FINRA

FINRA Panel Tells Ameriprise to Pay Elderly Couple $1.7M Over Unsuitable Real Estate Investments

Published on: May 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Arbitration panel says that Ameriprise Financial Services Inc. (AMP) must pay $1.17M to two senior investors for getting them involved in investments that failed. The panel said that the financial firm acted inappropriately when it advised Albertus Niehuis Jr., 82, and his wife Andrea, to put $1.03M into high-risk tenant-in-common investments involving hotels and office complexes six years ago. They are retired school teachers.

One of the investments failed. The other two lost significant value. Despite the ruling, the financial firm insists that it gave the Niehuises the appropriate investment advice and it stands behind the recommendations.

In 2012, ThinkAdvisor.com said that the number of senior investors is expected to reach 89 million in 2050. Currently, there are close to 40 million Americans belonging to the age 65 and over group. Unfortunately, elder financial fraud continues to be a serious problem.

FINRA Sees 10% Rise in Arbitration Cases, Puerto Rico Bond Claims A Factor

Published on: April 27, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to statistics put together by the Financial Industry Regulatory Authority, the number of securities arbitration cases brought by the self-regulatory agency is on target to exceed last year’s total. A likely contributor to the increase can be attributed to the numerous Puerto Rico municipal bond cases already filed by investors who sustained huge losses. More of these are inevitable, especially as FINRA just increased its arbitrator pool to deal with cases involving muni bonds from the US territory.

The broker-dealer regulator said that during this first quarter alone, 1,011 FINRA arbitration cases were submitted-a definite increase from the 919 securities arbitration claims filed during 2013’s first three months. However, the number of arbitration cases that were closed during this first quarter is less than in two years prior, with just 946 resolved. Compare that to the over 4,400 and 4,800 cases in 2013 and 2012, respectively.

That said, 5O% of arbitration cases decided during this initial quarter rendered damage awards, which is more than in the last two years. The most common claim in FINRA arbitration cases filed in 2014 so far is breach of fiduciary duty. Negligence, failure to supervise, and breach of contract are the other leading claims.

The Brokerage Industry Responds to FINRA’s Broker Compensation Proposal

Published on: April 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A number brokerage firms, including Morgan Stanley Wealth Management, LPL Financial (LPLA), and Stifel Nicolaus (SF) have responded to the Securities and Exchange Commission’s request for comments about FINRA-proposed rule about broker compensation. Proposed rule 2243 would require greater disclosure about the financial incentives that is offered to representatives who change jobs. The information would need to be conveyed to the self-regulatory agency.

Under Rule 2243, clients who go with a broker to a new firm would have to be apprised of any recruiting compensation the representative gets if the amount is $100,000 or greater. This would include bonuses at the front and back ends, signing bonuses, transition assistance, and accelerated payouts. The disclosure would be applicable for one year after the representative begins association or employment with the new broker-dealer.

The rule also would apply if the brokerage firm expects total compensation paid during the representative’s first year of association to result in a $100,000 or 25% increase in compensation from the year prior. Firms also would have to notify FINRA about such a rise in compensation. (The SRO wants to use the data to look for signs of potentially related sales abuses.)

FINRA Doesn’t Want Oversight Over Financial Advisers, Says CEO Ketchum

Published on: April 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Financial Industry Regulatory Authority CEO Richard G. Ketchum, the regulator no longer wants to be given oversight over financial advisers. Speaking to The Wall Street Journal, Ketchum said the self-regulatory agency had done all it could to be granted authority over investment advisers and has decided to stop with additional attempts.

FINRA currently oversees brokers. Meantime, the Securities and Exchange Commission and the states oversee registered investment advisers. The SEC had been exploring having FINRA or another agency police RIAs instead. However, the majority of investment advisers were against such a move because of the way FINRA handles enforcement. They don’t think the regulator understands the way investment advisers operated.

Ketchum is now saying that Congress should give the SEC the resources it needs to enhance its examination program of advisers. The Commission has been asking for more money because it can only afford to examine investment advisor firms about once a decade, which isn’t much oversight at all.

Puerto Rico Bonds Are at Record Low Prices After FINRA Announces It Is Looking At Transactions

Published on: March 27, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg, Puerto Rico bonds that were issued this month are now at record low prices after the Financial Industry Regulatory Authority announced that it is looking at transactions involving the new securities. The US territory sold $3.5 billion of general obligation bonds, which is the largest junk bond offering in the history of the municipal market.

According to numerous financial news sources, the offering documents for Puerto Rico’s newly issued bonds stated there would be a $100,000 minimum order allowed so that the purchasers of the junk bonds would be limited largely to institutional buyers. Their prospectus says that bonds were to be issued at a $100,000 minimum and “integral multiples of $500,000 in excess thereof” unless Standard & Poor’s, Moody’s Investors Services, and Fitch Ratings raise Puerto Rico’s credit to investment grade. All three credit ratings agencies recently declared the US territory’s credit ratings “junk.”

