May 16, 2016

Oppenheimer Shuts Down Its Commodity Strategy Total Return Fund

After nearly twenty years, Oppenheimer (OPY) is liquidating its Commodity Strategy Total Return Fund (QRAAX) in mid-July. The reason for the shut down is underperformance.

According to the company’s website, the Oppenheimer Commodity Strategy Total Return Fund lost 49% since it was created in 1997, and average yearly returns have consistently declined by the double digits. The Wall Street Journal reported that the commodity fund has lost money annually since hitting an 8.5% return in 2010. It’s also been up 7.19% since the beginning of 2016. However InvestmentNews reports, the fund’s performance has been poor over the last five years. The Oppenheimer fund’s assets under management is down to $269M from over $2B in 2011.

While Oppenheimer said that it continues to believe in the value of its investment strategy, the firm is now saying that investors would benefit more from a multi-asset portfolio. The Commodity Strategy Total Return Fund is most heavily involved in energy, with agriculture and precious industrial metals also big presences. The decline in their prices have played a factor in the fund’s decline.

Oppenheimer has also been in the spotlight of late because a lawmaker has asked the SEC to look into OppenheimerFunds and whether the firm has complied with securities laws when dealing with Puerto Rico bond investments. NY City Council Speaker Melissa Mark-Viverto believes that the firm helped to make the U.S. territory’s financial crisis worse. OppenheimerFunds is heavily invested in Puerto Rico. The Island owes more than $70B in debt.

Oppenheimer Shuts Down Its Commodity Strategy Total Return Fund, The Wall Street Journal, May 11, 2016

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis, Stockbroker Fraud Blog, May 9, 2016

May 9, 2016

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis

According to InvestmentNews, New York City Council Speaker Melissa Mark-Viverito is asking the U.S. Securities and Exchange Commission (“SEC”) to conduct a probe into OppenheimerFunds, Inc. (“OPY”) and its impact on Puerto Rico’s financial woes. Speaker Mark-Viverito believes that the asset-management company played a part in making Puerto Rico’s financial crisis worse by investing even more in the island’s debt. She claims that just in the last eight months, OppenheimerFunds has added $500 million to investments it made in Puerto Rican debt.

Right now, the U.S. territory owes over $70 billion in debt, which it is struggling to pay. It recently defaulted on over $370 million of a bond payment that was due this month. Another $2 billion is due in July, including around $700 million in general obligation debt.

To satisfy investor redemptions, OppenheimerFunds has sold its non-Puerto Rico bonds, which would have raised the current allocation of the asset manager’s funds to the Commonwealth. In a letter to the SEC, Mark-Viverito, who was born in Puerto Rico, urged the agency to look into whether Oppenheimer has complied with all regulations and securities laws when handling its Puerto Rican bond investments. She believes banks, hedge funds, and other investors in the territory’s general-obligation bonds and utility debt are to blame for the island’s financial woes.

Continue reading "NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis" »

May 6, 2016

Deutsche Bank Settles Silver Price Rigging Case

Deutsche Bank AG (DB) has settled a private lawsuit accusing the German bank of manipulating silver futures prices. The terms of the payment amount were not disclosed.

It was in 2014 that silver futures trades sued Deutsche Bank (DB), Bank of Nova Scotia (BNS), and HSBC Holdings Plc (HSBC), accusing the firms of unlawfully manipulating the price of metal and its derivatives. They claimed that the banks, which are the largest silver bullion banks in the world, abused their power so they could dictate the price of silver. The banks would hold secret meetings daily and allegedly manipulate the price so they could illegitimately profit during trading. Meantime, other investors utilizing the silver benchmark in billions of dollars of transactions purportedly were harmed.

Deutsche Bank has admitted to manipulating gold and silver prices. It promised to provide any evidence it might have about other banks’ and their involvement, including electronic communications.

Claims have previously brought against financial firms over alleged gold price rigging. In 2014, Barclays Plc (BARC) was fined $43.8M for internal control failures that let a trader rig gold prices.

