April 12, 2014

FINRA Doesn’t Want Oversight Over Financial Advisers, Says CEO Ketchum

According to Financial Industry Regulatory Authority CEO Richard G. Ketchum, the regulator no longer wants to be given oversight over financial advisers. Speaking to The Wall Street Journal, Ketchum said the self-regulatory agency had done all it could to be granted authority over investment advisers and has decided to stop with additional attempts.

FINRA currently oversees brokers. Meantime, the Securities and Exchange Commission and the states oversee registered investment advisers. The SEC had been exploring having FINRA or another agency police RIAs instead. However, the majority of investment advisers were against such a move because of the way FINRA handles enforcement. They don’t think the regulator understands the way investment advisers operated.

Ketchum is now saying that Congress should give the SEC the resources it needs to enhance its examination program of advisers. The Commission has been asking for more money because it can only afford to examine investment advisor firms about once a decade, which isn’t much oversight at all.

Ketchum also said that he approves of the way investment advisers, like brokers, must now uphold fiduciary standards that mandate that they always act in the best interests of a client. However, it is only brokers who need to ensure that the investment strategies and products they recommend are suitable for a customer.

Meantime, reports InvestmentNews, a five-year bull market is causing advisers to experience the highest levels of compensation and assets under management in seven years. A study just released by Fidelity Investments reports that in the last year approximately 95% of advisers saw their business grow. Also, average compensation was at about $24,000 and average assets under management was at around $60 million. However, many advisory firms are finding it hard to draw in young clients, which could slow long-term growth.

Our securities lawyers represent investors that have lost money because of investment adviser fraud and other forms of financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Financial Industry Regulatory Authority

Finra Backs Off From Expanding Oversight, The Wall Street Journal, April 10, 2014

Advisers' business booming, but dark clouds looming, Investment News, April 10, 2014


More Blog Posts:
SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

SEC Reveals Plans to Examine Never-Before-Inspected RIAs, Stockbroker Fraud Blog, February 24, 2014

SEC Sanctions Three Investment Advisory Firms for Custody Rule Violations, Institutional Investor Securities Blog, October 30, 2014

March 27, 2014

Puerto Rico Bonds Are at Record Low Prices After FINRA Announces It Is Looking At Transactions

According to Bloomberg, Puerto Rico bonds that were issued this month are now at record low prices after the Financial Industry Regulatory Authority announced that it is looking at transactions involving the new securities. The US territory sold $3.5 billion of general obligation bonds, which is the largest junk bond offering in the history of the municipal market.

According to numerous financial news sources, the offering documents for Puerto Rico’s newly issued bonds stated there would be a $100,000 minimum order allowed so that the purchasers of the junk bonds would be limited largely to institutional buyers. Their prospectus says that bonds were to be issued at a $100,000 minimum and “integral multiples of $500,000 in excess thereof” unless Standard & Poor’s, Moody’s Investors Services, and Fitch Ratings raise Puerto Rico’s credit to investment grade. All three credit ratings agencies recently declared the US territory’s credit ratings “junk.”

Nevertheless, many transactions under the $100,000 amount have been reported, despite the lack of an upgrade in the bonds. As a result, scores of Puerto Rico bond transactions issued this month were cancelled. There is also data indicating that some brokers are trading under the $1,000 minimum established by the prospectus.

Additionally, BondBuyer.com is reporting that not only were there deals that violated the $100,000 minimum denomination requirement cancelled but they have been modified as if they never happened and/or were removed from EMMA, which is the Electronic Municipal Market Access system. This, say some, is a failure to make sure that retail investors and the public are being provided with transparency that they are owed. BondBuyer.com noted that as of the end of March 24, just 15 of the 70 illegal Puerto Rico bond trades that it discovered were still there.

While Puerto Rico municipal bonds have been popular with some investors because of the favored tax status they receive, they have sustained huge losses in the last six months. Puerto Rico is now more than $70 million in debt and continues to be on negative credit watch. Nevertheless, Puerto Rican brokerage firms, such as Santander Securities, Popular Securities, UBS (UBS) and Merrill Lynch (MER), as well as many US based brokerage firms, have heavily pushed Puerto Rican debt.

If you invested in Puerto Rico bonds and you sustained losses, you may have grounds for a Puerto Rico muni bond fraud case. Contact Shepherd Smith Edwards and Kantas, LDT LLP today.

Scores of Puerto Rico Trades Sub-$100,000 Voided by Dealers, Bloomberg, March 26, 2014

Problem Puerto Rico Bond Trades Erased, Survey Shows More Troubled Sales, The Bond Buyer, March 25, 2014

Finra Examining Trading in Puerto Rico Bonds, The Wall Street Journal, March 21, 2014

Electronic Municipal Market Access (EMMA), Municipal Securities Rulemaking Board


More Blog Posts:
Puerto Rico Senate Votes to Sell $3.5B in Bonds, Stockbroker Fraud Blog, February 28, 2014

Hedge Funds Interested in Upcoming Puerto Rico Bond Offering Want The Territory to Borrow Money To Last Two Years, Stockbroker Fraud Blog, February 17, 2014

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013

March 17, 2014

FINRA Orders Securities America and Triad Advisers to Pay $1.2M Over Reporting Violations

The Financial Industry Regulatory Authority is fining Securities America and Triad Advisors $625,000 and $650,000, respectively, for not properly supervising the way consolidated reporting systems were used. Triad must also pay $375,00 in restitution. Even though they are settling, the two firms are not denying or admitting to wrongdoing.

The self-regulatory organization said this inadequate supervision led to statements containing inaccurate valuations that were sent to customers. The two firms are also accused of disobeying securities laws by not keeping appropriate consolidated reports.

A consolidated report is a document that includes information about the bulk of a customer’s financial holdings. The report is a supplement to official account statements.

