July 21, 2015

Royal Alliance Must Pay $1.4M To Retirees for Nontraded REIT, Variable Annuities Sales

A Financial Industry Regulatory Authority Inc. panel says that AIG Advisor Group (AIG) subsidiary Royal Alliance Associates Inc. must pay $1.4 million to three retirees who claim that the brokerage firm was negligent when supervising the sales of variable annuities and nontraded real estate investment trusts. The investors, who were former AT & T Inc. employees, claim that ex-broker Kathleen Tarr recommended that they take a lump-sum buyout from the communications company instead of a lifetime annuity. The money was then put into nontraded REIT company Inland Real Estate, as well as different variable annuities.

Tarr’s BrokerCheck record shows that she has been named in about forty customer disputes and complaints. She was let go from Royal Alliance in 2010.

The claimants, who are low-wealth, low income seniors, believe that they should not have been encouraged to take a lump sum and place their funds into non-traded REITs and variable annuities involving an IRA. Even though they did not sustain out-of-pocket losses from the investment recommendations, the retirees purportedly lost out on earnings they would have made if only they had invested their money more reasonably or opted for the lifetime annuity. With the latter, an investor would have given over a lump sum figure in return for a guaranteed payout for the duration of his/her life.

Continue reading " Royal Alliance Must Pay $1.4M To Retirees for Nontraded REIT, Variable Annuities Sales" »

July 4, 2015

FINRA Orders BNP Paribas Securities to Pay Retired Couple $16.6M for Unsuitable Investment Sale

The Financial Industry Regulatory Authority says that BNP Paribas Securities Corp. has to pay retirees James and Margaret Eringer $16.6 million for selling them a leveraged derivative call option, which was not a suitable investment for them. This securities claim, which was brought in 2010, is the longest running case that FINRA has presided over. The arbitration panel finally issued a ruling after over 90 days of hearings.

The Eringers made their money when they sold a bakery business that belonged to one of their parents. The British couple spent about 60% of their investible assets on the investment in 2007.

According to their securities attorney, they made the purchase through Ontonimo Limited, which is a corporate entity that BNP Paribas mandated they create since the firm could not directly sell this kind of security to retail investors. This type of investment product is usually sold to institutional clients and hedge funds.

The Eringers paid BNP over $2 million for costs and fees. The firm also purportedly made James Eringer sign an agreement indicating that he was an investment adviser himself even though he had no professional financial experience nor did he have a securities license. Within 18 months, the Eringers’ contend, their investment became “worthless.”

Continue reading "FINRA Orders BNP Paribas Securities to Pay Retired Couple $16.6M for Unsuitable Investment Sale" »

June 22, 2015

Investor Want Wells Fargo Advisers to Pay $100K in Damages Over F-Squared Investment Losses

A client of Wells Fargo Advisors (WFC) is looking to recover at least $100,000 in damages for losses he sustained from investing with F-Squared Investments Inc. The arbitration case comes six months after F-Squared consented to pay $35 million to resolve Securities and Exchange Commission charges accusing the asset manager of making false claims about its flagship investment product’s performance. The 68-year-old widower’s claim will test whether investors can pursue broker-dealers for selling F-Squared products.

The claimant, a moderately conservative investor who was looking for moderately conservative growth for his retirement account assets, began working with a Wells Fargo financial adviser in 2011. The brokerage firm made F-Squared managed-accounts available to advisors in 2013.

According to InvestmentNews, The investor’s advisor put about $900K of the client’s money—most of his savings, says his attorney—in products managed by two ETF strategists. Over 50% of the money went into F-Squared’s AlphaSector Allocator Select. Meantime, the investor said it paid Wells Fargo about $19,000 in fees for recommending the products. He believes that the firm had a conflict when it recommended investments because they came with such high commissions. Also, the fees erased potential capital gains for the claimant.

Continue reading " Investor Want Wells Fargo Advisers to Pay $100K in Damages Over F-Squared Investment Losses" »

June 10, 2015

Investors Targeted by Advanced-Fee Scams Using Bogus Regulator Websites and Fake Broker Identities

The Financial Industry Regulatory Authority issued an alert warning non-U.S. and U.S. investors about scammers who use fake regulator websites and identities to steal money. Some scammers have even used FINRA’s name or pretended to be employed by the self-regulatory organization.

These fraudsters will typically ask for an advance payment of a service fee and then disappear upon receipt of the money. The fee is supposedly for services that involve buying non-performing stock that already belongs to the person they are targeting with the offer to pay a high price. The fraudster may even pretend to be a securities regulator or industry professional.

According to FINRA, there are investors in the UK who have received phone calls from individuals claiming to be with securities firm that were subject to disciplinary actions by regulators. These callers will typically try to procure advance payment for the return of money that was lost while the investor was associated with the firm.

U.S. investors have also been targeted. The Securities Investor Protection Corporation even issued its own warning against scammers pretending to be the SIPC or another organization with similar powers. SIPC has the authority to keep up a reserve fund for customers of brokerage firms that become insolvent. However firm liquidations that go through SIPC do not require investors to pay a fee so they can recover their monies.

