Kovack Advisors Inc. Entered into a $899,513 Settlement with SEC Over Failure to Monitor Wrap Accounts

Kovack Securities Inc.

In August 2022, Kovack Advisors Inc. entered into a $899,513 settlement with the Securities and Exchange Commission (SEC) regarding the firm’s failure to monitor wrap accounts to determine the suitability for clients, between 2015 and 2018. The settlement, which will be distributed to harmed investors, included a 700,000 civil penalty, $163,239 in disgorgement, and $33,274 in prejudgment interest. The firm allegedly stopped offering wrap accounts to clients in 2018.

According to the SEC, clients were charged an all-inclusive fee for asset management, trade execution, and other costs. 

The SEC found that Kovack Advisors Inc. “failed to (i) review these advisory accounts for inactivity as required under its internal policies and external disclosures, to determine whether wrap accounts remained in the best interest of clients that traded infrequently, and (ii) adequately disclose to these wrap clients that they would be charged, in addition to the wrap account fee, for trade execution by certain clearing brokers participating in KAI’s wrap program.” According to the SEC, “As a result, certain KAI wrap clients remained in wrap accounts despite the lack of activity in their accounts, and/or paid transaction costs on top of the wrap account fee. KAI also failed to adopt and implement written policies and procedures reasonably designed to prevent the aforementioned violations, and to conduct annual compliance reviews.”

Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Kovack Advisors Inc. may be liable for investment or other losses suffered by its customers.

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If you have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.

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