FINRA

Morgan Stanley Smith Barney Employee Fined and Suspended by FINRA Over Unauthorized Signatures

Published on: September 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has imposed a 60-day suspension on Carmela L. Knieriem, a former Morgan Stanley Smith Barney female employee over allegations that while employed by the financial firm, she signed other employees’ signatures without obtaining the required approvals and authorizations. FINRA is also fining Knierem $5,000. While she has submitted a Letter of Acceptance, Waiver and Consent to settle the charges, Knierem is not denying or admitting to the findings.

According to Forbes.com, Between November 2009 and October 14, 2010, Knieriem was associated with the financial firm’s Rancho Bernardo Branch, where she was tasked with providing branch managers, financial advisers, and other employees with administrative support. Part of her job was to prepare specific internal administrative forms related to the processing and documenting of verbal requests, known as “Verbal Forms,” that were made by customers.

FINRA says that when Knieriem made the unauthorized signatures when preparing these Verbal Forms she violated FINRA Rule 2010 10 times. The SRO contends that in six instances, at the request of the financial advisor EP, she prepared an instruction form documenting a client’s verbal request for journal funds between the client’s accounts, the transfer of money from a client’s account, the release of account statements to a third party, and the issuance of a $75,397.22 check from the customer’s account. Knieriem also is said to have followed a financial advisor GT’s request to prepare an instruction form for a client’s verbal request that a stop payment be placed on one of his checks. She also followed the request of a financial adviser CL, who asked her to prepare an instruction form to issue a $95.62 for a client. Also, FINRA says that branch manager RL asked her to prepare an instruction form to journal funds between accounts.

Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions

Published on: September 17, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has fined Morgan Stanley Smith Barney LLC and Morgan Stanley & Co. Inc. $1 million for charging excessive markdowns and markups to corporate and municipal bond transactions clients. The SRO has also ordered that the financial firm pay $371,000 plus interest in restitution to these investors. By agreeing to settle, Morgan Stanley has not denied or admitted to the securities charges.

According to FINRA, the markdowns and markups that Morgan Stanley charged ranged from under 5% to 13.8%. Considering how much it costs to execute transactions, market conditions, and the services valued, these charge were too much.

The SRO also determined that the financial firm had an inadequate supervisory system for overseeing markups and markdowns of corporate and municipal bonds. Morgan Stanley must now modify its written supervisory procedures dealing with markups and markdowns involving fixed income transactions.

FINRA Market Regulation Executive Vice President Thomas Gira has said that Morgan Stanley violated fair pricing standards. He noted is important for financial firms that sell and purchase securities to make sure that clients are given reasonable and fair prices whether/not a markdown or markup exceeds or is lower than 5%.

A Markup is what is charged above market value. It is usually charged on principal transactions involving NASDAQ and other OTC equity securities. Markups on principal transactions usually factor in the type of security, its availability, price, order size, disclosure before the transaction is effected, the type of business involved, and the general markups pattern at a firm.

A markup on an equities security that is over 5% is seldom considered reasonable or fair. Regulators have rules in place for how much registered representatives can charge customers for services rendered. Not only do the charges have to be reasonable, but also they must be fair and not show particular preferences to any clients.

The 5% policy also applies to agency transactions. Commissions for such transactions also must be “fair and reasonable.” Commissions that go above that must be justified and are often closely examined by regulators.
While most securities professionals are committed to doing their jobs fairly and ethically, there are those determined to take advantage of the system to defraud investors. There are also honest mistakes that can occur that also can result in investor losses.

Financial firms and their representatives are responsible for protecting investors and their money from unnecessary losses resulting from securities fraud or other negligence.

Morgan Stanley Fined $1M Over Muni-Bond Markups, Bloomberg, November 10, 2011

More Blog Posts:
Whistleblower Claims SEC is Illegally Destroying Records of Closed Enforcement Cases, Institutional Investor Securities Blog, August 31, 2011

Ex-Bank of America Employee Pleads Guilty to Mortgage Fraud Scam Using Stolen Identities to Buy Homes Not For Sale, Institutional Investor Securities Blog, August 30, 2011

Securities Lawsuits Expected to Reach Record High in ’11, Says Advisen Ltd. Report, Institutional Investor Securities Blog, April 23, 2011

**This blog has been backdated.

FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisors

Published on: September 13, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Speaking before a House Financial Services Committee, Financial Industry Regulatory Authority Chief Executive Richard Ketchup said that the self-regulatory organization is ready to set up a new entity to oversee investment advisers and make sure they are in compliance with federal securities laws. Ketchum also said the SRO would hire experienced staff to do the job and that regulatory oversight to tailored to investment advisers would be put into place.

