December 29, 2014

Financial Firm News: NH Regulator Fines Merrill Lynch $400K for Telemarketing Compliance Shortfalls, Court Orders Vasquez Global Investments to Pay More Than $1.3M for Commodity Pool Fraud, and FINRA Sanctions Monex Securities Inc.

New Hampshire Says Merrill Lynch Must Pay $400,000 For Not Complying with Telemarketing Rules

Bank of America (BAC) Merrill Lynch has consented to pay $400,000 to resolve claims made by the New Hampshire Bureau of Securities Regulation accusing the firm of improperly soliciting business when it called people who were on do-not-call lists and were not clients. As part of the deal, Merrill Lynch will improve its telemarketing procedures and policies. A spokesperson for the brokerage firm says it has already enhanced internal controls to avoid making inappropriate calls moving forward.

According to the regulator, not only did the broker-dealer fail to fully comprehend how to comply with the state’s rules for telemarketing but also the firm did not reasonably supervise its agents’ telemarketing activities in New Hampshire.


Vasquez Global Investments to Pay Over $1.3M For Bilking Participants in Commodity Pool
A federal judge has ordered Edwin Arden and his Vasquez Global Investments, LLC to pay over $1.3 million for running a commodity pool fraud. Per the order, issued by the U.S. District Court for the Western District of North Carolina, both Vasquez and VGI must pay over $330,000 in restitution and a monetary penalty of $994,668. They also must contend with permanent solicitation, trading, and registration bans. The order is the result of a U.S. Commodity Futures Trading Commission complaint issued earlier this year charging both Vasquez and his firm with solicitation fraud, misappropriation, and making false statements related to the Vasquez pool, which is an unregistered commodity trading pool.

The court order states that beginning in August 2011, Vasquez bilked and deceived at least 19 participants that had collectively invested over 580K in the Vasquez pool. He purportedly told prospective participants that he had a successful track record as a trader and investing in the pool was not high risk.

The order said that of the money Vasquez solicited from participants, VGI lost $65,374 when trading commodity futures and misappropriated $331,556 by using the money to cover the company’s operating costs and Vasquez’s personal spending. Still, Vasquez purportedly chose not to disclose the misappropriation and trading losses and sent pool participants bogus statements about the value of their pool shares and their “profitability.”


Monex Securities Inc. Ordered by FINRA to Pay $1.3M Sanction for Inadequate Supervision
FINRA has sanctioned Monex Securities Inc. and is ordering the firm to pay $1.1 million in disgorgement of commissions and interest that foreign individuals who were not registered with the regulator obtained when selling the securities for the firm. The self-regulatory organization fined Monex $175,000 for not registering the individuals, as well as for related supervisory deficiencies that took place for more than two years.

FINRA said that Monex Chief Compliance Officer and President Jorge Martin Ramos Landero executed an agreement for the firm with its parent company in Mexico that allowed employees to conduct securities business for Monex. The individuals were paid compensation for their work, which included collecting client data for opening accounts, transmitting orders, and making investment recommendations. However, these persons were not registered with FINRA.

Under the regulator’s rules, an associated individuals who works in the securities business or investment banking has to be registered with the SRO under the right registration category. This person must also pass a qualification exam.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm.


Merrill to pay $400,000 over telemarketing compliance shortfall, Investment News, December 30, 2014

FINRA Sanctions Monex Securities Inc. $1.3 Million for Failing to Register and Supervise Foreign Personnel, FINRA, December 30, 2014

Federal Court Orders North Carolina Resident Edwin A. Vasquez and His Company, Vasquez Global Investments, LLC, to Pay over $1.3 Million for Commodity Pool Fraud, CFTC, December 30, 2014


More Blog Posts:
NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations, Stockbroker Fraud Blog, December 28, 2014

OppenheimerFunds Increases Its Exposure to Puerto Rico Debt Despite Downgrade by Moody’s, S & P, and Fitch to Junk Status, Stockbroker Fraud Blog, February 14, 2014

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges, Institutional Investor Securities Blog, January 25, 2014

December 16, 2014

FINRA Orders Merrill Lynch to Pay $2.4M in Fine, Restitution for Hundreds of Securities Transactions That Violated Fair Price Guidelines

FINRA is ordering Bank of America’s (BAC) Merrill Lynch to pay a $1.9M fine for violating fair price guidelines over seven hundred times during a two-year period. The financial firm also must pay restitution of over $540K to customers that were affected.

According to the self-regulatory organization, Merrill’s credit trading desk purchased MLC notes from retail customers at up to 61.5% under the market price. General Motors had issued the notes prior to its bankruptcy. MLC Notes stands for Motors Liquidation Company Senior Notes.

Out of 716 transactions, 510 of them involved notes bought at markdowns that were greater than 10%. The desk would then sell the notes to brokers at market cost.

Issuing a statement, FINRA EVP and market regulation head Thomas Gira said that the SRO expects firms to abide by their duties to customers in regards to fair pricing. Gira said Merrill Lynch’s markdowns of the MLC Notes were not acceptable.

FINRA says the firm lacked a proper supervisory system that could identify this kind of violation. It is accusing the firm of failing to perform assessments of the credit desk after trades were made.

Merrill Lynch is settling without denying or admitting to the securities charges. It has, however, consented to an entry of the regulator’s findings.

As part of the agreement, over the next year and a half, Merrill Lynch will provide reports related to the credit desk’s supervisory system and its effectiveness. The firm says that it has since enhanced its supervisory efforts and taken disciplinary action.

FINRA Fines Merrill Lynch $1.9 Million and Orders Restitution of $540,000 for Fair Pricing and Supervisory Violations Related to Purchases of Distressed Securities, FINRA, December 16, 2014

Reliance Financial Advisors, Owners Face SEC Fraud Charges Involving Hedge Fund, Stockbroker Fraud Blog, December 15, 2015

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 12, 2014

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

November 10, 2014

Two Former Merrill Lynch Brokers Contend with Unauthorized Trading Claims

According to the Financial Industry Regulatory Authority (FINRA), Ameriprise Financial (AMP) broker Lorene Fairbanks, formerly with Merrill Lynch. Pierce, Fenner & Smith Incorporated, was recently sanctioned over allegations that she effected over 57 discretionary transactions for several customers without getting the required written authorization from the clients or the approval of the firm. Fairbanks also allegedly mismarked over 50 order tickets, noting them as “unsolicited” when they were “solicited” orders. Brokers are not allowed to exercise discretionary authority in a client account without written authorization.

The Ohio broker was registered with Merrill Lynch from 8/06 to 3/12. The firm fired Fairbanks in February 2012 for purportedly taking discretion in client accounts and mismarking customer orders. She has been associated with Ameriprise since June 2012. There also have reportedly been other customer complaints accusing Fairbanks of excessive trading and unsuitable trading.

Also sanctioned by FINRA for allegations of unauthorized trading is George Zaki, another ex-Merrill Lynch broker. The self-regulatory organization contends that Zaki implemented or executed about 3,600 trades in some 80 accounts without written customer authorization between 6/10 and 8/12.

Zaki was let go by Merrill Lynch in October 2012. The firm said the termination was because of conduct related to exercising discretion in client accounts that were not discretionary. FINRA rules prohibits a registered representative from exercising discretionary power in the account of a customer without that client’s prior written permission and firm acceptance of the account.

After Zaki was terminated from Merrill Lynch, he was registered with Barclays (BARC) Capital Inc. until earlier this year.

Our broker fraud lawyers represent investors in the U.S., as well as those headquartered abroad with claims against brokerage firms in the country.