According to FINRA, while Securities America and Triad Advisors had a consolidated reporting system that allowed representative to generate these reports, for over two years they did not supervise the hundreds of brokers who were authorized to do this. This permitted the generation and dissemination to customers consolidated reports that were inaccurate and false, and contained inflated investment values, fictitious assets, and other inaccuracies. As FINRA Enforcement Chief and EVP Brad Bennett has noted, consolidated reports can be used to hide theft and fraud without proper supervision.

At Shepherd Smith Edwards and Kantas, LTD LLP reports, our securities fraud lawyers are here to help investors that have suffered losses because of broker or firm negligence or misconduct to get their money back. Contact our securities law firm today.

Finra Fines Triad Advisors, Securities America for Inaccurate Consolidated Reports, The Wall Street Journal, March 12, 2014

FINRA Fines Triad Advisors and Securities America a Total of $1.2 Million for Consolidated Reporting Violations, FINRA, March 12, 2014

Triad Advisors Action (PDF)

Securities America Question (PDF)


More Blog Posts:
Securities America, Ameriprise, Among Independent Broker-Dealers Charged $10.75M by Massachusetts for Nontraded REIT Sales, Stockbroker Fraud Blog, September 4, 2013

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

Ex-Goldman Trader Tourre Must Pay $825M in Securities Fraud Involving CDO Abacus 2007-AC1, Institutional Investor Securities Blog, March 14, 2014

March 5, 2014

Fines for FINRA Sanctions Went Down 27%, Reports New Analysis

According to a review of Financial Industry Regulatory Authority actions in 2013, fines imposed by the self-regulatory organization dropped by 27% compared to the year before, even though the number of cases during both were almost identical. Sutherland Asbill & Brennan LLP, which completed the review, said that last year FINRA imposed $57 million of fines, compared to $77 million in 2012.

The fine total from 2013 was the lowest imposed since 2010, when the regulator fined member firms and associated individuals $45 million. Also, even though the fines went down, there was 1% less disciplinary actions brought by FINRA at 1,535 actions, compared to the 1,541 submitted made in 2012. Another decline occurred in the number of firms that FINRA expelled—24 in 2013 and 30 in 2012. That said, the SRO did suspend more individuals—670 last year, up from 549 the year before—and bar more persons from 294 in to 429 last year, which is a 46% increase.

Sutherland’s believes the fines went down because many of the cases generated by the financial crisis have been tackled. This means that even with so many cases, these aren’t necessarily resulting in fees that are as high.

The firm’s report also identified the top enforcement issues of 2013 for FINRA, including:

1) Electronic communications: Includes failure to review, supervise, and retain emails and other e-communications. This issue resulted in the most fines imposed at $15 million in over 60 cases.

2) Trade reporting: There were 198 trade reporting cases that generated $12.1 million in fines.

3) Short selling: 40 cases and $7.2 million in fines.

4) Books and records: 95 cases resulting in $7.1 million in fines.

5) Municipal securities: There was a 21% rise in the number of cases brought at 51, up from 42 cases in 2012.

Regarding enforcement trends, suitability was not one of the top enforcement issues with FINRA last year. Sutherland again notes that this may be because the SRO has completed most of its suitability cases stemming from the 2008 economic crisis.

Fines related to advertising also slowed, as did the number cases that rendered “supersized” fines. Another enforcement trend that slowed down was the area of complex products, including cases involving collateralized mortgage obligations, real estate investment trusts, and unit investment trusts.

At Shepherd Smith Edwards and Kantas, LTD LLP, our FINRA arbitration lawyers represent investors wishing to recover their losses. Our securities fraud cases are separate from those brought by regulators and others in the industry.

It is important that you don’t try to pursue your securities claim without experienced legal help, which can increase the chances of you getting back your losses.

Finra fines, complaints drop as market improves, Investment News, February 26, 2014

Annual Sutherland Analysis of FINRA Sanctions Shows 27% Decrease in Fines; Number of Cases Nearly Identical, Marketwatch, February 24, 2014

Financial Industry Regulatory Authority


More Blog Posts:
Ex-Merrill Lynch Adviser, Already Jailed for Massachusetts Securities Fraud, Now Indicted Over Ponzi Scam, Stockbroker Fraud Blog, March 4, 2014

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

Puerto Rico Senate Votes to Sell $3.5B in Bonds, Stockbroker Fraud Blog, February 28, 2014

February 25, 2014

Berthel Fisher & Affiliate Fined $775K by FINRA Over Supervisory Failures Involving Non-Traded REITs and Leveraged and Inverse ETFs

Berthel Fisher & Company Financial Services, Inc. and its affiliate, Securities Management & Research, Inc. are going to pay the Financial Industry Regulatory Authority a combined $775,000 for purported supervisory deficiencies related to leveraged and inverse exchange-traded funds and non-traded real estate investment trusts. The firm settled without deny or admitting to the allegations.

FINRA claims that from January 2008 to December 2012 Berthel Fisher had inadequate written procedures and supervisory systems to deal with the sale of alternative investment products, such as managed futures, non-traded REITs, oil and gas programs, managed futures, business development companies, and equipment leasing programs. The SRO says that the brokerage firm’s staff were improperly trained with regard to state suitability standards, and criteria wasn't properly enforced in a number of alternative investment sales because the firm did not figure out the correct concentration levels of certain financial instruments.

FINRA also said that from 4/09 to 4/12, Berthel Fisher lacked a reasonable basis for certain ETF sales, resulting from numerous reasons, including a failure to properly review or research non-traditional ETFs before letting registered representatives make recommendations to customers. Inadequate sales training was not provided and some customers suffered losses because the brokerage firm did not monitor investment holding periods.

