November 7, 2015

Securities Headlines: FINRA Seeking to Fine MetLife Over Variable Annuity Sales, SEC Accuses Scottish Trader of Sending Fake Tweets, Market Rigging, and Judge Orders Man to Stop Crowdfunding Fraud

FINRA Plans to Fine MetLife for Purported Variable Annuities Violations
The Financial Industry Regulatory Authority is looking to impose a significant fine against MetLife’s broker-dealer unit related to possible violations involving variable annuities. The company is cooperating with the regulator’s probe, which is looking at alleged suitability, misrepresentation, and supervision issues related to the selling and replacements of variable annuities.

According to MetLife’s quarterly regulatory filing, FINRA told the insurance giant that it plans to recommend disciplinary action. InvestmentNews reports that in an e-mailed statement, MetLife spokesperson John Calagna said that the company did not agree with the conclusions reached by the regulator and plans to defend itself.

SEC Charges Scottish Trader with Over Market Rigging Involving False Tweets
The Securities and Exchange Commission has filed securities fraud charges against James Alan Craig of Scotland for allegedly filing false tweets that caused sharp declines in the stock prices of two companies, even causing one of them to experience a trading halt. The regulator said that Craig sent out false statements via Twitter on accounts that he deceptively set up to make them look like legitimate Twitter accounts of known securities research firms.

According to the SEC’s complaint, Craig’s first bogus tweets caused the share price of one company to drop 28% until Nasdaq temporarily stopped trading. The next day, he sent out false tweets about another company that led to a 16% drop in the share prices of that company. Both days he purchased and sold shares of the companies he targeted to try to profit from the sharp price changes. He was mostly successful in his efforts.

Continue reading "Securities Headlines: FINRA Seeking to Fine MetLife Over Variable Annuity Sales, SEC Accuses Scottish Trader of Sending Fake Tweets, Market Rigging, and Judge Orders Man to Stop Crowdfunding Fraud " »

November 2, 2015

FINRA Cautions Against Binary Options and Their Risk of Fraud

The Financial Industry Regulatory Authority has issued a warning about the risks involved with binary options trading. The alert comes in the wake of numerous calls the regulator has received through its Securities Helpline for Seniors – HELPS™. According to callers, there are business entities claiming to be binary options trading firms that are failing to deposit investors’ funds into their accounts, refusing to give investors back their money, or demanding a payment fee to make such a refund. One fraudster even purportedly pretended to be a regulator organization and demanded that investor pay money for taking part in an allegedly illegal binary options trading.

FINRA wants investors to be especially careful of non-US companies that offer binary options trading platforms, especially trading applications with names implying easy wealth, as well as demo accounts that give users a chance to try binary potions tradings without risking assets.

The self-regulatory organization said that these types of accounts may act as bait to get investors to ultimately fund a “real” account. Exposure to such accounts may also expose people to identity theft as they hand over personal information and other details.

Continue reading "FINRA Cautions Against Binary Options and Their Risk of Fraud" »

October 20, 2015

FINRA Orders 12 Financial Firms to Pay $6.7M for Not Charging UIT Purchase Discounts

Twelve financial firms will pay over $4 million in restitution and fines of over $2.6M for purportedly not applying sales charge discounts to the sale of Unit Investment Trusts. The fines are also for supposed supervisory failures.

The firms and the payments they will make include:
• First Allied Securities, Inc., which will pay over $689K in restitution and a $325K fine.
• Huntington Investment Company, which will pay over $60K in restitution and a $75K fine.
• Fifth Third Securities, Inc., which will pay over $663K in restitution and a $300K fine.
• Infinex Investments, Inc., which will pay over $109K in restitution and a $150K fine.
• Securities America, Inc., which will pay over $477K in restitution and a $275K fine.
• Ameritas Investment Corp., which will pay over $128K in restitution and a $150K fine.
• Cetera Advisors LLC, which will pay over $452K in restitution and a $250K fine.
• Park Avenue Securities LLC, which will pay over $443K in restitution and a $300K fine.
• Comerica Securities, which will pay over 151K in restitution and a $150K fine.
• Commonwealth Financial Network, which will pay over $357K in restitution and a $225K fine.
• Cetera Advisor Networks LLC, which will pay over $151K in restitution and a $150K fine.
• MetLife Securities, Inc., which will pay over $349K in restitution and a $300K fine.