BrokerCheck, FINRA


More Blog Posts:
FINRA May Expel Ex-Broker For $6M Hedge Fund, Stockbroker Fraud Blog, July 15, 2014

SEC Stops Fraudulent Bond Offering by Chicago Suburb, Institutional Investor Securities Blog, June 25, 2014

AIG Advisor Group, Securities America, LPL Financial, Cambridge, And Even Schorsch’s Broker-Dealer Stops Selling His REITs, Institutional Investor Securities Blog, November 7, 2014

June 13, 2014

Broker Headlines: Former Wells Fargo Broker Must Pay Back Firm $1.2M, Morgan Stanley CEO Wants to Lower Broker Compensation, & Representatives Oppose Best Interest Rules

Ex-Wells Fargo Advisors Broker Must Pay Back Firm $1.2M
A Financial Industry Regulatory Authority panel says that Philip DuAmarel, a former Wells Fargo Advisor (WFC), must pay his former employer back almost $1.3 million. The panel denied his claim that the firm oversold its corporate stock plan services during his recruitment. They told him to pay back the unvested part of an upfront loan he received when he became part of Wells Fargo.

DuAmarel worked for the firm for less than three years when he left in 2010 for Bank of America (BAC) Merrill Lynch. He contended that when the firm was recruiting him he was misled about Wells Fargo’s ability to serve corporate stock plans and also regarding how much he could make for helping executives with their company’s stock trades. DuMarel’s attorney said that the broker left when it became obvious he wouldn’t be able to work with clients they way he did when he was at Citigroup (C) Global Market’s Smith Barney.

Morgan Stanley CEO Seeks To Give Brokers Reduced Payouts
James Gorman, the CEO of Morgan Stanley (MS), said he wants to reduce broker payouts relative to revenue. This could mean that compensation in the wealth management business could drop to 55% of revenue, which is down 5% from last year. He said the reduction could be attributed to an increase in lending and banking products that garner less commission for advisers and fee-based accounts that offer a larger revenue/dollar of client assets (as opposed to accounts where commissions are involved).

Gorman, who made his statements at the firm’s yearly financials conference, also talked about how recruiting expenses was another area that was buoying cost ratios in the brokerage division. He said that the industry had arrived at a breaking point regarding how many veteran financial advisers could be traded back and forth among the biggest firms.

Brokers Oppose DOL’s Proposed Rule About Clients’ Best Interests in Retirement Accounts
According to The New York Times, the Securities Industry and Financial Markets Association, which represents big financial firms on Wall Street, and the Financial Services Institute are continuing to oppose a proposed Labor Department rule that would mandate that a wider group of professionals place clients’ interests ahead of their own when it comes to retirement accounts. Right now, brokers are not obligated to do this when when advising clients about retirement.

The DOL is trying to amend a rule that is part of Employee Retirement Income Security Act, which outlines when advisers become fiduciaries. Currently, it isn’t very difficult for brokers to avoid becoming a fiduciary under Erisa. Before they must follow the higher standard they have to satisfy a five-part test. If they have a customer advice just once, the adviser doesn’t have to meet the rule requirements. Also, the broker and consumer have to both agree that the advice given was the primary reason for an investment choice.

Opponents of the rule, however, have continued to delay even the release of a revised proposed rule. They claim that the new rules would affect the way the industry is paid, which could make it hard for them to work with smaller investors. They are worried the rules could stop them from being able to charge commissions.

Under Erisa fiduciaries are not allowed to receive payment in a manner that would present a conflict of interest. Right now, are compensated in ways where there is possible conflict. This happens when a representative can earn a higher commission when recommending one product over another. Revenue sharing also presents possible conflicts.

Ex-Wells broker ordered to repay firm $1.2 million, Investment News, June 12, 2014

Morgan Stanley's Gorman seeks to tame broker compensation, Investment News, June 11, 2014

Brokers Fight Rule to Favor Best Interests of Customers, NY Times, June 12, 2014

ERISA, United States Department of Labor


More Blog Posts:
Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case, Stockbroker Fraud Blog, June 11, 2014

SEC Files Order Against New Mexico Investment Adviser Over Allegedly Secret Commissions, Stockbroker Fraud Blog, June 10, 2014

Regulator Headlines: SEC Commissioner Stein Wants Updated Capital Rules for Brokerage Firms, FINRA’s BrokerCheck Link Proposal Faces Opposition, & CFTC Appoints New Enforcement Head, Institutional Investor Securities Blog, June 12, 2014

June 7, 2014

FINRA Headlines: SRO Fines Goldman Sachs, Merrill Lynch, and Barclays Capital $1M Each & Makes Dark Pool Data Available

FINRA Fines Merrill Lynch, Goldman, and Barclays Capital $1M Each Over Blue Sheet Data

The Financial Industry Regulatory Authority has issued a censure that fines Goldman Sachs & Co. (GS), Merrill Lynch, Pierce Fenner & Smith Inc., and Barclays Capital Inc. $1 million each. The firms are accused of not submitting accurate and complete data about trades conducted by them and their customers to the SRO and other regulators. This information is known as “blue sheet” data. Firms are legally required to give regulators this information upon request.

Blue sheets give regulators specific information about trades, including the name of a security, the price, the day it was traded, who was involved, and the size of transaction. This information is helpful to identify anomalies in trading and look into possible market manipulations.

The three firms, which all have a prior history of submitting inaccurate blue sheet data, settled the charges without denying or admitting to the allegations. Meantime, FINRA has also put out a complaint against Wedbush Inc. also over submitting inaccurate blue sheet information. That case, however, has not been adjudicated yet.


FINRA Gives the Public Access to Dark Pool Data
To enhance market transparency and boost investor confidence, this week FINRA started providing data about the activity levels in all of the different alternative trading systems. This includes information pertaining to dark pools.

Currently, ATSs are involved in a significant chunk of OTC trading in exchange-listed equities located in the US. Although trades in ATSs have been available in real time to professionals and investors via securities information processors, they are not typically attributed to specific dark pools.

The newly available data should allow the public to see how many shares were traded each week in each dark pool. The information can be found on FINRA’s website and is free.

Meantime, as our stockbroker fraud law firm reported in another blog post, the Securities and Exchange Commission is also seeking to make dark pool venues more transparent.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors in arbitration and in court. Contact us to find out whether you have reason to pursue a securities claim. Your consultation with one of our FINRA arbitration lawyers is free.


FINRA Fines Barclays Capital, Goldman Sachs and Merrill Lynch $1 Million Each for Submitting Inaccurate Blue Sheet Data, FINRA, June 4, 2014

FINRA Makes Dark Pool Data Available Free to the Investing Public, FINRA, June 2, 2014

User Agreement, ATS Transparency Data, FINRA


More Blog Posts:
Bank of America Could Settle Mortgage Probes for $12B, Institutional Investor Securities Blog, June 7, 2014

SEC Charges Chicago Investment Advisory Founder With Real Estate Investment Fraud
, Institutional Investor Securities Blog, June 11, 2014

In Alleged $400M Texas Securities Fraud, Medical Device Maker Pays Over $30M Settlement, Stockbroker Fraud Blog, January 13, 2014

May 22, 2014

SEC Investigates Merrill Lynch & Charles Schwab Over Allegations of Failures that Allowed Mexican Drug Cartels to Launder Money

The SEC is investigating whether Merrill Lynch (MER) and Charles Schwab Corp. (SCHW) did not recognize signs that that some of their customers might have been laundering money because they didn’t do enough to find out who these clients were. Some of the purported money laundering has been linked to drug cartels in Mexico.

Bank of America Corp. (BAC) now owns Merrill Lynch. The SEC says that the two broker-dealers accepted as clients individuals who gave out fake addresses and shell companies. For example, one Charles Schwab client, a Texas rancher, had been moving funds to a holding company that was actually a shell company. Also, some account holders with Schwab were linked to drug money in Mexico. Certain accounts contained millions of dollars.

