FINRA

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.

Deutsche Bank Ends Dark Pool Probe with $37M Settlement to the NY AG and the SEC, as well as a $3.25M Fine to FINRA

Published on: December 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has agreed to pay $37M to conclude the US government probes into its handling of trades in dark pool trading venues. The German bank also admitted that between 1/2012 and 2/2014 traders were misled about the way the it ranked its SuperX dark pool and other trading venues. The government settlements were reached with the US Securities and Exchange Commission and the New York Attorney General. Meantime, the Financial Industry Regulatory Authority fined Deutsche Bank $3.25M, noting “deficient disclosures” involving dark pool trading.

According to the NY AG and the SEC, Deutsche Bank told investors that it ranked its dark pools according to a number of factors, including transaction costs. However, some its technology purportedly wasn’t functioning correctly which means that the order-routing choices were not organized according to the factors noted. The German bank also is accused of disregarding its own method for ranking dark pools and placing its own dark pool in a preferred tier.

The government believes that between 1/2012 and 2/2013, Deutsche Bank employed outdated dark-pool rankings to decide how to route orders rather than updating its ranking model on a regular basis.The bank discovered the technical glitch in 2013, but did not fully correct the issue and waited until the following year to notify clients.

FINRA Anti-Money Laundering Cases Render Huge $1M Fine for Wells Fargo and $16.5M Fine for Credit Suisse

Published on: December 7, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo Fined $1M Over Supervision of Consolidated Client Reports

The Financial Industry Regulatory Authority says that Wells Fargo (WFC) must pay a $1M fine for not having reasonable supervisory systems in place to oversee the generation of consolidated reports for clients. The broker-dealers that were specifically cited were Wells Fargo Advisors Financial Network (WFAFN) and Wells Fargo Advisors (WFA), also referred to as Wells Fargo Clearing Services.They agreed to settle but did not admit or deny the settlement’s findings.

FINRA’s rules mandate that consolidated reports, which are documents that include information about a customer’s financial holdings, even if they are held in different places, must be accurate, clear, and not misleading. According to the regulator, between 6/2009 and 6/2015, the brokerage firms did not enforce supervisory systems for the use of consolidated reports that registered representatives generated via a specific application. During the relevant period, Wells Fargo advisers used the application to create over five million company reports.