FINRA

Investor Want Wells Fargo Advisers to Pay $100K in Damages Over F-Squared Investment Losses

Published on: June 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A client of Wells Fargo Advisors (WFC) is looking to recover at least $100,000 in damages for losses he sustained from investing with F-Squared Investments Inc. The arbitration case comes six months after F-Squared consented to pay $35 million to resolve Securities and Exchange Commission charges accusing the asset manager of making false claims about its flagship investment product’s performance. The 68-year-old widower’s claim will test whether investors can pursue broker-dealers for selling F-Squared products.

The claimant, a moderately conservative investor who was looking for moderately conservative growth for his retirement account assets, began working with a Wells Fargo financial adviser in 2011. The brokerage firm made F-Squared managed-accounts available to advisors in 2013.

According to InvestmentNews, The investor’s advisor put about $900K of the client’s money-most of his savings, says his attorney-in products managed by two ETF strategists. Over 50% of the money went into F-Squared’s AlphaSector Allocator Select. Meantime, the investor said it paid Wells Fargo about $19,000 in fees for recommending the products. He believes that the firm had a conflict when it recommended investments because they came with such high commissions. Also, the fees erased potential capital gains for the claimant.
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Investors Targeted by Advanced-Fee Scams Using Bogus Regulator Websites and Fake Broker Identities

Published on: June 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority issued an alert warning non-U.S. and U.S. investors about scammers who use fake regulator websites and identities to steal money. Some scammers have even used FINRA’s name or pretended to be employed by the self-regulatory organization.

These fraudsters will typically ask for an advance payment of a service fee and then disappear upon receipt of the money. The fee is supposedly for services that involve buying non-performing stock that already belongs to the person they are targeting with the offer to pay a high price. The fraudster may even pretend to be a securities regulator or industry professional.

According to FINRA, there are investors in the UK who have received phone calls from individuals claiming to be with securities firm that were subject to disciplinary actions by regulators. These callers will typically try to procure advance payment for the return of money that was lost while the investor was associated with the firm.

U.S. investors have also been targeted. The Securities Investor Protection Corporation even issued its own warning against scammers pretending to be the SIPC or another organization with similar powers. SIPC has the authority to keep up a reserve fund for customers of brokerage firms that become insolvent. However firm liquidations that go through SIPC do not require investors to pay a fee so they can recover their monies.
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FINRA on BrokerCheck and Broker Compensation

Published on: May 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has sent its proposed rule change regarding BrokerCheck links to the U.S. Securities and Exchange Commission. Per the new measure, a broker-dealer would have to make sure that a BrokerCheck link is made accessible on its home page. The firm would also have to make sure links to the FINRA database are visible on the profile pages of its brokers.

The Commission will have to approve the rule, which was modified after concerns were raised about the original version, which called for BrokerCheck links to also be included in posts on social media websites, including Twitter. A broker would also have had to provide direct links to his/her individual BrokerCheck profile pages.

The revised version doesn’t require providing the links on social media, and any links to BrokerCheck only must take people to the home page of the firm’s site and not an individual rep’s profile.

UBS Must Pay Investor $1M for Puerto Rico Bond Fund Portfolio

Published on: May 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority Panel (“FINRA”) has ordered UBS Financial Services Inc. of Puerto Rico and UBS Wealth Management (collectively “UBS”) to pay a client from Puerto Rico $1 million to repurchase the Puerto Rico portfolio of proprietary bond funds sold to him and many other Puerto Rico investors. According to the Panel’s decision, Mr. Burgos Rosado, a senior investor at age 66, lost $737,000 in the beleaguered closed-end funds.

He had opened his account with UBS in 2011 and invested the money he made from running a bodega for years. After Puerto Rico municipal bonds failed in 2013, the original $1.1 million he invested had fallen in value to less than $4,000. Just in September of that year, when news that the bond funds were failing en masse, Burgos Rosado reportedly approached UBS because his balance had dropped some $200,000. He was encourage to stay with his portfolio.

The FINRA panel noted that while investors typically assume their account’s risks after they’ve been given sufficient notice of the risks, the arbitrators did not think this applied in the case of Burgos Rosado, who does not speak fluent English and was clearly relying on the recommendation of his UBS advisor. Even after Burgos Rosado asked for documents in Spanish, the brokerage-firm reportedly issued his monthly statements and other information in English.

Morgan Stanley to Pay $2M for Violations Involving Short Sales and Short Interest Reporting

Published on: May 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Morgan Stanley & Co. LLC (MS) $2M for violations involving short sale and short interest reporting rules. The violations purportedly took place over six years. The financial firm is also accused of not putting into place a supervisory system designed in a reasonable enough manner that it could identify and prevent such violations.

