FINRA Expels Monmouth Capital Management for Rules Violations on Gold Star Family Accounts and Other Accounts
Monmouth Capital Management was founded in 2018 in Holmdel, New Jersey, according to a Linked-In profile that lists the company as having 2-10 employees and 6 associated members.1
A press release from July 2021 stated that the company is “a national independent Broker/Dealer headquartered in Monmouth County, New Jersey, which provides retirement planning, wealth management and estate planning advice using a value-oriented approach that focuses on protecting investor capital through various market environments.” 2
On July 7, 2023 the Financial Industry Regulatory Authority (FINRA) announced that it had expelled Monmouth Capital Management. FINRA is an independent non-governmental organization which develops rules for registered brokers and broker/dealer firms in the U.S. and polices members to ensure compliance with the rules.3
FINRA found that Monmouth Capital Management churned and excessively traded customer accounts in violation of the U.S. Securities and Exchange Commission (SEC) Regulation Best Interest (Reg BI). Reg BI “requires broker-dealers to only recommend financial products to their customers that are in their customers’ best interests, and to clearly identify any potential conflicts of interest and financial incentives the broker-dealer may have for the sale of those products.”4
FINRA also found that Monmouth failed to supervise its representatives and provided false and misleading disclosures to retail customers on its client relationship summary (Form CRS).5
Several of the customer accounts affected were those of Gold Star Families who had taken a military death payment or a Servicemembers’ Group Life Insurance payment following the death of a family member who served in the Armed Forces and used those payments to fund their Monmouth Capital Management accounts.
Between August 2020 and February 2023, FINRA found that Monmouth representatives excessively traded 110 accounts, 42 of which were also churned, causing customers to incur approximately $3.9 million in commissions and trading costs and to suffer substantial losses.
Monmouth leadership did not review red flags indicating this churning activity. One customer’s account appeared on 24 consecutive monthly exception reports with no action taken by Monmouth leadership.
This is only the second time FINRA has expelled a member based on violations of SEC Reg BI.6
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1 Monmouth Capital Management
Link: https://www.linkedin.com/company/monmouth-capital-management/about/
2 Monmouth Capital Management Purchases New ADA Compliance Software for Their Website MonmouthCM.com, Improving Accessibility for Those with Disabilities, 7/20/2021
Link: https://www.prnewswire.com/news-releases/monmouth-capital-management-purchases-new-ada-compliance-software-for-their-website-monmouthcmcom-improving-accessibility-for-those-with-disabilities-301336644.html
3 Financial Industry Regulatory Authority (FINRA) Definition by Liz Manning, 8/4/2023
Link: https://www.investopedia.com/terms/f/finra.asp#:~:text=The%20Financial%20Industry%20Regulatory%20Authority%20%28FINRA%29%20is%20an,bad%20practices.%22%20It%20is%20considered%20a%20self-regulatory%20organization.
4 Regulation Best Interest (BI): Definition, Broker Obligations by Adam Hayes, 6/16/2023
Link: https://www.investopedia.com/what-is-the-sec-s-regulation-bi-best-interest-rule-4689542#:~:text=Regulation%20Best%20Interest%20%28BI%29%20is%20a%20Securities%20and,the%20conduct%20standards%20for%20broker-dealers%20and%20financial%20advisors.
5 Press Release: FINRA Expels Monmouth Capital Management, 7/7/2023
Link: https://www.finra.org/media-center/newsreleases/2023/finra-expels-monmouth-capital-management
6 FINRA Expels Monmouth Capital Management, 7/7/2023
Link: https://finance.yahoo.com/news/finra-expels-monmouth-capital-management-163600117.html