Articles Posted in Financial Firms

Gregory Walsh, a former Morgan Stanley (MS) Assistant Vice President, is sentenced to two years in prison and three years’ supervised release. Last year, Walsh pleaded guilty to conspiracy to commit mail fraud and wire fraud that involved defrauding a firm client of $4.8M.

Court documents state that in 2011 Walsh and his brother, ex-Bank of Oswego VP Geoffrey Walsh, convinced a Morgan Stanley client who was newly widowe, to lend Geoffrey over $1.1M to buy three condos in Palm Springs that would be put in her name and then sold. Instead, Geoffrey made his business the title owner of the properties and did not give the widow the documentation for the title or loan. He then sold two of the properties without her consent or knowledge and used the money for his own expenses instead of giving her the funds. When Gregory Walsh discovered what his brother had done, he did not tell his client.

In 2013, the brothers sought $2M from her for a real estate development project. Gregory did not tell the widow that his brother was involved when she asked. He then withdrew funds from her Morgan Stanley account without her consent or knowledge. In 2013, $1.7M of that money was used to pay off a credit line at Bank of Oswego for Geoffrey, who spent the rest of her funds that had been withdrawn.

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In the criminal case brought against them, two ex-Morgan Stanley (MS) investment advisers, James S. Polese and Cornelius Peterson, have pleaded guilty to the criminal charges against them. Polese was charged with conspiracy, aggravated identity theft, investment adviser fraud, and multiple counts of bank fraud. Peterson is charged with conspiracy, investment adviser fraud, and bank fraud.

In a parallel civil case, the US Securities and Exchange Commission claims that beginning in 2014, the two men defrauded three clients of almost half a million dollars. The allegations include:

*Stealing almost $450K from one client and using the funds to make their own investments and pay for Polese’s credit card bills and the college tuition of his children.
*Using a client’s assets to obtain loan financing for an entity in which they were investors.
*Investing client monies in a venture in which they both had a financial stake without telling the client.
*Getting a loan with unfavorable terms for a client.
*Charging one client advisory fees that were 50% more than what he told her they would be.

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Beaumont, TX Investment Adviser is Suspended for 90 Days
In a Disciplinary Order, the Texas State Securities Board suspended former LPL Financial LLC (LPLA) investment adviser Jason N. Anderson for 90 days. The state contends that while registered with that firm, Anderson touted an active-trading program to clients that charged them unreasonable fees, which included commissions to Anderson, as well as trading costs.

For example, one client paid costs that were approximately 30% of “the value of the average equity securities” in the client’s account. The Texas regulator said that the trading program would have had to make “extraordinary returns” for investors to “offset” such fees or even, in some cases, allow them to merely “break-even.”

The order called the commissions and trading costs “inequitable practices” that violated the Texas Securities Act. The state accused Anderson of not having reasonable grounds for believing that the trading program would be appropriate for these clients.

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Two Brokers Barred After Not Appearing at FINRA Hearings
Guillermo Valladolid, an ex-Morgan Stanley (MS) broker, has been barred by the Financial Industry Regulatory Authority. According to the regulator, Valladolid did not show up at a hearing into whether, according to InvestmentNews, he “sold investments away from his employer” and neglected to disclose certain outside business activities.

Morgan Stanley terminated Vallodolid’s employment. Previous to that he worked with Merrill Lynch.

In a different FINRA case, the regulator barred another broker, Bradley C. Mascho, also after he did not appear at his hearing. Some of Mascho’s activities while at Western International Securities had come under question. The firm fired him last month, which is also when the US Securities and Exchange Commission filed fraud charges against Mascho and Dawn Bennett of the Bennett Group Financial and DJP Holdings. Mascho was CFO of the latter.

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The Financial Industry Regulatory Authority is ordering Citigroup Global Markets Inc. (CGMI) to pay $11.5M in restitution and fines to resolve charges accusing the firm of displaying “inaccurate research ratings” on over 1800 stocks—that’s more than 38% of the stock that CGMI covers. According to the self-regulatory organization, the result of the inaccurate ratings was that a lot of customers ended up buying shares they wouldn’t have purchased otherwise if the right information had been provided.

Citigroup settled the case without denying or admitting to wrongdoing. The alleged inaccurate ratings would have been issued between 2011 and 2015.

According to the self-regulatory organization, CGMI showed the inaccurate ratings not just to retail customers, but also to its brokers and supervisors. These inaccuracies were caused by errors in the firm’s electronic ratings data feed that it provides to its clearing firm. As a result: the wrong rating was displayed for certain securities, ratings for securities that CGMI did not cover were provided, and/or the ratings for securities that the firm did rate were not displayed at all. The research ratings on CGMI’s actual research reports, to which brokers had access, were not impacted by these mistakes.

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According to a recent CNBC investigation, not only did UBS Puerto Rico (UBS-PR) fail to disclose to investors the risks involved in the bond funds UBS pushed on the island’s residents, but also the brokerage firm neglected to fully apprise its own brokers of the incredible risks. While these findings are not new, the CNBC probe digs deeper into the matter.