Continue reading "Deutsche Bank Settles Silver Price Rigging Case" »

May 5, 2016

MetLife Securities Ordered to Pay $25M FINRA Sanction Related to Variable Annuities

The Financial Industry Regulatory Authority said that MetLife Securities Inc. (MSI) would pay a $20M fine as well as $5M to customers for negligent and material misrepresentations that it purportedly made related to variable annuity replacement applications. According to the self-regulatory organization, these alleged omissions and misrepresentations were on tens of thousands of applications, and they made each replacement variable annuity seem of greater benefit to the customer despite the fact that the variable annuities that were recommended were usually more costly than the ones that the customers already owned. MetLife Securities made at least $152M in gross dealer commissions over six years through its variable annuity replacement business.

Based on a sample of transactions that were randomly examined, FINRA said that from ’09 through ’14, MetLife Securities omitted or misrepresented at least one material fact connected to the guarantees and costs of existing variable annuity contracts in 72% of the 35,500 replacement applications that it approved. Among the alleged misrepresentations:

· Existing variable were costing customers more than the variable annuities they were recommending, when the opposite was true.

· Customers were not told that the variable annuity replacements promised to them would lessen or get rid of key features that their current variable annuity possessed.

· In disclosures, the value of customers’ existing death benefits was understated.

Continue reading "MetLife Securities Ordered to Pay $25M FINRA Sanction Related to Variable Annuities" »

May 3, 2016

Puerto Rico Misses Most of Its $422M Debt Payment

Puerto Rico Governor Alejandro García Padilla announced this week that the U.S. territory would not be paying most of the $422 million in debt that was due on Monday. However, it did pay $23 million in interest. As the Puerto Rican government had swapped $33 million of debt for new debt that matured at a later date, the principal it missed on its Government Development Bank-issued bonds was $367 million.

This was a significant development in the stand-off between the Commonwealth and Washington DC, as well as investors in Puerto Rican debt. Moreover, there are much more significant sums due this summer and, if this week’s failure to pay is an indication, investors could be in trouble.

Puerto Rico currently owes more than $70 billion to bond holders. Over $2 billion in bond payments are due this summer, including $805 million in Puerto Rico general obligation bonds. In the wake of this latest default there is growing concern that there will be more defaults in the future.

One significant Puerto Rico bond issuer, the Puerto Rico Government Development Bank (“GDB”), says it has arrived at a tentative deal with a group of hedge funds holding $900 million of the bank’s debt in which the funds would agree to a possible reduction on the dollar of their original securities’ face value. This group of institutional investors, which is being called the “Ad Hoc Group of bondholders," include Claren Road Asset Management, Avenue Capital Management, Fir Tree Partners, Brigade Capital Management, Solus Alternative Asset Management, and Fore Research Management. The GDB arrived at a similar deal with credit unions that are holding about $33 million in debt. Regardless, according to Bloomberg, analysts at Moody’s Investors Service said that even if creditors agree to a non-payment, it would still be a default.

Mutual funds, bond insurers, hedge funds, and individual investors are among those still holding the Commonwealth’s debt. Many of them got involved with Puerto Rico closed-end bond funds because of the high yields and tax benefits. When the securities plunged in value a few years ago, thousands of investors lost a significant portion of their savings. Retail investors, retirees, and small business owners were hit especially hard.

Continue reading "Puerto Rico Misses Most of Its $422M Debt Payment" »

April 30, 2016

Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt

According to InvestmentNews, even with Puerto Rico heading toward default on its $72 billion in municipal debt, there are a number of funds that continue to hold the U.S. Territory’s bonds in their portfolios, such as the:

· U.S. Oppenheimer Rochester Maryland Municipal (ORMDX)—Morningstar said that as of the conclusion of February the fund had 48.2% of assets in Puerto Rican debt.

· Oppenheimer’s (OPY) Virginia municipal bond fund (ORVAX) reportedly had 40.8% of its assets in the U.S. territory.

