FINRA

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.

Securities Fraud: Ex-BB & T Securities is Suspended Over Unauthorized Private Securities Sales, Fired Merrill Lynch Broker is Fined for Accepting Customer Gifts, Louisiana Investment Adviser is Convicted in $9.5M Scheme, & Jury Issues First Criminal Municipal Bond Issuance-Related Conviction

Published on: March 10, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Suspends Broker For Accepting $105K in Gifts

The Financial Industry Regulatory Authority Inc. has suspended a former Merrill Lynch broker, Adam C. Smith, from the securities industry for a year. The former Merrill Lynch broker, who was fired from the firm, will pay a $10K fine.

According to the self-regulatory organization, while at Merrill Lynch, Smith and his wife accepted $26K in checks from a couple whom he represented. The money was to help fund the education of Smith’s children. When one of the clients passed away, the remaining spouse gifted Smith and his wife another $53K, again to pay for their kids’ education. Smith received $26K from other clients.

Although he is settling, the ex-Merrill Lynch broker is not denying or admitting to FINRA’s findings.

As General Obligation Bondholders Get Go Ahead on Their Bond Fraud Case Against Puerto Rico, COFINA Creditors Seek to Intervene

Published on: February 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A federal judge has ruled that general obligation bondholders in Puerto Rico may go ahead with a securities fraud lawsuit arguing that the U.S. territory’s government has to pay them what they are owed even as it pays off other bondholders and workers and restructures its nearly $70 billion of debt. U.S. District Court Judge Francisco Besosa said the bondholders’ case could proceed despite a new law that has placed a stay on the majority of creditors’ legal actions brought against Puerto Rico.

Owners of general obligation bonds which includes individuals and hedge funds such as Monarch and Aurelius, are arguing that Puerto Rico general obligation bonds are supposed to be constitutionally guaranteed, therefore other Puerto Rico obligations cannot be paid before general obligation bondholders. Judge Besosa said that because the general obligation bondholders’ debt lawsuit does not seek to get any kind of payment from the territory or confiscate commonwealth property, the case should be exempted from the stay.

Following Judge Besosa’s ruling, creditors of COFINA bonds, Puerto Rico’s sales tax authority, are now asking a federal court to keep the island’s government from being told to redirect bond payments to the general bond holders. The COFINA plaintiff group, which includes funds holding more than $2 billion in debt and also hedge funds such as Canyon Capital and Goldentree, contend that the general obligation bondholders’ claims are “self-serving” and without merit.

Securities Cases: LPL Financial Fined $900K for Record-Keeping Issues, NY-Based Broker Deal to Pay $100K for Trading Surveillance and Compliance Failures, and Private Equity Adviser is Barred Over Improper Fund Withdrawals

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

FINRA Fines LPL Financial $900K

The Financial Industry Regulatory Authority has fined LPL Financial (LPLA) for either not sending or failing to create records showing that it had sent over 1.6 million mandatory account notices to customers over a 36-month period. Under industry rules, account notices have to be sent to customers at three-year intervals which is when a determination of suitability is evaluated. FINRA said that LPL did not send more than 25% of such written notices over a period of seven years.

The financial firm accepted the self-regulatory organization’s settlement but is not denying or admitting to the findings. However, an LPL Financial spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

CFTC Orders Citigroup to Pay $25M for Spoofing, Supervisory Failures

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

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

Securities Cases: NY/NJ Port Authority Accused of Not Disclosing Municipal Bond Risks, FINRA Expels Lawson Financial for Fraud, and SEC Brings More FCPA Violation Charges

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

Port Authority Admits Wrongdoing Related to Failure to Disclose Municipal Bond Risks to Investors

The Port Authority of New Jersey and New York will pay a $400K to resolve Securities and Exchange Commission charges accusing the municipal issuer of knowing about the municipal bond risks involved a number of NJ roadway projects yet failing to tell investors who bought the bonds that would pay for these projects about the risks. The Port Authority admitted wrongdoing.

According to the SEC’s order, the Port Authority sold $2.3B of bonds even though there were questions as to whether certain projects exceeded their mandate and might not be legal to execute. Despite these concerns, the Port Authority did not mention the municipal bond risks in offering these documents.