The majority of these investors were island locals, who have now also been further devastated as a result of Hurricane Maria. Already, UBS has come under fire and paid hundreds of millions of dollars in securities settlements and awards from FINRA arbitration panels over losses investors sustained when these investments failed dramatically more than four years ago. UBS also has settled with regulators, including the U.S. Securities and Exchange Commission and FINRA, and paid over $60 million for its wrongful conduct and abuse of investors. The firm did not, however, deny or admit to wrongdoing.

UBS Executives Purportedly Knew Puerto Rico Bonds Would Fail
CNBC’s investigative team obtained approximately “2,000 pages of confidential documents” that display conversations and the “inner workings” between UBS executives in Puerto Rico and the U.S. mainland prior to the funds’ collapse. According to the documents, as far back as a year before the Puerto Rico funds failed, UBS management already knew that problems were brewing and they discussed what could happen if the firm did not deal with these issues immediately.

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Ex-Wells Fargo Brokers Barred Over Unsuitable Energy Securities Sales
The Financial Industry Regulatory Authority has barred brokers Charles Lynch and Charles Frieda for making unsuitable recommendations to investors, resulting in substantial financial losses to the latter. Lynch and Frieda are former Wells Fargo (WFC) representatives who were based in Southern California. Both Lynch and Frida were fired from the firm. Previous to working at Wells Fargo, both men worked at Citigroup (C) and Morgan Stanley (MS).

According to the self-regulatory organization, between 11/12 and 10/15, the former brokers recommended an investment strategy revolving around certain speculative energy stocks to over 50 customers. These securities were volatile. Because investors became very concentrated in these energy securities, they were placed at risk of substantial losses.

FINRA contends that the two brokers did not do a proper job of making sure these investments were suitable for the customers to whom they were recommending these securities.

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Ameritas Investment Corp. Must Pay $180K for Inadequate Supervision Involving VA Sales
The Financial Industry Regulatory Authority is ordering Ameritas to pay $180K for an inadequate supervisory system that oversaw its multi-share class variable annuity sales. The self-regulatory organization claims that between 9/2013 and 7/2015, the brokerage firm failed in its supervision of the VA sales and did not have adequate written supervisory procedures in place.

It was during this period that the firm sold almost 4,100 variable annuity contracts, making more than $58M in the process. 697 of the sales were L-share contracts, rendering approximately $11M. These types of contracts usually come with a shorter surrender period than the more common B-share contracts. FINRA believes that the broker-dealer failed to provide its registered representatives proper guidance on the different share classes that were for sale or on how to discern which ones would be best for each customer.

Fired Broker Will be Paid $3M by UBS
A FINRA arbitration panel is ordering UBS Financial Services (UBS) to pay $3M in compensatory damages to a broker that it fired. The Claimant, James L. Springer, had made numerous claims, including wrongful termination, emotional distress, negligence, unfair competition, breach of fiduciary duty, unpaid wages, and others.

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Wedbush Securities Accused of Failing to Oversee Owner, Who May Have Cherry Picked Investments
The NYSE Regulation has filed a disciplinary case against Wedbush Securities Inc. accusing the firm of not properly overseeing the trading activities of firm owner and principal Edward Wedbush. According to the complaint, Mr. Wedbush, “actively” managed and traded in over 70 accounts and he had limited power over attorney over the accounts of relatives, friends, and some staff members. NYSE contends that he was never properly overseen, which increased the possibility of conflicts and manipulation, including cherry picking. For example, the regulator believes that the inadequate supervision of Mr. Wedbush gave him the “unchecked ability” to give the best trades to family members and himself because there was no system in place to make sure trades were fairly allocated.

Wedbush Securities has previously been subject to at least $4.1M over supervisory deficiencies. Last year, the Financial Industry Regulatory Authority ordered Mr. Wedbush to pay $50K for supervisory deficiencies involving regulatory filings. He also was suspended for 31 days from serving as a principal.

Wedbush Securities has been named in investor fraud complaints over the handling of their money.

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Former Ameriprise (AMP) Jack McBride has been ordered by the Financial Industry Regulatory Authority to pay a $12,500 fine and serve a 40-day suspension over alleged violations involving margin trades. He was registered with Ameriprise from 1994 to 2014.

FINRA contends that it was during this period that he committed a number of violations, including settling a customer complaint without telling Ameriprise, sending emails that had inflated account values to two clients, and mismarking order tickets as unsolicited when they had been solicited.

Regarding the margin trade violations, the regulator notes in the Letter of Acceptance, Waiver, and Consent that McBride settled with one couple by sending them almost $12,845 from his personal account rather than reporting their complaint to Ameriprise. The couple was charged margin interest after incurring a margin balance because McBride mistakenly bought $320K in securities for them using their Ameriprise account that did not have the balance to cover the cost. They had multiple accounts with the brokerage firm.

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