Financial firms are supposed to report to the SRO on a regular basis their total short positions involving equity securities in proprietary firm and customer accounts. However, according to the self-regulatory organization, Morgan Stanley did not accurately and completely report such positions in certain securities that involved billions of shares. FINRA also said that the firm’s supervisory system was deficient.

Meantime, under U.S. Securities and Exchange Commission’s Regulation SHO for regulating short sales, firms are supposed to aggregate their positions in a security to determine whether they are short or long. Through an aggregation unit, Regulation SHO lets firms track positions in a security separate from other positions at the firm and via certain trading desks or operations.

FINRA Gets Tough With Its Sanctions Against Brokers For Suitability Violations

Published on: May 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has decided to take tougher actions against brokers who violate suitability standards. The regulator is recommending that the National Adjudicatory Council, which oversees disciplinary proceedings, raise its suggested suspensions for brokers who make unsuitable recommendations from one year to two years. FINRA wants brokers who commit fraud be potentially barred and offending firms face potential expulsion.

FINRA’s revisions to its Sanctions Guidelines are to go into effect right away. They exist to protect investors from brokers who don’t comply with the suitability rule. The rule states that brokers can sell products that are to their benefit as long as these products also are in alignment with helping investors meet their investment goals.

Despite the changes, InvestmentNews reports, there are those who think that FINRA’s proposed sanctions are insufficient and, also, that there may be negative consequences for investors. For example, defendants facing two-year suspensions might opt to fight cases against them rather than settle because of the tougher penalty.

LPL Financial to Pay $11.7M Fine for Supervisory Failures

Published on: May 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. said that LPL Financial (LPLA) must pay $11.7M in fines and restitution for widespread supervisory failures involving complex products sales. The self-regulatory organization said that from 2007 up to last month, the firm did not properly supervise certain exchange-traded funds, nontraded real estate investment trusts, and variable annuities. It also did not properly deliver over 14 million trade confirmations to customers and failed to properly supervise communications, including advertising, as well as the consolidated reports used by brokers.

According to the Letter of Acceptance, Waiver, and Consent, To grow LPL, its wholly-owned brokerage firm subsidiary, LPL Financial Holdings Inc. employed a strategy that included acquiring financial services firms, consolidating them with the broker-dealer, and bringing in more registered representatives. Unfortunately, said the SRO, the firm failed to dedicate enough resources to allow LPL to fulfill its supervisory duties.

As just one example, LPL did not have a system for either monitoring the duration of time customers held securities in accounts or enforcing concentration limits on complex products. Its system for reviewing trading activities in accounts had numerous deficiencies. Also, LPL did not submit trade confirmations in over 67,000 customer accounts.

RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales

Published on: April 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

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.

FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations

Published on: April 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority and the Securities and Exchange Commission have put out a report, the Senior Investment Initiative, to help brokerage firms come up with better procedures and policies for older investors. With the current low yields on traditional savings accounts and investments that are more low risk, FINRA and the SEC’s Office of Compliance Inspections and Examinations are worried that broker-dealers could be recommending investments that may be to risky or unsuitable for seniors who want higher returns. They are also worried that the firms are not properly disclosing the terms and risks of these securities.

Considering that by 2040 there are expected to be some 79 million Americans in the 65 and over age group, information in this report is important for helping tackle investment issues as they relate to seniors. OCIE’s Director Andrew J. Bowden pointed out that seniors are now more than ever more dependent on their investments to help with retirement. Bowden noted that it is important that older investors are treated fairly and get suitable recommendations and appropriate disclosures about the risks, costs, and benefits of their investments.

The two agencies examined some 44 brokerage firms. They looked at brokerage firm reps training, communications, arresting, account documentation, use of certain designations, disclosures, supervision, and customer complaints.

FINRA Bars Wells Fargo Broker to NFL, NBA Players Over Failure to Disclose Nightclub Involvement

Published on: April 24, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. has barred broker Aaron Parthemer, a Wells Fargo (WFC) adviser, for taking part in a number of outside businesses and failing to disclose his involvement. FINRA has tight regulations that don’t allow brokers to take part in private securities transactions without notifying their firm and getting authorization. Parthemer, who used to be at Morgan Stanley Wealth Management (MS) until four years ago, has advised numerous NBA and NFL athletes.

According to the SRO, he falsely represented, in compliance questionnaires he filled out while with both firms, that he was not taking part in external business activities that warranted disclosure. He also gave FINRA false data when the regulator started to ask for more information about external business activities in 2012.

Parthemer allegedly did not disclose the part he played in running Club Play, which used to be a South Beach, Florida nightclub, as well as his involvement in a tequila marketing operation and an Internet branding startup. FINRA also contends that the broker made unapproved loans to clients in connection with the club and referred clients to invest in the start up.