Financial Firms

Financial Firm News: Raymond James Fined $2M Over Email Supervision, FinMa Finds JPMorgan Chase Responsible for Anti-Money Laundering Violations, and Bank of America, Wells Fargo, Citigroup, and Other Big Banks Get Federal Approval for Their Living Wills

Published on: December 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Raymond James Financial to Pay Fine to FINRA Over Email Communications

The Financial Industry Regulatory Authority has fined Raymond James Financial Services (RJF) $2M for not maintaining supervisory systems and procedures that were “reasonably designed” enough to oversee emails. The firm settled the case but without denying or admitting to the charges. It also agreed to a risk-based retrospective review of past emails for potential violations.

FINRA examined Raymond James’ email system “during a nine-year review period.” According to the self-regulatory organization, the system had significant flaws that allowed email communications to not undergo “meaningful review.” As a result, “unreasonable risk” was created that could have allowed for “certain misconduct” to go undetected. Also, the firm did not assign enough resources or staff to the team tasked with evaluating emails that had been flagged by the system, even as the number of flagged correspondence grew in volume.

FINRA said that Raymond James “unreasonably excluded” certain personnel who worked on customer brokerage accounts from “email surveillance.” The SRO claims that the emails of 300 registered representatives who were employed in branches with their own email servers were not subject to the “lexicon” of phrases and words for detecting emails that might merit review for potentially suspect conduct.

UBS Did Not Fully Disclose the Risks Involved in Puerto Rico Bond Funds to Investors and Brokers, Reports CNBC

Published on: December 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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.

FINRA Cases: Ex-LPL Broker is Barred for Not Disclosing Role in Private Securities Transactions, Merrill Lynch is Fined $1.4M For Extended Settlement Transactions, and Noble Capital Markets Agrees to Pay $225K for Failing to Disclose Conflicts to Investors

Published on: December 19, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former LPL Broker is Barred For Not Disclosing Private Securities Sales

The Financial Industry Regulatory Authority announced a bar against Leslie Koonce, an ex-LPL(LPLA) broker. According to the self-regulatory organization, Koonce lied when he failed to disclose that he had engaged in private securities sales. Koonce allegedly pitched a private company’s convertible promissory notes to at least 30 potential investors.

The FINRA case contends that not only did Koonce help facilitate the transfer of $175K to at least three LPL customers so they could invest in the private securities, but also, he invested $50K of his own funds. All the while, said the SRO, Koonce failed to notify LPL in writing of his involvement in these transactions. When he filed out compliance questionnaires twice in 2012, Koonce denied any involvement in these types of transactions.

LPL fired Koonce in 2015. He later went to work with Cetera and then EK Riley Investments. The ex-broker no longer works in the securities industry.

Securities Fraud: FINRA Bars Two Ex-Wells Fargo Brokers Over Unsuitable Securities Sales, Pennsylvania-Registered Representative is Accused of $2.35M Ponzi Scam, and Digital Display Ad Company Allegedly Stole Over $2M from Retail Investors

Published on: December 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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.

Ameriprise Ordered to Pay $8M Over F-Squared Alpha Sector Strategy Sales

Published on: December 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has imposed a $1.75M penalty on Ameriprise (AMP) related to its sale of F-Squared Alpha Sector strategies. The financial firm must also disgorge $7.3M.

According to the regulator, F-Squared Investments made mistakes when calculating the historical performance of its Alpha Sector investment strategies. These sector rotation strategies were predicated upon the use of an algorithm that gave off a “signal” noting whether to sell or purchase certain exchange-traded funds that collectively comprised the industries in the S & P 500 Index.

However, claimed the regulator, F-Squared erred when it implemented these signals prior to when they could have happened. The Commission accused the firm of employing back-tested and hypothetical historical performance data that was inflated, rather than using what the AlphaSector’s performance would have been if there hadn’t been any signal-related errors, to come up with the investment’s track record.

Securities News: Whistleblower is Awarded $4.1M, FINRA Bars Former UBS Broker Who Managed High Net Worth Investor, and Microcap Company Is Accused of Fraud

Published on: December 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

SEC Awards Whistleblower $4.1M
A company insider who notified the US Securities Exchange Commission about a “widespread, multi-year securities law violation” involving the employer, is getting a $4.1M whistleblower award. The individual, who is a foreign national employed abroad, also provided information and help during the regulator’s probe. Further details about the case have been kept confidential so as to protect the confidentiality and anonymity of the whistleblower.

This is the third whistleblower award issued this month by the SEC. The regulator awarded two other people $8M each for their help in another successful enforcement action.