Inverse and leveraged ETFs are typically not considered appropriate, for buy-and-hold, low risk customers. They offer greater exposure to market fluctuations and can differ a lot from the benchmark for periods lasting over a day. The SRO notes that Berthel Fisher representatives recommended $49.5 million in nontraditional ETFs to over 1,000 customers. Unfortunately, a number of these products were sold to clients who wanted their investments handled more conservatively

As part of the settlement, Berthel Fisher agreed to retain an independent consultant to enhance supervisory procedures for alternative investment sales. It will also pay almost $13,293 in investor restitution. The broker-dealer no longer has inverse and leveraged ETFs on its platform.

If you suspect you were the victim of securities fraud, contact our Non-traded REIT lawyers or our ETF fraud lawyers today.

FINRA Fines Berthel Fisher and Affiliate, Securities Management & Research, $775,000 for Supervisory Failures Related to Sales of Non-Traded REITs and Leveraged and Inverse ETFs, FINRA, February 24, 2014

Finra fines Berthel Fisher $775,000 for compliance failures, Investment News, February 24, 2014


More Blog Posts:
Foremost Trading LLC Must Pay $400K to CFTC for Supervisory Violations, Stockbroker Fraud Blog, September 12, 2013

SEC Risk Fin Director Wants Public Input About Investor Protection-Related Costs and Benefits, Stockbroker Fraud Blog, June 15, 2013

Lehman Brothers Holdings’ $767M Mortgage Settlement to Freddie Mac is Approved by Judge, Institutional Investor Securities Blog, February 19, 2014

February 11, 2014

FINRA Seeks to Limit Definition of Public Arbitrator

According to Investment News and The Wall Street Journal, sources in the know say that the Financial Industry Regulatory Authority wants to limit how many brokerage industry insiders can act as arbitrators in investor disputes with broker-dealers and brokers. The amendment would keep anyone affiliated with the securities industry, including lawyers and ex-brokers, from representing themselves in the role of public arbitrator. FINRA’s board of directors will decide whether to approve a proposed rule changes on this matter at a meeting this week.

Under the FINRA arbitration system, there are two arbitarator categories: nonpublic and public. Public arbitrators usually don’t have a current insider industry connection with the securities industry. Meantime, arbitrators that are nonpublic can have current ties, even working as a banker or a broker or securities fraud lawyer.

Usually, there are three arbitrators on a panel presiding over an investor-broker dispute. The panel members are selected from a list of arbitrators. Respondents and claimants go through this list to eliminate those they don’t want on the panel.

Currently, the SRO lets industry veterans that haven’t been associated with a broker-dealer in at least five years (and didn’t spend at least 20 decades in the financial services sector) add themselves to the list of public arbitrators. Accountants, lawyers, and others that previously represented brokerage firms but haven’t made $50,000 in yearly revenue from the companies in the last two years were able to do the same. If the proposal passes, however, all these individuals, as would lawyers representing investors in securities lawsuits, would have to list themselves as “nonpublic.”

FINRA reportedly hopes this revised and delineated designation would make panels more neutral. There have been worries that arbitrators with industry connections might find it hard to be impartial.

Our FINRA arbitration law firm represents investors with securities disputes that they wish to resolve before the SRO. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra to Limit Use of Arbitrators with Industry Ties, Wall Street Journal, February 11, 2014

Finra moves to tighten public arbitrator definition, Investment News, February 11, 2014

Arbitration and Mediation, FINRA


More Blog Posts:
Lawyers, Investor Advocates Want to Know More About SEC Supervision Of FINRA’s Arbitrator Selections, Institutional Investor Securities Blog, December 2, 2013
FINRA Orders J.P. Turner to Pay $707,559 in Exchange-Traded Fund Restitution to 84 Clients, Stockbroker Fraud Blog, December 10, 2013

FINRA Issues Investor Alert on IRA Rollovers, Stockbroker Fraud Blog, January 31, 2014


January 31, 2014

FINRA Issues Investor Alert on IRA Rollovers

The Financial Industry Regulatory Authority has put out an alert to help investors figure out whether an IRA rollover is the right choice. Gerri Walsh, the self-regulatory organization’s senior VP for Investor Education said that comparing investment choices and costs can prevent “unnecessary cracks” to one’s “nest egg.”

FINRA offers 10 tips when deciding about an IRA Rollover:

• Assess your transfer options: do you keep in an ex-employer’s plan, move assets to a new employer’s plan, roll over plan assets into an IRA, or cash out your balance?

• Consider carefully before opting for an indirect rollover, which come with tax ramifications.

• Be aware of conflicts of interest. Is your financial professional recommending an IRA rollover because he/she will earn a commission?

• Watch out for “No Fee” or “Free” claims: There may be other costs even if not to the IRA rollover, such as administration and account management fees. Make sure you know what is involved.

• Make sure you do look at the different investment options available to you so you can choose the best one for you.

• Make sure to ask your financial/tax professional questions. Don’t be embarrassed if you don’t know or understand something. It is their job to make sure you know what is going on. If you don’t understand the investment, don’t buy it.

• Consider minimizing taxes by rolling assets from a traditional plan to a traditional IRA or a Roth plan to a Roth IRA.

• Know what the fees and expenses are, including sales loads, commissions, investment advisory fees, customer service access fees, etc.

• Look at whether there are tax implications for company stock that is appreciated.

• Know that your age makes a difference. If you leave a job after age 55 but before age 59 ½, you may be able to take penalty-free withdrawals from a plan that is sponsored by an employer. This is not an option until age 59 ½ for withdrawals from an IRA.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm that has helped thousands of customers recoup their losses. Contact one of our FINRA arbitration attorneys today.

