The NASD barred Brian J. Kelly, a Maryland broker who worked at several well-known firms, from the industry for life after excessively churning a client’s account, according to the Baltimore Sun.

Kelly churned an “unsophisticated” investor’s account and traded more than 540 times in a little over a year, generating tens of thousands of dollars in commissions for himself, an NASD panel found.

The incident that resulted in Kelly’s departure from the business happened at Wachovia Securities in Baltimore five years ago. Kelly’s client, Gerard Manowski, contacted Kelly after he heard him on a local radio station. Manowski alleges that Kelly bragged about making a 50% return for his clients, even in the down markets, according to the NASD.

After speaking with Kelly, Manowski closed his $250,000 account with Alex Brown, and opened it with First Union, a predecessor of Wachovia.

Kelly told the NASD that he made no claim about returns and he explained his investment philosophy and day-trading strategy to Manowski. Kelly stated that Manowski wanted to start day trading, the practice of rapidly buying and selling stocks, sometimes all in one day, to make a quick profit.

However, Manowski believed that day trading meant trading during “normal” hours as opposed to after markets closed, according to the NASD report. When things started to go downhill, Manowski said that Kelly told him that they would bounce back and that he believed everything would turn out all right.

In addition, Kelly used margin on Manowski’s account, meaning he obtained loans from the brokerage with securities in Manowski’s account as collateral. From May 2001 to July 2002, purchases totaling $7.8 million were made in the account, it lost $90,000, and Manowski was charged $3,400 in margin interest.

The trading coincided with the technology bust in 2001, and many of the trades in the account were for technology stocks. Some of the trades appeared to be profitable, but others lost money fast.

Wachovia spokesman Tony Mattera stated that the case came to the firm’s attention after Kelly had left already.

This was not the first time clients had filed complaints against Kelly, and he had been the subject of other customer complaints, according to records maintained by the NASD. Kelly had worked for Alex Brown and Merrill Lynch, and had complaints from both of those places as well, NASD records show. Those cases were also settled.

Kelly expressed “deep regret” for anything he did that led to losses for his client at the hearing in April. He added that his work was “somewhat careless and sloppy” during that time as his wife was dealing with a serious medical condition.

Kelly left his job at Ferris Baker Watts, where he was an “investment executive” a few days after the panel’s decision on July 12. Kelly’s attorney stated this week that he plans on appealing the decision.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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