May 5, 2015

City of Los Angeles, CA Sues Wells Fargo for Fraud

The city of Los Angeles has filed a civil complaint against Wells Fargo Bank (WFC). The lawsuit accuses the bank of encouraging employees to take part in conduct that was illegal and fraudulent, including setting up unauthorized accounts for customers, charging them unwarranted fees, and ruining their credit.

The city is looking to get a court order stopping the alleged wrongdoing. It wants penalties for every violation, as well as restitution for customers that were hurt. The case is applicable to residents of Los Angeles County and perhaps even customers outside that area.

According to the complaint, employees purportedly misused the confidential data of customers and neglected to close unauthorized accounts when the latter complained. Certain employees even allegedly raided customer accounts for money to set up additional accounts. When unwarranted fees went unpaid, the bank purportedly put customers into collections because of unauthorized withdrawals and damaging data on their credit cards because of these unwarranted fees.

Such actions, contends the city, occurred because the bank was pressuring employees to generate sales. Customers sustained financial harm as a result, while Wells Fargo made a profit and employees were blamed.

Meantime, the California-based bank has pinned these problems on a few rogue employees, whom it says it fired or disciplined. However, the city of LA believes that Wells Fargo has made minimal efforts at making sure such abuses stop. For example, contends the complaint, when the bank took action against an employee for sales conduct that was unethical, it didn't notify customers of the breach, refund the fees that were owed to them, or offer remedies for other injuries its staff may have caused.

The Los Angeles Times, in 2013, investigated these allegations against Wells Fargo, which is known for cross-selling financial products to customers. The paper's probe echoed similar claims as this lawsuit, with many statements made coming from current and former Wells Fargo employees who worked at different branches.

Bank workers were purportedly coached on how to inflate sales figures. Employees set up duplicate accounts without letting customers know. Pre-approved credit cards were ordered without customer consent. Complaints about the never requested cards were dismissed as having been generate by computer glitch or "mistake," with cards accidentally issued to the wrong person with a similar name as the customer who’d supposedly placed the order. According to employees, Wells Fargo expected staff to sell at least four financial products to the majority of their customers, with some shooting to sell eight per household.

Since the LA Times published its findings from the probe, dozens of Wells Fargo employees and customers have come forward to report similar issues. Complaints are coming in even today.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors in recovering losses they suffered because of securities fraud.

Wells Fargo Accused of Fraudulent Behavior, Taking Advantage of Customers, ABC News, May 5, 2015

Wells Fargo's pressure-cooker sales culture comes at a cost, Los Angeles Times, December 21, 2013


More Blog Posts:
RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales, Stockbroker Fraud Blog, April 30, 2015

FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations, Stockbroker Fraud Blog, April 27, 2015

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses, Institutional Investor Securities Blog, March 30, 2015

December 23, 2014

FINRA Orders Wells Fargo Units to Pay $1.5M For Anti-Money Laundering-Related Lapses

The Financial Industry Regulatory Authority is ordering Wells Fargo Advisors Financial Network (WFAFN) and Wells Fargo Advisors (WFA) to collectively pay $1.5M for anti-money laundering (AML) failures. According to the self-regulatory organization, the two brokerage firms did not comply with a main component of the anti-money laundering compliance program when it did not require some 220,000 new customer accounts to go through an identify verification process. The failures purportedly occurred from 2003 to 2012.

The AML compliance program mandates that brokerage firms set up and keep up a written Customer Identification Program that lets them confirm the identity of every customer setting up an account. The broker-dealer should use the CIP to get and verify a minimum amount of identifying data before opening a new customer account. The firms must also keep records of the verification process and let customers know that data is being gathered to confirm their identities.

FINRA said that the firms had a CIP system but it was deficient because of the electronic systems involved. Of the 220,000 new accounts that never had to undergo customer identify verification, some 120,000 of them were closed by the time the problem was identified.

By settling, Wells Fargo Advisors and Wells Fargo Financial Advisors, which are both Wells Fargo units, are not denying or admitting to the charges. They are, however, consenting to the entry of findings.

In other Wells Fargo-related news, homeowners suing mortgage companies that belonged to Wachovia won a $54.8 million verdict in their class action securities case over excessive fees. Wells Fargo acquired Wachovia in 2008.

The plaintiffs are borrowers with mortgages that were serviced or belonged to HomeEq serving or the lender, the now-defunct The Money Store. Homeowners have been trying to get back around $29 million for alleged excessive charges plus interest. Joseph Mazzei, the lead plaintiff claimed that both entities continued to charge late fees each month to borrowers even after mortgages went into default.

A jury said that the mortgage companies were liable for late fees. Wells Fargo never owned either The Money Store or Home Eq. Wells Fargo owned the latter, while the former, which belonged to First Union, later came under Wachovia’s fold.

FINRA Fines Wells Fargo Advisors and Wells Fargo Advisors Financial Network $1.5 Million for Anti-Money Laundering Failures, FINRA, December 18, 2014

Wells Fargo faces payout after $54.8 mln loan fee verdict, Reuters, December 19, 2014


More Blog Posts:
FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud, Stockbroker Fraud Blog, September 19, 2014

Wells Fargo Sued Over Allegedly Biased Lending in Chicago, Institutional Investor Securities Blog, November 28, 2014

Wells Fargo to Pay $5M Over Inadequate Controls, Altered Documents, Institutional Investor Securities Blog, October 21, 2014

December 22, 2014

Ex-Edward Jones Financial Adviser is Criminally Charged with Bilking Disabled Woman of Over $160K

Jason Cox, a former Edward Jones financial adviser, is criminally charged with allegedly defrauding a disabled woman. Robert C. Yeamans, who is the woman’s now deceased father, had tasked Cox with managing her account. The woman, who is in her fifties, is developmentally disabled.

According to a federal complaint, Cox took at least $160,000 from the investment account set up for her. He allegedly structured transactions by taking out small amounts during a short time period so he wouldn’t have to fulfill bank reporting requirements for bigger sums.

When worried banking officials asked the woman about the money, she told them she put it in a business that Cox owned but did not know what kind of enterprise it was. The bank closed her account.