Broker-dealers must set up, document, and keep up steps so that it can identify its customers and confirm their identifies. Failure to do any of these can result in stiff penalties, such as the $1 million E*Trade Financial Corp. was ordered to pay in 2008. The firm did not check to confirm the identities of over 65,000 secondary account holders. Because of this failure false reporting occurred.

Last year, HSBC Holdings Plc (HSBA) reached a $1.9 billion deal with the U.S. over charges that it made it possible for drug cartels in Latin America to launder billions of dollars. The agreement was a deferred-prosecution deal.

The firm is accused of not monitoring over $670 billion in wire transfers and over $9 billion in purchase of U.S. money from HSBC Mexico, which made it possible for the money laundering to happen. HSBC also allegedly violated U.S. economic sanctions against Sudan, Libya, Iran, Cuba, and Burma.


At Shepherd Smith Edwards and Kantas, LTD LLP, we are here to help our investors get their securities fraud losses. Contact our securities lawyers today.

SEC probes Schwab, Merrill, for anti-money laundering violations, sources say, Chicago Tribune/Reuters, May 22, 2014

HSBC Judge Approves $1.9B Drug-Money Laundering Accord, Bloomberg, July 3, 2013


More Blog Posts:
Man Convicted in $46M Michigan Ponzi Scam, Stockbroker Fraud Blog, May 20, 2014

R.P. Martin To Pay $2.2M in Libor Rigging, Institutional Investor Securities Blog, May 22, 2014

FINRA Conducts 170 Probes Into Possible Algorithmic Abuse, Institutional Investor Securities Blog, May 21, 2014

March 4, 2014

Ex-Merrill Lynch Adviser, Already Jailed for Massachusetts Securities Fraud, Now Indicted Over Ponzi Scam

Even as she serves her 33-month sentence for securities fraud, Jane O’Brien, a former Merrill Lynch (MER) broker, has now been indicted for her alleged involvement in a Ponzi scam that purportedly ran for nearly two decades. The U.S. Attorney's Office for the District of Massachusetts says that O’Brien is facing criminal charges for mail fraud, investment adviser fraud, and wire fraud involving the misappropriation of $1.3 million in client monies.

Per the indictment, between 1995 and 2013 and while she worked at Citigroup (C)'s Smith Barney and then later with Merrill, O’Brien persuaded a number of clients to withdraw money from brokerage accounts and their banks. She got their permission to invest the funds in private placements. However, instead, the 61-year-old allegedly used the money to repay other investors and cover her personal expenses.

O’Brien is also accused of making misrepresentations to clients, providing them with materially false statements, “making lulling payments,” and offering false assurances that their money was secure. She even in one instance, allegedly, got a client to invest in “Crooked Arrows,” a Hollywood film, in return for a promised 25% return, which did not happen.

In December 2012, O’Brien pleaded guilty to securities fraud over a separate case having to do with a $240,000 investment in a nonexistent security. According to the state, she also borrowed about $1.7 million from the client, which violates not just Merrill Lynch’s policies but also the rules of the securities industry. Late last year, Merrill settled with Massachusetts regulators over allegations that it did not properly supervise O’Brien. The firm paid $500,000, some of which went to investors who had been bilked.

Also, in August 2012, the Financial Industry Regulatory Authority barred O’Brien from the industry, contending that between 2004 and 2011 she borrowed over $2 million from clients even though she did not have permission.

Unfortunately, every year there are investors that get reeled in and robbed because they inadvertently became involved in a Ponzi scam or some other type of securities fraud. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today if you suspect you maybe one of these investors, and we can help you explore your legal options.

Former Merrill Lynch broker accused of 18-year Ponzi scheme, InvestmentNews, March 4, 2014
Needham Financial Advisor Sentenced to 33 Months in Securities Fraud, Justice.gov


More Blog Posts:

Massachusetts Securities Regulators Fine Merrill Lynch $500,000 For Alleged Failure to Stop Rogue Broker, Stockbroker Fraud Blog, October 29, 2013

North American Securities Administrators Association Releases 2013 List of Top Threats to Investors, Stockbroker Fraud Blog, October 22, 2013

Detroit, MI to Pay UBS and Bank America $85M Over Interest Swaps Settlement, Institutional Investor Securities Blog, March 4, 2014

October 29, 2013

Massachusetts Securities Regulators Fine Merrill Lynch $500,000 For Alleged Failure to Stop Rogue Broker

Merrill Lynch Pierce Fenner & Smith Inc. (MER) must now pay Massachusetts securities regulators a fine for allegedly failing to supervise a broker who went on to defraud customers. According to regulators and prosecutors, when she was with Merrill, now ex-broker Jane E. O’Brien borrowed over $2 million of clients’ funds. She pleaded guilty to fraud charges last year and is barred from the securities industry.

O’Brien received a thirty-three month prison term and was told to pay restitution of $240,000. She was the top producer at the firm’s Boston office, where she brought in close to $154 million in client assets and earned $903,734 in revenue during her first year with Merrill. Massachusetts Secretary of the Commonwealth William Galvin, whose office oversees the regulators there, said that this was another example of top producers “being held to a different standard” because of the money they make for their firms.

Although Merrill agreed to pay the “failure to supervise” fine, it has not admitted to violating any laws. A firm spokesperson says that as soon as they knew there might be a problem, an internal investigation was conducted and O’Brien resigned.

In one instance, she is accused of using money that a client was going to invest in a company to cover her own personal expenses. Regulators say that O’Brien’s early withdrawal of $380,750 from her retirement account at the firm should have been an indicator she was having money problems. Instead, Merrill did not tell regulators about the misconduct until after the Justice Department indicted her.

Our Massachusetts securities lawyers handle broker fraud cases in which a financial adviser’s behavior caused an investor to sustain financial losses. We also handle securities fraud lawsuits involving inadequate supervision. Firms are supposed to properly oversee their representatives so that misconduct and avoidable mistakes don’t happen. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Merrill Lynch fined over rogue broker, Investment News, October 31, 2013

Former Merrill Lynch financial advisor faces securities fraud charge, Boston.com, November 20, 2012


More Blog Posts:

North American Securities Administrators Association Releases 2013 List of Top Threats to Investors, Stockbroker Fraud Blog, October 22, 2013

Detroit Becomes Largest US City to File Bankruptcy Protection, Institutional Investor Securities Blog, July 18, 2013

SEC Wants Comments About FINRA’s Proposed Rules About Broker-Dealer Supervision, Institutional Investor Securities Blog, October 24, 2013

October 26, 2013

Merrill Lynch, Morgan Stanley Call A Broker Recruiting Truce

Bank of America Corp. (BAC) and Morgan Stanley (MS), which own the largest brokerage firms in the world, are declaring a cease-fire when it comes to using big bonuses to keep their own brokers and lure each other's brokers away. Bank of America Corp. owns Merrill Lynch (MER).

After payments tied to Bank of America’s purchase of Merill Lynch expire in approximately two years, new retention bonuses will no longer be offered to the latter’s lead performers. Also, Morgan Stanley’s chief executive James Gorman has said that with brokers seeking to switch firms less often, compensation costs could fall.

A decline in recruiting could push up broker-dealer profits, which has been held back because of the fight between firms for the leading advisers. Some brokers have even been offered multiple times their yearly salary to move and bring their client roster with them.

Already, Morgan Stanley, the largest broker-dealer with 16,500 financial advisers, paid out 57% of revenue from wealth management as compensation during this year’s third quarter, which is a decrease from the 63% of revenue a year ago. As for Merrill Lynch, a spokesperson for the firm says that in this past quarter since the end of 2010 it has lost the least amount of financial advisers to competitors.

