FINRA permanently barred NSM Securities, Inc. broker Shondeep S. Balchandani for multiple violations of FINRA, NASD and SEC rules and laws, naming NSM's President and CEO Niyukt R. Bhasin and broker Naveen K. Bhagwani as co-respondents for their roles in the series of alleged misconduct.
The findings state that as founder, owner, President and CEO of NSM Securities, Bhasin directed his firm to pursue revenue from active and aggressive trading activity which yielded commissions and other sources of revenue linked to the aggressive policy.
The investigation notes that Bhasin and his co-respondents are of Indian descent and founded NSM, in part, to allow fellow brokers of Indian descent to obtain and service customers of Indian descent.
FINRA harshly criticized Bhasin, accusing him of "prioritizing his firm's profits over the duties owed to its customers" in allegedly voluntarily choosing not to establish a supervisory system or WSPs for NSM. The OHO also concluded that Bhasin "fostered a culture of non-compliance that resulted in widespread sales practice violations, numerous customer complaints, related reporting violations and cold-calling abuses."
As an example, investigators pointed to the activities of brokers and co-respondents Bhagwani and Balchandani, noting that they engaged in unauthorized trading in seven accounts. In addition, they allegedly churned and excessively traded five accounts and made multiple unsuitable recommendations that harmed firm customers.
Balchandani specifically recommended the purchase of nearly 1,000 shares of India's ICICI Bank Limited Sponsored ADR and effected tens of unauthorized transactions in an account designated as non-discretionary, leading to losses of $104,625 all while Balchandani and NSM reaped rewards of $15,857 in commissions.
NSM also allowed customers to buy securities in cash accounts wherein the sale of the same securities was used to meet the cost to buy the securities (a practice known as free-riding) and to buy securities in margin accounts that resulted in margin calls that were inappropriately met through liquidation of the same securities or other securities in the accounts.
According to the investigation, NSM's aggressive trading strategy was little more than the concentration of commission-based accounts in a few securities—stocks or other equities—after which the positions would be liquidated in a process that would be repeated over and over. Bhasin allegedly encouraged brokers to use leverage or margin to maximize commissions and profits, even though these moves greatly increased the already-considerable risks associated with the strategy.
Bhasin allegedly was fully aware of the commissions generated and even prodded his brokers to cold call prospects with the promise of a possible 15-percent return over the course of just one to three months; the solicitation, argues FINRA, led to wide-spread sales practice abuses and multiple customer complaints.
Investigators alleged that in order to further evade detection and effect his illicit strategy scheme, Bhasin predominantly hired people with no prior experience in the securities industry, including many who were new to the United States and worked on H-1B visas, sponsored by NSM.
The OHO found that, in the series of churning, unauthorized and excessive trading, unsolicited sales and unsuitable recommendations, Bhasin paid little regard to customers' specific investment objective and risk tolerances, setting sales targets for his brokers and threatening to cut their commissions or take away accounts if they failed to sell his stocks or meet his targets.
For instance, one account became fully concentrated in a single stock—Netflix—which was an unsuitable concentration level for the account holder. Nonetheless, Balchandani liquidated the position and switched full concentration to the speculative Direxion Daily Small Cap Bull 3X - TNA, a triple leveraged exchange-traded fund ("ETF") extremely unsuitable for a conservative (or even moderately tolerant) investor such as the account holder.
That account suffered losses of over $72,000 while Balchandani generated over $32,000 in commissions for himself and NSM.
The findings also stated that Bhasin deliberately chose not to allow review of Exception Reports that "made clear" that numerous accounts were falling prey to excessive trading and churning activities.
NSM also allegedly sent out misleading materials and account information letters to multiple customers and produced a "grossly inadequate" means of reviewing trading activities for, among other things, unsuitable recommendations.
The OHO found the named respondent brokers acted with scienter and intentionally and/or recklessly handled customer accounts that placed NSM interests above the customers', which resulted in tangible losses and charges that the NSM crew engaged in acts, practices or courses of business that operated as a fraud or deceit, effecting transactions by means of manipulation, deception or other fraudulent scheme or device.
Balchandani accepted the OHO's Order Proposing Settlement that found NSM liable for the fraudulent misconduct perpetrated by the ex-broker.
If you have invested with NSM Secuities, Inc., broker Shondeep S. Balchandani, Naveen K. Bhagwani or NSM's President and CEO Niyukt R. Bhasin and any instance of the firms' widespread misconduct through excessive or unauthorized trading, churning, unsuitable or unsolicited recommendations, misleading or false statements, or other fraudulent misconduct has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.