The woman then opened another account at a different bank where Cox also had an account. Over $145,000, primarily from her Edward Jones account, then went into Cox’s account there. Meantime, her Edward Jones account was emptied out. In just a three-month period, $118,000 of the woman’s funds from the new account was taken out in 21 cash withdrawal transactions.

During an investigation, special agents for the Internal Revenue Service started probing Cox’s activities. He reportedly organized a sale of the woman’s condo. They also discovered that Edward Jones had fired him for stealing another client’s funds.

Unfortunately, there are financial representatives that will take advantage of a mentally disabled investor and bilk them of their funds. Elderly investors with dementia are also at risk of being defrauded. When these types of investors are harmed, this can make it hard for the victims to cover medical expenses, special care, and living expenses, as often they are no longer bringing in other steady income.

This week, in an unrelated case, the Financial Industry Regulatory Authority announced that Jeffrey C. McClure has been permanently barred from the securities industry. McClure is accused of converting close to $89,000 from the bank account of an elderly customer while he worked for Wells Fargo Advisors, LLC (WFC) and an affiliate bank. The bank has paid back the customer’s loss.

According to the self-regulatory organization, over almost two years, ending in August 2014, McClure wrote 36 checks to himself totaling $88,850 from the customer’s bank account at the affiliate. He did this without her consent or knowledge.

McClure had access to her account because the elderly customer had given him permission to pay for her expenses, including rent. Instead, he used her money to cover his personal costs.

You want to speak with an elder financial fraud attorney who can help you or your loved one get the money that was taken. Filing a civil claim is a separate action from criminal charges. Working with an experienced securities law firm can increase your chances of maximum financial recovery. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.


FINRA Bars Broker for Stealing $89,000 From an Elderly Customer
, FINRA, December 22, 2014

Feds accuse financial adviser of taking disabled woman's money, Dispatch.com, December 23, 2014


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Reliance Financial Advisors, Owners Face SEC Fraud Charges Involving Hedge Fund, Stockbroker Fraud Blog, December 15, 2014

Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014

September 19, 2014

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud

The Financial Industry Regulatory Authority has barred a former Wells Fargo (WFC) registered representative from the brokerage industry. According to the self-regulatory organization, Ane S. Plate, who previously worked with Wells Fargo Advisors Financial Network in Florida, allegedly made fifteen unauthorized trades in a joint brokerage account of two customers between October 2013 and April 2014. The transactions resulted in $176,080 of cash proceeds, of which Plate is accused of pocketing $132,358.

The former Wells Fargo broker is also accused of setting up bi-weekly transfers from the brokerage account to a bank account that was in the name of one of her relatives. She then allegedly moved $7,700 to that account between December 2013 and May 2014.

Plate, who was working with Wachovia Securities when Wells Fargo acquired that firm, has since been fired after the latter discovered the purported theft. FINRA’s BrokerCheck reports that the customers that were harmed were fully reimbursed for the amount taken from them.

Plate, who settled the FINRA charges, is not denying or admitting to the allegations. She has, however, consented to an entry of the regulator’s findings.

FINRA also recently expelled a financial firm from FINRA membership, this for the purportedly fraudulent sale of about $3 million of senior secured zero-coupon notes. HFP Capital Markets LLC will now have to pay $2,980,000 plus interest in customer restitution.

The financial firm is accused of selling private offerings of the notes to customers while knowingly leaving out or misrepresenting material facts in the offering and sales. The SRO says the notes were misrepresented as collateralized by certain barrels of leftover mining materials that were valuable enough to secure an investment, when the ore concentrate was actually worthless.

FINRA is also accusing HFP Capital Markets of not disclosing material facts about the management and ownership of the issuer and about the way the proceeds from the offering were utilized. The firm also purportedly disregarded red flags and did not conduct sufficient due diligence on the individuals involved, the offering, or the third parties that were presented as critical strategic partners.

Some customers recovered their money in the form of replacement transactions after complaining to the firm, but everyone else lost their funds. Now, HFP Capital Markets is settling without denying or admitting to the findings.

FINRA also recently censured Felix Investments LLC, which is based in New Jersey, for sending misleading, unwarranted, and exaggerated claims or statements to potential investors of a fund via email. The communications purportedly did not note the possible risks or provide comprehensive descriptions of the fund.

Now, Felix Investments has to submit all retail communications, per FINRA Rule 2210’s definition, with the agency at least 10 days before use and pay a $300,000 fine. The firm’s principal, Susan Mindlin Diamond, must pay a $10,000 fine and serve a four-month suspension. Meantime financial representative Frank Gregory Mazzola, who is accused of sending the emails, is barred from associating with any FINRA member.

Other FINRA findings against Felix Investments and Diamond include inadequate supervision of Mazzola, even after an AWC was put out against him, and failure to put into place a written anti-money laundering program to keep Felix in compliance with the Bank Secrecy Act and other regulations.

Felix Investments, Mazzola, and Diamond settled with FINRA without denying or admitting to the findings.

Former Wells Fargo Advisor Barred From Brokerage Industry, Bank Investment Consultant

FINRA Enforcement: HFP Capital Markets Expelled From FINRA for Note Fraud, ThinkAdvisor, September 5, 2014

FINRA


More Blog Posts:
FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks, Stockbroker Fraud Blog, September 13, 2014

Deutsche Bank, Wells Fargo, Citigroup Sued by Pimco and Blackrock Over Trustee Roles Involving Mortgage Bonds, Institutional Investor Securities Blog, July 3, 2014

FINRA Headlines: SRO Considers Revised Broker Bonus Plan, To Discuss Potential Dark Pool Rules, May Instigate Civil Action Against Wells Fargo, &Warns Investors About Frontier Markets, Institutional Investor Securities Blog, September 12, 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


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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

May 30, 2014

Wells Fargo Must Face Los Angeles’s Lawsuit Over Predatory Loans

U.S. District Judge Otis Wright II says that a lawsuit by the city of Los Angeles, which seeks to hold Wells Fargo & Co. (WFC) liable for foreclosures that occurred when the U.S. housing market collapsed, may proceed. Although Wright did not rule on the merits of the city’s claims, he said that L.A.’s allegations that the bank used “predatory loans” to target minority lenders were legally sufficient at this point.