Nevertheless, many transactions under the $100,000 amount have been reported, despite the lack of an upgrade in the bonds. As a result, scores of Puerto Rico bond transactions issued this month were cancelled. There is also data indicating that some brokers are trading under the $1,000 minimum established by the prospectus.

Non-traded REITS Exhibit Unbelievable Resistance to FINRA Disclosure Rules

Published on: March 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The non-traded real estate investment trusts industry wants to delay the implementation of the Financial Industry Regulatory Authority disclosure rule until the end of 2015. The rule would require that investors be given more accurate data about the valuation of direct participation programs and non-traded REITs.

This should provide investors with a more accurate picture of how much it costs to buy non-traded REIT shares. Currently, the self-regulatory authority’s proposal would put the rule change into effect at the end of 2014, which would be about six months after obtaining Securities and Exchange Commission approval.

Almost all non-traded REIT vendors are independent brokerage firms. Generating close to $20 billion in sales last year, which is twice as much as the year prior, broker-dealers and their representatives have gotten commission boosts due to their typical 7% commission.

FINRA Orders Securities America and Triad Advisers to Pay $1.2M Over Reporting Violations

Published on: March 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining Securities America and Triad Advisors $625,000 and $650,000, respectively, for not properly supervising the way consolidated reporting systems were used. Triad must also pay $375,00 in restitution. Even though they are settling, the two firms are not denying or admitting to wrongdoing.

The self-regulatory organization said this inadequate supervision led to statements containing inaccurate valuations that were sent to customers. The two firms are also accused of disobeying securities laws by not keeping appropriate consolidated reports.

A consolidated report is a document that includes information about the bulk of a customer’s financial holdings. The report is a supplement to official account statements.

Fines for FINRA Sanctions Went Down 27%, Reports New Analysis

Published on: March 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a review of Financial Industry Regulatory Authority actions in 2013, fines imposed by the self-regulatory organization dropped by 27% compared to the year before, even though the number of cases during both were almost identical. Sutherland Asbill & Brennan LLP, which completed the review, said that last year FINRA imposed $57 million of fines, compared to $77 million in 2012.

The fine total from 2013 was the lowest imposed since 2010, when the regulator fined member firms and associated individuals $45 million. Also, even though the fines went down, there was 1% less disciplinary actions brought by FINRA at 1,535 actions, compared to the 1,541 submitted made in 2012. Another decline occurred in the number of firms that FINRA expelled-24 in 2013 and 30 in 2012. That said, the SRO did suspend more individuals-670 last year, up from 549 the year before-and bar more persons from 294 in to 429 last year, which is a 46% increase.

Sutherland’s believes the fines went down because many of the cases generated by the financial crisis have been tackled. This means that even with so many cases, these aren’t necessarily resulting in fees that are as high.

Berthel Fisher & Affiliate Fined $775K by FINRA Over Supervisory Failures Involving Non-Traded REITs and Leveraged and Inverse ETFs

Published on: February 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Berthel Fisher & Company Financial Services, Inc. and its affiliate, Securities Management & Research, Inc. are going to pay the Financial Industry Regulatory Authority a combined $775,000 for purported supervisory deficiencies related to leveraged and inverse exchange-traded funds and non-traded real estate investment trusts. The firm settled without deny or admitting to the allegations.

FINRA claims that from January 2008 to December 2012 Berthel Fisher had inadequate written procedures and supervisory systems to deal with the sale of alternative investment products, such as managed futures, non-traded REITs, oil and gas programs, managed futures, business development companies, and equipment leasing programs. The SRO says that the brokerage firm’s staff were improperly trained with regard to state suitability standards, and criteria wasn’t properly enforced in a number of alternative investment sales because the firm did not figure out the correct concentration levels of certain financial instruments.

FINRA also said that from 4/09 to 4/12, Berthel Fisher lacked a reasonable basis for certain ETF sales, resulting from numerous reasons, including a failure to properly review or research non-traditional ETFs before letting registered representatives make recommendations to customers. Inadequate sales training was not provided and some customers suffered losses because the brokerage firm did not monitor investment holding periods.

FINRA Seeks to Limit Definition of Public Arbitrator

Published on: February 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to Investment News and The Wall Street Journal, sources in the know say that the Financial Industry Regulatory Authority wants to limit how many brokerage industry insiders can act as arbitrators in investor disputes with broker-dealers and brokers. The amendment would keep anyone affiliated with the securities industry, including lawyers and ex-brokers, from representing themselves in the role of public arbitrator. FINRA’s board of directors will decide whether to approve a proposed rule changes on this matter at a meeting this week.

Under the FINRA arbitration system, there are two arbitarator categories: nonpublic and public. Public arbitrators usually don’t have a current insider industry connection with the securities industry. Meantime, arbitrators that are nonpublic can have current ties, even working as a banker or a broker or securities fraud lawyer.

Usually, there are three arbitrators on a panel presiding over an investor-broker dispute. The panel members are selected from a list of arbitrators. Respondents and claimants go through this list to eliminate those they don’t want on the panel.