FINRA

FINRA Claims That It Can’t Stop Firms From Hiring High-Risk Brokers

Published on: June 12, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In interviews with Reuters, the Financial Industry Regulatory Authority admitted that even though investors are harmed when broker-dealers hire brokers with checkered histories, there is not much that the regulator can do to stop this practice because it is not illegal. This is undoubtedly causing even more investors to suffer losses as some of these high-risk brokers continue to engage in more misconduct or other violations at their new places of work.

For example, reports the news agency, since 2007 broker Mike McMahon and brokerage firms where he has worked, including National Securities Corporation, have shelled out $1.35M to resolve 10 client cases in which he was purportedly involved. McMahon is currently contending with another four broker fraud cases that were brought by other ex-clients.

One of the reasons the complaints keep coming is because he has been able to move from one firm to another even with the cases that have already been brought against him. Unfortunately, McMahon is not the only one.

Financial Representative Misconduct: Rep. Who Didn’t Disclose $100M in EB-5 Investment Sales is Barred From Securities Industry, Ex-Stifel, Nicolaus Broker is Suspended & Fined For Variable Annuity Violations, and Former Advisor is In Trouble Over Alleged Breaches Involving Senior Investors Accounts

Published on: June 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former Stifel, Nicolaus Broker is Accused of Variable Annuity Violations
The Financial Industry Regulatory Authority has suspended an ex-Stifel, Nicolaus (SF) broker for four months over variable annuity transactions that he purportedly inappropriately recommended to certain investors. At the time of the alleged variable annuity fraud, James Keith Cox worked with Sterne, Agee & Leach. Stifel Financial later acquired that firm.

According to the regulator, Cox recommended a number of VA transactions even though there was no reasonable grounds for thinking they were appropriate for the investors. In addition to the suspension, Cox will disgorge the $25,460 he was paid in commissions.

FINRA Bars California Man From Industry Over $100M in Undisclosed EB-5 Investment Sales
A FINRA hearing panels has barred a California-based registered representative for taking part in private securities transactions involving $100M in EB-5 Investments that he failed to disclose to his employer financial firm. Jim Seol sold the EB-5 investments through his business Western Regional Center Incorporated.

FINRA Files Complaint Against Ex-Broker Over Variable Annuity Sales to Elderly Customers

Published on: April 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has put out a disciplinary complaint against Walter Marino. The former broker worked for Legend Equities Corp. in Palm Beach Gardens, Florida at the time he allegedly facilitated variable annuities sales that were unsuitable for two of his older clients. According to the regulator, Marino recommended exchanges of non-qualified VAs to the customers without having reasonable grounds to guide them toward these investments.

FINRA said that Marino earned about $60K in commissions. Meantime, the customers lost over $82K because of surrender charges they were forced to pay and they did not benefit financially. Not only that but because Marino didn’t apply the tax-free exchange provision of the Internal Revenue Code, the customers ended up with substantial tax liabilities.

Now, the regulator wants Marino to disgorge his ill-gotten gains and pay the customers full restitution for the variable annuity fraud.

Broker Fraud: FINRA Arbitration Panel Awards Investor $1M After Misleading Variable Annuities Sales Pitch, Broker-Dealer Owner Gets Prison Sentence in $100M Stock-Loan Scheme, & Fugitive Broker is Arrested After 20 Years On the Run

Published on: April 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Investor Awarded Over $1M After Allegedly Misleading Sales Pitch by Wilbank Securities Broker

A Financial Industry Regulatory Authority panel has awarded investor Grace S. Huitt over $1 million in her broker fraud claim against Wilbanks Securities. According to Huitt, one of the firm’s brokers presented her with a sales pitch about the ING Landmark Variable Annuity that not only was misleading but also promised too much and then under-delivered. She alleged breach of contract, fraud, breach of fiduciary duty, and negligent supervision.

Huitt claims that when she bought the variable annuity in 2008, she was told that it came with a guaranteed 7% compound yearly return. Other investors who also had made investment puchases through Wilbanks Securities reportedly claimed similar problems with what they were promised.

UBS Financial Services Ordered to Pay Many Millions to Another Investor For Puerto Rico Bond And Closed-End Fund Losses

Published on: March 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Once again, a Financial Industry Regulatory Authority (FINRA) panel has ordered UBS Financial Services (UBS) to pay a large arbitration award to an investor. Dr. Luis E. Cummings claimed losses related to his investing in Puerto Rico bonds and Puerto Rico closed-end funds. Cummings also said sustained losses from loans made against these securities.

In his Puerto Rico bond fraud case, Cummings accused UBS of negligence, recklessness, deceit, fraud, and fault. Meantime, the brokerage firm is once again claiming that this is yet another investor who was experienced enough to make a “fully informed decision” about whether to leverage investments and invest a healthy portion of his portfolio in Puerto Rico closed-end funds and bonds.

But as Shepherd Smith Edwards & Kantas Partner Sam Edwards said when commenting on a previous case in which UBS also was ordered to pay an investor over their similar losses, “even customers who are business savvy can be abused.” The FINRA Panel ultimately awarded Dr. Cummings more than $5 million in compensation as well as forgiveness of a similar amount of debt.

Securities News: Deutsche Bank Unit Ordered to Pay $150M for Libor Rigging, FINRA Bars Broker Indicted in NY Pension Fund Scam, and Hedge Fund Manager Who Lost Investors’ Money In Madoff Ponzi Scam Commits Suicide

Published on: March 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Judge Orders Deutsche Bank Subsidiary to Pay $150Mfor Libor Rigging
A federal judge is ordering Deutsche Bank Group Services, a subsidiary of Deutsche Bank (DB), to pay $150M for its involvement in an interest rate manipulation scam. The London unit pleaded guilty last year to rigging the London Interbank Offered Rate benchmark.