A UIT is an investment company that offers a redeemable unit of a portfolio of securities that is usually fixed and will end on a certain date. Although yearly operating costs are not very high, there are sales charges up front, as well as deferred sales charges, development fees, creation fees, and organization costs.

The sponsors of UITs usually offer breakpoint discounts, which is a lower price determined by the dollar amount of the purchase. The greater the purchase, the larger the discount. They also typically offer exchange discounts, also known as rollover discounts. This is a lower sales charge offered to investors who use the proceeds from the redemption or termination of one UIT to buy another one.

The plaintiffs claim that because they didn’t get the warranted discounts, they ended up paying more for their purchases. By settling, the firms are not admitting to or denying the findings.

FINRA Sanctions 12 Firms a Total of $6.7 Million for Failing to Apply Sales Charge Discounts to Customers' Purchases of UITs, FINRA, October 20, 2015

Unit Investment Trusts (UITs), SEC

October 13, 2015

Santander Securities to Pay $6.4M Over Puerto Rico Muni Bond and Closed-End Fund Sales

The Financial Industry Regulatory Authority (FINRA) says that it is ordering Santander Securities LLC (Santander) to pay $6.4M for supervisory failures involving the sale of Puerto Rico Municipal Bonds and Puerto Rico closed-end funds. Of the payment to FINRA, $2 million is a fine and censure and over $4.3 million is customer restitution.

The restitution will go toward certain customers who were solicited to buy the municipal bonds. Santander will pay $121,000 and make rescission offers to repurchase the securities from certain customers that were affected by the firm’s purported failure to supervise employees while they were trading.

FINRA said that between December 2012 and October 2013, Santander failed to make sure that its proprietary product risk-classification tool accurately reflected the risks of investing in Puerto Rico bonds. The regulator contends that the systems and procedures that were in place at Santander did not mandate an evaluation or review of this tool, which is what its representatives used when recommending financial products to customers.

For example, said FINRA, when “significant market events” occurred, such as when credit rating agency Moody's downgraded a number of Puerto Rico bonds—including Puerto Rico General Obligation bonds—to a level just above junk, Santander did not re-examine the tool’s risk classifications for the bonds. Instead, one day after the credit rating agency issued its ratings downgrade, the firm stopped buying the municipal bonds that its customers in Puerto Rico wanted to sell and ramped up its efforts to lower the firm’s own Puerto Rico municipal bond inventory.

Continue reading "Santander Securities to Pay $6.4M Over Puerto Rico Muni Bond and Closed-End Fund Sales " »

October 10, 2015

SEC Approves Rule Requiring Firms, Brokers Link to BrokerCheck

Over two years after it was initially proposed, a FINRA rule requiring that broker-dealers include a link to the self-regulatory organization’s BrokerCheck database has been approved by the Securities and Exchange Commission. The rule slated to go into effect, at the latest, at 180 days after the FINRA regulatory notice is published in the Federal Register. The deadline for publishing the notice is December 7, 2015.

Per the rule, a brokerage firm will have to include an obvious reference and hyperlink to the front page of FINRA’s Links to BrokerCheck would also have to be included on the profile pages of each broker.

FINRA has been trying to make retail investors more aware that BrokerCheck exists. The online database includes the work history of every registered broker, where they are registered, and other information, such as if they’ve been subject to disciplinary measures or named on previous securities cases.

A previous version of the proposed rule had called for LinkedIn and Twitter profiles of brokers to also include links back to BrokerCheck. However, rather than link directly to that home page, the hyperlink would have taken an investor to the BrokerCheck profile of a particular representative. Many in the industry, however, were strongly opposed to that mandate.