Continue reading "Investors Targeted by Advanced-Fee Scams Using Bogus Regulator Websites and Fake Broker Identities" »

May 30, 2015

FINRA on BrokerCheck and Broker Compensation

The Financial Industry Regulatory Authority has sent its proposed rule change regarding BrokerCheck links to the U.S. Securities and Exchange Commission. Per the new measure, a broker-dealer would have to make sure that a BrokerCheck link is made accessible on its home page. The firm would also have to make sure links to the FINRA database are visible on the profile pages of its brokers.

The Commission will have to approve the rule, which was modified after concerns were raised about the original version, which called for BrokerCheck links to also be included in posts on social media websites, including Twitter. A broker would also have had to provide direct links to his/her individual BrokerCheck profile pages.

The revised version doesn’t require providing the links on social media, and any links to BrokerCheck only must take people to the home page of the firm's site and not an individual rep’s profile.

Aside from increasing traffic to BrokerCheck, the measure is intended to grow investor awareness of the web resource, BrokerCheck allows them to look into a broker’s background for any claims or allegations against the representative.

In other FINRA news, the self-regulatory organization has just put out a revised proposal for another rule, which should help investors understand whether any financial incentives compelled their broker to go to a new firm. Per the rule, broker-dealers would have to send “educational communication” to investors of any brokers making a move to that firm. The document would provide questions that customers should ask their brokers about incentives so they can decide whether the inducements posed a conflict of interest and if it will cost them anything to follow the broker to the new firm.

The broker compensation proposal was first submitted by FINRA to the SEC last year but was withdrawn due to industry opposition.

With the original version of the rule, brokers would have had to disclose to customers any incentives over $100,000 that they were given for going to a new firm. The broker-dealer would also have to notify the SRO about any significant compensation increases for new brokers. FINRA is open to getting public comments about this latest version of the proposal for a limited amount of time.

Our broker fraud lawyers help investors recoup their losses from financial firms for securities fraud, negligence, and other wrongful acts. Over the years, we have pursued hundreds of investment firms on behalf of clients and we have helped thousands of investors recover their money.

The Securities Arbitration Commentator reports that 80% of all customer cases are resolved in the investor’s favor, before an arbitration award is even rendered. More than half of the remaining 20% arbitration cases result in an award for the investor. While we cannot guarantee the outcome of your claim or lawsuit, we only work on cases that have merit and we believe financial recovery is warranted. Contact our stockbroker fraud attorneys today.

BrokerCheck

Finra sends BrokerCheck link rule to SEC, Investment News, May 28, 2015

New FINRA Broker Bonus Rule Out ‘Fairly Soon’: Ketchum, Think Advisor, March 17, 2015

FINRA Gets Tough With Its Sanctions Against Brokers For Suitability Violations, Stockbroker Fraud Blog, May 15, 2015

May 20, 2015

UBS Must Pay Investor $1M for Puerto Rico Bond Fund Portfolio

A Financial Industry Regulatory Authority Panel (“FINRA”) has ordered UBS Financial Services Inc. of Puerto Rico and UBS Wealth Management (collectively “UBS”) to pay a client from Puerto Rico $1 million to repurchase the Puerto Rico portfolio of proprietary bond funds sold to him and many other Puerto Rico investors. According to the Panel’s decision, Mr. Burgos Rosado, a senior investor at age 66, lost $737,000 in the beleaguered closed-end funds.

He had opened his account with UBS in 2011 and invested the money he made from running a bodega for years. After Puerto Rico municipal bonds failed in 2013, the original $1.1 million he invested had fallen in value to less than $4,000. Just in September of that year, when news that the bond funds were failing en masse, Burgos Rosado reportedly approached UBS because his balance had dropped some $200,000. He was encourage to stay with his portfolio.

The FINRA panel noted that while investors typically assume their account’s risks after they’ve been given sufficient notice of the risks, the arbitrators did not think this applied in the case of Burgos Rosado, who does not speak fluent English and was clearly relying on the recommendation of his UBS advisor. Even after Burgos Rosado asked for documents in Spanish, the brokerage-firm reportedly issued his monthly statements and other information in English.

In their ruling, the FINRA arbitration panel described Burgos Rosado as a “conservative investor” who lived frugally, saving his income and profits from his business opportunities. Pointing out that his account was “over-concentrated,” the panel said that municipal the bonds were “clearly unsuitable” for an investor such as Mr. Burgos Rosado. The panelists also criticized UBS’ sales practices for the Puerto Rico closed-end funds, noting that UBS pressured its brokers to sell the funds and make sure that clients stayed invested.

The Panel ultimately ordered UBS to repurchase the closed-end funds from Mr. Burgos Rosado at full price minus roughly half of the interest Mr. Burgos Rosado received while he held the funds. In reaction to the award, UBS issued its own statement saying that it does not agree with the award for Burgos Rosado, and that it does not believe other panels will follow the decision.

However, the arbitration ruling in Burgos Rosado’s favor comes just days after another FINRA panel ordered UBS to pay a different investor $200,000 for her losses in the same group of Puerto Rico closed-end funds. In that case, UBS argued that the Claimant, Yolanda Bauza, only lost $8,000, because of investment income she received before the funds failed two years ago. The panel disagreed, awarding damages much closer to the trading losses from the bond funds.