Meantime, UBS (UBS), which has been in the headlines a lot lately over the Puerto Rico bond funds crisis, is reportedly not doing as much recruiting as it did under previous management. During this year’s second quarter, the firm spent $171 million—9.5% of its operating income during that time on recruiting bonuses.

Last month, the Financial Industry Regulatory Authority voted to mandate that brokers reveal how much they were paid to defect to another firm. The plan was supported by Merrill Lynch and Morgan Stanley. However, Stifel Financial Corp. (SF) wrote the SRO to say that the proposal was anti-competitive and would give brokers less incentive to change firms even when this was in the best interest of their customers.

However, broker-dealers are still recruiting from one another to hire financial advisers to take the place of retired brokers. Some of the candidates are being offered six times their take-home salary. One reason for this is that internal training programs are reportedly not producing enough successful brokers.

It is important that as they recruit new financial advisers, brokerage firms continue to properly train and supervise them while ensuring the proper procedures and systems are in place to decrease the chances of brokerage fraud. Unfortunately, some financial advisers who are negligent merely carry on with their misconduct at the firms that they move to, leaving more investor victims in their wake.

You want to work with a securities fraud law firm that knows how to help you recover your losses from stockbroker fraud.

Morgan Stanley Joins BofA in Broker-Recruiting Truce, Bloomberg, October 24, 2013

Analysis: Broker bonus bidding war comes at a cost, Reuters, April 10, 2012


More Blog Posts:
SEC Looking to Simplify Disclosure Rules to Minimize “Information Overload” for Investors, Stockbroker Fraud Blog, October 16, 2013

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk, Stockbroker Fraud Blog, June 26, 2013

FINRA Arbitration Panel Awards Ex-Wedbush Securities Broker $4.2M Against the Firm, Institutional Investor Securities Blog, October 4, 2013

August 23, 2013

FINANCIAL FIRMS IN THE SPOTLIGHT: Raymond James Gives RIA’s Access to Alternative Investments, Citigroup’s $730M Bondholder Settlement is Approved, JPMorgan Deals with China-Related Hirings Inquiry, & Merrill Lynch’s Future as an Entity is Uncertain

Affiliated RIAs of Raymond James to Get Access to Firm’s Alternative Investments
The Raymond James Alternative Investment Group will give its affiliated registered investment advisers access to hedge funds, private real estate, managed futures, private equity, and alternative mutual funds beginning next month. The move is part of Raymond James’ (RJF) attempt to strengthen its RIA platform.

Already, it has added more support services for investment advisers in the areas of marketing, practice marketing, and succession planning. The financial firm also brought in four regional director for recruiting and existing practices while cutting equity ticket charges and waving certain individual retirement account fees.

Citigroup’s $730M Bondholder Settlement is Approved by a Federal Judge
U.S. District Judge Sidney Stein in Manhattan has approved the $370 million bondholder settlement reached with Citigroup Inc. (C) over claims that before the financial crisis the bank hid its exposure to toxic mortgage assets worth billions of dollars. According to court papers, the agreement is with investors that purchased Citigroup bonds and preferred stock in four dozen offerings between 5/06 and 8/08 and involved the bank raising over $71 billion dollars.

The plaintiffs contended that Citigroup played down its exposure to about $160 billion in CDOs and structured investment vehicles backed by high-risk assets, overstated the assets’ qualities, and understated reserves to offset loans. However, while Judge Stein said that the $370 million recovery is substantial and adequate, it wasn’t the “best possible” one for them, seeing as experts believe actual losses sustained was about $3 billion.

US Investigates JPMorgan Over Hiring of Chinese Officials’ Children
Federal authorities in the US are looking into whether JPMorgan Chase & Co. (JPM) hired Chinese officials kids in order to gain business in that country. According to The New York Times, a confidential US government document alleges that China Everbright Group retained the firm after the latter hired the son of Tang Shuangning, the company’s chairman. JPMorgan provided a number of services, including advice on investment banking over a stock offering. The document also says that the firm hired the daughter of the ex-deputy chief engineer of China’s railway ministry in 2007, which is about the same time that JPMorgan was awarded a contract to take China Railway Group public.

What Does Merrill Lynch’s Future Look Like?
According to an article in Investment News, over four years after its acquisition by Bank of America Corp. (BAC), Merrill Lynch (MER) could soon stop existing as a legal entity. An August 2 filing notes that although Bank of America will retain the Merrill brand for its investment bank and retail brokerage, the subsidiary will be dissolved, possibly in the fourth quarter of this year.

Merrill would keep doing business under Merrill Lynch Pierce Fenner & Smith Inc. and this restructuring would reportedly not impact its advisers. Meantime, Bank of America would take on all of Merrill’s debt and obligations.

Raymond James to Offer Alternative Investments to Custodial Clients, Financial Planning, August 14, 2013

Judge Approves Settlement Between Citigroup, Investors, The WSJ, August 20, 2013

JP Morgan faces hiring inquiry, Guardian/Program Business, August 20, 2013

Merrill out to pasture?, Investment News, August 18, 2013


More Blog Posts:
FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board, Stockbroker Fraud Blog, August 21, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 28, 2013

Brokerage Firms Change Hands as Insurers Divest In House Securities Firms, While REIT Manager Schorsch Buys First Allied Securities, Stockbroker Fraud Blog, June 12, 2013

June 4, 2013

FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales

The Financial Industry Regulatory Authority Inc. says that Merrill Lynch, Pierce, Fenner & Smith Incorporated (MER) and Wells Fargo Advisors LLC must pay $5.1 million for losses sustained by customers who bought floating-rate bank loan funds.

According to the SRO, brokers at Banc of America and Merrill recommended the purchase of floating-rate bank loan funds to customers who didn’t have investment goals, risks tolerance, or financial conditions that were consistent with the features and risks of these kinds of mutual funds. Instead, these were customers whose risk tolerance levels were conservative and wanted to preserve principal. FINRA says that the sale recommendations were made even though there wasn’t reason to believe that floating-rate bank loan funds would be suitable for these investors.

In regards to the allegations against Wells Fargo, FINRA, in its acceptance, waiver and consent letter, said that brokers there warned about the funds but that the firm failed to act on their worries. The SRO says that the brokers had even confused the funds with bank certificates of deposit and other less risky investments.

Now, Wells Fargo Advisors, which is Wells Fargo Investments, LLC successor must pay $1.25 million and pay back 239 customers about $2 million in losses while Merrill Lynch, as Banc of America Investment Services, Inc.’s successor most pay 214 customers about $1.1 million and a $900,000 fine. By settling, the two financial firms are not denying or admitting to the allegations. They are, however, consenting to an entry of FINRA’s findings.

It was in July 2011 that the SRO issued a warning to investors about going after returns in floating-rate loan funds. These funds tend to invest in loans that financial institutions extend to entities that have lower than investment-grade credit quality. The companies that put out these high interest rate loans usually posses a high debt-to-equity ratio. Meantime, the loans’ yields are usually higher than investment-grade bonds. A fund invested in these loans can be appealing in a rising or low interest rate atmosphere because along with higher yields, the funds’ interest rate goes up when rates rise.

That said, the market for floating-rate loans is pretty unregulated and the loans don’t trade on an organized change. This makes them generally illiquid and hard to value. Often, funds that invest in these loans are promoted as products that aren’t as vulnerable to fluctuation in interest rate while providing inflation protection. That said, the loans in the fund are subject to substantial liquidity, credit, and valuation risk.