The California city has filed separate cases against Wells Fargo, Bank of America Corp. (BAC) and Citigroup Inc. (C) accusing the mortgage lenders of engaging in discriminatory practices going as far back as at least 2004. L.A. says that the banks placed minority borrowers in loans that were out of their budget, raising the number of foreclosures in the city’s neighborhoods.

According to the city, local homeowners have lost around $78.8 billion in home value because of foreclosures that occurred between 2008 and 2012. Property tax revenue that was lost because of this was reportedly $481 million. Now, Los Angeles wants to hold the banks liable for the increase in municipal services and the tax revenue that was lost due to the foreclosures.

L.A. had also sued Deutsche Bank AG (DB) in the role of the foreclosed properties’ owner. Last year, the lender settled with the city. It said that securitization trusts and services would pay the city $10 million.

Already, Bank of America and Wells Fargo have paid a combined total of over $500 million in of the largest residential cases. The US government claims that borrowers who had loans that came from Countrywide and Wells Fargo were likelier to be paired subprime loans if they were Hispanics or Blacks

Earlier this year, Illinois’s Cook County sued HSBC Holdings Plc. (HSBA) for allegedly targeting minority borrowers in the Chicago area through costly home loans. The populous county wants unspecified punitive and compensatory damages for costs to police to keep up deteriorating areas and because of lost tax revenue on properties that became vacant.

Also the US cities of Memphis, Tennessee, and Baltimore, Cleveland have filed claims contending that banks made loans to unqualified minority borrowers or gave them high-interest subprime mortgages even though they qualified for prime loans. These cities brought their cases under the Housing Act.

Wells Fargo Can’t Shake L.A. Lawsuit Over Predatory Loans, Bloomberg, May 28, 2014

Judge denies Wells Fargo's bid to dismiss L.A. predatory lending suit, Reuters, May 28, 2014


More Blog Posts:
FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors, Stockbroker Fraud Blog, December 29, 2013

Financial Firms Update: Morgan Stanley Now Owns Smith Barney, Wells Fargo & JPMorgan Defeat Estimates, MLB All-Star Sues UBS for $7.6M, & Ray Lucia, His Firm Fined Over “Buckets of Money” Strategy, Stockbroker fraud Blog, July 12, 2013

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor
, Institutional Investor Securities Blog, December 14, 2013

May 29, 2014

Stockbroker Fraud: Morgan Stanley Sues Convicted Ex-Broker, Former-Wells Fargo Broker Pleads Guilty, And Ex-John Thomas Financial Broker Evades Customer Complaints

Morgan Stanley Files Lawsuit Against Ex-Broker Convicted in Kickback Scam
Morgan Stanley (MS) is suing ex-broker Darin DeMizio for legal fees. DeMizio was convicted over his involvement in a kickback scheme. Now, the financial firm wants him to pay back legal expenses because it says that he purposely defrauded the broker-dealer and hid the fraud while working there.

DeMizio was convicted five years ago for his scheme to pay kickbacks of $1.7 million to his brother and dad. He was sentenced to 38 months behind bars and ordered to pay Morgan Stanley $1.2 million in restitution.


Ex-Morgan Stanley and Wells Fargo Broker Pleads Guilty in Check Fraud Scam Involving Elderly Widow
Adorean Boleancu, a former Morgan Stanley and Wells Fargo (WFC) broker, has entered a guilty plea to wire fraud charges related to a $1.8 million check fraud scheme. His victim was a widow in her eighties. Boleancu admitted that he wrote checks without authorization on her home equity lines of credit and her brokerage account. The checks included payments to his relatives, a significant others, and companies where he had credit card accounts.

According to prosecutors, Boleancu was working for Morgan Stanley when he set up accounts for investor Tonna Treadwell in 2007. He left the firm a year afterwards but kept forging checks from her account through 2011 when he was a Wells Fargo broker.

Boleancu has repaid Treadwell $650,000. As part of a civil settlement with the Financial Industry Regulatory Authority, he agreed to be banned from the industry.


Ex-John Thomas Financial Broker Avoids Customer Complaints With Bankruptcy Filing
Scott Levine, a former John Thomas Financial broker, was granted momentary reprieve from the customer complaints that have been made against him after he filed for bankruptcy protection. Because of the filing, five customer complaints that named him and carry nearly $5 million in damage claims are now frozen.

The allegations against Levine involve purportedly unsuitable investments, private placements, and churning. His former firm, John Thomas Financial, was expelled by FINRA. However Levine continues to work as a broker with IAA Financial.

Under Section 362 of the U.S Bankruptcy Code, administrative actions and litigation are frozen so that those who are in financial trouble can financially recover. Now, however, some investor fraud lawyers are saying that the code is letting brokers continue to stay employed while the customer complaints again them wallow in bankruptcy court.

In FINRA’s BrokerCheck database, complaints directed to a bankrupt broker end up being marked “pending.” Arbitrators can’t rule on them until a bankruptcy judge lifts the order to freeze the claims.

Our stockbroker fraud law firm is here to help investors get back their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Brokers dodge customer complaints with bankruptcy, Investment News, May 29, 2014

Morgan Stanley Sues Convicted Ex-Broker for Legal Fees, Bloomberg, May 27, 2014

Ex-Wells, Morgan Stanley broker pleads guilty in check fraud scheme, Reuters, September 17, 2013

U.S. Bankruptcy Code


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SEC Takes Action to Stop Alleged Fraud Involving Transfer Agent, Institutional Investor Securities Blog, May 28, 2014

Insider Trading Headlines: Principal of Wynnefield Capital Now On Trial, Ex-Vitamin Company Board Member Settles His Case, and Clinical Drug Trial Doctors Face Charges Related to New Cancer Drug, Stockbroker Fraud Blog, May 23, 2014

December 29, 2013

FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors

A Wells Fargo & Co. (WFC) brokerage unit must buy back almost $94 million in auction rate securities from the family who said their adviser misrepresented the investments. The claimants are the relatives of deceased newsstand magnate Robert B. Cohen, who founded the chain Hudson News. Cohen died in 2012.

