Broker Fraud

Survey by FINRA Shows Investors Want More Regulatory Protections

Published on: November 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a Financial Industry Regulatory Authority-released survey of investors, 92% of participants believe that there needs to be a regulatory “cop” to protect investors. 94% said that regulators should use the latest technology and tools on the job. The survey is intended to evaluate how investors feel about regulatory protections.

1,000 investors participated in the survey. Overall, said the self-regulatory organization, investors were in strong agreement that regulation and investor protections are key. The majority of investors also said that it is important that regulators detect when customers are sold unsuitable securities, if brokers are making trades to their benefit rather than that of investors, and when firms are taking risks that could hurt customers. 74% of those surveyed said they are in support of additional regulatory protections against broker misconduct.

The Survey was conducted over several days last month. Respondents came from a nationally distributed online panel. They had to meet certain criteria: U.S. citizen, at least 21 years of age, with primary or shared responsibility in their home for investment choices, and at least $10,000 in securities investments.

Two Former Merrill Lynch Brokers Contend with Unauthorized Trading Claims

Published on: November 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to the Financial Industry Regulatory Authority (FINRA), Ameriprise Financial (AMP) broker Lorene Fairbanks, formerly with Merrill Lynch. Pierce, Fenner & Smith Incorporated, was recently sanctioned over allegations that she effected over 57 discretionary transactions for several customers without getting the required written authorization from the clients or the approval of the firm. Fairbanks also allegedly mismarked over 50 order tickets, noting them as “unsolicited” when they were “solicited” orders. Brokers are not allowed to exercise discretionary authority in a client account without written authorization.

The Ohio broker was registered with Merrill Lynch from 8/06 to 3/12. The firm fired Fairbanks in February 2012 for purportedly taking discretion in client accounts and mismarking customer orders. She has been associated with Ameriprise since June 2012. There also have reportedly been other customer complaints accusing Fairbanks of excessive trading and unsuitable trading.

Also sanctioned by FINRA for allegations of unauthorized trading is George Zaki, another ex-Merrill Lynch broker. The self-regulatory organization contends that Zaki implemented or executed about 3,600 trades in some 80 accounts without written customer authorization between 6/10 and 8/12.

FINRA May Expel Ex-Broker For $6M Hedge Fund

Published on: July 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Dean Mustaphalli, an ex-Sterne Agee Financial Services Inc. broker, could be barred from the industry over allegations that he ran a $6 million hedge fund on the side. According to the Financial Industry Regulatory Authority Inc., Mustaphalli founded and got commissions from Mustaphalli Capital Partners in 2011 but did not tell his brokerage-firm.

Already, Mustaphalli has been named in at least two arbitration claims. He ran the hedge fund through Mustaphalli Advisory Group. It is not known time whether any of the 25 investors he solicited were Sterne Agee clients. Over a four-month period, he was paid about $41,800 in management fees.

Mustaphalli was fired from Sterne Agee in 2011. After he was let go, he purportedly kept soliciting clients for his hedge fund through the investment adviser.

Broker Fraud: Ex-Investors Capital Rep. is Indicted in Ponzi Scheme, Credit Suisse Sues Two Ex-Brokers Over Client Data Theft, and SEC Files More Insider Trading in IBM-SPSS Acquisition

Published on: July 1, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Investors Capital Rep. Charged in $2.5M Ponzi Scam

Patricia S. Miller, a former Investors Capital Corp. representative, has been indicted on charges that she ran a $2.5 million investment fraud. She is accused of promising clients high yields for placing funds in “investment clubs.” Miller allegedly took this money and either gambled it away or used it to pay for her own spending.

According to prosecutors in Massachusetts, alleged fraud took place from 2002 through May 2014. Investors Capital fired Miller last month. Her BrokerCheck Report notes that the independent broker-dealer let her go because she allegedly misappropriated funds, borrowed client money, generated false documents, and engaged in “fraudulent investment activity.” Miller is charged with five counts of wire fraud.

SEC Chairman Mary Jo White Wants Reforms Made to Bond Market

Published on: June 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Securities and Exchange Commission Chairman Mary Jo White wants significant reforms made to the bond market. Speaking at the Economic Club of New York, White spoke about how trading in these fixed income markets are “highly decentralized.”

She expressed concern that technology was being used in these markets to make this decentralized approach to trading more beneficial for market intermediaries.

According to Reuters, White’s speech is a sign that the SEC is at last making an effort to implement recommendations it made in 2012 about the $3.7 million municipal securities market. The regulator is launching an initiative that would mandate that alternative trading systems and other electronic dealer networks make available to the public their best prices for municipal bonds and corporate bonds. This should give smaller retail investors, and not just certain select parties, pre-trading price data.

FINRA Deletes Certain Broker “Red Flags” From Records, Reports PIABA Study

Published on: March 7, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a Public Investors Arbitration Bar Association study, the Financial Industry Regulatory Authority “routinely” erases certain red flags in the records of brokers from its online BrokerCheck resource-the same tool that it tells investors to go to check on the history of financial representatives. The PIABA study looked at data about brokers found on FINRA’s BrokerCheck and compared it to other reports on the same reps, also from FINRA’s database but accessible in states that have strong freedom of information laws.