The Puerto Rico bond fraud claims of Burgos Rosado and Bauza are just two of the hundreds of FINRA arbitration claims still pending against UBS, Banco Popular, Banco Santander (SAN), and other brokerage firms for selling the securities to investors for whom they were inappropriate and too risky. Many of these investors were retirees.

Some of these funds lost up to almost two-thirds of their value between 2011 and 2013 and now investors are trying to recoup their losses. UBS, in particular, has come under fire for its sales practices and misrepresentations and omissions concerning the risks of the bond funds and Puerto Rico debt.

Earlier this year, a recording of former UBS Puerto Rico chairman Miguel Ferrer surfaced in which he can be heard telling brokers after they expressed misgivings about the bond funds that they needed to sell more funds or risk losing their jobs. Investors were even allegedly encouraged by UBS brokers to borrow funds through lines of credit so they could invest even more money in the bond funds.

Our Puerto Rico municipal bond fraud lawyers are working for investors in the U.S. and in the Commonwealth to recoup their losses in Puerto Rico debt and other investments. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.


UBS must buy back investor's Puerto Rico bond funds for $1 million, Business Insider/Reuters, May 19, 2015

UBS ordered to pay investor $1 million as Puerto Rico claims roll in, Investment News, May 20, 2015

UBS Ordered to Pay Retired Investor $200,000 For Puerto Rico Bond Fund Losses, Stockbroker Fraud Blog, May 14, 2015

May 15, 2015

FINRA Gets Tough With Its Sanctions Against Brokers For Suitability Violations

The Financial Industry Regulatory Authority has decided to take tougher actions against brokers who violate suitability standards. The regulator is recommending that the National Adjudicatory Council, which oversees disciplinary proceedings, raise its suggested suspensions for brokers who make unsuitable recommendations from one year to two years. FINRA wants brokers who commit fraud be potentially barred and offending firms face potential expulsion.

FINRA’s revisions to its Sanctions Guidelines are to go into effect right away. They exist to protect investors from brokers who don’t comply with the suitability rule. The rule states that brokers can sell products that are to their benefit as long as these products also are in alignment with helping investors meet their investment goals.

Despite the changes, InvestmentNews reports, there are those who think that FINRA’s proposed sanctions are insufficient and, also, that there may be negative consequences for investors. For example, defendants facing two-year suspensions might opt to fight cases against them rather than settle because of the tougher penalty.

FINRA’s modifications to its Sanctions Guidelines come a month after the Securities and Exchange Commission’s Investor Advisory Committee recommended that regulators join forces to create a database that would conduct background checks on brokers and advisors. This would make it easier for investors to look into the history of financial professionals before allowing them to handle their money. The committee called on the SEC to get self-regulatory organizations, federal regulator, and state regulators to develop this online resource.

The panel said that it felt that elder investors could benefit especially, as they remain a favorite target of financial fraudsters. According to a MetLife study, in 2010 the annual losses from financial elder abuse were at least $2.9 billion. Experts say that the real number is much higher because many incidents are not reported.

Our FINRA arbitration lawyers are here to help investors recover their securities fraud losses.

SEC Panel Calls for Universal Background Check Database, Financial Planning

Sanctions Guidelines, FINRA

National Adjudicatory Council, FINRA


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 Panel Orders Morgan Stanley Unit to Pay Banamex Unit $4.5M Over Alleged Unauthorized Third Party Loans, Institutional Investor Securities Blog, August 15, 2014

April 30, 2015

RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales

The Financial Industry Regulatory Authority is ordering RBC Capital Market to pay restitution to customers for supervisory failures that allowed for the sale of reverse convertibles that were unsuitable for them. The firm must pay them about $434,000 plus a $1 million fine.

According to the self-regulatory organization, RBC lacked supervisory systems that were reasonably designed to identify transactions that warranted review when the reverse convertibles were sold to customers. This purported inadequacy is s a violation of FINRA’s rules and suitability guidelines.

Although RBC had guidelines for selling reverse convertibles, specific criteria were established regarding annual income, investment goals, liquid net worth, and investment experience. Because of this, the firm was unable to detect the sale of 364 reverse convertible transactions by 99 of its registered representatives. The transactions involved 218 accounts and they were not suitable for the account holders. The customers lost at least $1.1 million.

RBC had already paid a number of the customers to settle a related class action securities case. Now, FINRA wants the firm to pay the rest of the customers who were affected.

By settling this case, RBC is not denying or admitting the securities charges. It is, however, consenting to the entry of the SRO’s findings.

Reverse Convertibles
These interest-bearing notes have their repayment of principle tied to how well an underlying asset performs. Depending on the specific terms, an investor could be at risk of losing money if the underlying asset’s value drops under a certain level during the reverse convertible’s term or at maturity. In 2010, FINRA put out a notice specifically telling firms to make sure to conduct a suitability analysis when it comes to selling this type of complex product.