His family contends that Wells Fargo Advisors and one of its advisors made misleading and fraudulent statements about municipal auction-securities. They are alleging breach of fiduciary duty, negligence, and fraud in their municipal auction-rate securities fraud claim.

Now, the firm must buy back at face value the municipal ARS it helped Cohen, his family, and affiliated business purchase. The transactions started beginning March 2008.
(The FINRA arbitration panel, however, denied the Cohens punitive damages and compensation.)

Since the financial crisis that broke that year, Wells Fargo, Morgan Stanley (MS), Merrill Lynch (MER), UBS Wealth Management (UBS), Oppenheimer (OPY) and others have repurchased billions of dollars in auction-rate securities and consented to millions in fines to settle charges that they did not correctly supervise employees that provided investment advice, as well as failed to properly inform investors about the debt securities.

Many customers thought they were investing in securities that were liquid, like cash. They were therefore dismayed to discover that when the crisis hit and their auction-rate securities became frozen they could not access their money.

Our auction-rate securities fraud lawyers continue to help investors recoup their losses related to the financial crisis of 2008. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Wells Fargo Unit (WFC) Ordered to Buy Back Auction-Rate Securities, The Wall Street Journal, December 27, 2013

Wells Fargo to repurchase $94M in securities from family clients, Investment News, December 27, 2013


More Blog Posts:
Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

Financial Firms Update: Morgan Stanley Now Owns Smith Barney, Wells Fargo & JPMorgan Defeat Estimates, MLB All-Star Sues UBS for $7.6M, & Ray Lucia, His Firm Fined Over “Buckets of Money” Strategy, Stockbroker fraud Blog, July 12, 2013

Securities Lending Trial Against Wells Fargo & Co. is Underway, Institutional Investor Securities Blog, June 21, 2013

July 12, 2013

Financial Firms Update: Morgan Stanley Now Owns Smith Barney, Wells Fargo & JPMorgan Defeat Estimates, MLB All-Star Sues UBS for $7.6M, & Ray Lucia, His Firm Fined Over “Buckets of Money” Strategy

Morgan Stanley Buys Smith Barney from Citigroup
Morgan Stanley (MS) now owns Smith Barney, which it just bought from Citigroup (C) for $9.4 billion. Smith Barney’s new name is Morgan Stanley Wealth Management. Based on its new number of financial advisers, the deal makes Morgan Stanley the largest Wall Street firm and comes in the wake of Federal Reserve approval.


Wells Fargo & JPMorgan Defeat Analysts’ Estimates
JPMorgan Chase (JPM) says it experienced a 31% rise in second quarter earnings, surpassing analysts expectations it would garner $5.47 billion on $24.84 billion, and, instead generating, $6.5 billion in earnings and $25 billion of revenue. A year ago for the same period, revenue for the financial firm was at $22 billion.

Meantime, Wells Fargo (WF) is also reporting a 19% profit rise for Q2. This is its 14th quarterly profit increase in a row and 9th consecutive record report. While net income for the same period last year was at $4.6 billion, its net income second quarter for 2013 was $5.5 billion.


5-Time MLB All-Star Sues UBS for $7.6 Million
Retired fiive-time Major League Baseball All-Star Mike Sweeney is suing UBS Financial Services Inc. (UBS) and his former broker there for $7.6 million. Per the securities fraud case, broker Ralph A. Jackson III invested half of Sweeney’s portfolio, worth millions of dollars, in high-risk private placements that failed.

Sweeney contends that he was an inexperienced investor who trusted Jackson to make sure his money was being invested conservatively. He says that over a five-year period, the UBS broker put $6.85M of his portfolio in private-equity investments that were misrepresented to him as safe and suitable, as well $2.7M into other investments without his consent. Sweeney, who hit it big when he signed with the Kansas City Royals, claims he lost $4.9M.


Ray Lucia, His Firm Fined Over “Buckets of Money” Strategy
Financial adviser and nationally syndicated radio host Ray Lucia and his firm Raymond J. Lucia Cos. Inc. must pay fines for allegedly providing misleading information related to his wealth-management strategy known as “Buckets of Money." The Securities and Exchange Commission is accusing the California adviser of causing retirees to believe that his approach would allow them to make income that was inflation-adjusted for life.

Now, an administrative-law judge has taken away Lucia’s adviser registration and fined him $50,000. His firm, which must pay $250,000, also has lost its license. Judge Cameron Elliot found that for years, Lucia misrepresented any purported back-testings’ validity in seminars about saving for retirement. The SEC contends that Lucia and the firm hardly, if at all, conducted any back-tests.

Morgan Stanley Completes Purchase of Smith Barney Venture, Bloomberg, June 28, 2013

JPMorgan Chase and Wells Fargo Beat Estimates, Crossing Wall Street, July 12, 2013

Retired Slugger Sue UBS for $7.6 Million, Courthouse News, June 17, 2013

Ray Lucia, firm fined buckets of money over investment claims, Investment News, July 9, 2013


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Ameriprise Financial, Securities America, & Three Other Brokerage Firms Reach $9.6M Non-Traded REIT Securities Settlement with Massachusetts Financial Regulator, Stockbroker Fraud Blog, May 22, 2013

Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

Securities Case Over Insuring The $160M in Disgorgement Paid to the SEC Goes Back to Trial Court, Institutional Investor Securities Blog, July 6, 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 11, 2013

Wells Fargo Settles Securities Lawsuit Over Medical Capital Holdings Ponzi Scam for $105M

Wells Fargo & Co. (WFC) has consented to pay $105M to investors of the now failed Medical Capital Holdings Inc. The bank had served as trustee for Medical Capital securities.

The medical receivables financing company got about $2.2 billion from thousands of investors between 2001 and 2009 via the private placement offerings that were promissory notes. The private placement was a high commission financial instrument that promised annual returns of 8.5% to 10.5%. Per court filings, investors paid Medical Capital nearly $325 million in administrative fees. Dozens of independent brokerage firms sold the notes.

