Articles Posted in FINRA

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded $519,000 to Stephen and Brenda Balock in their investor fraud claim against Morgan Stanley (MS). The couple contends that that one of the firm’s brokers, Tim J. Prouty, placed their funds in investments that were complex and inappropriate for them, causing them to lose money in eight accounts between 2012 and 2015. They filed their claim against Morgan Stanley in 2016.

The Balocks began working with Prouty after Stephen’s employer, the Public Service Co. of New Mexico, compelled him into early retirement due to downsizing. He had never worked with a broker before then.

The couple wanted to invest in certificates of deposit. Instead, Prouty placed them in a Morgan Stanley investment advisory program that involved more complex investments, such as options contracts, derivates, junk bonds, and exchange-traded funds. In their investor claim against Morgan Stanley, the Balocks made a number of allegations, including the following:

A former America Northcoast Securities broker is barred by the Financial Industry Regulatory Authority (FINRA) after he traded in non-traditional exchange-traded funds (ETFs) in the accounts of firm clients, even when the investments were not suitable for them.

According to the self-regulatory authority (SRO), Dominic Anthony Tropiano solicited the buying and selling of leveraged ETFs in at least 47 America Northcoast Securities customers’ accounts between 5/2015 and 4/2016, including 866 securities transactions involving 15 non-traditional exchange-traded funds.

Of these transactions, 33 of them were purportedly conducted in just one customer’s account. Another 19 took place in another client’s account. The customers were not aware these transactions were going to occur and they did not give their consent.

A Financial Industry Regulatory Authority (FINRA) panel has ordered Pershing, LLC to pay $1.4m to six investors who lost money in R. Allen Stanford’s $7.2B Ponzi scam. Pershing is a Bank of New York Mellon Corp. (BK) division. It acted as Stanford Group Co.’s clearing broker for several years.

Pershing is accused of enabling the Stanford Ponzi Fraud, including through its transfer of hundreds of millions of dollars from US investors’ securities accounts, as it continued to make money from the sales of at least $500M in fake, unregistered certificates of deposit (CDs).

Pershing also allegedly disregarded the unusual ways in which Stanford ran his operations, including the use of offshore transfers and the high compensation awarded to brokers. The unregistered CDs were issued out of Stanford International Bank, a Stanford Financial Group unit based in Antigua, and then sold by Stanford’s brokerage firm in the US.

An egg-farming family based in New York has been awarded $3.2M in its Financial Industry Regulatory Authority (FINRA) arbitration claim against AXA Financial. The claimants are an older couple, Sandra and James Fitzpatrick, who own Fitzpatrick Poultry Farm. They contend that Franceso Puccio, an ex-AXA Financial broker, placed their money into variable annuities (VA), which were unsuitable for them. Puccio has already been convicted for senior investor fraud involving another elderly client that was also with the firm.

The couple are claiming that they lost millions of dollars because of the way AXA and Puccio handled their funds. They contend that their money had been invested in mutual funds until Puccio moved their funds, as well as four life insurance policies, into VAs.

Puccio worked in the securities industry for 16 years. He was barred by FINRA in 2015 after he failed to turn over information and documents that the regulator had requested related to an investigation into whether he had converted monies from a non-customer. Puccio’s BrokerCheck record notes several customer disputes, with allegations including unsuitable investments sold to claimants, negligence, breach of fiduciary duty, misrepresentations, and omissions.

An investor in GPB Capital has filed a Financial Industry Regulatory Authority (FINRA) Claim against Arkadios Capital and one of its brokers over losses she sustained to her IRA after she followed the financial adviser’s recommendation to invest in GPB Capital Holdings.

Now she is claiming retirement fund losses in the hundreds of thousands of dollars. Our investor fraud law firm, Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) is representing the investor, who hails from the greater Atlanta area, and we have filed a FINRA arbitration claim on her behalf.

GPB Capital Holdings is an alternative asset management firm whose private placement funds are primarily invested in auto dealership and waste management. The firm is under scrutiny by FINRA, the US Securities and Exchange Commission (SEC), Massachusetts Secretary of the Commonwealth William Galvin, and the FBI over its private placements that were sold by dozens of brokerage firms and their brokers.

The Financial Industry Regulatory Authority (FINRA) announced that Buckman, Buckman & Reid, a New Jersey-based brokerage firm, will pay about $205K in restitution to seven clients to settle claims that it did not reasonably supervise two ex-registered representatives accused of recommending “excessive and unsuitable trades.” The self-regulatory authority (SRO) has already barred both former brokers from the industry.

Also dealing with sanctions are Buckman Senior VP and owner Harry John Buckman, Jr., who supervised the two former brokers. Mr. Buckman was suspended for three months, ordered to pay a $20K fine, and must fulfill continuing education hours related to fulfilling supervisory duties.