If you sustained losses in floating-rate bank loan funds and you feel that these funds were recommended to you even though they may not have been suitable for your investment needs or goals, you may have grounds for a FINRA arbitration case or a securities fraud lawsuit. Contact our securities law firm today.

FINRA Orders Wells Fargo and Banc of America to Reimburse Customers More Than $3 Million for Unsuitable Sales of Floating-Rate Bank Loan Funds, FINRA, June 4, 2013

Wells Fargo, Merrill to pay $5.1 million to settle charges over bank loan funds, Investment News, June 4, 2013


More Blog Posts:
Investors of Highland Floating Rate Funds File Securities Fraud Claims and Lawsuits Over Poor Performance, Stockbroker Fraud Blog, February 10, 2012

Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs, Institutional Investor Securities Blog, November 19, 2011

FINRA Chief Ketchum Calls for Brokers To Better Inform Investors of Fixed Income, Structured Product Risks, Stockbroker Fraud Blog, May 29, 2013

May 9, 2013

Merrill Lynch Settles New Jersey Securities Fraud Lawsuit over State’s Stock Purchase for $45 Million

Bank of America Corp's (BAC) Merrill Lynch & Co. (MER) will pay the state of New Jersey $45 million to settle securities charges that it committed misconduct related to a stock purchase that the latter made in 2008. The investment bank is accused of breaching a contract provision that determined how the state was to exchange Merrill Lynch preferred stock for common stock.

New Jersey’s Division of Investments had purchased $300 million in preferred Merrill Lynch stock (Merrill Series 1 9% Mandatory Convertible Preferred Shares) in 2008. In 2009, the state’s attorney general at that time filed a NJ securities case against the financial firm contending that it had given “better terms” to at least another investor over the conversion of shares and issued misleading information about its financial state. By settling, Merrill Lynch is not denying or admitting to committing any wrongdoing.

If you think you may have been the victim of securities fraud, contact our Shepherd Smith Edwards and Kantas, LTD, LLP right right away. SSEK represents both individuals and institutions with arbitration claims and lawsuits against financial firms, brokers, investment advisers, and others.

Division of Investment, New Jersey

Attorney General Chiesa: Merrill Lynch Will Pay $45 Million to Resolve State Lawsuit Over Pension Fund Investment Losses, NJ.gov, April 19, 2013

Merrill Lynch to pay N.J. $45 million over pension fund losses, New Jersey.com, April 19, 2013


More Blog Posts:
Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

2nd Circuit Affirms Dismissal of $18.5M Auction-Rate Securities Lawsuit Against Merrill Lynch Filed by Anschutz Corp., Institutional Investor Securities Blog, August 23, 2012

April 19, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud

A FINRA arbitration panel is ordering ex-broker Karl Hahn, who previously worked with Bank of America Corp's (BAC) Merrill Lynch (MER), Oppenheimer & Co. (OPY), and Deutsche Bank AG’s (DB) Deutsche Bank Securities, to pay investor Chase Bailey $11 million because he sustained about $6 million in losses allegedly caused by securities fraud. Bailey contends that Hahn made excessive trades and misrepresented securities related to transactions involving a number of investments, including a variable annuity, approximately $2.3 million in fraudulent real estate financing involving East Coast properties, and covered calls.

In the filmmaker/Internet entrepreneur’s securities arbitration claim, Bailey named the three financial firms where Hahn previously worked. It is during this period that Bailey was allegedly defrauded. (He had moved his funds from one brokerage firm to the other each time Hahn was hired by that employer.) Bailey settled his case with Merrill for $700,000, while claims against Deutsche Bank and Oppenheimer were tossed out.

Per the FINRA arbitration ruling, Bailey is awarded $6.4 million in punitive damages and $4.1 million in compensatory damage. Ordering brokers to pay punitive damages is uncommon.

In February, Deutsche Bank & Hahn were ordered to pay $934,000 to Susan and Michael Myers. The couple, who had sued on their behalf and for a number of trusts, had claimed civil fraud, while contending that financial firm had negligently supervised Hahn, who worked in its private wealth management division between 2008 and 2009.

The Myerses had bought high-risk life insurance in which policyholders use loans usually tied to variable interest rates to finance premiums. Hahn, who advised the couple via Deutsche Bank, allegedly failed to tell them that his dad would get a “significant” commission from that life insurance policy. They said that this might have been the reason he recommended that they invest in the policy. (Brokers are not supposed to make investment recommendations that will benefit them or those that they know.) The Myerses claimed substantial losses.

Hahn has been involved in other securities cases. He was charged with wire fraud involving an alleged $1.1 million real estate scam in 2010. He also was involved in a $2.55 million federal court judgment that Deutsche Bank obtained in 2012. That lawsuit involved the unpaid balance of a $2.8 million bonus he got when he joined the financial firm.

Contact Our Securities Fraud Law Firm
If you believe that you too were the victim of securities fraud involving Mr. Hahn or another broker, please contact Shepherd Smith Edwards and Kantas, LTD LLP today to request your free case evaluation. You may have reason to file your own stockbroker fraud claim.

Ex-Merrill, Deutsche Bank Broker Ordered to Pay Client $11 Million, Fox, April 5, 2013

U.S. panel orders Deutsche Bank, ex-adviser to pay $934,000, Reuters, February 14, 2013


More Blog Posts:
Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

UBS Loses Appeal to Have FHFA’s $6.4 Billion MBS Fraud Lawsuit Dismissed, Institutional Investor Securities Blog, April 18, 2013

December 22, 2012

Dismissal of Double Derivative Delaware Securities Lawsuits Over The Bank of America-Merrill Lynch Merger is Affirmed by the Second Circuit

The U.S. Court of Appeals for the Second Circuit has affirmed the dismissal of Lambrecht v. O'Neal and Sollins v. O'Neal, two double derivative actions that were brought under Delaware law for Bank of America Corp. (BAC) and its subsidiary Merrill Lynch & Co. The cases were brought by Merrill shareholders contending wrongdoing. (Because Bank of America acquired Merrill, following the stock-for-stock swap, these shareholders are now BofA shareholders.)

The actions were an attempt to make Bank of America board of directors mandate that Merrill sue some of the subsidiary’s officials over allegedly reckless investments that were made. Finding that the actions were a result of unprecedented losses experienced by Merrill because it had invested aggressively in mortgage-baked securities (including collateralized debt obligations) before it was acquired by Bank of America, the district law court dismissed both actions for different but related reasons under Delaware law. In Sollins, the court said that the plaintiff’s predecessor-in-interest submitted the action without making presuit demand on the board yet did not demand futility. As for the Lambrecht action, while that lawsuit made three demands on the Bank of America board, it did not demonstrate that the bank had wrongfully denied the request that claims be made against ex-Merrill officials.

The Second Circuit, in its unpublished summary order, said that it sees no error in the rulings made by the district court. The appeals court noted that while Sollins suggested that Bank of America was “complicit” in Merrill’s alleged pre-merger wrongdoing involving the subprime market by letting the latter issue bonuses at 2007 levels, consenting to indemnify Merrill directors over pre-merger wrongdoing, approving the merger without figuring out Merrill’s growing losses, sealing the deal despite serious misgivings about the firm’s financial state, and not doing a good enough job of notifying investors about losses, his arguments are not properly placed. The district court was therefore correct in stating that the plaintiff cannot “boostrap” his claims against Merrill related to the subprime market onto the merger-related allegations against Bank of America to get around the demand request.

The appeals court also noted that an exculpatory provision in Bank of America’s incorporation articles protects its directors. It also turned down Sollins’ demand futility argument related to Merrill giving out approximately $3.4 billion in employee bonuses in 2008.