It was in 2009 that the SEC accused affiliates of Medical Capital of committing securities fraud against investors. The financial scam was quickly shut down and the company soon entered receivership but investors got back just half their money. Many of them would go on to file a securities lawsuit against trustees Bank of New York Mellon Corp. (BK) and Wells Fargo accusing the financial firms of failing to fulfill their role as trustees by neglecting to detect the fraud. Meantime, many of the brokerage firms that sold the MedCap notes are no longer in business because they sank from the securities arbitration payments and legal costs that followed as a result.

Even as Wells Fargo is settling this MedCapital securities case, the bank maintains that it did nothing wrong and that the one to blame is Medical Capital. This settlement comes a few months after Bank of New York Mellon resolved similar claims against it for $114M.

In that class action securities case, investors are sharing a $90.68M payment, with $13.6M going to legal fees and another $1.8M to expenses. Bank of New York Mellon also denied any wrongdoing.

Wells Fargo Settles Medical Capital Investor Suit for $105 Million, Wall Street Journal, April 30, 2013

Wells Fargo agrees to pay $105M to end MedCap suit, Investment News, May 1, 2013

Bank of NY Mellon to pay $114 million in Medical Capital accord, Reuters, February 22, 2013


More Blog Posts:
Medical Capital Fraud Lawsuit Against Wells Fargo Must Proceed, Institutional Investor Securities Blog, April 10, 2013

FINRA Bars Former Wells Fargo Advisors Broker that Bilked Child with Cerebral Palsy, Stockbroker Fraud Blog, April 26, 2012

December 28, 2012

Stockbroker Fraud Headlines: Wells Fargo Banker Charged Over $11M Insider Trading, Morgan Stanley to Resolve Facebook IPO Action for $5M, & SEC Accuses Canadian Broker of Inadequate Day Trader Supervision

Wells Fargo Banker and 8 Others Accused of Alleged $8M Insider Trading Scam
The U.S. Attorney for the Western District of North Carolina is charging Wells Fargo (WFC) investment banker John Femenia and eight alleged co-conspirators with involvement in an alleged $11 million insider trading scam. Femenia is accused of stealing confidential data from his employer and its clients about acquisitions and mergers that were pending. He then either directly or via others tipped his co-conspirators, receiving kickbacks in return.

According to the N.C. government, the insider trading scam resulted in $11M in profits. While six of the co-conspirators opted to plead guilty to conspiracy to commit insider trading, Femenia and the other two have been indicted on multiple charges of conspiracy and insider trading. The same defendants, and another person, are also named in the SEC lawsuit over the scheme.


Morgan Stanley to Settle Massachusetts’ Facebook IPO Allegations for $5M
Morgan Stanley & Co. LLC (MS) will pay $5 million to settle the Massachusetts securities regulator’s allegations that the financial firm’s investment bankers improperly affected research analysts over Facebook Inc.’s (FB) IPO. The financial firm was the initial public offering’s lead underwriter. (It was just in October that Citigroup Global Markets Inc. (C) also settled with the Massachusetts regulator for $2M claims that an analyst acted improperly by making available confidential data about Facebook prior to the latter’s going public.)

Per the allegations, After Facebook’s CFO told a Morgan Stanley senior investment banker that the social media company’s projected revenue might be lower than predicted, the banker supposedly told the CFO to take certain steps to make it seem as if all investors were being given access to this information. This banker also allegedly organized calls with research analysts to give them this new information. The analysts would go on to modify their estimates but only told institutional investors about it.


Canadian Brokerage Firm Agrees to Industry Bar for Alleged Inadequate Day Trader Supervision
Biremis Corp. and its cofounders Charles Kim and Peter Beck agreed to a permanent industry bar for allegedly neglecting to properly supervise overseas day traders who were then able to allegedly use the brokerage firm’s order management system to take part in layering, which is a manipulative trading practice that involves the placing of orders that will not be executed to fool others into trading at an artificial price. The orders are later cancelled.

The Securities and Exchange Commission contends that Biremis, which allows up to 5,000 traders on up to 200 trading floors in 30 nations to access US markets, did not deal with repeated incidents of layering committed by the overseas traders despite the red flags. The brokerage firm, Kim, and Beck have agreed to settle the Securities and Exchange Commission allegations without denying or admitting to the alleged misconduct.

Ex-Wells Fargo Banker Among Nine Hit With Insider Trading, Bloomberg/BNA, December 13, 2012

Mass. fines Morgan Stanley $5M over Facebook IPO, AP/ NECN, December 17, 2012

SEC Revokes Registration of Toronto-Based Broker and Bans Two Executives from U.S. Securities Industry for Allowing Layering, SEC, December 18, 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


Investment Advisor Securities Roundup: Two Firms Settle SEC Claims That They Impeded with Examinations, FINRA Defends SRO Model, IA Allegedly Duped Private Equity Investors, & CDO Misrepresentation Accusations Against GSCP Executive Are Dismissed, Stockbroker Fraud Blog, December 10, 2012

GAO Says Most Financial Regulators Don’t Have the Procedures/Policies to Coordinate Dodd-Frank Rules, Institutional Investor Securities Blog, December 24, 2012

May 3, 2012

Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs

Wells Fargo & Co. (WFC), UBS AG (UBSN), Morgan Stanley (MS), and Citigroup Inc. (C) have consented to pay a combined $9.1 million to settle Financial Industry Regulatory Authority claims that they did not adequately supervise the sale of leveraged and inverse exchange-traded funds in 2008 and 2009. $7.3 million of this is fines. The remaining $1.8 million will go to affected customers. The SRO says that the four financial firms had no reasonable grounds for recommending these securities to the investors, yet they each sold billions of dollars of ETFs to clients. Some of these investors ended up holding them for extended periods while the markets were exhibiting volatility.

It was in June 2009 that FINRA cautioned brokers that long-term investors and leveraged and inverse ETFs were not a good match. While UBS suspended its sale of these ETFs after the SRO issued its warning, it eventually resumed selling them but doesn’t recommend them to clients anymore. Morgan Stanley also had announced that it would place restrictions on ETF sales. Meantime, Wells Fargo continues to sell leveraged and inverse ETF. However, a spokesperson for the financial firm says that it has implemented enhanced procedures and policies to ensure that it meets its regulatory responsibilities. Citigroup also has enhanced its policies, procedures, and training related to the sale of these ETFs. (FINRA began looking into how leveraged and inverse ETFs are being marketed to clients in March after one ETN, VelocityShares Daily 2x VIX Short-Term (TVIX), which is managed by Credit Suisse (CS), lost half its worth in two days.)