Continue reading "SEC Approves Rule Requiring Firms, Brokers Link to BrokerCheck " »

September 26, 2015

Broker Fraud News: Ex-Dallas Broker Faces Prison, Fintegra Files for Bankruptcy, and Broker Who Promised Investors They’d Double Their Money Can No Longer Sell Securities

Ex-Dallas Broker Accused of Texas Securities Fraud Face Five Years
Wade Lawrence, a former Dallas broker, has pleaded guilty to Texas securities fraud. As part of his plea bargain the 43-year-old will have to forfeit $1.5 million and pay over $250,000 in fines. He also faces up to five years behind bars for his $2.1 million securities scam.

According to prosecutors, over the course of working for several securities firm over the last seven years, Lawrence falsely offered risky investments with the promise of 20% to 100% returns. He lost a significant amount of money and invested just a portion of investors’ funds. Lawrence used a lot of investors' cash to cover his own living expenses, personal travel, as well as pay for fancy jewelry. The Associated Press reports that to date Lawrence has given back $581,000 to investors.

Minnesota-Based Brokerage Firm Files for Bankruptcy
Broker-dealer Fintegra has filed for bankruptcy in U.S. Bankruptcy Court in Minnesota. The firm had to stop its securities business in June after it was hit with a $1.5M arbitration award that placed it under the $250,000 regulatory net capital requirements of minimum.

According to the FINRA arbitration panel, Finestra and a broker violated state anti-fraud provisions related to the sale of Miasole Investments II, an unregistered security. The securities fraud complaint, submitted by Fintegra customers, states that the broker-dealer could only pay $300,000 of the award. However, InvestmentNews reported that the attorneys for one of the clients said that to date none of the award has been paid.

Fintegra, in its FOCUS report with the SEC, admitted that it had been named in five separate lawsuits, all involving the alleged sale of securities that were either unsuitable or violated state securities laws.

Continue reading " Broker Fraud News: Ex-Dallas Broker Faces Prison, Fintegra Files for Bankruptcy, and Broker Who Promised Investors They’d Double Their Money Can No Longer Sell Securities" »

September 19, 2015

FINRA Headlines: Regulator Seeks to Curb Broker Record Expungement, Continues to Fight Elder Abuse and Issues Liquidity Risk Management Guidance

FINRA Takes Action to Make It Harder for Brokers to Expunge Their Disciplinary Records
The Financial Industry Regulatory Authority’s Board has given the regulator permission to ask for public comment on a plan that would establish tougher requirements for when a broker would be allowed to expunge disciplinary actions from his/her BrokerCheck record. The proposed rule would update existing arbitration rules regarding the expungement of information related to customer disputes.

One proposed requirement is that an arbitration panel would have to get a copy of the BrokerCheck report when determining whether to grant an expungement request. The panel then would have to give more details about its reason to recommend a request.

According to a 2013 study by the Public Investors Arbitration Bar Association, expungement requests have been granted in up to 90% of cases that ended in an award or settlement. However, in 2014 the SEC signed off on a rule preventing broker-dealers from conditioning a settlement so that a claimant cannot counter expungement after the case is resolved.

FINRA Board Continues to Fight Elder Financial Abuse
FINRA’s board has given the self-regulatory authority permission to put out a rule proposal that would protect older investors and other vulnerable investors.

Under the rule, firms would be obligated to get the name and contact data of a trusted individual when opening an account for a customer. The rule also would let a firm, if it suspects financial fraud, freeze the money in accounts of senior investors age 65 and over, as well as the accounts of adults with physical or mental impairments. The concern is that such impairments may make it difficult for them to protect their best interests especially when they are being bilked.

Continue reading "FINRA Headlines: Regulator Seeks to Curb Broker Record Expungement, Continues to Fight Elder Abuse and Issues Liquidity Risk Management Guidance " »

September 14, 2015

FINRA Bars Global Arena Capital Brokers for Cockroaching, Churning, and Other Securities Violations

The Financial Industry Regulatory Authority has barred seven brokers accused of committing violations and repeatedly transferring from one brokerage firm to another from the securities industry. The brokers worked at the brokerage firm Global Arena Capital Corp. Also barred is the broker-dealer’s president, Barbara L. Desiderio. She is accused of letting the brokers engage in stockbroker fraud and deceiving the regulator.

The other brokers are David Awad, Alex Wildermuth, Peter Snetzko, James Torres, and Michael Tannen. Global Arena branch managers Kevin Hagan and Richard Bohak have been barred from serving in a principal role. Brokers Andrew Marzec and Niaz Elmazi were barred for not cooperating with the regulator’s probe.

