Articles Posted in Broker-Dealers

If you are an investor that has lost money because of an unsuitable margin call in your investment account, you may have grounds for filing a Financial Industry Regulatory Authority (FINRA) arbitration claim to try and recover your losses. Unfortunately, a lot of investors may not understand what they are getting into when they open a margin account.

What is A Margin Account?

Margin accounts are not suitable for every investor, especially those that can’t handle too much risk. A customer that sets up with a margin account with a broker is indicating that he or she may want to borrow money later on down the road. With a margin account, you are essentially providing the securities and money in your margin account as collateral for this possible loan. Should you decide to borrow the money to buy securities, a broker is then allowed to sell your assets if necessary to fulfill the margin loan.

A Florida-based wealth management firm is once again in the headlines over its hiring of brokers with “checkered” pasts. According to a recent Business Insider article, International Assets Advisory (IAA), which oversees approximately $2.5B in customer funds, “proudly hires” brokers that other investment firms wouldn’t even consider, including some with previous offenses on their record.

According to IAA president Ed Cofranceso, the firm’s hiring strategy lets him access a bigger talent pool while allowing some of those whom he employs to get a “second chance.” Cofranceso called his approach “American” and “Christian” and noted the adage about how every story has two sides. For example, the Business Insider article notes, one of the brokers that IAA hired had been fined and fired because his previous firm made him sell “bad products” to investors.

One headhunter interviewed for the news article notes that while the majority of employers will instantly nix any prospective applicants who respond “yes” to even one of nearly six dozen questions on the Financial Industry Regulatory Authority’s (FINRA) U4 registration form, IAA won’t disqualify these individuals right off the bat. Questions asked include whether applicants have been charged for misdemeanors or felonies and if they’ve ever had any “run-ins” with regulators. According to IAA General Counsel Myra Nicholson, candidates with such disclosures whom IAA eventually hires usually have to go through an “on-the-job” audit and may also be subject to more monitoring and certain restrictions.


Lincoln Investment Planning to Pay Clients For Not Giving Discounts on Mutual Fund Shares

FINRA is ordering broker-dealer Lincoln Investment Planning to pay $1.37M to clients to whom it did not give the discounts they were entitled to when they purchased mutual fund A shares between 1/2011 and 6/2018.

The self-regulatory organization contends that the firm placed certain charitable organizations and retirement plan customers at a disadvantage by charging them a front-end sales charge even when they qualified to not pay the fees.

The Financial Industry Regulatory Authority has barred three brokers in separate, unrelated cases for alleged misconduct. They are ex-Morgan Stanley (MS) representative Thomas Alain Meier, ex-Fortune Financial broker Michael Giokas, and ex-Northwestern Mutual broker Michael Cochran.

Former Morgan Stanley broker Thomas Alan Meier is accused of making unauthorized trades in customer accounts. In the self-regulatory organization’s letter of acceptance, waiver, and consent, FINRA stated that from 7/2012 through 3/2016, Meier “effected” over 1000 transactions that were not authorized in six customers’ accounts. His allegedly unauthorized transactions involved discretion without written permission or the accounts garnering discretionary acceptance and impacted four clients.

Between 4/2016 and 10/2017, Morgan Stanley submitted 21 amended Forms U5 for Meier. The forms showed that 14 customer complaints were filed against Meier, including two arbitration cases. AdvisorHub reports that because of Meier’s alleged misconduct, customers sustained $818K in losses and over $2M in unrealized losses. To date, the brokerage firm has paid customers about $2.5M in settlements and resolved 13 of the claims.

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FINRA Arbitration Panel Awards Allegis Investment Advisors Client $404,482

A Financial Industry Regulatory Authority arbitration panel has awarded Mark Watson $404,482 in his unauthorized trading case against Allegis Investment Services, Allegis Investment Advisors, and ex-broker Brandon Curt Stimpson. Watson is accusing Stimpson of placing his life savings in investments that were too risky and complex and of making unauthorized trades involving index put options connected to the Russell 2000 Index even though he had told the broker that he only wanted up to 25% of his portfolio involved in these. Instead, Watson alleges, Stimpson invested way more of his money in the index put options.