· Eaton Vance Oregon Municipal Income (ETORX) had 9.31% of its portfolio in Puerto Rico bonds.

· MainStay Tax-Free Bond (MKINX) had 8.8%.

InvestmentNews also reports that during a conference call on April 7, management for Oppenheimer Rochester said that about half of its funds’ holdings were in COFINA bonds or general obligation bonds, both from Puerto Rico.

Continue reading "Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt " »

April 27, 2016

Broker News: J.P. Morgan Firms to Pay $1M Fine, FINRA Bans Broker For Money Laundering, and Former Maine Broker Gets 3-Years in Prison for Fraud

Two J.P. Morgan Firms Fined over Deficiencies
J.P. Morgan Securities and J.P. Morgan Clearing Corp. have been fined $775K and $250K respectively for several deficiencies. J.P. Morgan Securities is a broker-dealer of the bank JPMorgan Chase (JPM). .J.P. Morgan Clearing is the custodian, clearing, lending, and settlement arm of the bank. The fines were imposed by FINRA.

According to the self-regulatory organization, the firms committed a number of breaches that violated FINRA and SEC rules. The alleged violations by the brokerage firm mostly affect clients of J.P. Morgan Private Bank and JPMS Heritage Private Client Services, which are two JPMS Global Wealth Management businesses.

From 9/07 to 2014, JPMS purportedly did not send letters to clients confirming modifications to their investment goals within 30 days of the changes. JPMS also allegedly did not collect and check the outside brokerage account statements of nearly 2,000 representatives from ’12 – ’13. Morgan Clearing Corp. is accused of, from ’11-’13, not sending out yearly privacy notices to hundreds of thousands of account holders at the broker-dealers where it provides clearing and custody.


Broker Banned by FINRA for Money Laundering
The Financial Industry Regulatory Authority said that it is barring James Van Doren. The broker was sentenced to 15 months behind bars for a money laundering scam.

According to FINRA, Van Doren took part in unethical behavior by helping to make it possible for a childhood friend and business associate to avoid certain legal duties. The former broker invested in a number of real estate deals with the friend’s company and helped conceal assets when the company couldn’t fulfill its duties.

He also accepted $244K from the friend to hide the assets that his creditors were looking for. He eventually returned most of the funds to the friend while keeping some for financial losses he sustained.

Continue reading "Broker News: J.P. Morgan Firms to Pay $1M Fine, FINRA Bans Broker For Money Laundering, and Former Maine Broker Gets 3-Years in Prison for Fraud " »

April 26, 2016

Judge Dismisses Scottsdale Capital Advisor’s Lawsuit Challenging FINRA’s Enforcement Authority

U.S. District Judge Deborah K. Chasanow has dismissed Scottsdale Capital Advisors’ securities case claiming that the Financial Industry Regulatory Authority did not have legal authority to enforce securities laws. The self-regulatory organization had filed an administrative case against the financial firm, accusing it of selling unregistered penny stock shares.

In March, Scottsdale filed its complaint, contending that the claims brought by the regulator came out of violations of the Securities Act of 1933, which it believes that the Securities and Exchange Commission, and not FINRA, has purview over when it comes to enforcing it the act. However, Scottsdale also said that both the SEC and FINRA did not have the “realm of expertise” to make a ruling in the SRO’s case against it.

Judge Chasanow dismissed Scottsdale’s lawsuit citing lack of subject matter jurisdiction. She said that the allegations brought by FINRA as they pertain to the penny stock trades should not be in heard in federal court.

Continue reading " Judge Dismisses Scottsdale Capital Advisor’s Lawsuit Challenging FINRA’s Enforcement Authority " »

April 19, 2016

Former UBS Puerto Rico Employees Brought $25M Lawsuit Against the Firm

Over the last two years, more than 1,000 investors have sued UBS Puerto Rico (UBS-PR) in FINRA arbitration or other forums over mounting losses from the collapse of the Puerto Rico bond market. However, investors are not the only ones suing UBS-PR over its sale of risky bonds. Siblings Jorge and Teresa Bravo have sued UBS for $10 million in FINRA arbitration along with UBS-PR customers.

