days exceeded percentage thresholds and the turnover in the account exceeded percentage thresholds based on a customer’s investment objective. However, Stuart failed to review these alerts and failed to identify or investigate red flags of possible excessive trading activity in the two customer accounts. As a result of this trading, one customer paid $236,500 in total costs, including $220,000 in commissions, and incurred losses of $368,159 and the other paid an extra $14,647 in commissions and incurred total costs of $22,350 and losses of $1,766. The findings also included that Stuart failed to complete on-the-record testimony requested by FINRA. After initially appearing for testimony, Stuart complained that he was lightheaded and groggy and ultimately FINRA adjourned the testimony to a future date. FINRA made multiple attempts to schedule for continuation, however Stuart never appeared to continue the testimony. Stuart’s failure to appear impeded FINRA’s investigation and deprived it of material information. (FINRA Case #2019062948102) If you have suffered losses as a result of James Brett Stuart's act and/or actions we would like to hear from you. We are currently investigating claims on behalf of clients who have suffered significant losses in their portfolios that are managed by James Brett Stuart. The Schwartz Law Firm represents investors in claims against financial advisors and their firms. If you have questions about your potential claim or need assistance from an investment fraud lawyer, please contact us at 866-618-0545 or email Matthew Schwartz directly at mschwartz@tslfirm.com.