Earlier this month, SEC Commissioner Luis Aguilar said that the regulator is looking to bring more enforcement actions against companies that sell risky structure products and complex securities to retail investors. Examples of complex securities: leveraged and inverse exchange-traded funds, alternative mutual funds, and structured notes.

Our FINRA arbitration law firm handles complex securities claims for retail investors. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

FINRA Orders RBC to Pay Fine and Restitution Totaling More Than $1.4 Million for Unsuitable Sales of Reverse Convertibles, FINRA, April 23, 2015

Read the FINRA letter of acceptance, waiver, and consent
(PDF)


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

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

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

April 27, 2015

FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations

The Financial Industry Regulatory Authority and the Securities and Exchange Commission have put out a report, the Senior Investment Initiative, to help brokerage firms come up with better procedures and policies for older investors. With the current low yields on traditional savings accounts and investments that are more low risk, FINRA and the SEC’s Office of Compliance Inspections and Examinations are worried that broker-dealers could be recommending investments that may be to risky or unsuitable for seniors who want higher returns. They are also worried that the firms are not properly disclosing the terms and risks of these securities.

Considering that by 2040 there are expected to be some 79 million Americans in the 65 and over age group, information in this report is important for helping tackle investment issues as they relate to seniors. OCIE’s Director Andrew J. Bowden pointed out that seniors are now more than ever more dependent on their investments to help with retirement. Bowden noted that it is important that older investors are treated fairly and get suitable recommendations and appropriate disclosures about the risks, costs, and benefits of their investments.

The two agencies examined some 44 brokerage firms. They looked at brokerage firm reps training, communications, arresting, account documentation, use of certain designations, disclosures, supervision, and customer complaints.

The SEC and FINRA discovered that most older investors are buying open-ended mutual funds, variable annuities and other more simple products. However, there are some firms that are recommending investments that are not suitable to seniors seeking the higher returns. The agencies are concerned that these investors are making financial decisions without fully understanding the risks.


According to the report, the eight securities that generate the most revenue according to their purchase by senior investors:

• open-end mutual funds
variable annuities
• equities
• fixed income investments
• exchange-traded funds
• unit investment trusts
nontraded real estate investment trusts
• alternative investments
• structured products.

FINRA and the SEC said there was evidence showing that 34% of the firms made at least one or more recommendation of variable annuities to a senior investors even though the investment was not suitable for that person. 14% of broker-dealers made potentially unsuitable recommendations that investors purchase alternative investments, which can be hard to value, come with high buying costs, frequently lack liquidity, and have limited historical data.

On a positive note, over 77% of firms had training specifically addressing senior investors and the issues that can arise. 13% of broker-dealers told reps to report suspicions of elder financial fraud or suspected diminished capacity of a client. You can read more about the report here. (link to report).

Senior Financial Fraud

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are here to help investors recoup their losses. Unfortunately, senior investors can be vulnerable to financial fraud, whether by someone they know or an unscrupulous financial representative. This can prove financially devastating to an investor that is now dependent on their investments for financial support.

Read the Report (PDF)


More Blog Posts:
Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator, Stockbroker Fraud Blog, April 7, 2015

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors, Stockbroker Fraud Blog, March 30, 2015

BlackRock Advisors Settles SEC Charges Over Conflict of Interest Disclosures for $12M, Institutional Investor Securities Blog, April 25, 2015

April 24, 2015

FINRA Bars Wells Fargo Broker to NFL, NBA Players Over Failure to Disclose Nightclub Involvement

The Financial Industry Regulatory Authority Inc. has barred broker Aaron Parthemer, a Wells Fargo (WFC) adviser, for taking part in a number of outside businesses and failing to disclose his involvement. FINRA has tight regulations that don’t allow brokers to take part in private securities transactions without notifying their firm and getting authorization. Parthemer, who used to be at Morgan Stanley Wealth Management (MS) until four years ago, has advised numerous NBA and NFL athletes.

According to the SRO, he falsely represented, in compliance questionnaires he filled out while with both firms, that he was not taking part in external business activities that warranted disclosure. He also gave FINRA false data when the regulator started to ask for more information about external business activities in 2012.

Parthemer allegedly did not disclose the part he played in running Club Play, which used to be a South Beach, Florida nightclub, as well as his involvement in a tequila marketing operation and an Internet branding startup. FINRA also contends that the broker made unapproved loans to clients in connection with the club and referred clients to invest in the start up.

He also allegedly managed operations at Club Play until two years ago and loaned close to $400,000 to three professional athletes that had ownership stakes at the club and to Wells Fargo customers. The loans were to cover the club’s operating costs and violated the firm’s policy, which prevents brokers from lending funds to clients.

While working at both firms, Parthemer is accused of persuading a number of his professional athlete clients to invest over $3 million in the branding company that a friend of his ran.

FINRA released the terms of the settlement with Parthemer in a letter this week. He accepted the bar but did not deny or admit to the findings. A lawyer representing Parthemer said that he was never an owner of the club and he did not get any compensation from the external businesses.

If you suspect that you were the victim of broker fraud, do not hesitate to contact our stockbroker fraud law firm immediately.

