FINRA

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses

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

The Financial Industry Regulatory Authority Inc. is fining J.P. Turner & Co., LaSalle St. Securities, and H. Beck Inc. $100K, $175K, and $425K, respectively, for lapses in supervising reports sent to clients. The reports provided asset summaries, and the self-regulatory organization is concerned that they had the potential to hide fraudulent activities.

A consolidated report typically contains information regarding most if not all of a customer’s financial holdings, wherever they are held. FINRA requires that these reports are accurate and clear. Failure to supervise these documents can cause regulatory issues, such as the possibility of inaccurate communication, data that is misleading or confusing, supervisory control lapses, and the use of consolidated reports for unethical or fraudulent reasons. The SRO’s regulatory notice 10-19 states that if a firm cannot properly supervise these reports then it should not distribute them and must make sure that registered representatives abide by this restriction.

During routine exams, FINRA found that representatives from the three firms prepared and issued consolidated reports to customers even if the documents hadn’t been properly reviewed beforehand. LaSalle St Securities, which had written procedures pertaining to consolidated reports, failed to enforce these and did not properly trained representatives on how to use the reports. The disciplinary action against the broke-dealers was related to private placement-involved matters.

First New York Securities to Pay $916K to FINRA for Illegal Short Selling

Published on: March 25, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has sanctioned First New York Securities LLC for short selling prior to participating in 14 public securities offerings. To settle, the firm, which is not denying or admitting to the charges, will pay a $400,000 fine, disgorgement of $516,000 plus interest, and is barred for six months taking part in secondary or follow-on offerings. It also has consented to an entry of the self-regulatory organization’s findings and will modify its supervisory system to make sure it is in compliance.

According to FINRA, from 9/10 through 4/13, First New York sold securities short within the five days going into the pricing of the public offerings in the securities. It would then buy securities in the offerings—purchasing over 670,000 shares after short selling 187,060 securities shares during those five days. The short sales artificially dropped share prices, which let First New York purchase the stocks at a lower cost. The firm bet against shares of companies that included Kinder Morgan Inc. and BlackRock Inc. (BLK).

Under the Securities Exchange Act of 1934’s Rule 105 of Regulation M, brokers are not allowed to buy securities in secondary offerings when during the restricted period prior to the pricing of the secondary offering the buyer sold short the security that is the offering’s subject. Please contact our securities lawyers to request your free case consultation. SSEK Partners Group represents high net worth individual investors and institutional investors who wish to get their securities fraud losses back.

Financial Fraud Victims’ Suffering is More Than Just Monetary, Affirms FINRA Report

Published on: March 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to “Non-Traditional Costs of Financial Fraud,” which is a new research report by the FINRA Investor Education Foundation, almost two-thirds of financial fraud victims who reported that they’d been bilked experienced at least one non-financial consequence to a serious degree. The findings show other ways in which this type of crime takes a toll on its targets.

Some 600 fraud victims took the survey online. Respondents were at least 25 years of age. Among the findings:

• The most commonly named non-financial fraud costs included serious stress, anxiety, sleeping problems, and depression.

Bill Seeks to Eliminate Mandatory Arbitration Clause From Brokerage Contracts, While SEC Approves New Public Arbitrator Limits

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

The Investor Choice Act in Congress, A U.S. House bill written by Keith Ellison, D-Minn., is looking to stop investment advisers and brokers from obligating investors to pursue their claims in arbitration instead of going to court. The proposed legislation would bar pre-dispute mandatory arbitration clauses in contracts between clients and their representatives.

As of now, almost all brokerage agreements, and an increasing number of investment adviser ones, come with provisions mandating that investors take their disputes to the arbitration system, which is run by the Financial Industry Regulatory Authority. There are those that believe that the forum favors brokers and advisers. Meantime, others say that the arbitration system is much more efficient for investors than going to court.

This is not the first time that Ellison has pushed for ending mandatory arbitration. He unveiled a similar bill in 2013 but it did not become law. The Public Investors Arbitration Bar Association has put out a statement voicing its support for Ellison’s latest bill, which it says gives investors back their right to choose whether they want to take their dispute to court or arbitration.

John Carris Investments Expelled by FINRA

Published on: February 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A FINRA panel has expelled John Carris Investments LLC, along with Chief Executive Officer George Carris from the securities industry. Bot are accused of suitability violations and fraud.

According to the panel, Carris and JCI were reckless when selling shares of stock and promissory notes. They purportedly left out material facts and used misleading statements. Both have been barred for manipulating Fibrocell’s stock price via the unfunded purchases of big stock blocks and engaging in trading that was pre-arranged through matched limit orders.

The FINRA panel said that JCI and Carris acted fraudulently when they did not reveal the poor financial state of parent company Invictus Capital yet sold the latter’s stock and notes. Material facts were purportedly left out of offering documents. Rather than shutting down operations when it ran out of net capital compliance, JCI kept selling Bridge Offering notes to investors and using money from the sales to remedy its net cap deficiency, all the while not telling customers that was were the money went. Offering sales were also used by Carris to cover his personal spending.