The Bravos, both ex-senior VPs at the brokerage firm, said management fooled not just customers but also UBS employees. They said they were coerced and threatened into selling Puerto Rico close-end bond funds and they were mistreated before being forced out.

Along with the Bravos, seven former UBS Puerto Rico employees have filed claims against UBS-PR seeking $25 million from their former employer. That group of former UBS-PR brokers claim UBS management made misleading statements to them, as well as customers, about the closed-end mutual funds. The brokers also said management pressured brokers at the firm to sell these Puerto Rico securities. News of the seven former brokers’ lawsuit broke last year around the time that Reuters disclosed the existence of a UBS letter noting that the collateral value of closed-end funds would be reduced to zero—an indication of their riskiness.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud lawyers have been working with investors to recoup their money. Too many investors lost much of the money they invested with UBS-PR and other brokerage firms on the island when these securities began to fail three years ago. Our securities lawyers on the island and the U.S. mainland are representing clients who have FINRA arbitration claims.

Continue reading "Former UBS Puerto Rico Employees Brought $25M Lawsuit Against the Firm" »

March 28, 2016

UBS Ordered to Pay Investors Over $47K in Puerto Rico Bond Fraud Case

UBS Group AG (UBS) must pay Obdulio Melendez Ramos, Carlos L. Merced, and Ramon Velez Garcia over $470K for losses they sustained from investing in Puerto Rico bonds/bond funds that lost value. The three men filed their case with the Financial Industry Regulatory Authority. They contend their accounts were over-concentrated in risky Puerto Rico bonds/bond funds. Ramos, Garcia, and Merced had alleged negligent supervision and fraud.

Addressing the panel’s ruling, a spokesperson for UBS called the decision “disappointing” and said that he disagreed with the outcome. In an emailed statement, Gregg Rosenberg contended that that there were specific circumstances involved with this case and its outcome was not a indicative of how other arbitrators might rule in similar cases. However, according to a recent supplement for the firm’s fourth quarter earnings results, since August 2013 drops in Puerto Rico municipal bond prices, as well as in the prices of related proprietary funds UBS manages and distributes, have led to customer complaints, regulatory inquiries, and arbitrations filed against the firm.

Claimed damages against UBS are estimated to total $1.5B. The vast majority of those claims are still outstanding.

Many investors have accused UBS Puerto Rico of inappropriately persuading them to invest in the island’s municipal bonds even though these investments were not appropriate for them. UBS brokers even purportedly encouraged some investors to borrow so that they could become more heavily invested in the bonds. When Puerto Rico bond prices plunged, it was the investors, many of whom were retirees, that suffered.

Continue reading "UBS Ordered to Pay Investors Over $47K in Puerto Rico Bond Fraud Case" »

March 24, 2016

Elder Investors: Morgan Stanley Must Pay Home Shopping Network’s Estate Over $34M, Broker Accused of Making Over $1.7M From Churning at Craig Scott Capital, and $10M Ponzi Scam Involving Jamaican Businesses Targets Older Investors

FINRA Panel Awards Estate Over $34M from Morgan Stanley in the Wake of Churning Allegations
A Financial Industry Regulatory Authority arbitration panel awarded the estate of Home Shopping Network Roy M. Speer over $34M in its case against Morgan Stanley (MS). The panel ruled that the firm, branch manager Terry McCoy, and broker Ami Forte were jointly liable for breach of fiduciary duty, negligence, unauthorized trading, constructive fraud, unjust enrichment, and negligent supervision. The alleged negligence would have occurred from 1/09 to 6/12 and involved investments in the financial services and banking sectors.

According to Mrs. Speer’s lawyer, in six of Mr. Speer’s accounts, about 12,000 transactions took place, most of them involving municipal bond trading and corporate trading. Many of these trades were unauthorized.