Finra bars Wells Fargo broker who ran Miami nightclub, Investment News, April 23, 2015


More Blog Posts:
Killeen Man Accused of Texas Securities Fraud Targeting Military, Stockbroker Fraud Blog, April 23, 2015

Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges, Stockbroker Fraud Blog, March 27, 2015

Former Tullett Prebon Broker, Rabobank Trader Plead Not Guilty To Libor Manipulation Charges, Institutional Investor Securities Blog, April 17, 2015

March 17, 2015

Financial Fraud Victims’ Suffering is More Than Just Monetary, Affirms FINRA Report

According to “Non-Traditional Costs of Financial Fraud,” which is a new research report by the FINRA Investor Education Foundation, almost two-thirds of financial fraud victims who reported that they’d been bilked experienced at least one non-financial consequence to a serious degree. The findings show other ways in which this type of crime takes a toll on its targets.

Some 600 fraud victims took the survey online. Respondents were at least 25 years of age. Among the findings:

• The most commonly named non-financial fraud costs included serious stress, anxiety, sleeping problems, and depression.

• Other negative emotional reactions included anger, regret, betrayal, feeling like a victim, embarrassment, sadness, shame, helplessness, guilt, and confusion.

• There may have been fees, interest rates, legal fees, bounced checks and resulting fees from losing money because of the fraud.

• 9% of respondents reported bankruptcy.

• Almost half of respondents experienced self-blame. Many felt that they shouldn’t have been too trusting.

• The larger the amount of money stolen, the more non-financial costs were experienced.

• Victims who were confused about the fraud’s details were more likely to suffer from non-financial consequences.

• Just 15% of respondents had a significant amount of interaction with the fraudster.

• The smaller the financial loss, the less interaction there was with the alleged perpetrator.

• Respondents with higher incomes (at least $75K) were more likely to lose more money than those with lower incomes.

• The age of the respondent wasn’t a factor in terms of how much someone might lose from financial fraud.

• An introduction from a family friend or relative was the most common way cited for how the victim became acquainted with the fraudster.

• 68% of respondents told family or friends about the fraud.

• Just 35% of respondents told authorities.

• 48% of those that did not report the fraud said that doing so would not have changed the outcome.

Other reasons for not reporting fraud: embarrassment, not sure what to do, lack of time, and other reasons.

Some of the financial fraud incidents involved:

• Email solicitation from a stranger outside the US asking for a fee or deposit.
• A notification that the target had won a lottery or prize but needed to pay a fee to claim it.
• Learning about an investment through a free lunch seminar.
• Notification of grant eligibility but that a fee was required.
• A commission offered for referring people an investment.
• Phone solicitation.
• Notice of an unclaimed inheritance.


At Shepherd Smith Edwards and Kantas, LTD LLP, we understand that the toll of financial fraud is more than just monetary. We are here to help investors get their losses back. Your initial case consultation with our investment fraud lawyers is free. We can help you explore your legal options.

Non-Traditional Costs of Financial Fraud,

FINRA Foundation Research Reveals Fraud Victims Vulnerable to Severe Stress
, Anxiety and Depression, FINRA March 9, 2015


More Blog Posts:

Ex-Green Bay Packers’ Bruce Wilkerson Awarded $2M Against Resource Horizons Group Over Ponzi Scam Involving Rogue Broker, Stockbroker Fraud Blog, March 16, 2015

CNL Lifestyle Properties REIT Dips in Value, May Sell Ski Resorts, Institutional Investor Securities Blog, Institutional Investor Securities Blog, March 16, 2015

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

March 12, 2015

Brookeville Capital Partners Ordered by FINRA to Pay $1.5M for Private Placement Fraud

The Financial Industry Regulatory Authority said that Brookeville Capital Partners must pay over $1 million to victims and a $500,000 fine for securities fraud related to private placement offering sales. The self-regulatory organization has barred the firm’s president, Anthony Lodati, from the securities industry.

According to FINRA, from 1/11 to 10/11 Brookeville and Lodati bilked customers in the sale of Wilshire Capital Partners Group, LLC, a private placement offering in which investors were to have an indirect interest in pre-IPO offering shares of Fisker Automotive. The SRO said that while the firm was soliciting customers to invest in the private placement offering, Lodati discovered that John Mattera, a person with a regulatory and criminal background, made transactions for Wilshire as its CEO and managing director.

Rather than disclosing that the Securities and Exchange Commission had sanctioned Mattera in 2010 for securities fraud, and also that he’d been convicted of a felony in the state of Florida in 2003, the firm and Lodati purportedly withheld this information, as well as information about Mattera’s connection to Wilshire, on purpose and kept soliciting investors. Brookeville sold more than $1 million of interests in the Wilshire offering to 29 customers and was paid over $104,000 in commissions.

In 2011, the Commission filed a fraud case against Mattera and other individuals over a scam that involved Wilshire and his bilking of investors of $13 million. Mattera was also convicted in criminal court and ordered to serve prison time.

The regulator was able to get a court order to freeze Wilshire’s assets, including the interests belonging to Brookeville customers. These customers lost all of their investment.

By settling, Brookeville and Lodati are not denying or admitting to the SEC charges.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities lawyers help investors recover their fraud losses. Contact our private placement fraud law firm today.