FINRA said that the brokerage firm and Buckman neglected to identify when one of the ex-representatives was taking part in short-term Unit Investment Trust (UIT) trading on a frequent basis, as well as engaging in “other long-term investments” that charged customers substantial, upfront expenses. As a result, between ’13 to ’14 Buckman customers that were harmed ended up paying about $201K in commissions while sustaining approximately $163K in losses. Meantime, although there were red flags indicating “potentially excessive trading” by this former broker, the firm is accused of not reviewing these warnings.

Although many of the thousands of cases investors in Puerto Rico bonds and closed-end funds have brought over the last five years have focused on UBS Financial Services Incorporated of Puerto Rico (“UBS-PR”), other brokerage firms in the Commonwealth engaged in the same wrongful sales practices. One such firm that has also been the subject of many new FINRA arbitrations and other lawsuits is Santander Securities, LLC (“Santander”), a division of Banco Santander Puerto Rico. The large number of cases against Santander are not a surprise given the public information about Santander. For example, Bloomberg reports that between the ends of 2012 and 2013, Santander marketed and sold over $280 million in Puerto Rico municipal bonds and close-end funds while reportedly selling its own holdings of these same securities.

Santander also has a regulatory history that suggests ongoing problems with the Puerto Rico operations for the bank. For example, in 2011, Santander settled allegations from FINRA of deficiencies in Santander’s structured product business, including those involving the sale of reverse-convertible securities to Puerto Rican retail customers when such investments were often unsuitable for them. FINRA also accused the brokerage firm of inadequate supervision of structured product sales. Santander agreed to pay a $2 million fine for these alleged deficiencies. More recently, in 2015, FINRA fined Santander $2 million and ordered restitution to Santander customers of an additional $4.3 million for Santander’s sales practices related to Puerto Rico bonds and closed-end funds. In particular, FINRA found that Santander’s supervisory system did not accurately reflect the risk of Puerto Rico investments in the period leading up to the collapse of the Puerto Rico market in 2013 and 2014. However, Santander was aware of the increased risk, and according to FINRA, instead of informing its clients of these increased risks, used that knowledge to sell its entire inventory of Puerto Rico investments by the end of October 2013, and thus missing much of the losses Santander’s own clients suffered.

In other Puerto Rico news, the 1st Circuit court of invalidated the PROMESA board which provides oversight for restructuring local debt. After the board placed Puerto Rico in a bankruptcy like process, many hedge funds and institutional corporate investors were unhappy as their investments were now in jeopardy. These entities filed a constitutional challenge to the way the board was appointed and eventually won on appeal. The ruling was not much of a win however, as the 1st Circuit refused to invalidate the board’s prior actions, which included placing Puerto Rico in the bankruptcy like proceedings, even though they invalidated the board itself.

Virginia Regulator Fines UBS Financial After Its Broker Makes Unsuitable Recommendations

To settle charges brought by Virginia’s State Corporate Commission accusing a UBS (UBS) broker of making unsuitable recommendations involving gold and precious metals securities to 18 clients, UBS Financial Services will pay $319K—$289K to the clients and $30K to the state.

Virginia’s regulator contends that unsuitable recommendations were made in 2013 and 2014 and caused UBS clients to hold an overconcentration of these securities, which were not even suitable for some of them. The state said that this violated its securities rules.

The Financial Industry Regulatory Authority (Finra) has permanently barred fired Merrill Lynch broker Bhenoy (Ben) Dembla. According to InvestmentNews, The former broker was let go from the financial firm in 2016 for “falsifying documents” related to mutual fund sales.

Dembla, who worked for Merrill the entire time he was a broker from 2001 to 2016, is accused of submitting fake sell orders to get around the firm ’s electronic order system protections. The protections should have stopped the submission of Class B share purchase orders once these had exceeded the accumulation limit.

According to FINRA, Dembla would submit the bogus sell orders, which the system would accept, and then he would cancel the orders. All of this made it possible for certain customers to go over Class B share thresholds with their purchases.


FINRA Panel Orders Capital Securities to Pay Retired Teachers $2.38M

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded retired schoolteachers Beryl Lakin and Janice Patin $2.38M for losses they sustained while they were clients of Capitol Securities Management, which is based in Virginia. The two claimants, who are former coworkers, alleged excessive trading, fraud, and unauthorized withdrawals and fund transfers. They accused one of the financial firm’s former registered representatives of stealing money out of their Capitol accounts.

The financial rep. whom they are accusing was Patin’s nephew, who has since committed suicide. Finra documents name him as “Mr. T.”

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