The arbitrators awarded $32.8M in compensatory damages to Speer’s widow, Lynnda Speer, and $1.5M for the costs involved in the arbitration process. The panel said that Morgan Stanley violated a law in Florida that prohibits the exploitation of vulnerable adults. Mr. Speer had dementia. Forte, who was his broker, is said to have been in a relationship with him.


Former Craig Scott Capital Broker Accused of Elder Financial Fraud
FINRA is accusing broker Edward Beyn of making over $1.7M in commissions and fees by engaging in excessive trading in client accounts while he was a registered representative at Craig Scott Capital. He is now with Rothschild Liberman. Beyn is accused of churning nine accounts of six customers, all of them over the age of 60, from 3/12 through 5/15. They all sustained losses.

Continue reading "Elder Investors: Morgan Stanley Must Pay Home Shopping Network’s Estate Over $34M, Broker Accused of Making Over $1.7M From Churning at Craig Scott Capital, and $10M Ponzi Scam Involving Jamaican Businesses Targets Older Investors" »

March 15, 2016

Stockbroker Fraud: Ex-JPMorgan Broker Who Gambled Gets Five Years, FINRA Bars Broker Over Elder Financial Fraud, Risky Alternative Investment Sales and Ex-Broker is Indicted by Jury for Allegedly Bilking Clients of $2.8M

Former JPMorgan Broker Who Stole Over $20M from Richest Clients, Gambled, Goes to Prison
Michael Oppenheim, a former broker with JPMorgan Chase & CO. (JPM), has been sentenced to five years behind bars. Oppenheim pleaded guilty last year to stealing over $20 million from 10 of his richest clients. At one point Oppenheim managed nearly $90 million for 500 clients. He claims he was addicted to sports gambling.

He began betting on NFL games in 1993 and later got involved in online sports betting. After losing hundreds of thousands of dollars, he began stealing from clients to cover his losses. Oppenheim also started options trading in tech stocks to repay these clients and in one day lost $2.7M. He concealed the theft by providing customers with bogus account statements.

Prosecutors contend that Oppenheim persuaded clients to take out up to millions of dollars from their accounts by promising to put their money in low risk municipal bonds that would be kept at the bank. Instead, he used the funds to get cashier’s checks that he deposited into accounts that were his but located outside the bank. Oppenheim purportedly targeted clients he knew wouldn’t be watching their accounts closely. His scam went on for over seven years.


FINRA Bars Broker for Senior Financial Fraud
The Financial Industry Regulatory Authority has barred David Joseph Escarcega from the financial industry. Escarcega is accused of making a dozen unsuitable recommendations involving debentures tied to the life insurance policy secondary market and targeting elderly clients. He must also pay a $52,270 fine, which is how much he kept in commissions.

According to FINRA, Escarcega sold the debt instruments, which were issued by CWG Holdings Inc., from 3/12 to 6/13. The regulator said that the debentures were very risky and only suitable for investors that could afford to lose all of their investments. The 12 customers involved in this matter were not that type of investor. A lot of the investments were placed in IRAs.

Continue reading "Stockbroker Fraud: Ex-JPMorgan Broker Who Gambled Gets Five Years, FINRA Bars Broker Over Elder Financial Fraud, Risky Alternative Investment Sales and Ex-Broker is Indicted by Jury for Allegedly Bilking Clients of $2.8M " »

March 8, 2016

North Carolina Retiree Couple Files FINRA Arbitration Case Against Morgan Stanley Over Energy Investment

Two North Carolina investors have filed an arbitration claim with FINRA against Morgan Stanley (MS) over unsuitable investments involving the financial firm’s Cushing MLP High Income Exchange Traded Note. The married couple, who are retirees in their sixties, are accusing the brokerage firm of:


· Common law fraud

· Negligence

· Breach of fiduciary duty

· Negligent supervision

· Failure to adequately disclose the risks


In a phone interview with InvestmentNews, the claimants said that they have lost over $100K. According to the couple, a Morgan Stanley broker invested about $150,000 of their money in the Morgan Stanley Cushing MLP High Income ETN, which is an exchange traded note connected to master limited partnerships with shipping and energy assets. Their legal team said that the couple did not understand the extent of the risks involved in that they could potentially lose their principal. This was a loss they could not afford. Instead, the claimants were purportedly told that their investment would make them money.