The Securities and Exchange Commission describes ETFs as (usually) registered investment companies with shares that represent an interest in a portfolio with securities that track an underlying index or benchmark. While leveraged ETFs look to deliver multiples of the performance of the benchmark or index they are tracking, inverse ETFs seek to do the opposite. Both types of ETFs seek to do this with the help of different investment strategies involving future contracts, swaps, and other derivative instruments. The majority of leveraged and inverse ETFs “reset” daily. How they perform over extend time periods can differ from how well their benchmark or underlying index does during the same duration. Per Bloomberg, leveraged and inverse ETFs hold $29.3 billion in the US.

“These highly leveraged investments were - and still are - being bought into the accounts of unsophisticated investors at these and other firms,” said Leveraged and Inverse ETF Attorney William Shepherd. “Although most firms do not allow margin investing in retirement accounts, many did not screen accounts to flag these leveraged investments which can operate on the same principle as margin accounts.”

For investors, it is important that they understand the risks involved in leveraged and inverse ETFs. Depending on what investment strategies the ETF employs, the risks may vary. Long-term investors should be especially careful about their decision to invest in leveraged and inverse ETFs.

Finra Sanctions Citi, Morgan Stanley, UBS, Wells Fargo $9.1M For Leveraged ETFs, The Wall Street Journal, May 1, 2012

Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors, SEC

FINRA investigating exchange-traded notes: spokesperson, Reuters, March 29, 2012


More Blog Posts:
SEC to Investigate Seesawing Credit Suisse TVIX Note, Stockbroker Fraud Blog, March 30, 2012

Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investor Securities Blog, April 12, 2012

Continue reading "Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs " »

April 26, 2012

FINRA Bars Former Wells Fargo Advisors Broker that Bilked Child with Cerebral Palsy

Ralph Edward Thomas Jr., a former broker has been permanently barred from the Financial Industry Regulatory Authority. Thomas, who misappropriated money from three clients, including a child suffering from cerebral palsy, has been sentenced to a prison term of four years. He also must pay $836,000 in restitution.

According to prosecutors, the former broker stole the money over several years. More than $750,000 came from the child’s trust fund, which held the proceeds from a medical malpractice settlement he received for $3 million. During this time, he worked for Invest Financial Corporation, Harbor Financial Services, and Wells Fargo Advisors, which terminated him as their broker in 2010.

This case of securities fraud started after the child’s mom moved the trust to the bank in 2001. This gave Thomas control over the money. He would give out up to $1,500 of the child’s almost $6,300 in monthly annuity payments. He would then use withdrawal slips with the mother’s signature already written on it to buy cashier’s checks and take out money. He would deposit the checks in his personal accounts at other banks. In addition to the over $750,000 that he converted from the child’s account, Thomas converted $12,500 of the mother’s money.

Also, between February 2004 and July 2010, he defrauded an elderly client of over $42,000. He took out the money from her annuity account without telling her. He used the money to buy cashier’s check payable to cash or credit card companies where he had accounts.

In bilking these investors, Thomas violated FINRA rules 2010 and 2150 and NASD Rules 2110 and 2330. As part of the permanent bar, he can no longer associate with a FINRA member in any capacity.

Elderly seniors are among the most vulnerable members of society when it comes to being targets of financial fraud. The fraudster may be a financial professional, another professional with access to their funds, a relative, a caregiver, or a friend. Unfortunately, in the securities industry, there are brokers, insurance firms, investment advisers, brokerage firms, and other financial scam artists who will not hesitate to take advantage of an elderly person’s lack of investment knowledge, debilitating mental state, or isolation to take their money. In regards to children with disabilities, defrauding their trusts that have been set up as a result of their special needs or serious injuries can deprive them of the support and care they need to maintain their quality of living and pay for medical bills and other related expenses.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our FINRA securities fraud law firm has the experience to help elderly seniors, children and their families, and other individuals to pursue their financial losses. We have helped thousands of investors get their money back. One of our elder financial abuse lawyers would be happy to offer you a free case evaluation.

Finra bars broker who stole from sick child, Investment News, April 12, 2012

FINRA Letter of Acceptance, Waiver, and Consent (PDF)


More Blog Posts:
Insurance Agent Convicted in Annuity Case Involving 83-Year-Old Dementia Patient, Stockbroker Fraud Blog, March 21, 2012

US Army Staff Sergeant Held in Afghan Civilian Massacre Was Once Accused of Securities Fraud, Stockbroker Fraud Blog, March 20, 2012

SEC Seeks to Impose Tougher Penalties for Securities Fraud, Institutional Investor Securities Fraud, December 29, 2011


December 22, 2011

Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence

According to a recent Wells Fargo & Co-sponsored survey, 23% of the 800 Americans with at $100,000 in investable assets who participated reported that they don’t feel confident that they will have enough money saved by the time they retire. 75% said they felt sure that they would have enough. The ones most likely to feel confident are the ones with a written a financial plan, trust that the stock market will take care of their investments, are married, have at least $250,000 in investable assets, and/or are male. Those who felt unsure about their finances for when they retire included those who are single, female, belong to the 40-59 age group, and/or have under $250,000 in investable assets.

Some of the Other Findings from the Survey:

• 48% of those in the 25 to 49 age range want to keep working during their retirement years.
• More men (42%) than women (34%) wanted to keep working even after hitting retirement age.
• Approximately three-quarters of those that are currently working believe that having a specific amount of money matters more than what age they are when they retire.
• Women without a written financial plan and/or with investable assets of over $100,000 but under $250,000 are more likely to believe that they won’t have enough money when they retire regardless of what they do now.
• Nearly 2 in 5 Affluent Americans feel like they should significantly reduce their spending now to save up for retirement
• One-third of those surveyed worry that they won’t be able to leave their children an inheritance because their savings will have to go toward their retirement
• Four in 10 prefer to enjoy life now rather than worry: These people are usually already retired (54%), seniors belonging to 60-75 age group (51%), Democrats (47%), and parents with kids that are already legal adults (44%)
• Parents with kids under 18 (71%), adults belonging to the 40-49 age group (62%), women (65%), and seniors age 50-59 (64%) are the ones most likely to worry about what will happen when they retire.