As for the Lambrecht case, the appeals court said that a board deciding not to act on a demand by a shareholder is examined under the business judgment rule, which sets up a presumption that the directors of a corporation behave in food faith when making decisions. Overcoming this presumption would require that the plaintiff accomplish the task of demonstrating that not bringing the case was a decision done in bad faith or because of an unreasonable probe, which Lambrecht’s case fails to do, said the Second Circuit.

“This case demonstrates some of the difficulties in pursuing claims against corporations, their management and their directors under Delaware law,” said Shepherd Smith Edwards and Kantas, LLP founder and stockbroker fraud lawyer William Shepherd.

Lambrecht v. O'Neal (PDF)

Dismissal of Del. Law. Suits Over Merger of BofA, Merrill Affirmed, New York Law Journal, December 5, 2012


More Blog Posts:
SEC Intends to Examine 25% of Investment Advisers That Had To Register, Per Dodd-Frank Act, by End of 2014, Stockbroker Fraud Blog, December 26, 2012


SEC Clawback Lawsuit Against Two Former Arthrocare Corp. Executives Over Fraud Scheme Can Proceed, Says District Court in Texas, Stockbroker Fraud Blog, November 24, 2012

McGraw Hills, Moody’s, & Standard & Poor’s Can’t Be Held Liable by Ohio Pension Funds for Allegedly Flawed MBS Ratings, Affirms Sixth Circuit, Stockbroker Fraud Blog, December 20, 2012

November 22, 2012

Securities Roundup: BP Settles for $525M SEC Lawsuit Over Deepwater Horizon Spill Disclosures, Ex-OIG Official Says He Was Fired for Exposing Misconduct, Ex-Merrill Lynch Advisor Accused of Defrauding Elderly Client, & Trader Pleads Guilty to $28M Fraud

BP Plc. has consented to settle for $525 million Securities and Exchange Commission allegations that it gave the agency and investors misleading information about the 2010 Deepwater Horizon oil spill. If approved, this would be the third biggest penalty in SEC history.

According to the Commission, during the crisis the oil giant issued fraudulent statements about how much oil was flowing on a daily basis from the Deepwater Horizon rig into the Gulf of Mexico, including underestimating this rate by up to 5,000 oil barrels a day even though it allegedly had internal data noting that possible flow rates could be up to 146,000 barrels daily. Even after a government task force later determined that 52,700 to 62,200 oil barrels were flowing out a day, BP allegedly never modified the omissions or misrepresentations it made in SEC filings.

In other SEC news, David Weber, one of its ex-Office of Inspector General officials, is suing the agency and Chairman Mary Schapiro for allegedly getting back at him for disclosing misconduct that had been taking place at the Commission. Weber contends that SEC staff spoke about him to the media in a “malicious and defamatory” manner and leaked his personal information because he not only disclosed that ex-SEC Inspector General H. David Kotz had engaged in misconduct that placed several OIG investigations at peril, but also he revealed that there were cyber security breaches at the agency.

Weber claims that the disclosures he made are the reason he was first put on administrative leave and later fired. The Commission says that he intends to respond to the allegations through its court filing.

Meantime, an ex-Merrill Lynch (MER) financial advisor is facing Massachusetts criminal securities fraud charges for allegedly bilking an elderly client. According to prosecutors, Jane E. O’Brien told the woman to invest in thousands of AC Corp. shares but was actually taking the funds to pay for her mortgage and legal fees related to another disagreement involving another client.

In 2009, O’Brien allegedly persuaded the investor to sign a fake promissory note for $500,000 and payments the latter made for this included those in the amounts of $50,000 and $190,000. If convicted, O’Brien could have to pay back $240,000.

In a different criminal securities fraud case, New Jersey stock trader Mark Allen Lefkowitz is facing up to 25 years behind bars and a $250,000 fine for defrauding a company’s shareholders of over $28 million. Per court documents, Lefkowitz and the California-based company’s CEO manipulated the company share price and volume so that insiders would reap the financial rewards while the shareholders suffered. (The company and the CEO have not at this time been charged with committing a crime related to this case.)

Because of the securities fraud, the company issued over 9 billion shares of stock that it failed to register with the SEC. The shares diluted existing shares’ value, which dropped by up to $7 million. Also, contends the SEC, Lefkowitz obtained free-trading shares valued at over $28 million from the company. Prosecutors claim that Lefkowitz and the CEO exploited a provision in securities laws that lets companies put out these unregistered stock shares in order to settle “bona fide” debts.

On the Company’ s behalf, the CEO would get into “purported” loan agreements with different companies under Lefkowitz's ownership. However, the Company would allegedly intentionally default on the loan agreements and then at least one of Lefkowitz’s companies would file a fake lawsuit against it. The CEO and Lefkowitz would then put together a settlement deal where the Company’s debt would be settled with new, unregistered stock shares worth up to five times (or more) than what was actually owed. The shares were sold to investors who didn’t know that the Company A’s stock was being diluted. Part of the sale proceeds from the new shares would then be kick backed to a Lefkowitz owned-company.

SEC v. BP p.l.c. (PDF)

Weber v. SEC (PDF)

Former Merrill Lynch financial advisor faces securities fraud charge, Boston.com, November 20, 2012

Stock trader guilty of fraud involving San Diego firm, Fox5 San Diego, November 19, 2012


More Blog Posts:

MassMutual Settles for $1.625M SEC Charges Over Failure to Disclose Allegations Related to Complex Investments' "Cap," Stockbroker Fraud Blog, November 20, 2012

California Securities Lawsuit Claiming Negligent Misrepresentation Over Allegedly Flawed Bond Offering Documents May Proceed, Says District Court, Stockbroker Fraud Blog, November 13, 2012

FDIC Sues Pricewaterhouse Coopers & Crowe Horwath for Over $1B Over Alleged Failure to Detect Large Fraud That Led to Colonial Bank’s Collapse, Institutional Investor Securities Blog, November 20, 2012

October 17, 2012

FINRA Arbitration Panel Tells Merrill Lynch to Pay $1.34M to Florida Couple Over Allegedly Misrepresenting Fannie Mae Preferred Shares' Risks

A Financial Industry Regulatory Authority panel says that Merrill Lynch (MER) has to pay Michele and Robert Billings $1.34 million for allegedly misrepresenting the risks involved in preferred shares of Fannie Mae. The couple, who used to own a pest control business, placed $2.3 million in the shares in 2008 on the recommendation of their broker, Miles Pure.

The Billings claim that Pure told them them that their investment was “safe,” backed by the government, and came with an attractive yield, when, actually, contends the couple, at the time Fannie Mae’s exposure to the residential real estate market that was failing was causing Fannie Mae to lose billions of dollars. Even as the stock’s price went down, they say that Pure discouraged them from selling. They also claim that he didn’t let them know that the financial firm’s own research showed that Fannie Mae was becoming more beleaguered. Not long after, the Billings’ shares lost their value when Fannie Mae went into government conservatorship.

They filed their FINRA arbitration claim contending civil fraud, negligent supervision, and other alleged wrongdoing. The couple, who are now retired, sought $1 million from Merrill Lynch, in addition to other relief. The $1.34 million award includes punitive damages.

While a spokesman for Merrill says that the brokerage firm doesn’t agree with the panel’s ruling, the Billings’ securities attorney expressed approval of the outcome. Meantime, the FINRA panel has denied Pure’s request to have the disclosure about this arbitration taken out of public record. Although he was not involved in this case, per the securities industry, all securities brokers who are license must have their connection to any arbitration claim noted in their public records regardless of whether/not if he/she was party to it. (The panel, however, did remove the arbitration disclosure from the record of a brokerage manager who didn’t deal directly/daily with the Billings.)