Read the FINRA Action

FINRA Sanctions Brookville Capital Partners $1.5 Million and Bars President Anthony Lodati for Fraud, FINRA, March 12, 2015


More Blog Posts:
Wealthfront CEO Claims Schwab is Fooling Investors Over “Free” Automated Investment Platform, Stockbroker Fraud Blog, March 9, 2015

Appellate Court Says Charles Schwab & Co. Must Face Financial Advisory Firm’s Lawsuit Over Mortgage Debt Involving Bond Funds, Institutional Investor Securities Blog, March 9, 2015

District Court Imposes $26M Commodity Pool Fraud Penalty, Stockbroker Fraud Blog, March 7, 2015

February 27, 2015

Bill Seeks to Eliminate Mandatory Arbitration Clause From Brokerage Contracts, While SEC Approves New Public Arbitrator Limits

The Investor Choice Act in Congress, A U.S. House bill written by Keith Ellison, D-Minn., is looking to stop investment advisers and brokers from obligating investors to pursue their claims in arbitration instead of going to court. The proposed legislation would bar pre-dispute mandatory arbitration clauses in contracts between clients and their representatives.

As of now, almost all brokerage agreements, and an increasing number of investment adviser ones, come with provisions mandating that investors take their disputes to the arbitration system, which is run by the Financial Industry Regulatory Authority. There are those that believe that the forum favors brokers and advisers. Meantime, others say that the arbitration system is much more efficient for investors than going to court.

This is not the first time that Ellison has pushed for ending mandatory arbitration. He unveiled a similar bill in 2013 but it did not become law. The Public Investors Arbitration Bar Association has put out a statement voicing its support for Ellison’s latest bill, which it says gives investors back their right to choose whether they want to take their dispute to court or arbitration.

The 2010 Dodd-Frank Act granted the U.S. Securities and Exchange Commission the power to put a stop to mandatory arbitration. However, the SEC has yet to tackle the issue.

Our FINRA arbitration lawyers are here to help investors recoup their losses in claims against a broker or investment adviser. Contact our securities fraud law firm today.


FINRA Arbitration and Arbitrators
Nearly all customer claims against broker-dealers are resolved in FINRA arbitration. Each case is heard by a three-arbitrator panel. The parties decide who can be on the panel by eliminating candidates until there are three left. Parties are allowed to choose all-public panels.

The SEC has just approved a proposal by FINRA that would put limits on who can become a public arbitrator to be able to preside over such disputes. The rule categorizes anyone who has ever worked in the financial industry as an industry (or nonpublic) arbitrator.

Also, anyone who spent at least 20% of their time over the previous five years representing investors with securities claims would go from being a public arbitrator to a nonpublic one. They could go back into the public arbitrator category after a cooling off period of five years.

Anyone who has been a plaintiff’s lawyer for over 15 years is permanently barred from serving as a public arbitrator. Also disqualified as public arbitrator are accountants, lawyers, and others who worked for financial firms for over 20 years. If they worked for firms for less time, they could go back under the public arbitrator category five years after they stop working for them. In its regulatory order, the SEC said that it believes the proposed rule change would tackle any perceived bias toward Wall Street on the part of public arbitrators by moving certain individuals that fit the specific criteria into the nonpublic arbitrator category.

Bill would end mandatory arbitration in brokerage contracts, Investment News, February 26, 2015

Order Approving a Proposed Rule Change Relating to Revisions to the Definitions of Non-Public Arbitrator and Public Arbitrator, FINRA, February 26, 2015


More Blog Posts:
Investors Name Icon Investments in Securities Arbitration Claims, Stockbroker Fraud Blog, December 19, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker fraud Blog, October 30, 2014

Judge Temporarily Blocks Meredith Whitney Fund From Making Investor Payouts in the Wake of BlueCrest Capital Opportunities Lawsuit, Institutional Investor Securities Blog, February 27, 2015

February 9, 2015

John Carris Investments Expelled by FINRA

A FINRA panel has expelled John Carris Investments LLC, along with Chief Executive Officer George Carris from the securities industry. Bot are accused of suitability violations and fraud.

According to the panel, Carris and JCI were reckless when selling shares of stock and promissory notes. They purportedly left out material facts and used misleading statements. Both have been barred for manipulating Fibrocell’s stock price via the unfunded purchases of big stock blocks and engaging in trading that was pre-arranged through matched limit orders.

The FINRA panel said that JCI and Carris acted fraudulently when they did not reveal the poor financial state of parent company Invictus Capital yet sold the latter’s stock and notes. Material facts were purportedly left out of offering documents. Rather than shutting down operations when it ran out of net capital compliance, JCI kept selling Bridge Offering notes to investors and using money from the sales to remedy its net cap deficiency, all the while not telling customers that was were the money went. Offering sales were also used by Carris to cover his personal spending.

Carris and his firm are accused of keeping inaccurate records and books, not remitting payroll taxes for employees, failing to put into place anti-money laundering procedures and policies, and not setting up and enforcing a reasonable supervisory system.