Unfortunately, there appears to a nationwide rise in investment fraud targeting baby boomers, many who are just (or on the verge of) retiring. The Wall Street Journal reports that many of these older investors found themselves placing their money in high-risk bets to compensate for the losses they suffered during the recently financial crisis.

There are approximately 77 million baby boomers currently live in the US. Of the 3,475 enforcement actions involving fraud in 2010, 1,241 affected investors were 50 years of age or older. According to securities regulators, this number is expected to hit a record figure this year. Enforcement actions involved free-lunch seminars, variable annuities, or the misuse of professional credentials. Common types of senior investment fraud included Ponzi scams, self-directed IRA’s containing bogus investments in gold, real estate, and oil wells, and promissory notes.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LLP represent seniors throughout the US. We know the toll that losing your savings can take on you and your family.
Retirement Fears Jump the Wealth Gap to Strike Many Affluent Americans, Wells Fargo Retirement Study Finds, Wells Fargo, December 14, 2011

Boomers Wearing Bull's-Eyes, Wall Street Journal, December 14, 2011


More Blog Posts:

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors, Stockbroker Fraud Blog, December 17, 2011

Texas Securities Fraud Over Sale of Allegedly Bogus Annuities to Elderly Seniors, Stockbroker Fraud Blog, December 14, 2011

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients, Stockbroker Fraud Blog, November 29, 2011

Continue reading "Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence" »

December 17, 2011

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors

To settle Financial Industry Regulatory Authority securities fraud allegations against one of its brokers, Wells Fargo Advisers will pay a $2M fine, as well as repay an unspecified amount to elderly clients that were defrauded. Over 21 senior investors were reportedly targeted by Alfred Chi Chen, who sold them reverse convertible notes even though the majority of them were retired and/or had never invested in this type of complex instrument. A number of investors were in their 80’s and 90’s.

FINRA says that Chen made over $1M in commissions even as the investors sustained losses. He also is accused of not giving discounts on Unit Investment Trust (UIT) transactions even when clients were eligible. As part of its settlement, Wells Fargo will pay restitution to those that should have but did not get the discounts and those that were sold unsuitable investments.

FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that Wells Fargo did not review the reverse convertible transactions to make sure that they were suitable and that investors were harmed as a result. The SRO also determined that Wells Fargo did not give certain clients that were eligible breakpoint and rollover and exchange discounts when they bought UITs because the financial firm’s procedures and systems were not sufficient to properly monitor unsuitable reverse convertibles and ensure that clients got the discounts for which they were eligible. (Discounts should be offered on UIT sales when purchases go beyond certain thresholds or involve termination or redemption proceeds from another UIT during the initial offering period.)

By agreeing to settle, Wells Fargo is not admitting to or denying FINRA’s allegations.

The SRO has filed a separate complaint against Chen, who allegedly exposed clients to risks that were not in line with their investment profiles. As of June 2008, 172 of the accounts he worked with held reverse convertibles. 148 accounts had concentrations over the 50% of their total holdings. 46 accounts had concentrations of over 90%.

Reverse Convertibles
These interest-bearing notes involve repayment of principal connected to an underlying asset’s performance. The specific terms of reverse convertibles may vary. An investor risks loss if the underlying asset’s value drops under a certain maturity level or during the reverse convertible’s term.

It is important for many elderly investors that their investments not expose them to too much risk. For an elderly senior to lose his/her life savings because a financial firm or broker behaved irresponsibly, committed securities fraud, or made an avoidable mistake is unacceptable.

Wells to pay $2M to settle claims broker sold unsuitable investments to seniors, Investment News, December 15, 2011

Wells Fargo Fined by Finra Selling Structured Notes to Aged, Bloomberg, December 15, 2011


More Blog Posts:

Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC, Stockbroker Fraud Blog, July 28, 2011

RBC Wealth Management Unit Ferris Baker Watts to Pay Investors Restitution Over Reverse Convertible Notes Allegations, Says FINRA, Stockbroker Fraud Blog, October 23, 2010

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank, Institutional Investors Securities Blog, December 8, 2011

Continue reading "Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors" »

July 25, 2011

$75K FINRA Arbitration Award Against Wells Fargo Advisors LLC For Defaming an Ex-Employee in Form U-5 is Confirmed by District Court

In district court, Judge Samuel Conti has confirmed a Financial Industry Regulatory Authority panel’s $75,000 arbitration award to Kenneth Schaffer against Wells Fargo Advisors, LLC. It was the financial firm that began proceedings against its former employer last year.

Schaffer accused Wells Fargo of “ending” his career when on a Form U5, which is a Uniform Termination Notice for Securities Industry Registration, the firm provided descriptions of alleged infractions that he said were misleading and had prevented him from being offered another job. He claimed that the reasons given for his firing were pretextual and that he was actually let go over health issues. Schaffer also disputed Wells Fargo's claim that he owed them money for a promissory note. While he said that the financial firm had represented the note as a “sales bonus," Wells Fargo said that after terminating Schaffer’s employment was terminated on October 1, 2009, it should receive the entire $74,617.76 that was owed on a promissory note.

The FINRA arbitration panel, however, agreed with Schaffer and found the promissory notice “unconscionable.” It said that Wells Fargo therefore could not recover on it. The panel also said that because the Form U5 Termination Explanation was of a “defamatory nature," the financial firm was liable to Schaffer for compensatory damages. The court confirmed the arbitration award, while denying Wells Fargo’s motion to vacate, and entitled Schaffer to recover legal fees.

Our stockbroker fraud lawyers are experienced in recovering our clients' losses through FINRA arbitration. We also represent investors with securities fraud lawsuits in court.