Pure is now a Morgan Keegan broker. Morgan Keegan is a Raymond James Financial Inc. (RJF) unit. Merrill Lynch is a Bank of America (BAC) subsidiary.

This securities case is an example of some of the repercussions that are still happening for investors and brokers in the wake of the economic crisis. The Billings are just two of many investors that have sustained financial losses because a brokerage firm allegedly misrepresented the risks involved in an investment. Meantime, more arbitration claims over such losses are still pending.

Merrill Lynch ordered to pay couple $1.34 million over Fannie Mae Preferred Shares, Reuters/Chicago Tribune, October 16, 2012

Bank of America Merrill Lynch hit with $1.3 million arbitration order, Investment News, October 17, 2012


More Blog Posts:
Ex-Fannie Mae Executives Have to Defend Against SEC Lawsuit Over Their Alleged Involvement in Understating Mortgage Company’s Exposure Risk, Institutional Investor Securities Blog, August 25, 2012

Merrill Lynch Told to Pay $3.6M to Brazilian Heiress for Brother’s Alleged $389M in Unauthorized Trading, Stockbroker Fraud Blog, September 22, 2012

Freddie Mac and Fannie May Drop After They Delist Their Shares from New York Stock Exchange, Stockbroker Fraud Blog, June 25, 2010

Continue reading "FINRA Arbitration Panel Tells Merrill Lynch to Pay $1.34M to Florida Couple Over Allegedly Misrepresenting Fannie Mae Preferred Shares' Risks" »

September 22, 2012

Merrill Lynch Told to Pay $3.6M to Brazilian Heiress for Brother’s Alleged $389M in Unauthorized Trading

A Financial Industry Regulatory Authority panel is ordering Merrill Lynch (MER), a Bank of America Corp. (BAC) unit, to pay $3.6 million to a Brazilian heiress who contends that she lost millions of dollars because of unauthorized trades that her brother made in her account. The securities arbitration case was submitted on behalf of Sophin Investments SA, which was established to manage Camelia Nasser de Kassin’s inheritance from a relative.

Sophin contended that Merrill allowed Camelia’s brother, Ezequiel Nasser, to make unauthorized trades worth $389 million using her accounts at two Merrill Lynch units. He allegedly invested in high risk securities, including naked puts in Lehman Brothers and Bear Stearns (BSC) that created a deficit of at least $8 million.

The plaintiff claimed inadequate supervision, civil fraud, unauthorized trading, and other alleged wrongdoings, and asked for compensatory damages of $21 million for the $9.5 million that had been placed in the accounts, $9.5 million as an investment return, and the rest for commissions that went to Merrill. The financial firm then submitted a counterclaim alleging that their contract together had been breached. It asked the FINRA panel for almost $2.5 million in damages for the deficit in Sophin’s retail account and close to $3 million for the swap account. Merrill also filed claims against Marc Bonnant, who is the lawyer who set up the accounts on Sophin’s behalf, as well as against Ezequiel.

The FINRA panel found both Sophin and Merrill liable. While it told Merrill to pay $6.1 million in compensatory damages to Sophin, the latter was told to pay the financial firm $2.5 million—hence the $3.6 million that Merrill was ultimately ordered to pay Sophin. Also, while the panel acknowledged that Bonnant paid less than adequate attention to his fiduciary duties to Sophin, it said that Merrill exhibited “lapses” in hits own supervising and record keeping.

The claims made against Ezequiel Nasser by Merrill were denied. The arbitration panel said Bonnant, who has been based in Europe, isn’t under its jurisdiction. (Merrill has accused him of authorizing the trades that it had made for Sophin and misrepresenting the client’s investment experience, financial state, and tolerance for risk.)

This case is just one aspect of the bigger dispute between Merrill Lynch and members of the Nasser banking family over alleged trading losses. For example, in 2008, the financial firm sued the Nassers for huge trading losses that result in a $99 million judgment. A New York appeals court upheld that ruling.

Unauthorized Trades
A broker or advisor has to get an investor’s permission to sell or buy securities for an investor. Otherwise, the trade is not authorized. When “trading authorization” is obtained to sell or buy in that client’s account, trades can be made without getting in touch with the client. However, this is a limited power of attorney.

Unfortunately, many investors suffer losses because of unauthorized trades.

Merrill Lynch must pay $3.6 million to Brazilian banking heiress, Merrill Lynch, Reuters, September 12, 2012

Merrill Lynch Ordered to Pay $3.6 Million to Brazilian Heiress, Wall Street Journal, September 12, 2012

Bonnant V. Merrill Lynch (PDF)


More Blog Posts:
Shepherd Smith Edwards and Kantas LLP Pursue Securities Fraud Cases Against Merrill Lynch, Pierce, Fenner, & Smith, Purshe Kaplan Sterling Investments, and First Allied Securities, Inc., Stockbroker Fraud Blog, May 10, 2012

Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers, Stockbroker Fraud Blog, August 27, 2012

Shepherd Smith Edwards and Kantas LLP Pursue Securities Fraud Cases Against Merrill Lynch, Pierce, Fenner, & Smith, Purshe Kaplan Sterling Investments, and First Allied Securities, Inc., Stockbroker Fraud Blog, May 10, 2012

Continue reading "Merrill Lynch Told to Pay $3.6M to Brazilian Heiress for Brother’s Alleged $389M in Unauthorized Trading" »

August 27, 2012

Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers

Merrill Lynch (MER) has arrived at an “agreement in principle” to resolve the class action lawsuit filed by John Burnette and Scott Chambers over deferred compensation that they contend that the brokerage firm refused to pay them after it merged with Bank of America (BAC) in 2008 and they left its employ. About 1,400 brokers are part of this class. However, some 3,300 ex-Merrill brokers have submitted deferred compensation claims against the brokerage firm for the same reason.

Merrill had refused to give these employees their deferred compensation, which is what a broker usually gets paid for staying with a financial firm for a specific number of years, when they resigned after the merger. These brokers, however, cited “good reason” for their departure, which is another cause they can claim to receive this.

The class action settlement was presented to U.S. District Judge Alison Nathan at Manhattan federal court on Friday. She will decide whether to approve it, as well as certify the class according to the parties’ definition. However, it is not known at this time how many brokers will go for this settlement if it is approved.

It is not unusual for many to opt not to be part of a class action settlement and instead seek to obtain more money via an individual arbitration claim. Having an arbitration lawyer personally representing your case generally leads to bigger results. Already, over a thousand ex-Merrill brokers have filed their FINRA claims. Also, for an ex-Merrill broker whose deferred compensation was above six figures, they are likely to get much less by going the class action route. Meantime, ex-Merrill brokers with revenues that exceeded $500,000 during a certain timeframe before they left the financial firm cannot participate in a class action settlement. Neither can those that accepted bonuses and waived certain rights related to deferred compensation claims from Merrill after the deal with Bank of America.

That said, even the ex-Merrill brokers that decide to opt out of the class are likely to benefit from this settlement because it establishes a floor for payouts while serving as Merrill’s public acknowledgement that it had a financial duty to pay the former brokers upon their departure.

Under the class action settlement, the majority of advisers would get 40-60% of the value of their account. According to OnWallStreet.com, for a broker to receive 60%, advisors must have already made a request for reimbursement, whether via lawsuit, arbitration, or some other way and left the financial firm prior to January 30, 2010. To be eligible to receive 50%, these advisers too will have had to have made some type of legal action and resigned by June 30, 2010. If no action was taken, and the former broker still wants to opt in, they would turn in a form and seek 40% of compensation--dependent upon when they exited the firm. Other ex-advisors might also be able to receive 40 to 60% of payment depending on when they left Merrill, whether they had filed a deferred compensation claim, and in what compensation plans they were participants. Ex-dvisers that had an agreement with the Advisor Transition Program, however, would not be able to participate.)

