Financial Firms

SEC Charges Ex-LPL Financial Adviser With Defrauding Investors of $2M

Published on: May 28, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Blake Richards, a former LPL Financial LLC adviser, is now facing Securities and Exchange Commission charges for allegedly defrauding investors and misappropriating about $2 million from at least seven customers. Most of the funds that were misappropriated were life insurance proceeds from dead spouses and retirement funds. Last week, the regulator filed an emergency action asking a judge for a temporary restraining order, which was granted. Now, Richard’s assets have been frozen.

Per the SEC, Richards told investors to write checks to BMO Investments and Blake Richards Investments, which he controlled. They expected that he would put their money in variable annuities, fixed income assets, and common stock. Instead, contends the agency, none of these investments were ever executed and Richards allegedly took the money and used it for his personal spending.

The Commission is accusing Richards of violating the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The SEC is also alleging Investment Advisers Act of 1940 and the Advisers Act violations.

Investor in Goldman Sachs Special Opportunities Fund 2006 to Get $2.5M FINRA Arbitration Award For Allegedly Unsuitable Investment

Published on: May 27, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Panel is ordering Goldman Sachs & Co. (GS) to pay about $2.5M to Tracy Landow for recommending that she invest in the Goldman Sachs Special Opportunities Fund 2006, which she is now contending was an investment that was not appropriate for her. Landow filed her arbitration claim against the unit and her broker a couple of years ago, claiming that unauthorized trades were made. She also alleged misrepresentation and failure to supervise.

The FINRA arbitration panel determined that Goldman liable, ordering the financial firm to compensate the claimant with $1.6M in damages plus about $1M in interest and additional fees. Broker John D. Blondel, Jr., however, was not found responsible. The panel determined that he did not play a part in the alleged investment sales-related violation, theft, forgery, misappropriation, or fund conversion and he was not accountable for the private equity fund and the transactions that resulted. It is recommending that his name be expunged from the case.

Meantime, Landow’s interest in the fund will go back to the financial firm within 30 days from the award date.

Berthel Fisher, VSR Financial Services, & Cetera Financial Modify the Way They Sell Nontraded REITs and Other Alternative Instruments

Published on: May 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Investment News is reporting that in the wake of pressure from regulators, Berthel Fisher & Co. Financial Services Inc., Cetera Financial Group Inc. and VSR Financial Services Inc., are modifying the way they sell specific alternative investments, including nontraded real estate investment trusts, by revising current policy or including no procedures and guidelines. According to executives at the three brokerage firms, they want add liquid alternative choices to their platforms while staying mindful of the issues that regulators recently addressed.

These types of financial instruments are in demand due to their higher yields, especially as traditional investment interest rates for retirees stay low due to the Federal Reserve’s policy. According to VSR chairman Don Beary, Following recent FINRA’s ‘senior sweep,’ his brokerage firm is now more careful about what senior citizens can invest in. VRS’s registered representatives have just been notified about the new illiquid alternative investment sale guidelines, which include a 35% of illiquid investment limit for older clients’ accounts-down from 40-50% previously. Also, for clients in the 70 to 75 age group, they will be allowed to possess no more than 25% of illiquid investments in their portfolio. Clients in the 75 to 84 age group have a 15% limit, while customers older than that will not be allowed to make own any illiquid investments.

Meantime, Centera hasn’t modified customer allocations percentages , but it has enhanced its representative training requirements for representatives that sell illiquid investments and brought in more employees to conduct product due diligence.

FINRA Orders LPL Financial to Pay $7.5M Over Allegedly Inadequate Supervision of E-Mails

Published on: May 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In what is being called the SRO’s largest fine to date over e-mail violations, the Financial Industry Regulatory Authority announced that it is fining LPL Financial LLC $7.5 million over 35 key e-mail system failures. The financial firm also has to set up a $1.5 million fund to compensate customers that may have been impacted. That is a total of $9 million.

According to FINRA, the e-mail and retention issues took place between 2007 and 2013, with LPL’s systems failing a minimum of 35 times. The brokerage firm allegedly did not fulfill its duty to supervise representatives, capture email, and answer regulator requests.

For more than four years, LPL purportedly did not supervise 28 million business emails that involved thousands of independent contractor representatives. The broker-dealer also is accused of making misstatements to the SRO during the latter’s investigation into the matter (email systems failures made it impossible for the firm to give over certain documents).

Ameriprise Financial, Securities America, & Three Other Brokerage Firms Reach $9.6M Non-Traded REIT Securities Settlement with Massachusetts Financial Regulator

Published on: May 22, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Secretary of the Commonwealth of Massachusetts William Galvin announced today that the state has reached a $9.6M securities settlement with five independent brokerage dealers-Ameriprise Financial Services Inc. (AMP), Commonwealth Financial Network, Lincoln Financial Advisors Corp., Royal Alliance Associates Inc., & Securities America Inc.-over the allegedly inappropriate sale of nontraded real estate investment trusts to investors. $8.6M of this is restitution to them.

Galvin says that the investigation, which was triggered by complaints from customers, led to the discovery of a “pattern of impropriety” in the sale of these securities by independent broker-dealers where supervision has been hard to “maintain.” As part of the nontraded REIT settlement, Ameriprise will pay $2.6 in restitution and a $400K fine, Securities America will pay $778K in restitution and a $150K fine, Royal Alliance will pay $59K in restitution and a $25K fine, Commonwealth Financial Network will pay a $2.1M restitution and a $300K fine, and Lincoln Financial will pay a $504K restitution and a $100K fine.

