Articles Posted in FINRA

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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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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A Financial Industry Regulatory Authority hearing panel has barred New York broker Hank Mark Werner for excessive trading and churning in the accounts of an elderly, blind widow. Now, Werner must pay over $155K in restitution to his former client, disgorge more than $10K for commissions from recommending that she buy a variable annuity (VA) that was not suitable for her, and pay an $80K fine.

Werner is accused of employing an “active trading strategy” that allowed him to charge high commissions while making it “impossible” for her to “make money.” He was the broker of the widow and her blind husband, who died in 2012, for two decades.

According to the panel, the widow was in poor health and 77 years of age when he started churning her accounts after her husband passed away. FINRA, in its 2016 complaint, said that only was the client blind, but also she required in-home care. She relied on Werner to keep her abreast of her accounts.
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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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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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The Financial Industry Regulatory Authority has suspended broker Cecil Ernest Nivens for two years for allegedly causing harm variable annuity (VA) investors who were his customers. According to the self-regulatory organization’s filing, Nivens failed to abide by his firm’s written supervisory procedures when he didn’t properly process certain variable universal life purchase transactions as replacement trades even though he was the one who recommended that each purchase be paid for from an existing variable annuity fund.

Nivens earned over $185K in commissions for the variable annuity life purchase transactions, in addition to commissions he was already paid for the variable annuities when they were sold to the same customers. Now, Nivens must disgorge those commissions.

FINRA accused Nivens of causing “considerable” harm to customers. In addition to the excessive commissions, eight of his customers paid over $4K in unnecessary surrender charges. His former firm has paid over $55K to settle VUL fraud customer complaints involving him.

A Financial Industry Regulatory Authority arbitration panel has ruled that J.J.B. Hilliard, W.L. Lyons LLC must pay claimants Troy and Elizabeth Benitone $569K. Also known as Hilliard Lyons, the wealth investment firm is accused of overconcentrating the Benitones’ accounts in Breitburn Energy Partners stock.

The claimants, in their oil and gas fraud case, alleged breach of fiduciary duty, negligent misrepresentation and omission, common law fraud, breach of contract, and negligence supervision. The Benitones contend that Hilliard Lyons and its registered representative sold all of the claimants’ blue chip stocks, investing the money that was in their joint account and in Troy’s IRA in Breitburn. They lost $350K, with statutory damages at 10% on the purchase cost at $441K, from being overconcentrated in Breitburn.

The Benitones believe that it was the lack of diversification in their investments that put them at high risk of loss, especially as they had conservative investment goals and could not handle much risk at all. Also, Hilliard Lyons was the underwriter for the Breitburn Energy Partners stock.

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SEC Charges SunTrust With Collecting Over $1.1M in Excess Mutual Fund Fees

The US Securities and Exchange Commission has filed charges accusing SunTrust Investment Services of collecting over $1.1M in unwarranted fees from mutual fund clients. The SunTrust Banks subsidiary will pay an over $1.1M penalty to resolve the regulator’s civil charges.

According to the regulator’s order, SunTrust Investment Services improperly recommended costlier mutual fund share classes to clients when less expensive shares of these funds were available. The SEC says this was a breach of the investment services firm’s fiduciary duty to take actions in the client’s best interests.

Financial Adviser Who Bilked Athletes, Including Mike Tyson, is Sentenced
Former SFX Financial Advisory Management Enterprises financial advisor Brian Ourand is sentenced to thirty years behind bars after he bilked a number of professional athletes, including former heavyweight champion Mike Tyson, ex-NBA basketball players Glen Rice and Dikembe Mutombo, and others. Ourand must also pay back $1M of what he stole.

Not only is he accused of forging the pro athletes’ signatures on checks that he cashed but also of taking credit cards out against these clients’ accounts to cover his own spending, including restaurants, clothing, and other bills. SFX fired him in 2011.

In 2015, Ourand was charged with wire fraud, federal mail fraud, and aggravated identity theft charges. He pleaded guilty to one criminal count of wire fraud.

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The Financial Industry Regulatory Authority is barring Jaime R. Rodriguez, an ex-HSBC Securities (HSBC) broker, in the wake of a charge accusing him of bilking an older customer, who is also legally blind, of $200K. HSBC fired Rodriguez in 2014.

Rodriguez is accused of using about $70K of the client’s money in 2012 to buy an apartment that was supposed to be for the customer. However, because the man couldn’t read or see the documents related to the purchase, he did not know that Rodriguez had named himself as the sole beneficial owner.

According to InvestmentNews, Rodriguez met the man in 2010 and began helping him with his errands. Also in 2012, Rodriguez purportedly recommended to the client that they set up a joint account together so that the then-HSBC broker could assist him in paying his bills. The account was opened using about $42K of the client’s money and at one point it held $153K.

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