To date, the SEC whistleblower program has awarded 50 whistleblowers over $179M.

Securities Firms: JP Morgan Securities to Pay $1.25 For Inadequate Background Checks of Thousands of Employees and Gray Financial Group Settles with SEC Over Unsuitable Investments to Pension Funds

Published on: November 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Orders JPMorgan Securities to Pay $1.25M
The Financial Industry Regulatory Authority said that J.P. Morgan Securities LLC (JPM) will pay $1.25M for not conducting proper background checks—or, in certain instances, conducting them but not in a timely enough manner—from 1/2009 through 5/2017 on 8,600 of its associated persons that were non-registered. According to the self-regulatory organization, this included the failure to properly fingerprint about 2,000 non-registered associated persons. The lapses kept the brokerage firm from knowing whether these individuals should be disqualified from employment.

Meantime, other non-registered associates persons who were fingerprinted were only screened for criminal convictions as they related to federal banking laws, as well as to list that was “internally created.” Still, said FINRA, four people who warranted disqualification due to a prior criminal conviction were allowed to work as non-registered associated persons.

Under federal securities laws, breakage firms must fingerprint certain associated staff even if they are employed in a non-registered manner because they could still pose a risk to customers otherwise. Fingerprinting allows for the identification of folk convicted of past crimes that may disqualify them from working for a firm in an associated role.

Credit Suisse Resolves NY Regulator’s Forex Rigging Probe for $135M

Published on: November 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Credit Suisse AG (CS) has agreed to settle currency rigging charges brought by New York’s Department of Financial Services by paying $135M. According to the state regulator, from at least ’08 to ’15, the Zurich-based bank violated NY banking law and engaged in other “unlawful conduct” that “disadvantaged customers.”

The consent order states that Credit Suisse did not put into place controls over its FX business that were “effective.” Also, its traders are accused of the “inappropriate sharing” of information with other banks that could have resulted in exchange rate rigging, coordination of trades, and a rise in the “ bid/ask spreads” that were offered to the bank’s forex customers. The DFS probe said that these actions were geared toward creating more profit for Credit Suisse, while decreasing its losses and harming not just its own customers but the marketplace. Meantime, other banks that it may have colluded with also sought to profit.

Credit Suisse is one of several banks whose traders are accused of gathering in chat rooms to rig currency prices. According to Bloomberg, traders from Barclays PLC (BARC), JPMorgan Chase & Co. (JPM), and Citigroup (C) are waiting for their trials over allegations that they sought to manipulate currencies. To date, banks accused of currency rigging have paid $5.8M to the US Justice Department to settle charges.

SEC Orders Wells Fargo Advisors to Pay $3.5M Penalty

Published on: November 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is ordering Wells Fargo & Co.’s (WFC) wealth management unit to pay $3.5M for alleged anti-money laundering reporting violations. Wells Fargo Advisors agreed to pay the penalty. It is settling the charges but without denying or admitting to the regulator’s findings.

According to the SEC, starting in early 2012, new bank managers started pressing compliance officials to cease in their submission of suspicious activity reports. The failure to file these SARs reports, or delay them, reportedly occurred 50 times in a little over a year and involved accounts for international customers who were previously named in such reports.

Federal law mandates that broker-dealers notify the U.S. Treasury Department’s Financial Crimes Enforcement Network about any transactions of at least $5K that they believe may involve illegal activity. The regulator blames a “new senior manager” that was hired in the brokerage firm’s compliance group and placed in charge of the anti-money laundering program.

Criminal Securities Fraud: Ex-ARCP CFO Sentenced to 18 Months for REIT Scam, Former Merrill Lynch Broker Pleads Guilty Over Excessive Commissions, and Businessman Convicted For Defrauding Washington Mutual Bank

Published on: November 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-American Reality CFO to Go to Prison for 18 Months

In Manhattan, a US District Court Judge has sentenced Brian Block to 18 months behind bars. Block, who was the CFO of American Realty Capital Properties, was found guilty of fraud when he inflated the financial statements of the real estate investment trust.

Prosecutors accused Block of inputting bogus figures when preparing the REIT’s financial reporting. He allegedly did this to hide a calculation mistake that occurred in an earlier financial report.

Following the disclosure of the accounting misstatements, American Realty’s share price plunged, taking with it over $3B of the REIT’s market worth. It was in late 2014 that the REIT announced that employees had purposely hidden accounting errors.

The REIT’s ex-chief accounting officer, Lisa McAlister, has also pleaded guilty to charges over this matter.