According to FINRA, while at the firm, the brokers used sales pitches that were misleading, churned accounts, and committed other abusive acts. Seven of the brokers who were barred had been placed on heightened supervision by the self-regulatory organization when they exited HFP Capital Markets to go work at Global Arena. HFP Capital Markets has since been expelled from the industry by FINRA.

Continue reading "FINRA Bars Global Arena Capital Brokers for Cockroaching, Churning, and Other Securities Violations" »

August 22, 2015

FSC Securities to Be Held Accountable for $1.2M FINRA Arbitration Award Issued to Victims of Ponzi Scammer Who Faked His Death

A Financial Industry Regulatory Authority Inc. panel said that FSC Securities Corp. is responsible for a $1.2 million arbitration award for compensatory damages to investors that were bilked by Aubrey Lee Price, the infamous Ponzi scammer from Georgia who tried to fake his death to in 2012. FSC Securities is a broker-dealer with AIG Advisor Group (AIG).

The eight claimants contend that the brokerage firm did not supervise a number of brokers who sold them fraudulent securities that were part of Price’s $40 million Ponzi scam. According to their securities lawyer, Price and two other ex-FSC brokers persuaded clients to invest in the PFG fund, an unregistered investment fund, which was the main product of the scheme.

When the trading account sustained huge losses Price prepared account statements for investors that noted fake asset amounts and investment returns. The claimants believe that FSC failed to properly supervise its brokers and had numerous chances to detect that Price and the other brokers were selling away into the PFG fund while claiming “preposterous” return rates.

Price was an FSC broker from 2006 to 2008. Prior to that he worked at Citigroup Global Markets (C) and Banc of America Investment Services (BAC). Last year, a federal judge sentenced him to 30 years behind bars for bank fraud.

Continue reading "FSC Securities to Be Held Accountable for $1.2M FINRA Arbitration Award Issued to Victims of Ponzi Scammer Who Faked His Death" »

August 14, 2015

Ex-Caldwell Broker is Barred by FINRA for Churning Accounts

The Financial Industry Regulatory Authority has permanently barred ex-Caldwell International Securities Corp. broker Richard Adams from the industry. Adams is accused of churning customer accounts.

According to FINRA, from July 2013 to June 2014, Adams engaged in excessive trading and churned the accounts of two customers, making close to $57,000 in commissions. The customers lost over $37,000 as a result.

Adams is also accused of not reporting numerous unsatisfied judgments and liens on his U4 Registration Form, which he is required to do under FINRA rules. By settling the civil case against him, Adams is not denying or admitting to the charges.

This type of illegal activity typically involves a broker engaging in the excessive selling or buying of securities in a customer account for the purpose of earning commissions. Signs of possible churning may include frequent in-and-out purchase and securities sales that appear unrelated to the customer’s investment goals.

Continue reading "Ex-Caldwell Broker is Barred by FINRA for Churning Accounts" »

August 4, 2015

Aegis Capital Fined $950K by FINRA Over Penny Stock Sales

Aegis Capital Corp. must pay $950,000 to resolve allegations that it engaged in the improper sales of billions of shares of unregistered penny stock. The securities case was brought by the Financial Industry Regulatory Authority last August. According to the self-regulatory organization, the New York-based brokerage firm facilitated a penny stock scheme that resulted in $24.5 million in customer profits and $1.1 million in commissions. Aegis is also accused of supervisory lapses related to anti-money laundering.

The SRO said that from April 2009 to June 2011 the brokerage firm liquidated about 3.9 billion shares of five penny stocks that were unregistered even though they should have been registered with the Securities and Exchange Commission. Also, FINRA contends, Aegis and compliance officers disregarded red flags related to the transactions.

For example, an ex-securities broker who was barred from the industry was the one who referred the customers involved to Aegis. This broker controlled the activity in a number of accounts at the firm. Without looking further into this questionable scenario, Aegis sold the unregistered shares.

Continue reading "Aegis Capital Fined $950K by FINRA Over Penny Stock Sales " »

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.


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

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