The group found that warning indicators pertaining to tests flunked by a broker, investigations into possible sales abuses involving securities, internal reviews for fraud, or regulation and rule violations could be accessed through the states but no longer through FINRA. PIABA says that other red flags that the SRO has deleted from BrokerCheck include failed qualifications tests, personal bankruptcy filings older than 10 years, and federal tax liens that have since been satisfied.

FINRA’s BrokerCheck

FINRA to Go After Rogue Brokers, & Includes REITs, Municipal Bonds, & Frontier Markets Among Its Enforcement Priorities for 2014

Published on: January 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is setting up a team made up of six members to look at stockbrokers with long records of investor complaints and violations, as well as those that engage in “cockroaching”-which involves brokers moving among beleaguered firms. The crack down comes amidst pressure from lawmakers on Capitol Hill.

According to an analysis of state securities records by The Wall Street Journal last year, between 2005 and 2012 there were over 5,000 licensed securities brokers who had worked with at least or more firms that had been expelled by FINRA. The analysis also revealed that there were brokers who, even in the wake of being targeted by numerous arbitration claims or having declared bankruptcy more than once, have managed to keep working in the industry.

FINRA announced this new initiative this week in a letter to approximately 4,180 broker-dealers that are registered with the SRO. It said it would use the Broker Migration model, a computerized analytic system, to look at brokers who have gone from an expelled brokerage firm to other firms.

Broker to the Stars” Broker Bambi Holzer is Barred from Securities Industry by FINRA

Published on: December 26, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring broker Bambi Holzer from the securities industry. Holzer is known for representing rich and famous Beverly Hills clients and many others.

Last week, Holzer who has been suspended by FINRA since September, settled with the SRO over the broker fraud charges. The regulator had sued her for allegedly lying to Wedbush Morgan Securities Inc., which is another former brokerage firm, about the net worth of a number of clients when she sold private placement offerings-Provident Royalties preferred shares-that ended up being part of a $485M Ponzi scheme. She is also accused of not reporting a pending regulatory action on her employment history.

Previously, Holzer and UBS PaineWebber Inc., which was another firm she was with, paid at least $11.4M to settle dozens of securities claims by investors accusing her of misrepresenting variable annuities by telling them they came with guaranteed returns. Holzer’s BrokerCheck report is 115 pages long.

Two Ex-JPMorgan Brokers Alleged Bilked Mentally Impaired Elderly Widow of $300,000

Published on: December 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring ex-JPMorgan Chase Securities, LLC (JPM) brokers Jimmy E. Caballero and Fernando L. Arevalo from the securities industry for allegedly stealing $300,000 from an elderly widow who suffers from diminished mental capacity. Although the bank reportedly was not involved in the misconduct, it has given the money that the two men had converted back to the senior investor

According to the SRO, in 2013 the elderly woman deposited about $300,000 in proceeds from two annuity sales into a bank account Arevalo had set up for her. The funds were then taken out of the account with the use of two cashier’s checks and Caballero purportedly placed the funds into a joint account that was under her name and his name at another bank. That institution asked for clarification and confirmation and Arevalo took the woman to the bank to confirm where the funds had come from. The money was then taken out of that account through checks issued to Arevalo and Caballero. Arevalo is also accused of using the account’s debit card to pay for retail purchase and loans for a car and real estate. The elderly widow had no idea these transactions were being made.

The SRO says the two men did not completely cooperate with its investigation. Without deny or admitting to the FINRA charges, Arevalo and Caballero are settling and consenting to the entry of findings.

Broker-Dealer National Planning to Pay $6.2M FINRA Arbitration Award to Two Minnesota Investors Over REITs

Published on: December 3, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel says that National Planning Corp. must pay a $6.2 million REIT arbitration award to Minnesota investors Stacy and Ronnie Erickson. The Erickson and trusts on their behalf accused the independent brokerage firm and its ex-brokers Christopher R. Olson of negligence, breach of fiduciary duty, misrepresentations, and industry rule violations involving real estate investment trusts.

According to the FINRA award, which doesn’t name the REITs that the Ericksons invested in, the claimants also invested in real estate investments in Waterway Holdings Group, which Olson and a Preferred Resource Group Inc. employee owned. Olson has since filed for bankruptcy and all claims against him have been halted. (Olson was allowed to resign from NPC after he failed to disclose his external business activities or the involvement of his clients in these undertakings. After he quit he registered with Berthel Fisher & Co. Financial Services Inc.)

The Ericksons say that in addition to becoming the victims of broker fraud, they had to fulfill outstanding loans on mortgages on the real estate investments to avoid foreclosure. They contend that Olson manipulated them into taking on significant debt, paying millions of dollars that they cannot get back, and annuitizing, liquidating, and structuring their investment assets that were for their retirement to pay back the “staggering” debt that resulted from the real estate investment recommendations.