Related Web Resources:
Wells Fargo Advisors, LLC v. Shaffer, Justia Dockets

Court Confirms FINRA Award Finding Wells Fargo Defamed Employee in Form U-5, BNA Securities Law Daily, July 13, 2011


More Blog Posts:

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients, Stockbroker Fraud Blog, May 4, 2011

NASD Form U-5 Notice of Termination Statements Are ‘Absolutely Privileged,’ Says A Divided New York Court of Appeals, Stockbroker Fraud Blog, April 9, 2007

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery, Stockbroker Fraud Blog, May 12, 2011

May 12, 2011

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery

FINRA is fining Wells Fargo Advisors LLC $1 million over the allegations that the financial firm did not deliver mutual fund prospectuses within the three days (as required by federal securities laws) and delays in the updating of material information about former and current representatives. Wells Fargo has agreed to the fine.

Per FINRA, about 934,000 clients who bought mutual funds two years ago were affected when Wells Fargo did not deliver prospectuses within three days of the transactions. Prospectuses were given to clients anywhere from one to 153 days late. The SRO contends that even after a 3rd provider notified the broker-dealer about the delay, Wells Fargo allegedly did not take corrective action to remedy the problem.

FINRA also says that the financial firm did not abide by the SRO’s rules when it wasn’t prompt in reporting required information about its representatives, both past and present. Securities firms must make sure that the information on their representatives' applications for registration on Forms U4 are current in FINRA’s CRD (Central Registration Depository). Termination notices, known as Forms U5, must also be updated. Financial firms have 30 days from finding out about a “significant event” to update the forms. Examples of such events are customer complaints, formal investigations, or an arbitration claim against a representative. FINRA says that Wells Fargo did not update 7.6% of its Forms U5 and about 8% of its Forms U4 between 7/1/08 and 6/30/09. This resulted in almost 190 late amendments.

By agreeing to settle, Wells Fargo is not denying or admitting to the securities charges. The broker-dealer has, however, consented to the entry of FINRA’s findings.

Related Web Resources:
FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering Prospectuses to More Than 900,000 Customers, FINRA, May 5, 2011

FINRA fines Wells Fargo $1M for prospectus delays, Forbes/AP, May 5, 2011

CRD, Financial Industry Regulatory Authority


More Blog Posts:

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Client, Stockbroker Fraud Blog, May 4, 2011

Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M, Institutional Investor Securities Blog, April 7, 2011

Wells Fargo to Pay $30M in Compensatory Damages to Four Nonprofits for Securities Fraud, Stockbroker Fraud Blog, June 30, 2010

Continue reading "Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery" »

May 4, 2011

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients

Missouri Secretary of State Robin Carnahan says that A.G. Edwards & Sons LLC will pay $755,000 to settle charges over improper annuity sales. The financial firm allegedly sold variable annuities without the necessary documentation to elderly clients. The Missouri’s Securities Division, AG began its investigation because an 18-year-old Missouri resident reported noticing irregularities after the liquidation of a variable annuity.

Per the investigation’s findings, AG Edwards, now known as Wells Fargo Advisors after Wachovia Corp. acquired it and the latter was later acquired by Wells Fargo & Co. (WFC), sold the annuities to elderly clients but failed to maintain proper records of transactions. This lack of proper documentation prevented the annuity sales, which occurred between July 2006 and June 2007, from being in compliance with company policy and state law.

At least 31 Missouri investors were affected by this oversight. They will receive $381,993. The Missouri Investor Education and Protection Fund will get $375,000. The Missouri’s Securities Division will be reimbursed the $50,000 it cost to probe the investor complaint.

In a release issued last month, Carnahan said that she appreciated AG Edwards’s willingness “to work with my office.” She also reminded investors that if they believe their investment is at risk, they can always contact her office for help. Meantime, Wells Fargo Advisors says it is pleased that these “legacy issues” have been resolved.

Related Web Resources:
Carnahan Secures $380,000 for Missouri Seniors, Robin Carnahan, Missouri Secretary of State, April 19, 2011

Poor Record-Keeping Costs A.G. Edwards $755k, Annuity News Journal, April 29, 2011

AG Edwards pays $755,000 to end annuities probe, STL Today, April 20, 2011


More Blog Posts:
Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License, Stockbroker Fraud Blog, March 13, 2010

Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC, Stockbroker Fraud Blog, October 17, 2009

Continue reading "AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients" »

September 9, 2010

Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers

UBS AG unit UBS Wealth Management Americas recently recruited Bank of America Corp.'s Merrill Lynch financial adviser Nina Hakim to join its Westfield, New Jersey office. Hakim, who reportedly managed $300 million in client assets and generated $1.5 million in commissions and fees, will now report to UBS branch Manager Erik Gaucher.

Another new addition to the UBS team is Morgan Stanley Smith Barney adviser Raymond Schmidtke, who will be based in Seattle, Washington. According to regulatory records, Schmidtke, was employed by Citigroup Inc. for over two decades and stayed at the MS joint venture for a year. He reportedly had close to $100 million in assets under management and $1 million in annual production. He now reports to UBS branch manager Shawn MacFarlan.

In other investment adviser news, a team of now former Wells Fargo Advisors advisers has joined Morgan Stanley Smith Barney. Francis Schiavetti and Ben Dembin’s base will be the Boca Raton, Florida office. The team reportedly manages $107 million in client assets and produces approximately $1.2 million in commissions and annual fees. The two men both were employed by Wells Fargo and predecessor firm Wachovia Securities before joining the Morgan Stanley Smith Barney team.

In August, the Financial Industry Regulatory Authority fined and censured Morgan Stanley $800,000 for not making public disclosures, which is required under the SRO’s rules that oversee research-analyst conflicts of interest. FINRA claims that the financial firm also did not comply with a key 2003 Research Analyst Settlement provision when it failed to disclose independent research availability in customer account statements. Every six months, for the next two years, Morgan Stanley must now review a sample of its research reports and certify that they are in compliance with FINRA’s rules.

Related Web Resources:
Hires Merrill Lynch, Morgan Stanley Brokers, Fox Business, August 24, 2010

Morgan Stanley Adds Team From Wells Fargo, Faces FINRA Fine, Investment Advisor, August 24, 2010

FINRA Fines Morgan Stanley $800,000 for Deficient Conflict of Interest Disclosures in Equity Research Reports and Public Appearances by Research Analysts, FINRA, August 10, 2010

Continue reading "Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers" »