The non-traded REIT agreement with these independent brokerage firms comes just three months after Galvin settled a similar securities fraud case with LPL Financial Holdings Inc. accusing that financial firm of inadequately supervising their brokers tasked with selling the financial instruments. LPL Financial agreed to pay $2.5M in restitution and a $500K administrative fee over seven nontraded REITs that were sold.

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures

Published on: May 22, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that LPL Financial LLC must pay a $7.5 million fine for inadequately supervising more than 28 million business emails between 2007 and 2013. This is the largest fine the SRO has ever imposed over an e-mail case.

According to FINRA, LPL’s systems for overseeing and storing e-mails failed a minimum of 35 times. It contends that the firm did not succeed in fulfilling its duty to retain e-mails, supervise its representatives, and properly respond to requests by regulators. The SRO attributes these problems to the brokerage firm’s failure to put enough resources toward updating its e-mail system as its business grew quickly.

Among the e-mail failures:

Morgan Stanley Hit with $5 Million Securities Fraud Lawsuit Involving Alleged Superannual Account Losses Related to Risky Option Trading

Published on: May 18, 2013 | by Shepherd Smith Edwards & Kantas, LLP

In Australia, two Morgan Stanley (MS) customers are suing the financial firm for $5 million because they say that is much their superannual accounts lost because of alleged misrepresentations made by broker Kate Kearney. Helen Sedman, 74, and Sally Middleton, 61, claim that Kearney deceived them into thinking that an option trade that they made was low risk.

Middleton and Sedman are business partners. They believe that because of the high-risk option trade and fees they had to pay, over 97% of Middleton’s account was wiped out (from $1.2 million to $34,000), while Sedman’s went down 90% (from $4.8 million to $950,000) in just eight weeks. The plaintiffs say they paid Morgan Stanley $1.1 million in fees.

According to the women’s securities attorney, the business partners wanted long-term safe investments for their super funds. Instead, what they purportedly got was an “aggressive” trading plan that cost them close to $5 million, while Kearney earned $379,000 in commissions from Sedman and $188,000 from Middelton. Their lawyer says that because of Kearney’s reassurances, their lack of knowledge about how much risk was really involved, and their difficulty in fully comprehending their trading position, they ended up moving forward with trades that they otherwise would not have gotten involved in.

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases

Published on: May 16, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to California Attorney General Kamala Harris, JP Morgan Chase (JPM) filed about 100,000 credit card debt collection lawsuits between 2008 and 2011 without conducting sufficient research to properly assess the cases’ merits. The bank reportedly submitted 200 lawsuits over 15 weeks in 2011, including 32 lawsuits on January 5, 2011. Now, Harris is suing the banking giant, accusing it of “debt collection abuse” while victimizing tens of thousands of state residents.

Per the complaint, Chase prioritized saving money and speed, even “robo-signing” legal documents without sufficiently evaluating the evidence and engaging in other “unlawful practices.” The state points to questionable documents and incomplete records that were purportedly used to back up the cases. Harris, who contends that JPMorgan’s “debt collection mill” abused the state’s judicial process, wants damages for borrowers.

Meantime, JPMorgan is cooperating regulators, including the Office of the Comptroller of the Currency, which is getting ready to file an enforcement action against it ,also over its handling of credit card debt collection. The firm reviewed its debt collection procedures in 2011 and it is no longer filing credit card lawsuits.

SEC Roundup: Regulator Addresses CDS Portfolio Margin Program & Ex-Commission Officials Want DC Circuit to Grant SIPC Protection to Stanford Ponzi Scam Victims

Published on: May 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Commission Officials, Others Want DC Circuit to Grant Stanford Ponzi Scam Victims SIPC Protection

Former SEC Officials, law professors, and trade groups are among those pressing the U.S. Court of Appeals for the District of Columbia Circuit to reject the regulator’s bid to compel Securities Investor Protection Corporation coverage for the investors who were bilked in R. Allen Stanford’s $7 billion Ponzi scam. Inclusion under the Securities Investor Protection Act would allow the fraud victims to obtain reimbursement for losses.

However, SIPC, which is a federally mandated non-profit corporation, doesn’t believe that the Stanford investors, who purchased certificates of deposit from Stanford International Bank Ltd. in Antigua, fall under this protection. Following a failure to act on the SEC’s request to initiate liquidation proceedings for brokerage firm Stanford Group Co., the regulator asked the court for a novel order that would make the organization comply.

Wells Fargo Settles Securities Lawsuit Over Medical Capital Holdings Ponzi Scam for $105M

Published on: May 11, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo & Co. (WFC) has consented to pay $105M to investors of the now failed Medical Capital Holdings Inc. The bank had served as trustee for Medical Capital securities.

The medical receivables financing company got about $2.2 billion from thousands of investors between 2001 and 2009 via the private placement offerings that were promissory notes. The private placement was a high commission financial instrument that promised annual returns of 8.5% to 10.5%. Per court filings, investors paid Medical Capital nearly $325 million in administrative fees. Dozens of independent brokerage firms sold the notes.

It was in 2009 that the SEC accused affiliates of Medical Capital of committing securities fraud against investors. The financial scam was quickly shut down and the company soon entered receivership but investors got back just half their money. Many of them would go on to file a securities lawsuit against trustees Bank of New York Mellon Corp. (BK) and Wells Fargo accusing the financial firms of failing to fulfill their role as trustees by neglecting to detect the fraud. Meantime, many of the brokerage firms that sold the MedCap notes are no longer in business because they sank from the securities arbitration payments and legal costs that followed as a result.