The Cushing MLP High Income Exchange Traded Note seeks to give investors cash upon maturity or early repurchase, as well as variable coupon payments every quarter (depending on how the underlying index, performs). The claimants’ broker fraud lawyers believe that Morgan Stanley recommended the exchange traded note to investors who were seeking to make money but may not have understood or been fully apprised of all the risks.

Continue reading "North Carolina Retiree Couple Files FINRA Arbitration Case Against Morgan Stanley Over Energy Investment" »

March 7, 2016

SEC Charges Wells Fargo Securities, Rhode Island Agency with Bilking Investors Over Municipal Bond Offering

The Securities and Exchange omission has filed charge against Wells Fargo Securities (WFC) and the Rhode Island Economic Development Corp. accusing them of fraud in a municipal bond offering. According to the regulator, RIEDC, now called Rhode Island Commerce Corporation, used $75M in bonds to finance 38 Studios, which is a startup video game company. Wells Fargo served as the bond underwriter.

The SEC is charging RIEDC and Wells Fargo with Securities Act of 1933 violations. Wells Fargo is also charged with violating the Securities Exchange Act of 1934 and the Municipal Securitas Rulemaking Board’s Rules G-17 and G-32.

The 38 Studios project was part of a state government program to increase economic development and employment opportunities through the lending of bond proceeds to private companies. The regulator said the RIEDC lent $50M in bond proceeds to the video game company, while the remaining proceeds went toward bond offering-related costs and the setting up of a reserve fund and a capitalized interest fund. The loan and investors were to be paid back through revenues made by video games that 38 Studios intended to make.

Continue reading "SEC Charges Wells Fargo Securities, Rhode Island Agency with Bilking Investors Over Municipal Bond Offering" »

March 1, 2016

Study Accuses Nearly 20% of Oppenheimer Advisers, 15% of Wells Fargo and UBS Advisers, Others of Misconduct

InvestmentNews reports that according to a new working paper by business school professors at the University of Minnesota and the University of Chicago, 7% of financial advisers have been subject to discipline for misconduct. The study noted that at certain large firms, the trend of misconduct exceeds that average. For example, found the paper, at Oppenheimer & Co., almost 20% of its advisors' records indicate misconduct.

Other advisor firms noted for their high misconduct rates included First Allied Securities at 17.7%, Wells Fargo Advisors (WFC) at 15.3%, UBS Financial Services (UBS) at 15.14%, Cetera Advisors at 14.39%, Securities America at 14.3%, National Planning Corp. at 14%, Raymond James Financial Inc. (RJF) at 13.74%, Stifel Nicolaus & Co. at 13.27%, (SF) and Janney Montgomery Scott at 13.27%. Firms with the lowest misconduct rates among its advisers included Morgan Stanley & Co. (MS), Goldman Sachs & Co. (GS), BlackRock Investment (BLK), UBS Securities, Jefferies, Prudential Investment Management, and Wells Fargo Securities, among others.

University of Chicago finance professor Amit Seru, who co-authored the working paper, titled “The Market for Financial Adviser Misconduct” called this misconduct problem “pervasive.” He also said that he believes the study did a conservative job of measuring misconduct, which ranges from behavior such as placing clients in unsuitable investments to the more extreme type, such as using client accounts to trade without their permission. Insurance products were reportedly factor in many misconduct cases.

The study noted that firms often do take action when misconduct by its advisers is discovered. About half of those caught are fired, although 44% of these individuals will typically end up going to another firm. Often these places will have higher misconduct rates, making it possible for the advisers to continue engaging in wrongful behavior. The study said that prior offenders are five times more likely to taking part in new actions of misconduct than the average adviser.