Finra cautions investors to be careful with IRA rollovers, notes that adviser fees can hurt returns, Investment News, January 23, 2014

The IRA Rollover: 10 Tips to Making a Sound Decision, FINRA


More Blog Posts:
JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 24, 2014

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

FINRA Considers System That Would ‘Red Flag’ Customer Accounts at Brokerage Firms, Institutional Investor Securities Blog, December 27, 2013

January 25, 2014

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam

The Financial Industry Regulatory Authority is barring J.P. Morgan Securities, LLC (JPM) vice president David Michael Gutman and ex-Meyers Associates LP Christopher John Tyndall from the securities industry for their alleged involvement in an insider trading scheme. According to the self-regulatory organization between March 2006 and October 2007, Gutman, who works in the firm’s conflicts office, improperly shared information with Tyndall that was non-public and material about at least 15 pending corporate merger and acquisition transactions

Tyndall then purportedly used the data to trade before at least six corporate announcements and recommended that customers and friends invest in the stock too. Tyndall and Gutman are longtime friends. The latter found out about the transactions from his job.

The inside information that Gutman provided Tyndall had to do with acquisitions involving Genesis HealthCare Corporation, American Power Conversion Corporation, First Data Corporation, Alliance Data Systems Corporation, SLM Corporation (Sallie Mae), and Cytyc Corporation. By settling, Tyndall and Gutman are not denying or admitting to the securities charges.

Insider Trading
Illegal insider trading happens when the trade is made using nonpublic, material information about a security. Often, there may be a tipster who provides the insider information to the person who makes the trade or the person with access to the nonpublic, material information may be the person who also makes the trade. Regulators have brought insider trading cases against directors, corporate officers, brokers, investment advisers, and others.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors with securities fraud claims and lawsuit. Contact our securities law firm today.

FINRA Bars J.P. Morgan Vice President and Broker Friend in Insider Trading Scheme, FINRA, January 16, 2014

Insider Trading, SEC.gov


More Blog Posts:

JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements, Stockbroker Fraud Blog, January 7, 2014

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

January 16, 2014

Spotlight on FINRA: SRO Disciplines Brokerages That Ignore Red Flags, Warns About Retirement Plan Rollover Conflicts, & Investigates for Stock Trade Incentives

FINRA Fines COR Clearing LLC $1M for Disregarding Red Flags
The Financial Industry Regulatory Association is continuing to crack down on brokerage firms that don’t detect and investigate “red flags” indicating possible suspect activity. Earlier this month it fined COR Clearing LLC $1 million for its purported failure to put into place procedures to detect and report suspect account activity.

The self-regulatory organization said that while the broker-dealer used a "tagged identifier list” to identify the entities and individuals linked to high risk accounts, the list only worked effectively when cross-checked against a demographic AML system, which included customer data that the firm had collected but was maintained by a third-party. However, the DAML database was incomplete because it did not include the names of COR Clearing’s introducing brokers.

FINRA cited the firm for not making sure its employees knew the criteria for detecting red flags warnings that there might be possibly suspect activity. It also said that COR Clearing’s AML program did not sufficiently deal with the fact that the business model involved services for introducing firms that engaged in microcap securities and third party wire activities, or that the program depended on these firms to look out for any signs of misconduct.

FINRA Watches Out for Broker Conflicts in Retirement Plan Rollovers
FINRA says it is on the lookout for possible conflicts of interest that could impact brokers when they roll over a customer’s company 401(K) plan into an individual IRA. These representatives typically have an economic incentive to move such funds into IRAs that they sell.

FINRA wants brokerages to make sure that their representatives are trained to comprehend related rollover implications, including fees and taxes. The SRO said that brokers should be careful in how they pitch IRAs to customers to ensure that they don’t give them any misleading or false information.

The SRO put out a regulatory notice telling member firms that they should not advise this type of transfer if it is better to keep the money in a customer’s company plan or move the funds to the plan of a new employer. The notice reminded brokerage firms that any recommendation to hold, buy, or sell securities must be suitable for each customer and the financial interests of the registered representative should not be an influencing factor.

FINRA to Look At Whether Brokerages Are Letting Incentives Impact Stock Trades
According to a recent study from Indiana University and the University of Notre Dame, brokers usually will send stock orders to the US market that pays the highest, making their own earnings more important than ensuring that their customers get the best prices. FINRA Market Regulations EVP Thomas Gira says that the SRO wants to make sure that its broker-dealer members are not making such decisions for their primary benefit, while shirking their obligation to ensure that investors’ best interests are the priority.

Gira says that the regulator expects to send some brokers a questionnaire this year so it can better understand how they choose among the over 50 exchange and alternative venues where American share trading take place. The venues make up the $22 trillion US equity market. They offer different order types and pricing schedules to get traders to use them.

FINRA Arbitration
Our FINRA arbitration lawyers represent investors with securities claims against financial firms and/or their representatives. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Regulators Plan Investigation of U.S. Stock Brokerage Incentives, SFGate, January 3, 2013

FINRA Fines COR Clearing LLC $1 Million for Extensive Regulatory Failures, FINRA, December 16, 2013

Finra warns against conflicts in retirement-plan rollovers, Investment News, December 30, 2013


More Blog Posts:
FINRA to Go After Rogue Brokers, & Includes REITs, Municipal Bonds, & Frontier Markets Among Its Enforcement Priorities for 2014, Stockbroker Fraud Blog, January 3, 2014

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

FINRA Considers System That Would ‘Red Flag’ Customer Accounts at Brokerage Firms, Institutional Investor Securities Blog, December 27, 2013

January 3, 2014

FINRA to Go After Rogue Brokers, & Includes REITs, Municipal Bonds, & Frontier Markets Among Its Enforcement Priorities for 2014

The Financial Industry Regulatory Authority is setting up a team made up of six members to look at stockbrokers with long records of investor complaints and violations, as well as those that engage in “cockroaching”—which involves brokers moving among beleaguered firms. The crack down comes amidst pressure from lawmakers on Capitol Hill.