SEC Cases Seeks to Hold Companies Accountable for FCPA Violations

Already this year, the SEC has brought and/or settled a number of civil cases involving alleged violations of the Foreign Corrupt Practices Act. Early last month, Biomet, a medical device manufacturer, agreed to pay over $30M to settle parallel Justice Department and SEC probes over purported repeat FCPA violations.

Retiree Files $1M Securities Arbitration Claim Against Morgan Stanley

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

An investor who is retired and suffering from health issues is seeking $1M from Morgan Stanley (MS). The investor, a former inventor, claims that the broker-dealer did not properly supervise the financial adviser who handled his multi-million dollar account. He filed a Financial Industry Regulatory Authority claim and is accusing the firm of breach of fiduciary, negligence, unauthorized trading, excessive trading, fraudulent inducement, and significant tax liability.

The investor believes that over-concentation in risky sectors and over trading in too many individual stocks occurred, causing significant damage to his retirement funds. Among the investments that were involved were oil and gas investments, including Master Limited Partnerships. The claimant claims that Morgan Stanley hid the risks involved, even as the financial adviser engaged in a purportedly deceptive investment strategy. The result was that the investor’s account became heavily concentrated in risky investments.

The alleged broker negligence also purportedly caused tax consequences for the investor while benefiting Morgan Stanley with transactions costs of over $1M. The unsuitable taxable gains that were created by led to investment losses for the investor, even as the broker claimed that the investor’s account was profiting.

Refusal to Testify Before Finra Over Securities Allegations Lead to Industry Bars for Former Merrill Lynch, RBC Capital Markets, and JP Morgan Brokers

Published on: January 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory has barred a broker who worked at Merrill Lynch for almost half a century from the securities industry. Louise J. Neale left the broker-dealer and voluntarily ended her registration with the firm last year during an internal probe about her supervisory performance involving fund transactions. She later refused to testify about her resignation before FINRA. This is a violation of the self-regulatory organization’s rules and was immediate grounds for the industry bar. Although Neale worked at Merrill since 1968, it wasn’t until 2003 that she became a registered representative and later a supervisor.

In an unrelated case, FINRA barred another ex-broker for violating firm policies after he, too, refused to testify about the allegations in front of the SRO. John Simpson worked at RBC Capital Markets from 3/2009 to 2/2016. He was let go by the firm for violating its policies about discretion related to client accounts.

Meantime, FINRA has barred two ex-JP Morgan (JPM) brokers. One of the brokers, Brian Alexander Torres, had only been in the securities industry for two months when he was fired by the broker-dealer. Torres admitted that he misappropriated funds from the firm’s affiliate bank. Finra asked Torres for information and documents, but he would not provide them nor would he testify.

Securities Fraud: Former California Financial Adviser Who Worked For Texas Brokerage Firm is Barred After Bilking Professional Athletes of $2M, FINRA Fines Allstate Financial Services $1M for Inadequate Supervision, and Former Registered Investment Adviser Settles Cherry Picking Scam for $328K

Published on: December 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Financial Adviser Who Worked for Texas-Based Firm is Barred by SEC After Defrauding Pro Athletes
Ash Narayan, an ex-California financial adviser, has been barred by the US Securities and Exchange Commission. Narayan, who is accused of secretly receiving almost $2M from companies that he invested in on behalf of his professional athlete clients, agreed to no longer associate with advisory or brokerage firms to resolve the regulator’s allegations.

Narayan worked for Dallas firm RGT Wealth Advisors, but he was based in California as the managing director of its Irvine office. He also is accused of misrepresenting himself as a CPA and placing clients in unsuitable private investments. In October, the Certified Financial Planner Board of Standards issued a temporary suspension against him while an investigation was conducted into the allegations. RGT Wealth Advisers fired Narayan early this year.

According to the SEC, Narayan’s alleged fraud occurred between 2010 and 2016, during which time he directed $33M to a company that he was involved in and was in poor financial health. By settling, Narayan is not denying or admitting to the SEC charges.