Registered representative Andrew Tkatchenko was suspended for two years for recommending the stock and promissory notes without having reasonable grounds. Jason Barter, the head trader, received an 18-month suspension for his involvement. Both also must pay fines.

Contact our FINRA arbitration fraud lawyers today.

FINRA Hearing Panel Expels John Carris Investments and Bars CEO George Carris for Fraud, FINRA, January 14, 2015


More Blog Posts:
Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations, Stockbroker Fraud Blog, January 28, 2015

Libor Manipulation Cases Get the Green Light from U.S. Courts, Institutional Investor Securities Blog, January 30, 2015

PFS Investments, Ex-Broker Under Investigation for Securities Fraud that Bilked At Least Twenty Customers, Stockbroker Fraud Blog, January 30, 2015

January 30, 2015

PFS Investments, Ex-Broker Under Investigation for Securities Fraud that Bilked At Least Twenty Customers

The Financial Industry Regulatory Authority is accusing former broker Barkley Lundy, who worked with PFS Investments, of defrauding at least 20 customers. The self-regulatory organization claims that from at least 1/11 through 3/14, Lundy took these clients’ funds and placed the money in his own bank accounts. He also purportedly generated fake investments, issuing monthly payments to customers to conceal the securities fraud. FINRA says that Lundy violated FINRA Rule 2010 when he comingled customer monies.

The SRO said that Lundy kept a list of customers, setting up a payment schedule for them to receive monthly payments. PFS Investments was unaware of the payment schedule and the list. Lundy moved the money of a few of his customers from his account into their bank accounts and then moved the funds into their PFS accounts. He also worked it out so that these customers bought mutual fund shares that were customer-held. Lundy explained the fund movements as “dividend reinvestments.”

He gave one customer, per that client’s request, tax forms to track the monthly payments. FINRA, however, says that the documents were fabricated and contained falsified information. Meantime, Lundy made it appear as if PFS Investments not only provided the documents but also created them.

Without denying or admitting to the findings, Lundy has accepted and consented to the Letter of Acceptance, Waiver, and Consent, as well as to a bar preventing him from associating with any FINRA member. Our stockbroker fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are investigating investor claims involving PFS Investments and Barkley Lundy.

In addition to the customers that are part of the probe, Barkley may have acted improperly with other clients. Customers of Barkley should therefore carefully review their accounts. If you feel like you may have sustained unnecessary or inexplicable investment losses while working with Barkley or PFS Investments, contact our securities fraud law firm today.

Shepherd Smith Edwards & Kantas LLP Investigating Claims Involving Barkley Lundy and PFS Investments, Inc., PR Newswire, January 27, 2015


More Blog Posts:
White House Looking At Whether Brokers Are Costing Workers Billions in Retirement Funds, Stockbroker Fraud Blog, January 27, 2015

Former Canadian Broker’s Securities Fraud Conviction Involving U.S. Transactions is Upheld, Institutional Investor Securities Blog, January 23, 2015

FINRA Fines Fidelity $350K for Overcharging More than 20,000 Clients $2.4M, Stockbroker Fraud Blog, January 20, 2015

January 20, 2015

FINRA Fines Fidelity $350K for Overcharging More than 20,000 Clients $2.4M

The Financial Industry Regulatory Authority says that Fidelity Investments must pay $350,000 for overcharging thousands of clients $2.4 million for transactions involving fee-based accounts in its Institutional Wealth Services Group. The overcharges are said to have occurred from 1/06 to 9/13. The group offers brokerage and trading services to investment advisers and their clients.

According to the self-regulatory organization, the inappropriate charges happened because of a supervisory oversight involving the way that Fidelity applies fees under its asset-based pricing model. The model typically charges according to assets, not transactions.

FINRA says that until 2013, the financial firm did not have a designated supervisory principal to oversee the group’s asset-based pricing program. As a result, a number of clients may have been charged excess commissions beyond the asset-based management fee or were double billed.

Fidelity was the one that identified the issue in 2012 and notified FINRA. The firm also paid back all of the clients who were affected. According to a firm spokesperson, about 1.5% of brokerage accounts held for investment advisers were impacted, with most getting a reimbursement of under $100.

Fidelity settled FINRA’s claims without denying or admitting to the SRO’s findings.

In other Fidelity Investment news, the fund manager and eight others are getting ready to launch a dark pool. While Fidelity is leading the effort to set up the private trading venue that would benefit mutual fund shareholders, other money managers involved include J. P. Morgan Chase & Co. (JPM), BlackRock Inc. (BLK), T-Rowe Price Group Inc. (TROW), and Bank of New York Mellon Corp. (BNK).

The market—called Luminex—would allow in asset managers wanting to trade big share volumes at once.