According to an analysis of state securities records by The Wall Street Journal last year, between 2005 and 2012 there were over 5,000 licensed securities brokers who had worked with at least or more firms that had been expelled by FINRA. The analysis also revealed that there were brokers who, even in the wake of being targeted by numerous arbitration claims or having declared bankruptcy more than once, have managed to keep working in the industry.

FINRA announced this new initiative this week in a letter to approximately 4,180 broker-dealers that are registered with the SRO. It said it would use the Broker Migration model, a computerized analytic system, to look at brokers who have gone from an expelled brokerage firm to other firms.

These latest actions are a widening of FINRA’s efforts to better police brokerage firm that retain rogue brokers. Already, it has barred 22 brokers for rule violations in these attempts. About 50% of these individuals were identified via investor complaints and tips, arbitration claims, and regulatory-disclosure forms.

Other enforcement priorities for FINRA in 2014 include mutual funds that invest in frontier markets, like Vietnam and Nigeria, that can be risky, have less liquidity, as well as lower investor protection standards than what is required in the US. The SRO also plans to crack down on trading strategies that are computer driven and take a closer look at market structure issues.

FINRA market regulation officer Tim Gira said that the regulator will also publish best practices for alternative trading systems, such as dark pools. He said that after examining off-exchange trading venues for a year, the SRO discovered that the operation of certain ATSs didn’t always align with the way they were described and sometimes “trading from a proprietary basis” differed from what was disclosed.

Meantime, FINRA remains worried about structured products that are interest-rate sensitive, including municipal securities, as well as anti-money laundering, microcap securities fraud, and cyber security. Also still on its radar over marketing and sale to (as well as suitability for investors): complex structured products, private real estate investment trusts, bond funds, mortgage-backed securities, bond ETFs, emerging market debt, municipal bonds, baby bonds, and private placement securities. FINRA says it will continue to watch out for senior financial fraud, microcap fraud, insider trading, and algorithmic trading abuses.

Our securities fraud lawyers work with investors throughout the United States, as well as investors abroad with claims against a firm based in this country. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra to Crack Down on Brokers With High Number of Complaints, The Wall Street Journal, January 2, 2014

From FINRA, January 2, 2014

Finra booted 16 rogue brokers this year, targeted 26 more for 'action', Investment News, November 22, 2013


More Blog Posts:

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

Bank of America’s Countrywide to Pay $17.3M RMBS Settlement to Massachusetts, Institutional Investor Securities Blog, December 30, 2013

FINRA Considers System That Would ‘Red Flag’ Customer Accounts at Brokerage Firms, Institutional Investor Securities Blog, December 27, 2013

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

December 26, 2013

Broker to the Stars” Broker Bambi Holzer is Barred from Securities Industry by FINRA

The Financial Industry Regulatory Authority is barring broker Bambi Holzer from the securities industry. Holzer is known for representing rich and famous Beverly Hills clients and many others.

Last week, Holzer who has been suspended by FINRA since September, settled with the SRO over the broker fraud charges. The regulator had sued her for allegedly lying to Wedbush Morgan Securities Inc., which is another former brokerage firm, about the net worth of a number of clients when she sold private placement offerings—Provident Royalties preferred shares—that ended up being part of a $485M Ponzi scheme. She is also accused of not reporting a pending regulatory action on her employment history.

Previously, Holzer and UBS PaineWebber Inc., which was another firm she was with, paid at least $11.4M to settle dozens of securities claims by investors accusing her of misrepresenting variable annuities by telling them they came with guaranteed returns. Holzer’s BrokerCheck report is 115 pages long.

As of October she had already settled 53 customer complaints, four were pending, and six had been denied or thrown out. She was previously sued by Veep and former Seinfeld star Julia Louis-Dreyfus for $4.4M over an annuities dispute.

Holzer settled with FINRA without deny or admitting to the securities charges. Her attorney said that she chose to resolve the case rather than take on the financial and mental toll of combating the disciplinary procedure.

Securities Fraud
Unfortunately, there are financial representatives who continue to cost investors because of stockbroker fraud, negligence, and carelessness. If you feel that your financial losses are a result of poor broker management, misconduct, or some other error or mistake on the part of your financial representative, please contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Broker to the stars, Bambi Holzer, barred from securities industry, Investment News, December 20, 2013

FINRA's Disciplinary Settlement with Holzer, FINRA


More Blog Posts:
Despite Her Involvement in Dozens of Securities Cases, Brokerage Firms Continue to Clear Trades of Newport Coast Securities Broker Bambi I. Holzer, Stockbroker Fraud Blog, January 10, 2013

Ex-SAC Capital Manager Steinberg is Convicted of Securities Fraud & Insider Trading, Stockbroker Fraud Blog, December 23, 2013

Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates, Institutional Investor Securities Blog, December 24, 2013

December 4, 2013

Two Ex-JPMorgan Brokers Alleged Bilked Mentally Impaired Elderly Widow of $300,000

The Financial Industry Regulatory Authority is barring ex-JPMorgan Chase Securities, LLC (JPM) brokers Jimmy E. Caballero and Fernando L. Arevalo from the securities industry for allegedly stealing $300,000 from an elderly widow who suffers from diminished mental capacity. Although the bank reportedly was not involved in the misconduct, it has given the money that the two men had converted back to the senior investor

According to the SRO, in 2013 the elderly woman deposited about $300,000 in proceeds from two annuity sales into a bank account Arevalo had set up for her. The funds were then taken out of the account with the use of two cashier’s checks and Caballero purportedly placed the funds into a joint account that was under her name and his name at another bank. That institution asked for clarification and confirmation and Arevalo took the woman to the bank to confirm where the funds had come from. The money was then taken out of that account through checks issued to Arevalo and Caballero. Arevalo is also accused of using the account’s debit card to pay for retail purchase and loans for a car and real estate. The elderly widow had no idea these transactions were being made.

