Articles Posted in RBC Capital Markets Corp.

RBC Capital Markets Settlement With FINRA Includes a Fine and Restitution 

RBC Capital Markets has reached an agreement with FINRA in which the broker-dealer will pay $1M to resolve allegations of overconcentration in customers’ accounts involving high-yield bonds. Without denying or admitting to the self-regulatory organization’s (SRO’s) findings, RBC consented to a censure, a $550K fine, and more than $456K in restitution. 

According to FINRA, the brokerage firm did not identify over 100 client accounts with conservative profiles that should have been reviewed for a possible unsuitable concentration of high-yield bonds. 

New York Investment Advisor Has Several Customer Disputes on His BrokerCheck Record 

Brian Wurdemann, an RBC Capital Markets registered representative, is named in a still-pending customer dispute in which the customer is seeking $1M in damages. The claimant contends that Wurdemann misrepresented three mutual funds, first while he was a UBS broker up through when he went to work at RBC Capital Markets.  

This is one of several customer disputes involving Wurdemann, including one from 2004 that appears to still be pending. 

Connecticut Investment Advisor is Also Part of RBC Team Chu, Philipps, and Associates  

Joseph Ijong Chu, an RBC Capital Markets stockbroker, has been named in a number of customer disputes this year. Chu is also a registered investment advisor with the broker-dealer. He is part of the RBC  team known as Chu, Phillips, and Associates, which offers products and services through City National Bank in Stamford, Connecticut. 

Chu’s customers are blaming him for the investment losses they suffered when he allegedly overconcentrated their accounts in risky oil and gas investments that were unsuitable for them. 

The Financial Industry Regulatory Authority is ordering RBC Capital Markets to pay restitution to customers for supervisory failures that allowed for the sale of reverse convertibles that were unsuitable for them. The firm must pay them about $434,000 plus a $1 million fine.

According to the self-regulatory organization, RBC Capital Markets lacked supervisory systems that were reasonably designed to identify transactions that warranted review when the reverse convertibles were sold to customers. This purported inadequacy is s a violation of FINRA’s rules and suitability guidelines.

Although RBC had guidelines for selling reverse convertibles, specific criteria were established regarding annual income, investment goals, liquid net worth, and investment experience. Because of this, the firm was unable to detect the sale of 364 reverse convertible transactions by 99 of its registered representatives. The transactions involved 218 accounts and they were not suitable for the account holders. The customers lost at least $1.1 million.

The Financial Industry Regulatory Authority and the RBC Wealth Management-acquired Ferris, Baker Watts LLC have agreed to settle charges that the latter engaged in the unsuitable sales of reverse convertibles to elderly clients in the 85 and over group, well as in the inadequate supervision of such notes to retail customers. By agreeing to settle, the investment firm is not agreeing with or denying the allegations.

The alleged misconduct took place prior to RBC acquiring Ferris, Baker Watts. As part of the settlement, the brokerage firm will pay close to $190,000 in restitution to 57 account holders for financial losses related to their purchase of reverse convertibles.

FINRA says that between January 2006 and July 2008, Ferris, Baker Watts allegedly sold reverse convertible notes to about 2,000 retail investors while failing to properly supervise and guide its supervising managers and brokers on how to determine whether their recommendations of the notes were suitable for clients. The investment firm is also accused of not having a system in place that could effectively monitor, detect, and handle possible reverse convertible over-concentrations.

In its release announcing the settlement, FINRA cites one example involving Ferris, Baker Watts selling five reverse convertibles in the amount of $10,000 each to an 86-year-old retired social worker. These notes represented between 15% to 25% of her investment portfolio at different times. FINRA says that for another client, the investment firm sold five notes to a 20-year-old who was making under $25,000 a year. This investment was 51% of the client’s retirement account.