Continue reading "Study Accuses Nearly 20% of Oppenheimer Advisers, 15% of Wells Fargo and UBS Advisers, Others of Misconduct" »

February 24, 2016

Raymond James Must Pay Investor $795K

In a Financial Industry Regulatory Authority arbitration case, Raymond James Financial Services Inc. (RJF) has been ordered to pay David B. Silipigno $593,540 plus 3 years and 9 months of interest. That’s an award of about $795,000. According to Silipigno’s attorney, the securities arbitration case involved an RIA who may not have not licensed with FINRA but worked out of the Raymond James independent contractor branch office.

The attorney said that such a work configuration may cause problems in that a non-registered adviser could effectively become a defacto employee of a brokerage firm. OnWallStreet.com names the broker involved as Karen Powell, who has been affiliated with Raymond James since 1999.

Silipingo, in his claim, asserted a number of causes of action, including common law fraud, breach of fiduciary duty, beach of contract, suitability, churning, failure to supervise, and violations of Rule 10b-5 of the Securities Exchange Act violation and The Florida Securities Investor Protection Act. Raymond James continues to deny the allegations. The arbitration panel denied the firm’s request to have Powell’s CRD expunged in this matter.

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February 6, 2016

FINRA Cases: Firms To Pay $1.2M Over UIT Sales, Broker Charged for Lying to a Native American Tribe, and Morgan Stanley Ordered to Pay Clients $825K

Brokerage Firms to Pay $1.2M for Not Applying UIT Discounts
The Financial Industry Regulatory Authority has charged Next Financial Group Inc., Stephens Inc., and Key Investment Services with failing to grant sales charge discounts when certain customers that were buying unit investment trusts were eligible for the reduced rates. The three broker-dealers are also face charges for inadequate supervision. The self-regulatory organization is ordering the three firms to pay $1.2M in restitution and fines. The FINRA settlements stated that Stephens did not give the discounts from 1/10 to 5/15 and the other two firms did not give them from 5/09 to 4/14.

Unit Investment Trusts
A UIT is a fund that combines a fixed portfolio of income-producing securities that are bought and held to maturity and an actively managed fund. These funds usually issue securities, also known as units that are redeemable—meaning that the UIT will repurchase the units from an investor at the approximate net asset value.

FINRA has been looking into whether firms are giving clients that are entitled to purchase discounts the reduced rates. Last year, the SRO ordered a number of firms to pay $6.7M in restitutions and fines for not giving discounts to clients when selling them UITs.


Broker Accused of Fraud, Targeting Native American Tribe
Broker Gopi Krishna Vungarala is facing FINRA charges for lying to a Native American Tribe about the $11M in commissions they paid him when he sold the tribe $190M of business development companies (BDCs) and nontraded REITS. The SRO said that from 6/11 to 1/15 Vungarala, who was the tribe’s treasury investment manager and registered representative, lied to the tribe about investments he recommended to them.

Continue reading " FINRA Cases: Firms To Pay $1.2M Over UIT Sales, Broker Charged for Lying to a Native American Tribe, and Morgan Stanley Ordered to Pay Clients $825K " »

January 30, 2016

Morgan Stanley Pays Widow Over $95K for Puerto Rico Securities Losses

A Financial Industry Regulatory Authority (FINRA) arbitration Panel has ordered brokerage firm Morgan Stanley to pay Morrisa Schiffman (Schiffman) $95,632 for the losses she sustained from investing in Puerto Rico securities. Schiffman, who is a widow from New Jersey, had been using the income from the Puerto Rico investments to supplement her retirement. She accused the firm of making unsuitable recommendations and engaging in negligent supervision and disclose failures.

Bloomberg reports this is one of the first cases involving an investor in the U.S mainland seeking financial recovery related to the Commonwealth’s debt. More than 1,300 FINRA arbitration cases have already been filed in Puerto Rico for residents of the island who sustained heavy losses when Puerto Rico bonds began their fall in 2013.

Puerto Rico bonds were a big draw for investors in and out of Puerto Rico for a number of years because the securities are tax-exempt in the U.S. However, since these bonds dramatically declined in value nearly three years ago, investors have come forward to file arbitration claims against brokerage firms who recommended the bonds to them.