The SRO says the two men did not completely cooperate with its investigation. Without deny or admitting to the FINRA charges, Arevalo and Caballero are settling and consenting to the entry of findings.

It was in February 2013 that FINRA initiated a high-risk brokers program to take action against rogue stockbrokers. The SRO has since barred at least 16 brokers from the securities industry.

Researchers say that the reason senior citizens may be more vulnerable to financial exploitation could be neurological. Dementia, mild cognitive impairment, and early Alzheimer’s can make it easier for a fraudster to take advantage of an elderly investor. One in five American seniors report to having suffered from or been targeted for financial exploitation by someone trying to steal their savings.

Contact our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra Bars Two Former Chase Brokers For Allegedly Stealing $300,000 From Elderly Widow, The Wall Street Journal, December 3, 2013

Is It Elder Financial Fraud? 5 Signs It May Be “Yes”, AARP, July 7, 2013

Senior Investor Alert: Free Meal Seminars, North American Securities Administrators Association


More Blog Posts:
Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women, Stockbroker Fraud Blog, September 23, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

Attorney Generals Want Securities Cases Against Standard Poor’s To Go Back to State Courts, Institutional Investor Securities Blog, August 21, 2013

December 3, 2013

Broker-Dealer National Planning to Pay $6.2M FINRA Arbitration Award to Two Minnesota Investors Over REITs

A Financial Industry Regulatory Authority panel says that National Planning Corp. must pay a $6.2 million REIT arbitration award to Minnesota investors Stacy and Ronnie Erickson. The Erickson and trusts on their behalf accused the independent brokerage firm and its ex-brokers Christopher R. Olson of negligence, breach of fiduciary duty, misrepresentations, and industry rule violations involving real estate investment trusts.

According to the FINRA award, which doesn’t name the REITs that the Ericksons invested in, the claimants also invested in real estate investments in Waterway Holdings Group, which Olson and a Preferred Resource Group Inc. employee owned. Olson has since filed for bankruptcy and all claims against him have been halted. (Olson was allowed to resign from NPC after he failed to disclose his external business activities or the involvement of his clients in these undertakings. After he quit he registered with Berthel Fisher & Co. Financial Services Inc.)

The Ericksons say that in addition to becoming the victims of broker fraud, they had to fulfill outstanding loans on mortgages on the real estate investments to avoid foreclosure. They contend that Olson manipulated them into taking on significant debt, paying millions of dollars that they cannot get back, and annuitizing, liquidating, and structuring their investment assets that were for their retirement to pay back the “staggering” debt that resulted from the real estate investment recommendations.

NPC is part of National Planning Holdings Inc., a four brokerage firm network affiliated with Jackson National Life Insurance Co.

REIT Cases
While REITs have become popular recommendations by investment advisers and brokers—especially for clients wanting income or those who are retirees—it is unfortunate that many broker-dealers have failed to meet their duty as it pertains to REIT sales and solicitation practices. Our REIT fraud lawyers represent investors in recouping their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

National Planning slammed with $6.2M arbitration award, InvestmentNews, November 26, 2013

Brokerage Ordered to Pay Nearly $6.2 Million for Investment Losses, The Wall Street Journal, November 25, 2013


More Blog Posts:
Financial Firms in the Headlines: UBS Charges Financial Planning Fees, MF Global Customers Seek to Cap Ex-Leaders’ Legal Defense Expenses, Ex-Thompson REIT CFO is Suspended, Stockbroker Fraud Blog, July 2, 2013

US Hedge Fund Industry is Worried About Tax Implications Under EU Directive, Institutional Investor Securities Blog, November 27, 2013

New Stream Capital LLC Hedge Fund Executives Face Criminal Securities Fraud Charges
, Stockbroker Fraud Blog, February 28, 2013

November 21, 2013

FINRA Bars Broker Accused of Selling Over $18M in Fraudulent Promissory Notes to NBA, NFL Athletes, & Others

The Financial Industry Regulatory Authority has banned ex-Success Trade Securities Inc. broker Jinesh “Hodge” Brahmbhatt from the industry. The broker is accused of selling over $18 million in fraudulent promissory notes to 58 investors, which included many National Football League and National Basketball Association athletes. Brahmbhatt's registered investment adviser firm is Jade Private Wealth Management LLC.

In its letter of acceptance, waiver and consent, FINRA cites Brahmbhatt for failing to show up and testify at a disciplinary hearing about his former employer and its CEO Fuad Ahmed. The SRO is accusing the firm and its chief executive of fraudulent promissory notes sales and filed its complaint in April.

FINRA said that the notes, put out by parent company Success Trade, were sold with the promise of yearly 12% to 26% interest rates. Sale proceeds purportedly went to personal unsecured loans to Ahmad, paid for firm operations, and paid off past investors. FINRA has alleged that Success Trade tried to get note holders to either get stock in the company or roll over notes that were maturing at higher rates.

Already, the Miami Dolphins’ American football defensive Jared Odrick has filed his FINRA arbitration claim against Success Trade, Ahmed, and Brahmbhatt. He contends that he invested $625,000 in Success Trade trades and in another series of promissory notes and was told that returns would be 10-12.5%. Odrick now believes the notes were part of a Ponzi scam.

More securities fraud claims against Brahmbhatt, Ahmed, and Success Trade are likely.

Over the years our securities lawyers at Shepherd Smith Edwards and Kantas, LTD LLP have represented professional athletes that were defrauded in similar investment disputes. If you were one of those who invested in Success Trade promissory notes or in other investments you believe may be fraudulent, please contact our broker fraud law firm today to ask for your free case assessment.