PFS Investments, Ex-Broker Under Investigation for Securities Fraud that Bilked At Least Twenty Customers

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

The Financial Industry Regulatory Authority is accusing former broker Barkley Lundy, who worked with PFS Investments, of defrauding at least 20 customers. The self-regulatory organization claims that from at least 1/11 through 3/14, Lundy took these clients’ funds and placed the money in his own bank accounts. He also purportedly generated fake investments, issuing monthly payments to customers to conceal the securities fraud. FINRA says that Lundy violated FINRA Rule 2010 when he comingled customer monies.

The SRO said that Lundy kept a list of customers, setting up a payment schedule for them to receive monthly payments. PFS Investments was unaware of the payment schedule and the list. Lundy moved the money of a few of his customers from his account into their bank accounts and then moved the funds into their PFS accounts. He also worked it out so that these customers bought mutual fund shares that were customer-held. Lundy explained the fund movements as “dividend reinvestments.”

He gave one customer, per that client’s request, tax forms to track the monthly payments. FINRA, however, says that the documents were fabricated and contained falsified information. Meantime, Lundy made it appear as if PFS Investments not only provided the documents but also created them.

John Carris Investments Expelled by FINRA

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

A FINRA panel has expelled John Carris Investments LLC, along with Chief Executive Officer George Carris from the securities industry. Both are accused of suitability violations and fraud.

According to the panel, Carris and JCI were reckless when selling shares of stock and promissory notes. They purportedly left out material facts and used misleading statements. Both have been barred for manipulating Fibrocell’s stock price via the unfunded purchases of big stock blocks and engaging in trading that was pre-arranged through matched limit orders.

The FINRA panel said that JCI and Carris acted fraudulently when they did not reveal the poor financial state of parent company Invictus Capital yet sold the latter’s stock and notes. Material facts were purportedly left out of offering documents. Rather than shutting down operations when it ran out of net capital compliance, JCI kept selling Bridge Offering notes to investors and using money from the sales to remedy its net cap deficiency while not telling customers that was were the money went. Offering sales were also used by Carris to cover his personal spending.

FINRA Fines Fidelity $350K for Overcharging More than 20,000 Clients $2.4M

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

The Financial Industry Regulatory Authority says that Fidelity Investments must pay $350,000 for overcharging thousands of clients $2.4 million for transactions involving fee-based accounts in its Institutional Wealth Services Group. The overcharges are said to have occurred from 1/06 to 9/13. The group offers brokerage and trading services to investment advisers and their clients.

According to the self-regulatory organization, the inappropriate charges happened because of a supervisory oversight involving the way that Fidelity applies fees under its asset-based pricing model. The model typically charges according to assets, not transactions.

FINRA says that until 2013, the financial firm did not have a designated supervisory principal to oversee the group’s asset-based pricing program. As a result, a number of clients may have been charged excess commissions beyond the asset-based management fee or were double billed.

FINRA Orders Pershing to Pay $3M Fine for Customer Protection Rule Violations

Published on: January 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. says that Pershing, a Bank of New York Mellon Corp. (BK) unit, must pay $3 million for violations involving the Customer Protection Rule. According to the self-regulatory organization, for about nine months between ’10 and ’11, the clearing firm did not put aside the money needed for a reserve account, per FINRA’s deposit requirements.

The SRO said that deficiencies, from $4 million to $220 million, came from Pershing’s “misinterpretation” of aspects of the rule, as well as inadequate supervision over the way the firm calculated what needed to be put in reserve. Also, over a certain time period, Pershing did not promptly get or keep up physical possession or control of certain customers’ margin securities. This resulted in nearly four dozen new control or possession deficits, while significantly raising the number of existing control or possession deficits.

The Customer Protection Rule mandates that brokerage firms maintain custody of customer cash and securities in order to comply with the following requirements: keep a cash reserve or qualified securities in a bank account that has at least the equivalent value of the net cash the broker-dealer owes customers, as well as obtain and keep up control or physical possession over customers’ excess and fully paid margin securities.

FINRA Releases Priorities for 2015, Gets SEC Approval for Background Check Rule

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

The Securities and Exchange Commission has approved a Financial Industry Regulatory Authority proposal mandating that broker-dealers conduct more rigorous background checks on new hires. Per the new rule, brokerage firms must implement written procedures for confirming the completeness and accuracy of a broker’s registration data on a Form U4.

Firms will have to search “reasonably available public records” of both new hires and new registrants within 30 days of a U4’s submission to FINRA.

In other FINRA news, the self-regulatory organization has just released its exam and regulatory priorities for 2015. The regulator stated that the majority of compliance problems could be worked out if only broker-dealers always acted in their clients’ best interests. The statement was a significant one, considering that brokers are currently just obligated to make sure that they investments they recommend are suitable for clients.