Related Web Resources:
FINRA Orders Ferris, Baker Watts to Pay Nearly $700,000 for Inappropriate Sales of Reverse Convertible Notes, FINRA, October 20, 2010

Finra fines RBC Wealth unit over brokers’ sales of ‘unsuitable’ investments, Investment News, October 20, 2010 Continue Reading ›

RBC Capital Markets Corp., Equity Station Inc., Fagenson & Co. Inc., Olympic Securities LLC, and Alpine Securities Corp. have consented to pay $385,000 to settle Financial Industry Regulatory Authority that they sold collectively over 7.5 billion in “unregistered” penny stock in Universal Express Inc. shares and made about $8.4 million as a result. By settling, the broker-dealers are not agreeing to or denying the securities fraud accusations.

FINRA says that “in each instance” the investment firm’s clients deposited certificates that consisted of huge blocks of thinly traded securities and then liquidated the positions right away. The firms conducted the sales even after a 2004 Securities and Exchange Commission complaint accused Universal Express of illegally issuing over 500 M shares in unregistered stock to be distributed to the public. The SEC claimed the company’s leaders put out bogus press releases and false and misleading statements to promote the sale of the unregistered stock.

According to FINRA:

• RBC Capital Markets reported making $68,000 in commissions from the unregistered stock sale. The broker-dealer has consented to a $135,000 fine.

• Equity Station made $13,575 in commissions. The investment firm is fined $25,000.

• Fagenson & Co. has agreed to a $165,000 fine and made $44,000 in commissions.

• Olympic Securities is fined $20,000 after making $5,200 in commissions.

• Alpine Securities is fined $40,000 for earning $13,575 in commissions.

FINRA says that even with numerous red flags, all five firms did not take the necessary actions to find out whether selling the securities would violate violating federal registration requirements. FINRA contends that when the five broker-dealers conducted the majority of the illegal unregistered stock sales the SEC had either began or won its case against Universal Express, which was eventually sanctioned almost $22 million.

Related Web Resources:
FINRA Fines Five Firms $385,000 for Sale of Unregistered Securities, Other Violations Relating to Penny Stocks, FINRA, April 27, 2010
Regulatory Notice 09-05, FINRA
SEC wins case against Universal Express, CEO, Business Journal, March 2, 2007 Continue Reading ›

The Financial Industry Regulatory Authority says that RBC Capital Markets Corp., Raymond James & Associates, Inc., and an RBCCMC head trader have settled charges over alleged broker misconduct connected to stock loan improprieties. RJF is to pay a $1 million fine, while RBC Capital Markets will pay $400,000.

Meantime, RBCCMC Stock Loan Department head trader Benedict Patrick Tommasino has agreed to a $30,000 fine, a 20-month suspension from working for a securities firm, and another two-month suspension from acting in a principal role.

According to FINRA, RJF allegedly executed payments that were improper and unjustified to finder firms even though the companies didn’t provide services to locate the securities and they weren’t involved in the stock loan transactions for which they were receiving payments. For example, in March and 2004, Raymond James paid two finder firms for 11 transactions even though they didn’t perform a service. A Raymond James loan trader’s son was employed at one of the finder firms.

FINRA is also accusing the two broker-dealers of allegedly letting Dennis Palmeri, Sr. perform stock loan functions. Only registered individuals are allowed to perform this role.

Palmeri is a non-registered person that had been barred from the securities industry. He was previously convicted of federal securities law violations in 1994. Following his conviction, the SEC barred him from working for an investment advisor, a broker dealer, or an investment company. While Palmeri can act as a non-registered finder, he cannot perform roles requiring that the individual be registered.

Susan Merrill, the FINRA enforcement chief, says the two firms exposed the market to an individual that was non-registered, unqualified, unsupervised, and was not allowed to work in the securities industry. FINRA also claims that the two broker-dealers failed to reasonably supervise their Stock Loan Departments. By agreeing to settle, Tommasino and the two broker-dealers are not denying or admitting misconduct.

Related Web Resources:
FINRA Fines Raymond James, RBC Capital Markets Corporation, Stock Loan Trader for Improper Stock Loan Practices, FINRA, June 17, 2009
FINRA fines Raymond James, RBC Capital Markets, Forbes, June 17, 2009 Continue Reading ›

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