NFL-approved broker barred by Finra, Investment News, November 20, 2013

Online Broker Popular with NBA, NFL Players Accused of Fraud -FINRA, The Wall Street Journal, April 11, 2013


More Blog Posts:
US Senator Elizabeth Wants Obama Administration to Break Up Our Biggest Banks, Stockbroker Fraud Blog, November 19, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

RBS Securities Inc. Settles SEC’s Subprime RMBS Lawsuit for $150M, Institutional Investor Securities Blog, November 20, 2013

November 13, 2013

SROs at Work: MSRB Prioritizes Fiduciary Duty When Setting Up New Muni Advisor Regime & FINRA Puts Out Closed-End Funds Alert to Investors

MSRB Makes Defining Fiduciary Duty Central to Developing Municipal Advisor Regulatory System
Municipal Securities Rulemaking Board says that in coming up with a regulatory system for municipal advisors it’s number one priority is to get clear about the statutory fiduciary duty that these entities would owe to their local and state government clients. The MSRB’s board of directors has asked staff to create a rule proposal that would give guidance on the fiduciary obligation that municipalities have to municipal entities.

Following the release of the fiduciary duty proposal for comments, there also will be proposals about rules addressing possible pay-to-play activities in the industry, municipal advisory firms’ supervisory requirements, limits on gratuities and gifts to those who work for municipal securities issuers and other participants in the market, and solicitor duties. Along with the proposals, the MSRB plans to create a professional qualifications program geared for municipal advisors and perform outreach and education initiatives.

Per the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 975, municipal advisors must dually register with MSRB and the SEC. That section says that municipal advisers owe clients a federal fiduciary duty. Municipal advisors are comprised of a variety of professionals, including those who give advice to local and state governments about municipal bonds and those that solicit municipal bond business from issuers for others.

Market participants were critical of the Securities and Exchange Comission’s December 2010 proposal to put the provision into effect. The SEC’s final rules have since narrowed quite a bit as a result.

FINRA Alerts Investors About Closed-End Funds
In other SRO news, the Financial Industry Regulator Authority has put out an investor alert called Closed-End Fund Distributions: Where Is the Money Coming From? The notification is to help investors understand what this type of fund is before they get involved and how they are different from mutual funds. Closed-end funds are growing in popularity because of the high distribution rates they offer. That said, FINRA said it was important to know that the fund's distribution rate is not the same as its return.

The SRO said there are six questions you should ask before investing in these funds, including: Does it fit your investment goals? What is the fund’s investment strategy? How much of what you pay per share during an IPO will be invested? What are tax consequences? How is the distribution rate established? Are the shares trading at a premium/discount to NAV?

Our securities lawyers are here to help investor recoup their investment fraud losses. If you suspect that you were the victim of closed-end fund fraud, contact Shepherd, Smith, Edwards, and Kantas, LTD LLP today.

Fiduciary Duty Comes First for MSRB In Creating New Muni Advisor Regime, AlacraStore

Closed-End Fund Distributions: Where is the Money Coming From?, FINRA


More Blog Posts:
Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny, Stockbroker Fraud Blog, November 11, 2013

SEC Members Discuss Agency’s Core Mission, New Penalty Policy, and Private Offerings in the Wake of General Solicitation, Institutional Investor Securities Blog, November 12, 2013

Puerto Rican Labor Groups Want the US Territory to Sue UBS over the Bond Debacle, Institutional Investor Securities Blog, October 28, 2013

October 25, 2013

FINRA Arbitration Panel Issues $1.2M in Awards in Case Against BBVA Securities of Puerto Rico, Inc.

In a FINRA arbitration case filed by claimants Felix Bernard-Diaz, Julian Rodriguez and Luz Rodriguez against BBVA Securities of Puerto Rico, Inc., Jorge Bravo, Rafael Colon Ascar, Julio Cayere, and Sonia Marbarak, a Financial Industry Regulatory Authority Panel has awarded $1.2M to the claimants. The Rodriguezes and Felix Bernard-Diaz asserted unsuitable investments, breach of fiduciary duty, gross negligence related to an allegedly unsuitable naked option trading strategy, excessive trading, margin use, and churning.

The respondents denied the accusations and asserted a number of affirmative defenses. They also asked for the CRD files of two of the respondents, Bravo and Marbarak, to be expunged. Last year, respondent Cayere sought bankruptcy protection. The arbitrators did not issue a determination against him.

The FINRA panel said Ascar and BVA were liable, severally and jointly. Now, the respondents must pay Bernard-Diaz $635K in damages and $15K in expenses. The Rodriguezes were awarded $547K in damages and $15K in costs.

Claims against Marbarak were denied and those against Bravo were “dismissed with prejudice.”

FINRA Securities Arbitration
Our securities fraud law firm represents investors with FINRA arbitration cases. We are also investigating claims by customers that purchased Puerto Rico municipal bonds from Banco Santander (SAN.MC), UBS (UBS), and Banco Popular. Our Puerto Rico municipal bond attorneys are working with investors in Puerto Rico and the mainland that were affected. Other securities impacted by the US territory’s economic crisis: the Oppenheimer Pennsylvania Municipal A, the Oppenheimer Rochester VA Municipal A (ORVAX), and the Franklin Double Tax-Free Income A (ticker: FPRTX).

Two Large Customer Awards, Two Expungements, One Dismissal, And One Denial In BBVA Case, Broke an Broker, October 2, 2013


More Blog Posts:
Puerto Rican Bond Crisis Places Oppenheimer Funds at Risk, Institutional Investor Securities Blog, October 15, 2013

Puerto Rico Municipal Bonds, Stockbroker Fraud Blog, October 9, 2013

Muni Bond Funds Hit by Puerto Rico’s Debt Problems, Institutional Investor Securities Blog, October 9, 2013

October 4, 2013

FINRA Considers Making Broker-Dealers Carry Insurance Covering Arbitration Payments

The Financial Industry Regulatory Authority intends to weigh whether to mandate that brokerage firms have insurance covering payments for possible arbitration awards issued to investors. The SRO is aware that there has been frustration among claimants who have not received their awards.

