Janney Montgomery Scott: Regulatory History and Sales Practices

The White Law Group reviews the regulatory history of Janney Montgomery Scott.

Established in 1832, Janney Montgomery Scott is a Philadelphia, Pennsylvania based FINRA broker-dealer.  Janney Montgomery Scott (CRD#: 463/SEC#: 801-7258,8-462) has a history of regulatory actions with securities regulators, including FINRA, as a result of its trading practices and supervisory systems. According to its CRD or Broker report, Janney Montgomery Scott has 121 disclosure events, including 54 regulatory actions and 66 arbitrations.

Regulatory actions taken against a broker-dealer may include censures, fines, suspensions and restitution, among others. They can have serious consequences for a broker-dealer’s profile and reputation. The following is a review of Janney’s regulatory history.

FINRA Sanctions for Alleged Rules Violations

July 24, 2024 – Janney Montgomery Scott LLC submitted a Letter of Acceptance, Waiver, and Consent (AWC) to FINRA to settle alleged rule violations. Between July 2019 and May 2021, Janney failed to correctly identify transactions in new issue securities reported to the Municipal Securities Rulemaking Board (MSRB), leading to inaccuracies in trade times reported. This violated MSRB Rule G-14. The firm also lacked a proper supervisory system and written supervisory procedures (WSPs) to ensure compliance with MSRB reporting rules, violating MSRB Rule G-27. Additionally, between March 2022 and October 2023, Janney violated Trade Reporting and Compliance Engine (TRACE) reporting rules by misreporting transactions, breaching FINRA Rules 3110 and 2010 due to inadequate supervisory systems and WSPs.

As part of the settlement, Janney consented to a censure and a $150,000 fine, $65,000 of which is related to MSRB violations. The firm agreed to pay the fine upon notification that the AWC has been accepted, waiving any right to claim an inability to pay the monetary sanction at any time. The sanctions will take effect on a date set by FINRA.

Broker Barred after Allegations of Unsuitable Investments

January 31, 2023 – A Janney Montgomery broker registered in Garden City, NY was reportedly barred by FINRA after he refused to appear for on-the-record testimony requested by FINRA, violating FINRA Rules 8210 and 2010. The violation is related to an investigation into the suitability of certain trades recommended by him.

Unsuitable Energy Sector Securities

October 19, 2022 – FINRA sanctioned Janney Montgomery Scott with $100,000 fine, censure and ordered the firm to pay restitutions to affected customers. According to FINRA, from December 2013 through December 2016, Janney allegedly failed to reasonably supervise two registered representatives who recommended that their customers invest an unsuitably
high percentage of their assets in energy-sector securities in violation of NASD Rule 3010 and FINRA Rules 3110 and 2010. The brokers reportedly recommended that 11 customers unsuitably concentrate their accounts in certain energy-sector securities, including master limited partnerships focused on the exploration or development of natural resources. Both representatives recommended that customers purchase additional energy-sector securities even after their accounts already were concentrated in that sector. Because these investments focused on the energy sector, their value was sensitive to shifts in oil and gas prices and subjected investors with concentrated positions to a high risk of loss if oil and gas prices declined.

Churning High-fee Mutual funds- Janney Montgomery Scott

May 7, 2019 – Massachusetts Secretary of the Commonwealth William Galvin charged Janney Montgomery Scott with failing to supervise broker Stephen Querzoli, who allegedly engaged in churning high-fee mutual funds between June 2012 and November 2018. Querzoli purportedly generated $192,055.21 in commissions and fees by repeatedly selling and purchasing Class A shares within short periods. Galvin seeks restitution and fines for Janney, and possibly the hiring of an independent consultant to review the firm’s policies on short-term trading of Class A shares. Despite an internal investigation into Querzoli’s high trading volume in 2015, Janney took no action, and Querzoli continued his practices until his registration ended in December 2018.

Auction Rate Securities

In 2009, FINRA announced that it has entered into final settlements with four firms to settle charges relating to the sale of Auction Rate Securities (ARS) that became illiquid when auctions froze in February 2008, including settling such charges with Janney Montgomery Scott.

The settlements announced by FINRA were with NatCity Investments, Inc. of Cleveland, which was fined $300,000; M&T Securities, Inc. of Buffalo, which was fined $200,000; Janney Montgomery Scott LLC of Philadelphia, which was fined $200,000, and M&I Financial Advisors, Inc. of Milwaukee, which was fined $150,000. All four firms agreed to initiate or complete offers to repurchase auction rate securities sold to their customers where the auctions for the auction rate securities had failed.

Market Timing

In 2005, FINRA (formerly NASD) fined Janney Montgomery Scott $1.2 million for allowing improper market timing. The firm permitted hedge fund customers of Kenneth Rosato, a branch manager, to evade restrictions imposed by mutual funds to curb market timing. Despite receiving numerous notices, Janney Montgomery Scott facilitated over 1,600 market timing transactions, allowing the hedge funds to profit about $1 million at the expense of long-term investors. FINRA also penalized Kenneth Rosato and Linda Rosato, his sister-in-law, for their roles in the misconduct. Janney Montgomery Scott was found to have inadequate supervision and failed to respond adequately to regulatory inquiries.

Away-from-market Stock Loan Transactions

In 2007, NYSE Regulation, Inc. censured and fined Janney Montgomery Scott LLC $2.5 million for engaging in improper stock loan transactions and related supervisory deficiencies. The firm made payments to finders who performed no legitimate business function, increasing transaction costs. Some payments were made to friends and relatives of employees. From January to December 2004, Janney’s stock loan department engaged in transactions at disadvantageous rates to counterparties, including “daisy chain” transactions that redistributed proceeds unfairly. The firm failed to supervise these activities properly and lacked adequate procedures to verify market rates or the legitimacy of finder payments. The firm generated over $11.2 million in revenues, paying $1.4 million to 24 finders without written agreements or invoices. In settling the matter, Janney Montgomery Scott neither admitted nor denied the charges.

Potential FINRA Claims – Janney Montgomery Scott

The White Law Group represents investors in FINRA claims against their broker dealers. If you have suffered losses due to broker negligence or broker fraud, we may be able to help you.

Our firm can evaluate the strength of your case, draft a well-structured statement of claim that accurately presents your allegations of fraud and desired damages, and provide representation during the arbitration hearing by presenting evidence and making compelling arguments on your behalf.

Additionally, an attorney can engage in negotiation efforts for a potential settlement before the arbitration process begins. Opting for our securities attorneys will ensure that your rights are safeguarded throughout the arbitration process, maximizing your likelihood of achieving a favorable resolution. 

Class Action vs. Individual FINRA Arbitration Lawsuit 

You may wonder whether a large class action lawsuit is a better litigation option than an individual FINRA arbitration case.  The answer depends on many factors, but typically if the loss sustained is large (say larger than $100,000), an individual arbitration claim is likely a better option.  Class actions as a recovery option are more appropriate for grouping large numbers of individuals who have small claims – too small to generally pursue individually. 

Concerned about your investments with Janney Montgomery Scott?

If you have questions about investments you made with Janney Montgomery Scott, The White Law Group may be able to help.  For a free consultation, call the firm at 312-238-9650.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. With over 30 years of securities law experience, The White Law Group has the expertise to help investors defrauded in securities and other investments.