The fine comes two years after Deutsche Bank settled Libor rigging allegations with US and British regulators for $2.5B. According to prosecutors, derivatives traders at the German bank and at other banks colluded together to manipulate LIBOR rates to preference their trading positions.

Libor rigging allegations are not the only claims that Deutsche Bank has been contending with. Recently, the German Bank reached a $7.2B settlement with the US DOJ over its part in the 2008 global financial crisis. Meantime, NY and British officials ordered Deutsche Bank to pay $630M in fines because of alleged money laundering that occurred in Russia.

FINRA Headlines: Dawn Bennett Loses $1M Gold ETF Claim, Regulator Bars NJ Broker-Dealer, and Investors Are Warned About Binary Options Follow-Up Fraud

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

Ex-Investment Adviser Loses Arbitration Claim Over Gold Exchange-Traded Fund
Ex-financial adviser Dawn Bennett is on the losing end of a $1M securities arbitration claim brought by a former client who claims that she recommended he invest in a gold exchange-traded fund. Steven Santagati brought his ETF securities case to the Financial Industry Regulatory Authority. He alleged failure to supervise, breach of fiduciary duty, and negligence.

InvestmentNews reports that in an interview this week, Santagati accused Bennett of taking advantage of his lack of understanding about “financial details.” Santagati said that Bennett leveraged his account and invested in risky investments, including the SPDR Gold Shares exchange traded fund.

Finra awarded Santagati $746K. Western International Securities, which was Bennett’s ex-brokerage firm, and her Bennett Group Financial Services are additional respondents in this case. They were found “jointly and severally” liable for the violations. In addition to Santagati’s award, they must pay $27K in expert witness fees and $252K in legal fees.

Stifel Ordered to Pay Back Retired Couple More Than $100K For their Puerto Rico Bond Fraud Losses

Published on: March 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) panel said that Stifel, Nicolaus & Co. (“Stifel”) must pay June and Perry Burns over $100K for losses they sustained from Puerto Rico bonds and oil and gas investments. The Burns are in their eighties and they invested a “substantial” amount of their life savings with Stifel.

In their Puerto Rico bond fraud arbitration claim, the couple accused Stifel of negligence, unauthorized trading, and unsuitable investments, among other violations. For that portion of their case, the FINRA panel awarded the Burns $79,709, which was everything they lost, and also fees and interest. Despite the ruling, Stifel, in its own filings, continues to deny the couple’s allegations. The broker-dealer tried to have the case thrown out and removed from its FINRA records.

Senior Investors Sustained Losses From Investing in Puerto Rico Bonds
Unfortunately, the Burns are not the only senior investors whose retirement savings were seriously harmed because brokerage firms and their brokers recommended that retirees invest in Puerto Rico bonds and Puerto Rico bond funds even though these securities were too risky for their portfolios and/or not aligned with their investment objectives. For the past few years, our senior financial fraud lawyers at Shepherd Smith Edwards and Kantas have been working with older investors in the US mainland and the island of Puerto Rico to help them get their lost investments back. Aside from Stifel, other brokerage firms are accused of inappropriately recommending Puerto Rico bonds and close-end bond funds to investors, including UBS Puerto Rico (UBS-PR), Santander Securities (SAN), Banco Popular, Merrill Lynch, Morgan Stanley (MS) and others.

Securities News: SEC Orders Voya to Pay $3.1M For Not Disclosing Mutual Fund Sale-Related Payments, FINRA Bars Ex-Waddell & Reed Broker, and Alabama Pension Fund Loses Millions in Ponzi Scam

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

Voya Accused of Not Disclosing Revenue Received for Mutual Fund Sales
The US Securities and Exchange Commission said that Voya Financial Advisors (VOYA) would pay approximately $3.1M to regulators and investors for not telling customers about revenue the firm was paid related to a mutual fund program that didn’t bill transaction fees. Voya’s clearing broker-dealer paid the firm a percentage of the money made from the mutual fund sales. This was information that should have been shared with investors.

Also, since 2014, Voya and the third-party brokerage firm were involved in a separate agreement under which Voya provided certain administrative services in return for a percentage of service fees involving certain mutual funds. The regulator said that these payments were a conflict because they gave Voya incentive to preference these funds over other investments, which could have impacted what the firm recommended to advisory clients. As part of the settlement, Voya will pay about $2.6M of disgorgement, approximately $175K of interest, and a $300K penalty. The firm is not, however, denying or admitting to the SEC’s findings.

Fired Waddell & Reed Broker is Barred from the Securities Industry
The Financial Industry Regulatory Authority has barred an ex-Waddell & Reed Inc. broker from the industry. Paul D. Stanley was fired from the firm last year for allegedly violating its policies regarding supervision, compensation, and conduct.

Aegis Capital Under Investigation by FINRA, FINCEN and SEC

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

The US Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the US Treasury Department’s Financial Crimes Enforcement Network are investigating brokerage firm Aegis Capital Corp. The reason for the probe has not been disclosed.

In Aegis Capital’s latest audited financial statement, the firm said that it has responded to the joint inquiry. A lawyer for the broker-dealer said that it would not comment further. The attorney, however, did note that regulators have yet to file a complaint and that Aegis Capital is not in litigation at the moment with any of these agencies.

According to Aegis Capital’s BrokerCheck profile, the firm has 27 previous disclosures, including one in 2015 that the broker-dealer settled with FINRA, agreeing to pay $950K over the allegedly improper sales of billions of unregistered penny stock shares and purported lapses in anti-money-laundering supervision. Two ex-Aegis Capital chief compliance officers were suspended and ordered to pay related fines.