SEC v. Baris Cabalar, No. 1:24-cv-07274, Eastern District of New York (Oct. 16, 2024) — Complaint

ANTONIA M. APPS
REGIONAL DIRECTOR
Thomas P. Smith, Jr.
Judith Weinstock
Christopher J. Dunnigan
Stewart Gilson
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
100 Pearl Street, Suite 20-100
New York, New York 10004
Phone: (212) 336-0061 (Dunnigan)
Email: [email protected]

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------------------------------- x
SECURITIES AND EXCHANGE    :
COMMISSION,     :
       :
    Plaintiff,  : 24 civ. 7274
       :
v.    :
    : Jury Trial Demanded
BARIS CABALAR,     :
    Defendant.  : ECF Case
-------------------------------------------------------------- x

COMPLAINT
Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against
defendant Baris Cabalar (“Cabalar” or “Defendant”) alleges as follows:
SUMMARY
1. From January 2019 through October 2021 (“Relevant Period”), Cabalar was a
registered representative at PHX Financial, Inc. (“PHX Financial”), a broker-dealer
headquartered in New York, New York, with branch offices in Fort Lauderdale, Florida, and
Hauppauge, New York. During the Relevant Period, Cabalar recommended to eight retail
customers (“Affected Customers”) in their PHX brokerage accounts (“Accounts”) a short-term,

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high volume trading strategy without a reasonable basis that such a strategy would be profitable,
and failing to disclose when recommending such trading that the commissions and fees that PHX
and Cabalar charged would likely result in customers losing money.
2. Cabalar’s recommendations to the Affected Customers that they engage in short-
term, high volume trading in their Accounts that he had no reason to believe would be profitable
violated Cabalar’s obligation to have a reasonable basis for the investment recommendations he
made to his customers.
3. Cabalar made at least one explicit misrepresentation to an Affected Customer,
telling him that in around one year, he could recoup $70,000 in losses the Affected Customer had
incurred with another broker, without a reasonable basis for saying so, given the trading strategy
he recommended.
4. Cabalar consistently solicited customers to trade frequently as part of his short-
term, high volume trading strategy. In making recommendations to all of the Affected
Customers, Cabalar implicitly represented to them that he had a reasonable basis for his
recommendations, without disclosing that the strategy he recommended was likely to cause
losses.
5. As a result of these recommendations, Cabalar caused the Affected Customers
together to lose over $1,000,000 in their Accounts during the Relevant Period. During the
Relevant Period, through their improper trading strategies, PHX Financial and Cabalar together
made over $400,000 in commissions and fees from the Accounts.
6. Additionally, Regulation Best Interest (“Reg BI”) [17 C.F.R. § 240.15l-1],
promulgated under the Securities Exchange Act of 1934 (“Exchange Act”) went into effect on
June 30, 2020. Between October 1, 2020 and October 31, 2021 (“Reg BI Period”), Cabalar

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violated Reg BI by, among other things, failing to act in the best interest of the Affected
Customers, by placing the financial or other interests of PHX Financial or himself ahead of the
interests of the Affected Customers.
VIOLATIONS
7. Through the conduct alleged herein, the Defendant, directly or indirectly, singly
or in concert, violated and is otherwise liable for violations of Section 17(a) of the Securities Act
of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C.
§ 78j(b)] and Rules 10b-5 [17 C.F.R. § 240.10b-5], 15l-1(a)(1) [17 C.F.R. § 15l-(1)(a)], and 15l-
1(a)(2)(ii) [17 C.F.R. § 240.15l-1(a)(2)(ii)].
8. Unless the Defendant is permanently restrained and enjoined, he will again
engage in the acts, practices, transactions, and courses of business set forth in this complaint and
in acts, practices, transactions, and courses of business of similar type and object.
NATURE OF PROCEEDINGS AND RELIEF SOUGHT
9. The Commission brings this action pursuant to the authority conferred upon it by
Securities Act Sections 20(b) and 20(d) [15 U.S.C. §§ 77t(a) and 77t(d)] and Exchange Act
Section 21(d) [15 U.S.C. § 78u(d)].
10. The Commission seeks a final judgment: (a) permanently enjoining Defendant
from violating the federal securities laws and rules this Complaint alleges he has violated; (b)
ordering Defendant to disgorge all ill-gotten gains he received as a result of the violations
alleged here and to pay prejudgment interest on it, pursuant to Exchange Act Sections 21(d)(3),
21(d)(5), and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5), and 78u(d)(7)]; (c) ordering
Defendant to pay a civil monetary penalty pursuant to Securities Act Section 20(d) [15 U.S.C.

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§ 77t(d)] and Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)]; and (d) ordering any other
relief the Court may deem just and proper.
JURISDICTION AND VENUE
11. This Court has jurisdiction over this action pursuant to Securities Act Section
22(a) [15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].
12. Defendant, directly or indirectly, has made use of the instrumentalities of
interstate commerce or of the mails in connection with transactions, acts, practices, and courses
of business alleged herein.
13. Venue lies in this District under Securities Act Section 22(a) [15 U.S.C. § 77v(a)]
and Exchange Act Section 27 [15 U.S.C. § 78aa]. Defendant transacted business in the Eastern
District of New York during the Relevant Period, and certain of the acts, practices, transactions,
and courses of business alleged in this Complaint occurred within this District, including that
Defendant worked out of his employer’s office in Hauppauge, New York and communicated
with Affected Customers from that location.
DEFENDANTS
14. Cabalar, age 42, resides in Wellington, Florida, and has been associated with
PHX Financial from 2015 to the present as a registered representative. From 2015 through 2022,
Cabalar worked out of PHX Financial’s Hauppauge, New York office. Beginning in 2022,
Cabalar moved to Florida and has worked out of PHX Financial’s Fort Lauderdale, Florida
office. He has been registered with FINRA since 2013 and holds FINRA Series 7 and 63
licenses.

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RELATED ENTITY
15. PHX Financial, Inc., is a Florida corporation with its main office in New York
City and branch offices in Hauppauge, New York, and Fort Lauderdale, Florida. It has been
registered with the Commission as a broker-dealer since 2007.
FACTS
I. Background
16. As a registered representative at PHX Financial, Cabalar solicited customers to
open PHX brokerage accounts and recommended the purchases and/or sales of securities to
them.
17. Cabalar’s compensation from PHX Financial was on a commission-only basis.
18. For typical securities such as stocks and bonds that trade on exchanges, such as
the New York Stock Exchange, when a customer bought or sold such securities, Cabalar and
PHX Financial charged a commission of up to 3.5% of the value of the trade. Additionally, PHX
Financial charged a $49 transaction fee to the customer, which PHX called a “Minimum Firm
Commission.”  PHX split the Minimum Firm Commission with its clearing firm, with PHX
retaining $40 and the clearing firm the remaining $9.
19. Cabalar received 70% of each commission charged, and PHX Financial received
the other 30% of the commission. Cabalar did not receive a share of the Minimum Firm
Commissions that PHX charged to customers, but they were another cost he should have
considered in recommending his short-term, high volume trading strategy.
20. Defendant did no due diligence before making trade recommendations to
determine the total costs over time that his recommendations were imposing on the Affected
Customers in their Accounts, including the commissions of up to 3.5% of the transaction that he

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split with PHX and the Minimum Firm Commission PHX charged for every transaction.
Defendant maintained no records showing that he ever considered the aggregate costs of the
short-term, high volume trading that he recommended to the Affected Customers
21. The cost-to-equity ratio, also referred to as the break-even ratio, measures the
amount an account must appreciate annually to cover costs, such as commissions and fees
associated with trading in the account.
22. A cost-to equity ratio of 20% or higher is indicative of excessive trading, although
lower cost-to-equity ratios can also reflect excessive trading.
23. Annual turnover rate represents the total value of annual purchases made in the
account divided by the account’s average monthly balance: the number of times per year a
customer’s securities are replaced by new securities.
24. A turnover rate of six is indicative of excessive trading, although lower turnover
rates can also reflect excessive trading.
II. Defendant Made a Series of Recommendations to Eight Customers Without a
Reasonable Basis And Failed To Disclose That The Commissions and Fees Could
Make Them Lose Money

25. Cabalar, as an associated person of a broker-dealer, is required to have a
reasonable basis to believe that the recommendations that he makes are suitable for his retail
customers. This means that Cabalar must understand the risks, rewards, and potential
consequences (including the imposition of costs such as commissions and fees), of the
recommendations that he makes to his customers.
26. The obligation to make recommendations that have a “reasonable basis” and
which are “suitable” for customers is well-known in the industry, and Cabalar was aware of

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those obligations from his years of work at multiple broker-dealers, and training provided by
those broker-dealers.
27. During the Relevant Period, Defendant recommended a short-term, high-volume
investment strategy to the eight Affected Customers in their Accounts without a reasonable basis.
Cabalar recommended frequent purchases and sales of securities in the customers’ Accounts,
sometimes including a purchase and sale of the same security in the same day or week.
28. When making the trading recommendations to the Affected Customers for their
Accounts, Defendant did not disclose that the commissions and fees he and PHX Financial
charged made it likely that these customers would lose money through such trading.
29. The extremely high cost-to-equity ratios in the Accounts of the Affected
Customers, shown in the charts below, demonstrate that Cabalar engaged in excessive trading in
these Accounts during the Relevant Period.
1
 The cost-to-equity ratios for these Accounts during
the Relevant Period range from 40.41% – 61.22%. The cost-to-equity ratios for these Accounts
during the Reg BI Period range from 40.41% – 51.94%.
30. Similarly, the turnover rates in the accounts of the Affected Customers, shown in
the charts below, demonstrate excessive trading during the Relevant Period. The turnover rates
during the Relevant Period range from 7.62 – 47.07. The turnover rates for these Accounts
during the Reg BI Period range from 7.62 – 53.07.
31. During the Relevant Period, Cabalar’s recommendations in the Affected
Customer’s Accounts resulted in the ratios, commissions and fees (costs), and losses shown
below:

1
 There was no trading in the Accounts of the Affected Customers between July 2020 and
September 2020, and as such the Reg BI Period begins in October 2020.

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Customer  Trade Period
Turnover
Rate
Cost to Equity
Ratio
Total
Commissions Total  Loss
Total Commissions /
Fees
Customer A
Jan 2019 through
July 2021 9.05 43.38% 35,734.65 (94,202.95) 37,087.61
Customer B
Oct 2020 through
Oct 2021 13.07 43.48% 45,228.08 (90,673.07) 46,380.29
Customer C
Oct 2020 through
Sept 2021 10.01 46.37% 28,101.08 (34,974.00) 28,826.18
Customer D
March 2020
through Sept 2021 47.07 61.22% 48,681.08 (36,436.17) 49,433.94
Customer E
Oct 2020 through
Sep 2021 7.62 40.41% 25,522.32 (55,084.04) 25,582.32
Customer F
Jan 2019 through
May 2021  14.99 45.81% 82,884.34 (442,792.73) 87,136.29
Customer G
April 2020
through July 2021 12.87 53.11% 52,685.92 (209,052.25) 53,178.64
Customer H
Jan 2019 through
Oct 2021  11.78 48.64% 85,077.87 (106,683.01) 86,467.19
Totals    403,915.34 (1,069,898.22) 414,092.46

32. During the Reg BI Period, Cabalar’s recommendations in the Affected
Customer’s Accounts resulted in the ratios, commissions and fees (costs), and losses shown
below:
Customer Reg BI Period
Turnover
Rate
Cost to
Equity Ratio
Total
Commissions Total  Loss Total Commissions / Fees
Customer A
Oct 2020 through July
2021  8.88 42.12% 31,669.65 (78,672.06) 32,967.61
Customer B
Oct 2020 through Oct
2021 13.07 43.48% 45,228.08 (90,673.07) 46,380.29
Customer C
Oct 2020 through Sept
2021 10.01 46.37% 28,101.08 (34,974.00) 28,826.18
Customer D
Oct 2020 through Sept
2021

53.07 49.12% 27,120.08 (42,143.42) 27,598.87

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Customer E
Oct 2020 through Sept
2021 7.62 40.41% 25,522.32 (55,084.04) 25,582.32
Customer F

Oct 2020 through -
May 2021 13.49 45.59% 64,699.35 (424,141.76) 68,534.52
Customer G
Oct 2020 through July
2021  12.17 51.94% 42,674.92 (200,612.48) 43,027.51
Customer H
Oct 2020 through Oct
2021 12.02 51.78% 76,188.87 (53,010.47) 77,160.89
Totals    341,204.35 (979,311.30) 350,078.19

The trades summarized in Paragraph 32 are a sub-set of the trades summarized in Paragraph 31.
33. In each column of the chart in Paragraphs 31 and 32, almost all of the trades
summarized were documented by PHX Financial as “solicited trades,” meaning that Cabalar
recommended them to his customers. A few trades in the Total Loss column (approximately 0%
to 6% per account) were part of round-trip transactions, and were not documented as solicited
trades – i.e., there was an unsolicited buy or sell trade that corresponded to a solicited buy or sell
trade.
34. Cabalar failed to consider whether the high trade frequency, high-cost investment
strategy he recommended for the Accounts was suitable for his customers, especially in light of
the commissions and fees charged to them.
35. Cabalar knew, or recklessly disregarded, that the investment strategy of frequent
trading he recommended for the Accounts was almost certain to lose money, and he had no
reasonable basis to recommend that frequent trading strategy given the commissions and fees he
and PHX Financial charged the Affected Customers.
36. Cabalar knew, or recklessly disregarded, that he had no reasonable basis to
believe that the frequency with which he recommended the Affected Customers buy and sell

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securities in their Accounts, combined with the per-trade commissions and fees he and PHX
Financial charged his customers, would be suitable for any retail investor.
III. Regulation Best Interest
37. As of June 30, 2020, Reg BI imposed an obligation on Cabalar, as an associated
person of a broker, when making recommendations to his retail customers, to exercise reasonable
diligence, care, and skill to have a reasonable basis to believe that the series of recommended
transactions, even if in the retail customer’s best interest when viewed in isolation, is not
excessive and is in the retail customer’s best interest when taken together in light of the retail
customer’s investment profile and does not place the financial or other interest of the broker,
dealer, or associated person making the series of recommendations ahead of the interest of the
retail customer.
38. Cabalar did not exercise reasonable diligence, care and skill to have a reasonable
basis to believe that the investment strategy he recommended to the Affected Customers for their
Accounts during the Reg BI Period, which strategy consisted of a series of recommendations to
frequently buy and sell securities and incur high costs, was not excessive and did not place his
financial interest ahead of those customers’ best interest.
39. Before June 30, 2020, Cabalar received training in Reg BI from PHX Financial.
IV. Cabalar Made Material Misrepresentations and Omissions to the Affected
Customers

40. Defendant knowingly or recklessly misrepresented his recommended trading
strategy as being profitable to at least one customer, when, as shown in the charts in Paragraphs
31 and 32, it was a high-cost strategy that left customers with little chance of generating a profit
while generating significant commissions for Defendant.

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41. When Customer D opened a brokerage account with PHX Financial in March
2020, he did so in part because he had previously lost $70,000 he had invested with a different
broker. Defendant told Customer D that he could help Customer D recoup those losses in around
a year in his Account.
42. Defendant had no reasonable basis to tell Customer D he could recoup $70,000 in
around one year in his Account. Customer D’s brokerage account at PHX Financial had
approximately $88,000 in net portfolio value in March 2020, which is when he opened his
account. To recoup Customer D’s $70,000 in one year in Customer D’s Account, Cabalar would
have had to generate a net profit of approximately 79% in one year, not including PHX Financial
and Cabalar’s commissions and fees.
43. Cabalar’s recommended trading strategy with frequent purchases and sales of
securities in addition to the costs charged by Cabalar and PHX Financial made it even more
unlikely that Cabalar could achieve a 79% return in Customer D’s Account.
44. Furthermore, Defendant knowingly or recklessly misrepresented his
recommended trading strategy to all of the Affected Customers when he recommended a series
of frequent trades to them in their Accounts.  By making those recommendations, Defendant
implicitly represented to them that he had a reasonable basis for his recommendations.
45. Defendant failed to disclose, however, that the strategy he recommended to all the
Affected Customers, with its attendant commissions and fees, was unlikely to be profitable.
FIRST CLAIM FOR RELIEF
Violations of Section 17(a) of the Securities Act

46. The Commission re-alleges and incorporates by reference herein each and every
allegation contained in Paragraphs 1-36, and 40-45.

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47. Defendant, directly or indirectly, singly or in concert, in the offer or sale of
securities and by the use of the means or instruments of transportation or communication in
interstate commerce or the mails, (1) knowingly or recklessly has employed one or more devices,
schemes or artifices to defraud, (2) knowingly, recklessly, or negligently has obtained money or
property by means of one or more untrue statements of a material fact or omissions of a material
fact necessary in order to make the statements made, in light of the circumstances under which
they were made, not misleading, and/or (3) knowingly, recklessly or negligently have engaged in
on or more transactions, practices, or courses of business which operated or would operate as a
fraud or deceit upon the purchaser.
48. By reason of the foregoing, Defendant, directly or indirectly, singly or in concert,
has violated and, unless enjoined, will again violate Securities Act Section 17(a) [15 U.S.C.
§ 77q(a)].
SECOND CLAIM FOR RELIEF

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder

49. The Commission re-alleges and incorporates by reference here the allegations in
Paragraphs 1–36, and 40-45.
50. Defendant, directly or indirectly, singly or in concert, in connection with the
purchase or sale of securities and by the use of means or instrumentalities of interstate
commerce, or the mails, or the facilities of a national securities exchange, knowingly or
recklessly have (i) employed one or more devices, schemes, or artifices to defraud, (ii) made one
or more untrue statements of a material fact or omitted to state one or more material facts
necessary in order to make the statements made, in light of the circumstances under which they

13

were made, not misleading, and/or (iii) engaged in one or more acts, practices, or courses of
business which operated or would operate as a fraud or deceit upon other persons.
51. By reason of the foregoing, the Defendant, directly or indirectly, singly or in
concert, has violated and, unless enjoined, will again violate Section 10(b) of the Exchange Act
[15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
THIRD CLAIM FOR RELIEF
Violations of Exchange Act Rule 15l-1 (Regulation Best Interest)
52. The Commission re-alleges and incorporates by reference here the allegations in
Paragraphs 1-24, 29-33, and 37-39.
53. Beginning on October 1, 2020, Defendant, as an associated person of a broker or
dealer, when making recommendations of securities transactions or investment strategies
involving securities (including account recommendations) to retail customers, failed to act in the
best interest of the retail customers at the time the recommendations were made, by placing the
financial or other interest of the broker, dealer, or natural person who is an associated person of a
broker or dealer making the recommendation ahead of the interest of the retail customer.
54. In particular, beginning on October 1, 2020, Defendant, as an associated person of
a broker or dealer, in making recommendations, failed to exercise reasonable diligence, care and
skill to have a reasonable basis to believe that a series of recommended transactions, even if in
his retail customers’ best interests when viewed in isolation, were not excessive and were in the
retail customers’ best interests when taken together in light of the retail customers’ investment
profile and did not place the financial or other interest of the broker, dealer, or such natural
person making the series of recommendations ahead of the interest of the retail customer.

14

55. By reason of the foregoing, the Defendants, directly or indirectly, singly or in
concert, have violated, and unless enjoined, will again violate Exchange Act Rules 15l-(a)(1) [17
C.F.R. § 240.15l-(a)(1)], and 15l-1(a)(2)(ii) [17 C.F.R. § 240.15l-1(a)(2)(ii)].

PRAYER FOR RELIEF
 WHEREFORE, the Commission respectfully requests that this Court enter a Final
Judgment:
I.
Permanently enjoining Defendant and his agents, servants, employees and attorneys and
all persons in active concert or participation with him from violating, directly or indirectly,
Securities Act Section 17(a) [15 U.S.C. § 77q(a)] and Exchange Act Section 10(b) [15 U.S.C.
§ 78j(b)] and Rules 10b-5 [17 C.F.R. § 240.10b-5], 15l-(a)(1) [17 C.F.R. § 240.15l-(a)(1)], and
15l-1(a)(2)(ii) [17 C.F.R. § 240.15l-1(a)(2)(ii)] thereunder;
II.
Ordering Defendant to disgorge any ill-gotten gains he received directly or indirectly,
with pre-judgment interest thereon, as a result of the alleged violations, pursuant to Exchange
Act Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), (d)(5) and (d)(7)];
III.
Ordering Defendant to pay a civil monetary penalty under Section 20(d) of the Securities
Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]; and
IV.
Granting such other and further relief as the Court may deem just and proper.

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JURY DEMAND
The Commission demands a trial by jury.

Dated: New York, New York
 October 16, 2024

Respectfully submitted,

SECURITIES AND EXCHANGE
COMMISSION

____________________________
Antonia M. Apps
Regional Director
Thomas P. Smith, Jr.
Judith Weinstock
Christopher J. Dunnigan
Stewart Gilson
Attorneys for Plaintiff
SECURITIES AND EXCHANGE
COMMISSION
      New York Regional Office
      100 Pearl Street, Suite 20-100
      New York, New York 10004
      Phone: (212) 336-0061 (Dunnigan)
Email: [email protected]
Attorneys for Plaintiff

ANTONIA M. APPS 

REGIONAL DIRECTOR 

Thomas P. Smith, Jr. 

Judith Weinstock 

Christopher J. Dunnigan 

Stewart Gilson 

Attorneys for Plaintiff 

SECURITIES AND EXCHANGE COMMISSION 

New York Regional Office 

100 Pearl Street, Suite 20-100 

New York, New York 10004 

Phone: (212) 336-0061 (Dunnigan) 

Email: [email protected] 

 

 

UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF NEW YORK 

-------------------------------------------------------------- x 
SECURITIES AND EXCHANGE    : 
COMMISSION,     : 
       : 
    Plaintiff,  : 24 civ. 7274 
       : 

v.    : 
    : Jury Trial Demanded 

BARIS CABALAR,     : 
    Defendant.  : ECF Case 
-------------------------------------------------------------- x 

 

 

COMPLAINT 

Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against 

defendant Baris Cabalar (“Cabalar” or “Defendant”) alleges as follows: 

SUMMARY 

1. From January 2019 through October 2021 (“Relevant Period”), Cabalar was a 

registered representative at PHX Financial, Inc. (“PHX Financial”), a broker-dealer 

headquartered in New York, New York, with branch offices in Fort Lauderdale, Florida, and 

Hauppauge, New York. During the Relevant Period, Cabalar recommended to eight retail 

customers (“Affected Customers”) in their PHX brokerage accounts (“Accounts”) a short-term, 

Case 1:24-cv-07274     Document 1     Filed 10/16/24     Page 1 of 15 PageID #: 1



2 

 

high volume trading strategy without a reasonable basis that such a strategy would be profitable, 

and failing to disclose when recommending such trading that the commissions and fees that PHX 

and Cabalar charged would likely result in customers losing money. 

2. Cabalar’s recommendations to the Affected Customers that they engage in short-

term, high volume trading in their Accounts that he had no reason to believe would be profitable 

violated Cabalar’s obligation to have a reasonable basis for the investment recommendations he 

made to his customers.  

3. Cabalar made at least one explicit misrepresentation to an Affected Customer, 

telling him that in around one year, he could recoup $70,000 in losses the Affected Customer had 

incurred with another broker, without a reasonable basis for saying so, given the trading strategy 

he recommended.  

4. Cabalar consistently solicited customers to trade frequently as part of his short-

term, high volume trading strategy. In making recommendations to all of the Affected 

Customers, Cabalar implicitly represented to them that he had a reasonable basis for his 

recommendations, without disclosing that the strategy he recommended was likely to cause 

losses.  

5. As a result of these recommendations, Cabalar caused the Affected Customers 

together to lose over $1,000,000 in their Accounts during the Relevant Period. During the 

Relevant Period, through their improper trading strategies, PHX Financial and Cabalar together 

made over $400,000 in commissions and fees from the Accounts.  

6. Additionally, Regulation Best Interest (“Reg BI”) [17 C.F.R. § 240.15l-1], 

promulgated under the Securities Exchange Act of 1934 (“Exchange Act”) went into effect on 

June 30, 2020. Between October 1, 2020 and October 31, 2021 (“Reg BI Period”), Cabalar 

Case 1:24-cv-07274     Document 1     Filed 10/16/24     Page 2 of 15 PageID #: 2



3 

 

violated Reg BI by, among other things, failing to act in the best interest of the Affected 

Customers, by placing the financial or other interests of PHX Financial or himself ahead of the 

interests of the Affected Customers. 

VIOLATIONS 

7. Through the conduct alleged herein, the Defendant, directly or indirectly, singly 

or in concert, violated and is otherwise liable for violations of Section 17(a) of the Securities Act 

of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. 

§ 78j(b)] and Rules 10b-5 [17 C.F.R. § 240.10b-5], 15l-1(a)(1) [17 C.F.R. § 15l-(1)(a)], and 15l-

1(a)(2)(ii) [17 C.F.R. § 240.15l-1(a)(2)(ii)]. 

8. Unless the Defendant is permanently restrained and enjoined, he will again 

engage in the acts, practices, transactions, and courses of business set forth in this complaint and 

in acts, practices, transactions, and courses of business of similar type and object.  

NATURE OF PROCEEDINGS AND RELIEF SOUGHT 

9. The Commission brings this action pursuant to the authority conferred upon it by 

Securities Act Sections 20(b) and 20(d) [15 U.S.C. §§ 77t(a) and 77t(d)] and Exchange Act 

Section 21(d) [15 U.S.C. § 78u(d)]. 

10. The Commission seeks a final judgment: (a) permanently enjoining Defendant 

from violating the federal securities laws and rules this Complaint alleges he has violated; (b) 

ordering Defendant to disgorge all ill-gotten gains he received as a result of the violations 

alleged here and to pay prejudgment interest on it, pursuant to Exchange Act Sections 21(d)(3), 

21(d)(5), and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5), and 78u(d)(7)]; (c) ordering 

Defendant to pay a civil monetary penalty pursuant to Securities Act Section 20(d) [15 U.S.C. 

Case 1:24-cv-07274     Document 1     Filed 10/16/24     Page 3 of 15 PageID #: 3



4 

 

§ 77t(d)] and Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)]; and (d) ordering any other 

relief the Court may deem just and proper. 

JURISDICTION AND VENUE 

11. This Court has jurisdiction over this action pursuant to Securities Act Section 

22(a) [15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa]. 

12. Defendant, directly or indirectly, has made use of the instrumentalities of 

interstate commerce or of the mails in connection with transactions, acts, practices, and courses 

of business alleged herein. 

13. Venue lies in this District under Securities Act Section 22(a) [15 U.S.C. § 77v(a)] 

and Exchange Act Section 27 [15 U.S.C. § 78aa]. Defendant transacted business in the Eastern 

District of New York during the Relevant Period, and certain of the acts, practices, transactions, 

and courses of business alleged in this Complaint occurred within this District, including that 

Defendant worked out of his employer’s office in Hauppauge, New York and communicated 

with Affected Customers from that location. 

DEFENDANTS 

14. Cabalar, age 42, resides in Wellington, Florida, and has been associated with 

PHX Financial from 2015 to the present as a registered representative. From 2015 through 2022, 

Cabalar worked out of PHX Financial’s Hauppauge, New York office. Beginning in 2022, 

Cabalar moved to Florida and has worked out of PHX Financial’s Fort Lauderdale, Florida 

office. He has been registered with FINRA since 2013 and holds FINRA Series 7 and 63 

licenses. 

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RELATED ENTITY 

15. PHX Financial, Inc., is a Florida corporation with its main office in New York 

City and branch offices in Hauppauge, New York, and Fort Lauderdale, Florida. It has been 

registered with the Commission as a broker-dealer since 2007.  

FACTS 

I. Background 

16. As a registered representative at PHX Financial, Cabalar solicited customers to 

open PHX brokerage accounts and recommended the purchases and/or sales of securities to 

them. 

17. Cabalar’s compensation from PHX Financial was on a commission-only basis. 

18. For typical securities such as stocks and bonds that trade on exchanges, such as 

the New York Stock Exchange, when a customer bought or sold such securities, Cabalar and 

PHX Financial charged a commission of up to 3.5% of the value of the trade. Additionally, PHX 

Financial charged a $49 transaction fee to the customer, which PHX called a “Minimum Firm 

Commission.”  PHX split the Minimum Firm Commission with its clearing firm, with PHX 

retaining $40 and the clearing firm the remaining $9. 

19. Cabalar received 70% of each commission charged, and PHX Financial received 

the other 30% of the commission. Cabalar did not receive a share of the Minimum Firm 

Commissions that PHX charged to customers, but they were another cost he should have 

considered in recommending his short-term, high volume trading strategy.  

20. Defendant did no due diligence before making trade recommendations to 

determine the total costs over time that his recommendations were imposing on the Affected 

Customers in their Accounts, including the commissions of up to 3.5% of the transaction that he 

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split with PHX and the Minimum Firm Commission PHX charged for every transaction.  

Defendant maintained no records showing that he ever considered the aggregate costs of the 

short-term, high volume trading that he recommended to the Affected Customers  

21. The cost-to-equity ratio, also referred to as the break-even ratio, measures the 

amount an account must appreciate annually to cover costs, such as commissions and fees 

associated with trading in the account.  

22. A cost-to equity ratio of 20% or higher is indicative of excessive trading, although 

lower cost-to-equity ratios can also reflect excessive trading.  

23. Annual turnover rate represents the total value of annual purchases made in the 

account divided by the account’s average monthly balance: the number of times per year a 

customer’s securities are replaced by new securities. 

24. A turnover rate of six is indicative of excessive trading, although lower turnover 

rates can also reflect excessive trading. 

II. Defendant Made a Series of Recommendations to Eight Customers Without a 

Reasonable Basis And Failed To Disclose That The Commissions and Fees Could 

Make Them Lose Money 

 

25. Cabalar, as an associated person of a broker-dealer, is required to have a 

reasonable basis to believe that the recommendations that he makes are suitable for his retail 

customers. This means that Cabalar must understand the risks, rewards, and potential 

consequences (including the imposition of costs such as commissions and fees), of the 

recommendations that he makes to his customers. 

26. The obligation to make recommendations that have a “reasonable basis” and 

which are “suitable” for customers is well-known in the industry, and Cabalar was aware of 

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those obligations from his years of work at multiple broker-dealers, and training provided by 

those broker-dealers. 

27. During the Relevant Period, Defendant recommended a short-term, high-volume 

investment strategy to the eight Affected Customers in their Accounts without a reasonable basis. 

Cabalar recommended frequent purchases and sales of securities in the customers’ Accounts, 

sometimes including a purchase and sale of the same security in the same day or week. 

28. When making the trading recommendations to the Affected Customers for their 

Accounts, Defendant did not disclose that the commissions and fees he and PHX Financial 

charged made it likely that these customers would lose money through such trading.  

29. The extremely high cost-to-equity ratios in the Accounts of the Affected 

Customers, shown in the charts below, demonstrate that Cabalar engaged in excessive trading in 

these Accounts during the Relevant Period.1 The cost-to-equity ratios for these Accounts during 

the Relevant Period range from 40.41% – 61.22%. The cost-to-equity ratios for these Accounts 

during the Reg BI Period range from 40.41% – 51.94%. 

30. Similarly, the turnover rates in the accounts of the Affected Customers, shown in 

the charts below, demonstrate excessive trading during the Relevant Period. The turnover rates 

during the Relevant Period range from 7.62 – 47.07. The turnover rates for these Accounts 

during the Reg BI Period range from 7.62 – 53.07. 

31. During the Relevant Period, Cabalar’s recommendations in the Affected 

Customer’s Accounts resulted in the ratios, commissions and fees (costs), and losses shown 

below: 

 
1 There was no trading in the Accounts of the Affected Customers between July 2020 and 

September 2020, and as such the Reg BI Period begins in October 2020. 

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Customer  Trade Period   

Turnover 

Rate 

Cost to Equity 

Ratio 

Total 

Commissions Total  Loss 

Total Commissions / 

Fees  

Customer A 
Jan 2019 through 
July 2021 9.05 43.38% 35,734.65 (94,202.95) 37,087.61 

Customer B 

Oct 2020 through 

Oct 2021 13.07 43.48% 45,228.08 (90,673.07) 46,380.29 

Customer C 

Oct 2020 through 

Sept 2021 10.01 46.37% 28,101.08 (34,974.00) 28,826.18 

Customer D 
March 2020 
through Sept 2021 47.07 61.22% 48,681.08 (36,436.17) 49,433.94 

Customer E 

Oct 2020 through 

Sep 2021 7.62 40.41% 25,522.32 (55,084.04) 25,582.32 

Customer F 

Jan 2019 through 

May 2021  14.99 45.81% 82,884.34 (442,792.73) 87,136.29 

Customer G 

April 2020 

through July 2021 12.87 53.11% 52,685.92 (209,052.25) 53,178.64 

Customer H 

Jan 2019 through 

Oct 2021  11.78 48.64% 85,077.87 (106,683.01) 86,467.19 

Totals    403,915.34 (1,069,898.22) 414,092.46 

  

32. During the Reg BI Period, Cabalar’s recommendations in the Affected 

Customer’s Accounts resulted in the ratios, commissions and fees (costs), and losses shown 

below: 

Customer Reg BI Period 

Turnover 

Rate 

Cost to 

Equity Ratio 

Total 

Commissions Total  Loss Total Commissions / Fees 

Customer A 

Oct 2020 through July 

2021  8.88 42.12% 31,669.65 (78,672.06) 32,967.61 

Customer B 

Oct 2020 through Oct 

2021 13.07 43.48% 45,228.08 (90,673.07) 46,380.29 

Customer C 

Oct 2020 through Sept 

2021 10.01 46.37% 28,101.08 (34,974.00) 28,826.18 

Customer D 

Oct 2020 through Sept 

2021 

 

53.07 49.12% 27,120.08 (42,143.42) 27,598.87 

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Customer E 
Oct 2020 through Sept 
2021 7.62 40.41% 25,522.32 (55,084.04) 25,582.32 

Customer F 

 

Oct 2020 through - 
May 2021 13.49 45.59% 64,699.35 (424,141.76) 68,534.52 

Customer G 
Oct 2020 through July 
2021  12.17 51.94% 42,674.92 (200,612.48) 43,027.51 

Customer H 
Oct 2020 through Oct 
2021 12.02 51.78% 76,188.87 (53,010.47) 77,160.89 

Totals    341,204.35 (979,311.30) 350,078.19 

 

The trades summarized in Paragraph 32 are a sub-set of the trades summarized in Paragraph 31.  

33. In each column of the chart in Paragraphs 31 and 32, almost all of the trades 

summarized were documented by PHX Financial as “solicited trades,” meaning that Cabalar 

recommended them to his customers. A few trades in the Total Loss column (approximately 0% 

to 6% per account) were part of round-trip transactions, and were not documented as solicited 

trades – i.e., there was an unsolicited buy or sell trade that corresponded to a solicited buy or sell 

trade.  

34. Cabalar failed to consider whether the high trade frequency, high-cost investment 

strategy he recommended for the Accounts was suitable for his customers, especially in light of 

the commissions and fees charged to them. 

35. Cabalar knew, or recklessly disregarded, that the investment strategy of frequent 

trading he recommended for the Accounts was almost certain to lose money, and he had no 

reasonable basis to recommend that frequent trading strategy given the commissions and fees he 

and PHX Financial charged the Affected Customers.  

36. Cabalar knew, or recklessly disregarded, that he had no reasonable basis to 

believe that the frequency with which he recommended the Affected Customers buy and sell 

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securities in their Accounts, combined with the per-trade commissions and fees he and PHX 

Financial charged his customers, would be suitable for any retail investor. 

III. Regulation Best Interest 

37. As of June 30, 2020, Reg BI imposed an obligation on Cabalar, as an associated 

person of a broker, when making recommendations to his retail customers, to exercise reasonable 

diligence, care, and skill to have a reasonable basis to believe that the series of recommended 

transactions, even if in the retail customer’s best interest when viewed in isolation, is not 

excessive and is in the retail customer’s best interest when taken together in light of the retail 

customer’s investment profile and does not place the financial or other interest of the broker, 

dealer, or associated person making the series of recommendations ahead of the interest of the 

retail customer. 

38. Cabalar did not exercise reasonable diligence, care and skill to have a reasonable 

basis to believe that the investment strategy he recommended to the Affected Customers for their 

Accounts during the Reg BI Period, which strategy consisted of a series of recommendations to 

frequently buy and sell securities and incur high costs, was not excessive and did not place his 

financial interest ahead of those customers’ best interest. 

39. Before June 30, 2020, Cabalar received training in Reg BI from PHX Financial. 

IV. Cabalar Made Material Misrepresentations and Omissions to the Affected 

Customers 

 

40. Defendant knowingly or recklessly misrepresented his recommended trading 

strategy as being profitable to at least one customer, when, as shown in the charts in Paragraphs 

31 and 32, it was a high-cost strategy that left customers with little chance of generating a profit 

while generating significant commissions for Defendant. 

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41. When Customer D opened a brokerage account with PHX Financial in March 

2020, he did so in part because he had previously lost $70,000 he had invested with a different 

broker. Defendant told Customer D that he could help Customer D recoup those losses in around 

a year in his Account. 

42. Defendant had no reasonable basis to tell Customer D he could recoup $70,000 in 

around one year in his Account. Customer D’s brokerage account at PHX Financial had 

approximately $88,000 in net portfolio value in March 2020, which is when he opened his 

account. To recoup Customer D’s $70,000 in one year in Customer D’s Account, Cabalar would 

have had to generate a net profit of approximately 79% in one year, not including PHX Financial 

and Cabalar’s commissions and fees.   

43. Cabalar’s recommended trading strategy with frequent purchases and sales of 

securities in addition to the costs charged by Cabalar and PHX Financial made it even more 

unlikely that Cabalar could achieve a 79% return in Customer D’s Account.  

44. Furthermore, Defendant knowingly or recklessly misrepresented his 

recommended trading strategy to all of the Affected Customers when he recommended a series 

of frequent trades to them in their Accounts.  By making those recommendations, Defendant 

implicitly represented to them that he had a reasonable basis for his recommendations.   

45. Defendant failed to disclose, however, that the strategy he recommended to all the 

Affected Customers, with its attendant commissions and fees, was unlikely to be profitable.   

FIRST CLAIM FOR RELIEF 

Violations of Section 17(a) of the Securities Act  

 

46. The Commission re-alleges and incorporates by reference herein each and every 

allegation contained in Paragraphs 1-36, and 40-45. 

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47. Defendant, directly or indirectly, singly or in concert, in the offer or sale of 

securities and by the use of the means or instruments of transportation or communication in 

interstate commerce or the mails, (1) knowingly or recklessly has employed one or more devices, 

schemes or artifices to defraud, (2) knowingly, recklessly, or negligently has obtained money or 

property by means of one or more untrue statements of a material fact or omissions of a material 

fact necessary in order to make the statements made, in light of the circumstances under which 

they were made, not misleading, and/or (3) knowingly, recklessly or negligently have engaged in 

on or more transactions, practices, or courses of business which operated or would operate as a 

fraud or deceit upon the purchaser. 

48. By reason of the foregoing, Defendant, directly or indirectly, singly or in concert, 

has violated and, unless enjoined, will again violate Securities Act Section 17(a) [15 U.S.C. 

§ 77q(a)]. 

SECOND CLAIM FOR RELIEF 

 

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder  

 

49. The Commission re-alleges and incorporates by reference here the allegations in 

Paragraphs 1–36, and 40-45. 

50. Defendant, directly or indirectly, singly or in concert, in connection with the 

purchase or sale of securities and by the use of means or instrumentalities of interstate 

commerce, or the mails, or the facilities of a national securities exchange, knowingly or 

recklessly have (i) employed one or more devices, schemes, or artifices to defraud, (ii) made one 

or more untrue statements of a material fact or omitted to state one or more material facts 

necessary in order to make the statements made, in light of the circumstances under which they 

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were made, not misleading, and/or (iii) engaged in one or more acts, practices, or courses of 

business which operated or would operate as a fraud or deceit upon other persons. 

51. By reason of the foregoing, the Defendant, directly or indirectly, singly or in 

concert, has violated and, unless enjoined, will again violate Section 10(b) of the Exchange Act 

[15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

THIRD CLAIM FOR RELIEF 

Violations of Exchange Act Rule 15l-1 (Regulation Best Interest) 

52. The Commission re-alleges and incorporates by reference here the allegations in 

Paragraphs 1-24, 29-33, and 37-39. 

53. Beginning on October 1, 2020, Defendant, as an associated person of a broker or 

dealer, when making recommendations of securities transactions or investment strategies 

involving securities (including account recommendations) to retail customers, failed to act in the 

best interest of the retail customers at the time the recommendations were made, by placing the 

financial or other interest of the broker, dealer, or natural person who is an associated person of a 

broker or dealer making the recommendation ahead of the interest of the retail customer. 

54. In particular, beginning on October 1, 2020, Defendant, as an associated person of 

a broker or dealer, in making recommendations, failed to exercise reasonable diligence, care and 

skill to have a reasonable basis to believe that a series of recommended transactions, even if in 

his retail customers’ best interests when viewed in isolation, were not excessive and were in the 

retail customers’ best interests when taken together in light of the retail customers’ investment 

profile and did not place the financial or other interest of the broker, dealer, or such natural 

person making the series of recommendations ahead of the interest of the retail customer.  

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55. By reason of the foregoing, the Defendants, directly or indirectly, singly or in 

concert, have violated, and unless enjoined, will again violate Exchange Act Rules 15l-(a)(1) [17 

C.F.R. § 240.15l-(a)(1)], and 15l-1(a)(2)(ii) [17 C.F.R. § 240.15l-1(a)(2)(ii)]. 

 

PRAYER FOR RELIEF 

 WHEREFORE, the Commission respectfully requests that this Court enter a Final 

Judgment: 

I. 

Permanently enjoining Defendant and his agents, servants, employees and attorneys and 

all persons in active concert or participation with him from violating, directly or indirectly, 

Securities Act Section 17(a) [15 U.S.C. § 77q(a)] and Exchange Act Section 10(b) [15 U.S.C. 

§ 78j(b)] and Rules 10b-5 [17 C.F.R. § 240.10b-5], 15l-(a)(1) [17 C.F.R. § 240.15l-(a)(1)], and 

15l-1(a)(2)(ii) [17 C.F.R. § 240.15l-1(a)(2)(ii)] thereunder; 

II. 

Ordering Defendant to disgorge any ill-gotten gains he received directly or indirectly, 

with pre-judgment interest thereon, as a result of the alleged violations, pursuant to Exchange 

Act Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), (d)(5) and (d)(7)]; 

III. 

Ordering Defendant to pay a civil monetary penalty under Section 20(d) of the Securities 

Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]; and 

IV. 

Granting such other and further relief as the Court may deem just and proper. 

  

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JURY DEMAND 

The Commission demands a trial by jury.  

 

Dated: New York, New York 

 October 16, 2024 

 

 

Respectfully submitted,  

 

SECURITIES AND EXCHANGE 

COMMISSION 

 

 

 

____________________________ 

Antonia M. Apps 

Regional Director 

Thomas P. Smith, Jr. 

Judith Weinstock 

Christopher J. Dunnigan 

Stewart Gilson 

Attorneys for Plaintiff 

SECURITIES AND EXCHANGE 

COMMISSION 

      New York Regional Office 

      100 Pearl Street, Suite 20-100 

      New York, New York 10004 

      Phone: (212) 336-0061 (Dunnigan) 

Email: [email protected] 

Attorneys for Plaintiff 

 

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