Currently, the Securities and Exchange Commission is the watchdog for investment advisers. Staffing issues, however, prevent the commission from doing a thorough and frequent job-checks are about once every 11 years. Last year, the SEC was only able to examine 9% of all registered investment advisers.

Yet there are many in the financial industry that have expressed a preference for this status quo, or, if change has to happen, they would like state regulators to do the job. Some have expressed worry that FINRA would uphold investment advisers to rules more that applicable to broke-dealers. Others are not sure that the SRO is up to the task. Many are still not happy with FINRA’s performance as a financial industry watchdog prior to financial crisis. (It is important to note that FINRA has taken some responsibility for not discovering the Bernard Madoff Ponzi scam earlier.)

Wedbush Securities Ordered by FINRA to Pay $2.8M in Senior Financial Fraud Case Over Variable Annuities

Published on: August 31, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A FINRA arbitration panel has fined Wedbush Securities Incorporated, founder Edward Wedbush, and broker Debbie Michelle Saleh to pay $2,865,885 in damages. The victim of this securities case was Rick Cooper, an elderly investor. His securities claim alleged breach of fiduciary duty, fraud, negligent misrepresentation, failure to supervise, intentional misrepresentation and omissions, unauthorized transaction, unsuitable transactions, emotional abuse, elder abuse, and churning related to transactions of unspecified variable annuities.

Cooper’s securities fraud lawyers claim that Saleh sent him bogus monthly account statements, forged his signature, and conducted transactions that he hadn’t authorized, including the buying and selling of annuities and other financial products that were not suitable for him.

While Cooper’s account balances went down to one-third of $1.86 million, Saleh is accused of making money from fees and commissions that she charged him. The FINRA panel found that Saleh purposely misrepresented information about Cooper’s investments and she did make unauthorized transactions. The panel believes that Saleh of acting intentionally to defraud her clients. They said her actions either bordered on or actually were acts of “criminal misconduct.”

Of the $2.9 million, Saleh must pay $500,000 plus $1 million in punitive damages. Wedbush and its founder have to pay $500,000. Saleh, Wedbush, and Edward Wedbush also have to pay 10% annual interest on the damages, Cooper’s legal fees, and his other costs. Wedbush has to pay 100% of the arbitration forum fees, which is about $33,300. Two years ago, Saleh, who is no longer with Wedbush, has been permanently barred from the securities by FINRA.

Cooper is not the only person to file a securities claim against Saleh accusing her of misconduct. She is at the center of 4 investigations and 10 client complaints.

Wedbush has been named in at least 53 regulatory events and 52 arbitrations. Failure to supervise was a common complaint.

Failure to Supervise
Our securities fraud lawyers cannot stress how important it is for broker-dealers and investment advisers to properly supervise their brokers, advisers, other employees, and independent contractors. Not only must appropriate supervision take place, but also procedures of supervision have to be designed, implemented, and executed. Also, an employee assigned a supervisory role must complete specialized training to receiver a supervisor license from the National Association of Securities Dealers (NASD).

In the event that the broker engages in any type of misconduct or other wrongdoing, his/her supervisor and the financial firm can be held liable for allowing the alleged acts to take place-even if the employee that actually engaged in the wrongdoing isn’t found liable. You will want to work with a securities fraud law firm that knows how to prove that failure to supervise occurred.