Our securities firm’s analysis has shown that, despite their tax advantages, most Puerto Rico bonds were not suitable for many customers' investment goals or their portfolios. Brokers should have steered customers away from the Puerto Rico securities instead of toward them. Because of their negligence, there are investors who have lost all of their money in these bonds.

Firms named in recent Puerto Rico muni bond fraud cases include UBS Financial Services Incorporated of Puerto Rico (UBS), Banco Santander, Banco Popular, Stifel Nicolaus & Co. (SF), Bank of America’s (BA) Merrill Lynch, and others.

Puerto Rico owes $70 billion in debt. The Commonwealth recently defaulted on $37 million of payments that were due to certain creditors so that it could pay more of the general obligation debt that the island owes.

Insurers Ambac Assurance Corporation (AMBAC), Financial Guaranty Insurance Company (FGIC), and Assured Guaranty Corp. (Assured) are now suing the territory over the default, for which they’ve had to pay millions of dollars on claims.

Continue reading "Morgan Stanley Pays Widow Over $95K for Puerto Rico Securities Losses " »

January 27, 2016

Ameriprise Must Pay Woman’s Estate Over $2M For Broker Fraud

A Financial Industry Arbitration panel says that Ameriprise Financial (AMP) must pay over $2M to the estate of Glenny B. White for losses related to fraud committed by an ex-firm broker. The executor of White’s estate claims that Ameriprise Financial Services did not properly supervise former broker Jeffrey Davis.

In 2014, Davis admitted to stealing money from White and other clients. White was his client for almost ten years before she found out in 2013 that he was stealing funds from her. She died at the age of 91 in 2014.

Davis has since been fired from Ameriprise, and FINRA barred him from the brokerage industry. Last year, he was sentenced to over four years in prison after pleading guilty to wire fraud and admitting to stealing almost $200K from clients.

On Finra’s BrokerCheck report about Davis, it is noted that in at least two cases involving Ameriprise clients the firm had reported to the regulator that their funds were misappropriated.

Continue reading "Ameriprise Must Pay Woman’s Estate Over $2M For Broker Fraud " »

December 31, 2015

Puerto Rico Will Make $330M in Bond Payments, Defaults on About $37M

The U.S. Commonwealth of Puerto Rico will pay about $330 million of what it owes on general obligation bonds, while defaulting on bonds of approximately $37 million that are mostly owed to the Puerto Rico Infrastructure Financing Authority (Prifa) and the Public Finance Corp. Puerto Rico general obligation debt is constitutionally-guaranteed and some of the money to pay for that debt had been originally earmarked for bonds that do not have as strong of legal protections.

This has led to Financial Guaranty Insurance Co. and Ambac Financial Group Inc., which together insure over $860 million in Prifa bonds, sending a letter to Puerto Rico government officials. In the note, they called the redirecting of the funds illegal.

This is not the first time Puerto Rico has defaulted on bond payments owed. It missed payments last year and its government has already warned that further payments may be missed this year. The territory owes investors approximately $72 billion.

In December, the Puerto Rico Electric Power Authority (PREPA) arrived at a partial-default deal with bond insurers and creditors, reducing debt payments by almost 50% every year for the next five years. Creditors would take a 15% loss in exchange for stronger legal claims on the debt that is left. However, legislation still must be approved to finalize the arrangement.

Worries that creditors will sue has led to Puerto Rico asking the U.S. Congress to grant it bankruptcy protection so it can file for Chapter 9. One of the purposes of the latest bond payment plan is to delay these possible lawsuits while the territory buys more time to work out a deal with negotiators. And, while Democrats and the White House have asked Congress to pass legislation that would let the island restructure its debt, Republican lawmakers have thwarted those efforts. Now, many are expecting these creditor lawsuits in the coming days.

Continue reading "Puerto Rico Will Make $330M in Bond Payments, Defaults on About $37M" »