In his securities arbitration case, Watson also alleged breach of fiduciary duty. Now, a FINRA panel has awarded him nearly $275K in compensatory damages, nearly $54K in interest, and other costs.

Stimpson was fired by Allegis last year for not abiding by the firm’s ethics code and policies. According to his BrokerCheck records, he has been named in eight other customer disputes.

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The US Securities and Exchange Commission has filed charges against four former brokers for allegedly persuading federal employees to roll over holdings from federal retirement accounts into variable annuity products that charged higher fees. Their targets were Thrift Savings Plan (TSP) participants. The plan is administered by the Federal Retirement Thrift Investment Board, which is an independent government agency.

According to the regulator’s broker fraud case, then-brokers Jonathan Cooke, Christopher Laws, Brandon Long, and Danny Hoode promoted the VA products under the Federal Employee Benefits Counselors because they wanted the high commissions. Their alleged victims were federal employees who were 59 ½ years of age and older and with TSP account holdings that could be moved over into variable annuities, tax-free, in certain plans at annuity carriers.

Ex-Brokers Made High Commissions From the Alleged Elder Investor Fraud

The Financial Industry Regulatory has barred Lawrence M. Thomas, an ex-Woodbury Financial Services Inc. broker who was under investigation for unauthorized product sales. Thomas was previously registered with Essex Securities.

Last year, Thomas was fined $5K and suspended for three months after he consented to findings that he told an assistant to forge three customers’ signatures on about 10 documents. FINRA had been looking into whether Thomas recommended to Woodbury clients that they purchase an unauthorized product. The self-regulatory organization barred him after he failed to testify in FINRA’s investigation into the claims.

In an unrelated FINRA case, the SRO has filed charges against Kim Dee Isaacson, an ex-Morgan Stanley (MS) broker, for allegedly misleading a client about the size of his account, engaging in unauthorized trading, and attempting to resolve these issues directly with the client instead of along with the firm. According to FINRA, Isaacson told the client that the account was valued at $3.1M even though that was false.

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In interviews with Reuters, the Financial Industry Regulatory Authority admitted that even though investors are harmed when broker-dealers hire brokers with checkered histories, there is not much that the regulator can do to stop this practice because it is not illegal. This is undoubtedly causing even more investors to suffer losses as some of these high-risk brokers continue to engage in more misconduct or other violations at their new places of work.

For example, reports the news agency, since 2007 broker Mike McMahon and brokerage firms where he has worked, including National Securities Corporation, have shelled out $1.35M to resolve 10 client cases in which he was purportedly involved. McMahon is currently contending with another four broker fraud cases that were brought by other ex-clients.

One of the reasons the complaints keep coming is because he has been able to move from one firm to another even with the cases that have already been brought against him. Unfortunately, McMahon is not the only one.

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The US Securities and Exchange Commission has filed charges against broker Demitrios Hallas accusing him of making unsuitable investments in five clients accounts and misappropriating over $170K from these customers. The regulator is seeking a permanent injunction and the return of ill-gotten gains, along with interest and penalties.

According to the SEC, Hallas repeatedly traded investments that were not appropriate for these customers. In just over a year, the broker allegedly traded 179 daily leveraged ETFs and ETNs. both of which are generally “risky, complex, and volatile.” The net loss involving all positions was about $150K.

His customers were not experienced or sophisticated investors and they could not handle the degree of volatility and risk to which he exposed them. Meantime, Hallas made about $128K in fees and commission.

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Investor Awarded Over $1M After Allegedly Misleading Sales Pitch by Wilbank Securities Broker

A Financial Industry Regulatory Authority panel has awarded investor Grace S. Huitt over $1 million in her broker fraud claim against Wilbanks Securities. According to Huitt, one of the firm’s brokers presented her with a sales pitch about the ING Landmark Variable Annuity that not only was misleading but also promised too much and then under-delivered. She alleged breach of contract, fraud, breach of fiduciary duty, and negligent supervision.

Huitt claims that when she bought the variable annuity in 2008, she was told that it came with a guaranteed 7% compound yearly return. Other investors who also had made investment puchases through Wilbanks Securities reportedly claimed similar problems with what they were promised.

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