Merrill to Make Good on Former Brokers' Deferred Comp, On Wall Street, August 24, 2012

Merrill to pay $40 mln in deferred compensation suit, Reuters, August 25, 2012

More Blog Posts:
Merrill Lynch to Pay Brokers Over $10M for Alleged Fraud Over Deferred Compensation Plans, Institutional Investor Securities Blog, April 5, 2012

Advanced Equities Ordered by FINRA Arbitration Panel to Pay $4.5M to Ex-Broker, Stockbroker Fraud Blog, June 12, 2012

Claims Continue over MasterShare - Prudential Securities’ Deferred Compensation Plan, Stockbroker Fraud Blog, August 13, 2008

Continue reading "Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers " »

June 28, 2012

Securities Law Roundup: Merrill Lynch Pays Customers $32M For Allegedly Overcharging Them with Unwarranted Fees, Brookstone Securities is Accused of $1.6M in Fraudulent CMO Sales to Elderly Retirees, and Planner Loses CFP Designation Following After Maine

The Financial Industry Regulatory Authority says that it is fining Merrill Lynch, Pierce, Fenner & Smith, Inc. $2.8M in the wake of certain alleged supervisory failures that the SRO says led to the financial firm billing clients unwarranted fees. The financial firm paid back the $32M in remediation to affected clients, in addition to interest.

According to FINRA, from 4/03 to 12/11, Merrill Lynch lacked a satisfactory supervisory system that could ensure that certain investment advisory program clients were billed per the terms of their disclosure documents and contract. As a result, close to 95,000 client account fees were charged.

Also, due to programming mistakes, Merrill Lynch allegedly did not give certain clients timely trade confirmations. These errors caused them to not get confirmations for over 10.6 million trades in more than 230,000 customer accounts from 7/06 to 11/10. Additionally, FINRA contends that Merrill Lynch failed to properly identify when it played the role of principal or agent on account statements and trade confirmations involving at least 7.5 million mutual fund buy transactions. By settling, Merrill Lynch is not denying nor admitting to the charges. It is, however, agreeing to the entry of FINRA’s findings.

Also settling with FINRA are Brookstone Securities, firm CEO/owner Antony Turbeville, and firm broker Christopher Kline. They are accused of fraudulently selling collateralized mortgage obligations to unsophisticated retirees, who wanted to put their money in investments that were safer than equity investments. The financial firm must pay back affected clients $1.6M ($1,179,500 of this was imposed jointly and severally with Kline and the remaining balance was imposed jointly and severally with Turbeville). Brookstone also is responsible for paying a $1M fine over the alleged elder financial fraud.

According to a FINRA hearing panel, from 7/05 through 6/07, Turbeville and Kline purposely issued allegedly fraudulent misrepresentations and omissions to these elderly seniors about the risks involved in CMO investments. The two men are exploiting these clients “greatest fears,” including the worry that they would run out of money when they were older.

The panel found that even when interest rates were rising in 2005 and the two men could clearly see the negative impact this was having on CMOs, they still failed to explain this to clients and instead caused them to think that their investments were bonds that were guaranteed by the government, kept capital safe, and made returns of 10-15%. While clients lost over $1.6M,Brookstone earned $492,500 in commissions from the same CMO bond transactions.

In another securities case, this one a lawsuit that was settled of court, William B. Smith has lost his right to use the certified financial planner designation after he allegedly defrauded a client of $1.2M and took $25K from another client. This revocation, imposed by the CFP Board, is permanent.

Smith’s client, Catharine C. Lund of Maine, had accused him of committing financial fraud after working on a1031 exchange for her following the sale of two of her properties. She contends that Smith should not have advised her to invest $1.2M into the Grafton building where his office is situated.

Our securities lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP represent individual and institutional investors.

Finra Fines Merrill Lynch $2.8 Million for Overcharging Customers
, The Wall Street Journal, June 21, 2012

FINRA Hearing Panel Fines Brookstone Securities $1 Million for Fraudulent Sales of CMOs to Elderly, FINRA, June 4, 2012

CFP Board Disciplines Planner for Alleged Fraudulent Use of $1.2M, FInancial Planning, June 21, 2012


More Blog Posts:
Securities Law Roundup: Ex-Morgan Stanley’s SEC Settlement Over Alleged FCPA Violations Gets Court Approval, Corruption Probe Into Wal-Mart’s Mexico Activities Continue, and Sentry Global Securities Principal Gets 20-Years for Pump-and-Dump Scam, Stockbroker Fraud Blog, May 24, 2012

Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements, Stockbroker Fraud Blog, June 13, 2012

Institutional Investor Securities Roundup: SEC Sues Investment Adviser Over $60M Ponzi Scam, Michigan Investment Club Manager Gets Prison Term for Defrauding Over 900 Investors, & IOSCO Seeks Comments on Report About Credit Raters’ Conflicts & Controls, Institutional Investor Securities Blog, June 7, 2012

November 30, 2011

Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court

The U.S. Court of Appeals for the Second Circuit has affirmed a district court’s decision to dismiss securities fraud claims accusing Merrill Lynch & Co. of hiding its ARS practices to manipulate the market. The case had been filed by plaintiff Colin Wilson on behalf of all buyers between March 2003 and Feb. 13, 2008 that purchased ARS for which Merrill was the dealer.

Wilson contended that although until July 2007 Merrill Lynch did not allow its ARS auctions to fail, in the couple of months that followed the broker-dealer did not put in support bids during at least 34 auction-rate securities issuances. As a result, those auctions did fail. Wilson also claimed that because Merrill Lynch did not appropriately disclose the full scope of its ARS practices, the financial firm was sending out a false signal that the market was sustainable despite there being not enough of an investor demand for the instruments.

The district court threw out the Wilson’s ARS case after finding that Merrill’s disclosure did not mislead investors. Now, the appeals court is affirming. It found that if, as Wilson says, Merrill intended to put in support bids for every auction unless it decided to let certain ones fail or get out of the market in general, then the court believes that the broker-dealer gave fair disclosure of all this. The appeals court also didn’t agree with Wilson’s allegation that Merrill Lynch knew without a doubt that if it didn’t intervene an ARS auction was sure to fail.

This is the first appellate ruling involving securities class litigation over the demise of the ARS market. Upon the market's decline beginning 2007, Merrill Lynch and other large broker-dealers started letting auction-rate securities auctions fail. When they completely stopped their support, the market became illiquid. A number of investors have since filed ARS lawsuits seeking to recover their money.

Although Merrill appears to have won this case, Shepherd Smith Edwards and Kantas founder and stockbroker fraud attorney William Shepherd notes, “This is not the huge victory Merrill claims. The court did NOT find that Merrill did not engage in wrongdoing in the sale of auction rate securities (ARS) to its clients, most of whom were led to falsely believe that these ARS investments were similar to commercial paper or short-term treasury bills. This case is instead concerned with “market manipulation,” a type of securities fraud claim that is rarely brought and almost never successful. In order to win this case, among other hurdles the plaintiffs would have to demonstrate that Merrill’s practices were intentional and were intended to change the market value of the securities. Also, this decision is by the federal appeals court in New York, which mysteriously decides many cases in favor of Wall Street.”

2d Cir. Affirms Merrill Off the Hook In Investor Suit Over ARS Disclosures, BNA, November 16, 2011

Read the full opinion (PDF)


More Blog Posts:

SEC and SIFMA Divided Over Whether Merrill Lynch Can Be Held Liable for Alleged ARS Market Manipulation, Institutional Investor Securities Blog, July 29, 2011
Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Continue reading "Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court" »