Fidelity-backed group unveils ‘dark pool’ for big stock trades, The Boston Globe, January 20, 2015

Fidelity, other major fund managers to launch stocks dark pool, Reuters, January 19, 2015

Fidelity fined $350,000 in billing snafu, InvestmentNews, January 20, 2015


More Blog Posts:
Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million, Stockbroker Fraud Blog, September 5, 2014

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

FINRA Orders Pershing to Pay $3M Fine for Customer Protection Rule Violations, Stockbroker Fraud Blog, January 7, 2015

January 7, 2015

FINRA Orders Pershing to Pay $3M Fine for Customer Protection Rule Violations

The Financial Industry Regulatory Authority Inc. says that Pershing, a Bank of New York Mellon Corp. (BK) unit, must pay $3 million for violations involving the Customer Protection Rule. According to the self-regulatory organization, for about nine months between ’10 and ’11, the clearing firm did not put aside the money needed for a reserve account, per FINRA’s deposit requirements.

The SRO said that deficiencies, from $4 million to $220 million, came from Pershing’s “misinterpretation” of aspects of the rule, as well as inadequate supervision over the way the firm calculated what needed to be put in reserve. Also, over a certain time period, Pershing did not promptly get or keep up physical possession or control of certain customers’ margin securities. This resulted in nearly four dozen new control or possession deficits, while significantly raising the number of existing control or possession deficits.

The Customer Protection Rule mandates that brokerage firms maintain custody of customer cash and securities in order to comply with the following requirements: keep a cash reserve or qualified securities in a bank account that has at least the equivalent value of the net cash the broker-dealer owes customers, as well as obtain and keep up control or physical possession over customers’ excess and fully paid margin securities.

FINRA enforcement chief Brad Bennett said that because of Pershing’s purported failure to set up systems to “vet procedural changes” that could impact certain types of positions, customers’ assets were placed at risk. The SRO discovered the alleged deficiencies while conducting an examination on site in 2011. The firm has since improved its controls. While Pershing agreed to the sanctions it has not denied or admitted to the findings.

Contact our securities lawyers today if you suspect that your investment losses are because of securities fraud or related negligence.

FINRA Fines Pershing LLC $3 Million for Customer Protection Rule Violations and Supervisory Failures, FINRA, December 29, 2014

FINRA Rules, FINRA


More Blog Posts:

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

Standard & Poor’s on the Verge of Civil Settlement Over Real-Estate Bond Ratings, Reports WSJ, Institutional Investor Securities Blog, December 29, 2014

Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG, Institutional Investor Securities Blog, December 26, 2014

January 6, 2015

FINRA Releases Priorities for 2015, Gets SEC Approval for Background Check Rule

The Securities and Exchange Commission has approved a Financial Industry Regulatory Authority proposal mandating that broker-dealers conduct more rigorous background checks on new hires. Per the new rule, brokerage firms must implement written procedures for confirming the completeness and accuracy of a broker’s registration data on a Form U4.

Firms will have to search “reasonably available public records” of both new hires and new registrants within 30 days of a U4’s submission to FINRA.

In other FINRA news, the self-regulatory organization has just released its exam and regulatory priorities for 2015. The regulator stated that the majority of compliance problems could be worked out if only broker-dealers always acted in their clients’ best interests. The statement was a significant one, considering that brokers are currently just obligated to make sure that they investments they recommend are suitable for clients.

Among the recurring challenges noted by the SRO:
• Failure to place customers’ interests first, including giving poor advice and recommending inappropriate investments.

• Firm cultures that put short-term profits or rapid growth over establishing the proper controls and creating an environment where high ethical standards are expected. FINRA recommends intolerance for both poor practices that may cause harm, as well as bad actors.

• A lack of strong supervision and inadequate risk management at certain firms

• Product complexity, opaque markets, poor sales training

• Conflicts of interest

FINRA’s Focus Areas in 2015 will include:
Sales practices, including requiring registered representatives and firms to conduct due diligence, make good suitability decisions, and explain products risks so that retail investors can understand them. FINRA is pressing firms to properly train registered representatives about product features, valuation, pricing, and suitability. It is also reminding them to stay abreast of changing market circumstances.

Interest-Rate Sensitive Fixed Income Securities: The SRO remains worried about how unusually low interest rates could possibly harm investors with products that may be easily impacted by said rates.

Variable Annuities: FINRA will evaluate compensation structures to see if there are any improper incentives for generating the sales of these instruments. The regulator is taking a focused interest in L share annuities, which come with higher costs and shorter surrender periods.

Alternative mutual funds: The SRO is worried that both customers and registered representatives do not fully understand how the funds will react to various market conditions.

Non-traded REITS: FINRA continues to be concerned about illiquidity, valuation difficulties, and high fees.
FINRA also will work with examiners and firms to make sure that its new supervision rules are implemented properly. FINRA Rules 3170, 3150, 3120, and 3110 went into effect at the start of December.

You can click here to see what else FINRA and its examiners are focusing on in 2015.

Our securities fraud law firm helps investors get their losses back. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC approves Finra background check rule, InvestmentNews, January 5, 2015

More Blog Posts:
Beneficiaries of Puerto Rico Trust File Securities Fraud Lawsuit Seeking Over $4.5M From UBS Financial Services, Stockbroker Fraud Blog, January 5, 2015

Morgan Stanley Fires Wealth Management Group Employee For Stealing Client Data, Institutional Investor Securities Blog, January 5, 2015

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

December 29, 2014

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

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

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

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


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

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

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


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

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

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

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


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

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

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


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

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

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

December 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