FINRA Panel Orders Wedbush, Former Broker to Pay Investor $2.9M, OnWallStreet.com, August 31, 2011
FINRA Arbitrators Award Millions in Elder Abuse Case, Forbes, September 1, 2011

More Blog Posts:
FINRA Panel Orders Wedbush Securities to Pay $233,000 in Securities Fraud Damages, Stockbroker Fraud Blog, March 28, 2011
Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation, Institutional Investor Securities Blog, July 16, 2011
SEC Charges Filed in $22M Ponzi Scam that Targeted Florida Teachers and Retirees, Stockbroker Fraud Blog, August 29, 2011 Continue Reading ›

Financial Industry Regulatory Authority Alerts Investors About Gold Stock Scams

Published on: August 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

FINRA has put out an alert warning investors about financial scams touting gold stocks. The name of the investor alert is “Gold” Stocks-Some Investments Mine Your Pocketbook. The caution comes as the cost of bullion reaches level highs and the increase in the number of websites, blogs, Tweets, and YouTube videos about investing in gold.

How to Detect a “Gold” Stock Scam

Unfortunately, some of these “golden” opportunities and stocks that are being marketed don’t have a lot of value or may be scams. Gold-related investment scams usually involve exploration companies’ and/or gold mining companies’ stock with a value that is usually based on gold reserves are challenging to accurately assess. Some statements made by stock promoters are purposely misleading.

Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors

Published on: August 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Two months after a federal grand jury indicted Tamara Lanz Moon for misappropriating more than $800,000 in clients’ money, the Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets $500,000 for failing to properly supervise her. Moon is charged with six counts of mail fraud. The acts of broker misconduct allegedly took place between 2001 and 2008, when the 43-year-old broker was employed by Citigroup Global Markets as a registered sales assistant with Series 7 and 63 licenses.

Court documents report that Moon targeted at least 22 Citigroup clients who were sick, elderly, or for some reason couldn’t properly monitor their accounts. Her alleged victims included an elderly client suffering from Parkinson’s disease. Moon also allegedly forged signatures, changed account documents, opened accounts with deceased clients’ social security numbers, created bogus letters of authorization, revised customer addresses, and made unauthorized trades. She was fired in 2008 after Citigroup finally discovered her alleged misconduct. FINRA would go on to permanently barred her from the industry. Moon, who was arrested by the FBI following recent indictment, is out on bail.

According to FINRA, Citigroup failed to investigate or detect a number of “red flags” that should have let the financial firm know that Moon was improperly handing client funds. The SRO is also accusing FINRA of failing to put into place reasonable controls and systems related to the supervisory review of client accounts, which allowed Moon to falsify records, and neglecting to identify suspicious activity related to disbursements and transfers in the accounts that she was using to misappropriate clients’ money.

CapWest Loses $940,000 Dallas Securities Case in FINRA Arbitration

Published on: August 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority (FINRA) has ordered CapWest Securities Incorporated to pay nearly $940,000 in a Texas securities fraud case filed by a group of investors over the recommendation and sale of numerous illiquid, risky, convertible debentures. The claimants had accused CapWest of breach of fiduciary duty, breach of contract, state and federal securities law violations, fraud, gross negligence, negligence, and other actions.

Last month, the FINRA arbitration panel ordered CapWest to pay claimant Robert E. Lee, both as an individual and as a Robert Earl Lee Revocable Trust trustee, $137,000 in compensatory damages. CapWest was also ordered to pay $478,500 in compensatory damages to Beatrice M. McCrae and Buford E. McCrae, both as individuals and on behalf of B.E. McCrae Family Limited Partnership. Robert E. Lee was also to receive $37,330 in interest for the period of October 25, 2008 through July 15, 2011 at a 5% per annum rate. For Buford E. McCrae and Beatrice E. McCrae, the interest of 5% per annum was $95,180 for the period of October 16, 2006 through July 15, 2011. Under the Texas Deceptive Trade Practices Act, Robert E. Lee is to receive $17,450 in punitive damages. Buford E. McCrae and Beatrice M. McCrae are to get paid $57,370. Payment of the claimants’ costs, legal fees, and other fees were also granted.

Convertible Debentures

Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation

Published on: July 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulator Authority Panel has ordered WedBush Securities Inc. to pay one of its traders over $3.5 million for refusing to properly compensate him. According to claimant Stephen Kelleher, he worked for the financial firm for years without consistently getting the incentive-base compensation that he was promised as a municipal sales trader. Kelleher started working for Wedbush in 2007 until right before the arbitration ruling was made.

