Broker Fraud

White House Looking At Whether Brokers Are Costing Workers Billions in Retirement Funds

Published on: January 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg News is reporting that according to a memo drafted by President Obama’s Council of Economic Advisers Chair Jason Furman, the White House may be pushing for tighter oversight over brokers who deal with retirement accounts. Furman noted that research shows that excessive trading, increased commissions, and other broker practices may be costing investors up to $17 billion a year-and that even this estimate may be conservative. His memo said that investors might be losing up to 10% of their long-term savings because they receive conflicted investment advice.

This could lead to a Labor Department regulation that would establish a fiduciary obligation requiring these brokers to act in the best interests of their clients. Right now, brokers are merely obligated to make sure that they reasonably believe they are making the right recommendation to a client.

Such a fiduciary duty rule is one that Bank of America Corp (BAC), Morgan Stanley (MS), and other firms have lobbied against. They contend that this type of regulation would not only be more expensive but also it would leave smaller investors with fewer investment choices.

SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales

Published on: December 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Vinay Kumar Nevatia with making fraudulent stock sales. According to the regulator, Kumar sold about $900,000 of stock in CSS Corp. Technologies Limited. The stock in the privately held data technology company supposedly belonged to him even though these were shares that he had already bought for other people a few years back.

The SEC claims Kumar conducted the sales via secret wire transfers, got the stock transfer agent to record the bogus transactions, and stole investors’ money to use as his own. He also purportedly gave the earlier share owners bogus updates about their investments even after he sold their stock off to others so that they would think that the shares still belonged to them.

Kumar is not registered with the Commission and he does not have a license to trade securities. He also is accused of using numerous aliases while residing in Palo Alto, Ca. The SEC is charging him with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. It wants Kumar to pay a financial penalty and give back ill-gotten gains. The regulator is also looking to get permanent injunctions.

Unregistered Florida-Based Broker Charged with Securities Fraud

Published on: November 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has charged Albert Scipione with securities fraud allegedly involving stealing investor money in a day trading scam. Scipione, who is an unregistered broker, has already pleaded guilty to criminal charges in a parallel case.

According to the SEC, Scipione and Matthew P. Ionno pursued investors to set up accounts at their Traders Café for day trading. This involved the swift selling and buying of stocks during the day to see if stock values will rise or fall while the stock is owned so a quick profit can be made. Traders Café, which belonged to two men, was never registered with the Commission as a brokerage firm.

Scipione purportedly pushed the company’s trading platform while making bogus misrepresentations to investors about high trading leverage, fees, commissions, and their assets’ safety. The regulator says that Scipione and Ionno raised over $500,000. Investors were told that their money would be only used for day trading or certain other specified uses. Instead, a lot of customers found that they couldn’t trade at all.

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.