Gary Steven Costello was registered representative and investment adviser representative. He invested and traded for his clients. He traded for himself. He wasn’t very good. From January 2023 through July 2023, Mr. Costello’s personal trading was unprofitable and resulted in substantial margin calls.
What to do?
I stand-up guy would find a way to fund the losses. A fraudster would steal from his clients.
Guess which category Mr. Costello fell into? (Of course, we would not have this story if he was a stand-up guy.)
Mr. Costello chose to switch trade corrections, telling the BD-IA that he mistakenly entered those trades for his personal account instead of for client accounts. The firm canceled the buy trade out of his personal account and then rebilled that same trade to a client account. He did that 30 times and transferred $1.3 million inn unrealized trading losses.
He got caught. Got Barred. Was ordered to repay. Ordered to pay a fine. Ultimately, filed bankruptcy.
The firm got hit also. Truist Advisory Services got hit for failure to catch the theft.
“Truist Advisory approved Costello’s trade correction requests without considering that the trades were being cancel-rebilled from Costello’s personal brokerage account to certain of his clients’ accounts and without following its account trading policy to monitor for patterns of errors by individual investment adviser representatives.”
The main fault seems to be the initial approval and failure to spot the problem. Mr. Costello started making the cancel-rebills in March. The problem was flagged by the firm’s custodian in July. To its credit, Truist quickly and decisively acted on the problem. It still resulted in a censure and $200,000 fine.
Sources: