The SEC has settled charges against Truist Advisory Services, Inc. over control and supervisory failures that allowed one of its investment adviser representatives to move losing trades from his personal brokerage account into client accounts. According to the Commission, representative Gary Costello used Truist Advisory's trade-correction process ten times between March and August 2023 to transfer trades carrying $503,659 in unrealized losses to four advisory clients. The case is significant because the underlying abuse did not depend on complex valuation assumptions or undisclosed fund structures. Instead, it allegedly exploited a routine operational process—trade corrections—that was intended to fix genuine account errors but became a mechanism for shifting personal trading losses to clients.
U.S. Securities and Exchange Commission (SEC)
Official Release: https://www.sec.gov/enforcement-litigation/administrative-proceedings/ia-7016-s
NEWS:
The SEC's September 22, 2026 order states that Costello joined Truist Advisory in November 2022 and actively traded securities on margin in his personal account, including day trades and low-priced stocks. His trading generated substantial losses and repeated margin calls. Beginning in March 2023, the SEC says Costello started using the firm's trade-correction process to cancel unprofitable trades from his own account and rebill them into selected client accounts. Between March 3 and August 1, ten such transactions shifted $503,659 in unrealized losses to four advisory clients.
The control failure was not simply that fraudulent requests were submitted. The SEC found that Truist Advisory approved all ten corrections despite information on the request forms showing that the trades were being moved out of an account associated with Costello. The stated explanation was that the trades had originally been placed in the wrong account, yet the requests were submitted anywhere from the same day to as much as 16 trading days after the original trade. The order also says that on at least three occasions Costello emailed Truist Advisory stating that a trade correction would help resolve a pending margin call. Even after the custodian asked questions about his margin calls and certain trade corrections, the firm approved three additional requests over the following five trading days.
Truist Advisory's written procedures required review of trade corrections and monitoring for patterns of errors by individual representatives. The SEC found that the firm did not adequately implement those procedures and failed to identify the pattern of unprofitable trades moving from Costello's personal account into client accounts. After the custodian raised more specific concerns on August 1, 2023, Truist opened an internal investigation, restricted Costello's activity and terminated him on August 14. The firm later reimbursed affected clients in full with interest, reviewed whether other representatives had engaged in similar conduct, revised its trade-correction process and took corrective action involving employees who had approved the requests.
The Commission found that Truist Advisory violated Sections 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-7 and failed reasonably to supervise Costello. Without admitting or denying the findings, Truist Advisory agreed to a cease-and-desist order, a censure and a $200,000 civil penalty. The SEC expressly noted the firm's remedial actions and cooperation when accepting the settlement.
WHY THIS CASE MATTERS:
The Truist case shows how operational controls can become investor-protection controls. A trade-correction system may look like a back-office function, but when an adviser can move transactions between personal and client accounts, approval rules become part of the firm's anti-fraud framework. Here, the alleged warning signals were unusually concrete: repeated losing trades, margin pressure, requests moving trades from the representative's own account, delays of up to 16 trading days and multiple corrections involving the same individual.
The case also illustrates why compliance testing should focus on patterns rather than individual explanations. Any one trade correction could potentially result from a genuine mistake. Ten corrections that repeatedly move losses away from a representative and into client accounts create a very different risk profile. For investors and due-diligence analysts, the SEC order provides a reminder that the quality of an adviser's supervision cannot be evaluated only through written policies. The more important question is whether those policies actually detect recurring behavior that disadvantages clients.
KEY POINTS:
- Truist Advisory Services is an SEC-registered investment adviser based in Atlanta.
- The SEC says Gary Costello moved ten losing trades from his personal account into four client accounts.
- The affected trades carried $503,659 in unrealized losses.
- Some correction requests were submitted as late as 16 trading days after the original trade.
- Costello allegedly referenced pending margin calls while requesting certain trade corrections.
- The firm's custodian raised questions before the final three disputed corrections were approved.
- Truist later reimbursed the affected clients in full with interest.
- The firm revised its controls and terminated Costello after opening an internal investigation.
- Truist agreed to a censure, cease-and-desist order and $200,000 civil penalty.