Kelleher claims that Wedbush withheld nearly $5 million from him. While he regularly received his base salary, the bulk of his income, which was incentive-based compensation, was unevenly distributed and issued to him in May 2008, October 2009, and April 2010. Even then Kelleher contends that he did not receive everything he was owed.

In his FINRA arbitration claim, Kelleher alleged violation and failure to pay per labor laws, breach of contract, unfair business practices, and fraud. He sought over $6.1 million, including $4.17 million in compensation owed, close to $878,000 in interest, and penalties of $1 million and $2,100 over labor code violations. He also sought damages for civil code law violations, as well as punitive damages.

During the FINRA hearing, witnesses testified that it was Wedbush president and founder Edward W. Wedbush who made decisions about paying and withholding incentive compensation. Another Wedbush employee said that there were two years when he too didn’t get the incentive-based compensation that he was owed. The FINRA panel blamed Wedbush’s “corporate management structure” that required that Edward Wedbush, as majority shareholder, approve bonus pay at his discretion.

In addition to the $3.5 million, the FINRA panel also told Wedbush it has to give Kelleher the vested option to purchase 3,750 Wedbush shares at $20/share and another $375 shares at $26/share. Wedbush also must pay the Claimant for the $200 part of the FINRA filing fee that is non-refundable.

Wedbush intends to appeal the securities arbitration ruling.

Related Web Resources:
Wedbush ordered to pay $3.5M for ‘morally reprehensible failure’, Investment News, July 11, 2011

More Blog Posts:
FINRA Panel Orders Merrill Lynch Professional Clearing Corporation to Pay $64M Over Losses Sustained by Rosen Capital Institutional LP and Rosen Capital Partners LP, Institutional Investors Securities Blog, July 14, 2011

FINRA Panel Orders Merrill Lynch Professional Clearing Corporation to Pay $64M Over Losses Sustained by Rosen Capital Institutional LP and Rosen Capital Partners LP

Published on: July 14, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch Professional Clearing Corporation must pay hedge funds Rosen Capital Partners LP and Rosen Capital Institutional LP $63,665,202.00 in compensatory damages plus interest (9% from October 7, 2008). A Financial Industry Regulatory Authority arbitration panel issued the order which found the respondent liable.

In their statement of claim, made by the claimants in 2009, the hedge funds accused Merrill Lynch of reach of contract, fraud, breach of the duty of good faith and fair dealing (the New York Uniform Commercial Code), and negligence related to the allegedly unexpected margin calls that caused the claimants to sustain financial losses.

Rosen Capital Partners and Rosen Capital Institutional had originally sought at least $90 million in compensatory damages, as well as punitive damages and other costs. Meantime, Merrill Lynch had sough to have the entire matter dismissed and that it be awarded all costs incurred from the suit and other relief as deemed appropriate.

Former Texas Securities Regulator Says Self-Regulation of Securities Industry Does Not Work

Published on: July 6, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to Ex-Texas State Securities Board Denise Voigt Crawford, giving oversight of nearly 12,000 investment advisers to the Financial Industry Regulatory Authority to cut costs is a bad idea and one for which investors will end up paying the price. FINRA is Wall Street’s self-funded regulator. Already charged with overseeing brokers, it is now pushing to take over the U.S. Securities and Exchange Commission’s role as adviser regulator.

Crawford says that having FINRA oversee the industry’s activities doesn’t make sense when FINRA is the industry. She also points out that since the SRO was established in 2007, it hasn’t been successful in protecting investors, while imposing fines that are usually a fraction of the damages they sustained from securities fraud and other misconduct. Last year, FINRA fined members just $43 million while the SEC imposed over $1 billion in penalties.

Also, according to U.S. Securities and Exchange Commission data, investors who received FINRA arbitration awards usually got under half of what they initially sought. In 2010, FINRA ordered that harmed investors get $6 million in restitution, while the SEC ordered that investors recover $1.82 billion. However, through May of this year, FINRA had already ordered that investors who sustained losses get recoup $9.8 million. The SRO believes that it is ideally suited to do the job for a number of reasons, including its technological capabilities and resources and the fact that most advisers are already affiliated with broker-dealers.