It can be a problem when a brokerage firm closes its doors without paying legal claims and awards it owes customers. Making broker-dealers carry insurance could lower the amount of awards that go unpaid. Unfortunately, some firms have such a small financial cushion that they can be forced to close shop over just one arbitration award.

According to SNL Financial, which conducted an analysis for The Wall Street Journal, over 940 firms reported having a net capital of under $50,000 in financial reports from as recent as July. FINRA says that 11% of all arbitration awards issued in 2011 have yet to be paid—that’s $51 million. This is 4% increase from what was unpaid from 2009 and 2010.

It doesn’t help that a lot of small broker-dealers have a net capital of about $5,000 and no insurance to take care of arbitration awards. And even with the Securities and Exchange Commission’s rule that these firms have this net capital (or a level related to the brokerage firm’s debt if the amount is higher), this doesn’t make it easier for an investor to get his/her lost investment losses from securities fraud back. To have the brokerage firm go out of business makes it that much harder to recoup their investments.

Brokers from these failed broker-dealers go on to find other work in the industry with, according to the analysis. This can lead to the practice known as “cockroaching,” involving problems with one brokers going to another firm when he/she transfers there to work.

Shepherd Smith Edwards and Kantas, LTD LLP Founder and Partner William Shepherd is quoted in the US Congressional record for recommending to the Government Accountability Office that the Securities Investor Protection Corporation be expanded so that broker fraud is included and firms would have to pay SIPC accordingly.

“The last I checked, broker insurance for a clean broker for up to $1 million coverage per claim was about $2,000 per year (less than firms' costs for stamps, as I said at the time),” said FINRA arbitration lawyer William Shepherd. “Attorneys, doctors and many drivers pay more. The average broker brings in over $100,000 per year, probably closer to twice that at most firms these days. Importantly, if brokers have many claims they will be cost prohibitive to firms or themselves. In this way insurance companies perform an important duty to the public. Just as drivers, doctors and others can be priced out of the business by their serial wrongdoing, so will financial advisor types.”

Our securities fraud law firm represents investors with FINRA arbitration claims and securities lawsuits against broker-dealers, brokers, investment advisers, and other financial representatives. Contact our investment fraud lawyers today.

Finra to Consider Requiring Brokerages to Carry Arbitration Insurance
, The Wall Street Journal, October 4, 2013

Tracking Brokers Who Move Between Expelled Securities Firms, Barrons/FINRA, October 4, 2013


More Blog Posts:

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice, Stockbroker Fraud Blog, September 17, 2013

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 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 18, 2013

September 30, 2013

FINRA Accuses John Carris Investments of Pump-and-Dump Scam

The Financial Industry Regulatory Authority is charging John Carris Investments LLC with misleading and bilking investors. It seeks a cease and desist order against the financial firm and George Carris, its CEO, to immediately stop soliciting customers to buy Fibrocell Science, Inc. stock without giving them the correct disclosures. The SRO contends that in May 2013, JCI made solicitations to customers without revealing that Carris and another principal of the firm were selling their shares.

In an amended complaint, FINRA accused Carris, JCI, and five other firm principals of committing securities violations and other fraud. The SRO alleges that as JCI played the role of placement agent for FIbrocell, the firm and Carris artificially inflated Fibrocell stock’s price by pre-arranging trading and making Fibrocell stock buys that were not authorized in the accounts of customers.

FINRA contends that JCI and Carris fraudulently sold notes and stock in Invictus Capital, Inc., the firm’s parent company, without disclosing that its financial state was poor. The SRO believes that there was no reason to believe that investors would gain anything economically and Carris and JCI misled investors of Invictus by paying dividends to the latter’s early investors with funds that came from the sales of the company’s securities. Also, FINRA is accusing JCI of putting out false documentation that did not show payments the firm made for Carris’s personal spending and not remitting employee payroll taxes to the US Treasury.

Securities Fraud

If you believe you were a victim of investment fraud by your broker, investment adviser, or financial representative, contact our securities fraud lawyers today and ask for your free case assessment.

FINRA Seeks Cease and Desist Order Against John Carris Investments and CEO George Carris for Fraud, FINRA, September 30, 2013

Finra Files Fraud Case Against John Carris Investments, The Wall Street Journal, September 30, 2013


More Blog Posts:
Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification
, Institutional Investor Securities Blog, March 19, 2013

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

September 17, 2013

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton "Bud" Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

The FINRA arbitration panel’s ruling this week includes over $1 million for the couple’s real estate investment losses and $2.1 million for the couple’s portion of the $10 million judgment. Should the Madhanys have to pay the entire $10 million amount, Citigroup will have to pay them back.

Selling Away
The securities industry prohibits selling away, which is a practice involving advisors promoting investments privately without their firm’s knowledge. Brokerage firms can be held liable when a broker engages in “selling away.”

Our securities lawyers represent investors that have lost their investments because of selling away, elder financial fraud, and other types of securities fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today and ask to speak with one of our FINRA arbitration lawyers.

Citigroup must pay couple $3.1 million for not overseeing broker: panel, Reuters, September 16, 2013

Orlando couple win $3.1M award from Citigroup Global, Orlando Sentinel, September 17, 2013


More Blog Posts:
Many Financial Fraud Victims Don’t See It Coming, Says Survey, Stockbroker Fraud Blog, September 7, 2013

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 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 18, 2013