Articles Posted in Inadequate Supervision

Shepherd, Smith, Edwards & Kantas (“SSEK”), a law firm specializing in representing wronged investors, is looking into allegations made by FINRA in a recent AWC filing against Booth.   In February 2018 LPL acquired INVEST.  Booth had been working at INVEST since 2005 and has been a broker since 1988.  In the AWC it is alleged that Booth received client assets with the promise of investing said assets on behalf of the clients.  Booth instead used client assets for his own personal use and never actually invested the assets.

According to Booth’s official record or CRD, he has 25 disclosures or claims against him.  This is an unusually high number, and generally indicates poor supervision.  Almost all of the complaints are on the violative conduct listed above.  According to the FINRA CRD report, most of his former clients complain of a “Ponzi scheme using multiple shell companies.”

LPL fired Booth, and according to LPL this was done after Booth admitted to misappropriation of multiple client’s assets for his own use. It should be noted that FINRA has also barred Booth from the industry and can no longer act as a stockbroker or advisor under FINRA.

Shepherd, Smith, Edwards & Kantas (“SSEK”), a law firm specializing in representing wronged investors, is looking into allegations by the SEC against former Merrill Lynch financial advisor, Marcus Boggs (“Boggs”).  Boggs reportedly joined Merrill Lynch in 2006, working in the company’s Chicago office.  The SEC has alleged that Boggs stole client funds in excess of $1.7 million.  The stolen assets were used to cover personal expenses, including credit card charges.  According to the SEC, Boggs sought to portray himself as a pillar of the Chicago community, involving himself with various charities and attending social events in an effort to ingratiate himself with the city elite. Also, according to the SEC, Boggs maintained he managed of $40 million in assets for his clients.

Merrill Lynch fired Boggs over the SEC charges in December of 2018.  Had Merrill been properly supervising Boggs, the company may have prevented some of the theft.  According to FINRA, Boggs has three complaints on his official record all involving unauthorized transfers from client accounts.  Merrill wisely sought resolution of these matters and it appears none have actually gone to hearing.

SSEK has experience in representing customers of financial advisors who either stole their money, or stole the money of other clients.  SSEK’s experience shows that before a financial advisor begins stealing money, he or she often does other things that are wrong for clients, such as unsuitable investing, churning, unauthorized trading or other misconduct.  Even after theft is uncovered, those other wrongs often go unnoticed and are never addressed without a customer hiring a law firm like SSEK.

JP Morgan Securities (JPM) agreed to pay $14M to a claimant who accused its former broker Antoine Souma of misconduct that allegedly led to $20M in net losses. According to Advisor Hub, Souma, who is based in Los Angeles, was named in Barron’s 2016 Top 100 Financial Adviser list. He is currently a Morgan Stanley (MS) broker. He “vehemently denies” the allegations made in this investor fraud claim.

The claimant, Ziad Gandour, is the founder of industrial construction management company TI Capital. He accused Souma of the following:

  • Fraud

The Texas State Securities Board is ordering William H. Lowell, the president of Lowell & Co., to pay a $40K fine after he allegedly failed to properly supervise one of his firm’s ex- financial representatives. The formerly registered broker and investment advisor, Jody Bryant Bowers, allegedly lost nearly all of the assets in two client accounts after holding onto an exchange traded fund (ETF) for too long.

According to the state’s disciplinary order, Bowers bought and sold Proshares Ultra VIX Short-Term Futures ETF (UXVY) shares, which she “exclusively” traded in in the accounts of certain clients. This type of fund makes money through S&P 500 Index volatility, benefiting when there is a drop in the index.

Because the UXVY ETF is a leveraged exchange-traded fund that is a high-risk and costly investment, it is intended for short-term trading and must be monitored every day. However, Bower allegedly disregarded the warnings that were in the ETF’s prospectus and proceeded to hold on to positions in UVXY in two client accounts for too long, including 11,000 shares in one client’s account that were held there for 987 days. This caused the loss of 93% of that client’s initial investment. Bower also allegedly held on to 2,000 UXVY shares in another client’s account for 356 days, causing a 93% loss on the initial investment.

For alleged supervisory failures and excessive trading by one of its former brokers, Summit Brokerage Services, Inc. has been ordered to pay over $880K– $558K in restitution with interest to customers that were harmed,  as well as a $325K fine to the Financial Industry Regulatory Authority (FINRA). The broker-dealer consented to the entry of the findings but did not admit to or deny wrongdoing.

According to the SRO, from 1/2012 to 3/2017, Summit neglected to review certain automated alerts for the trading activities of its registered representatives, of which there are more than 700. Because of this, one of its brokers, was able to excessively trade in accounts belonging to 14 clients, including 533 trades on behalf of one customer. This compelled her to pay over $171K in commissions.

The broker’s excessive trading resulted in 150 alerts for this type of activity, none of which were purportedly reviewed by Summit. FINRA has since barred the former registered rep.

A Financial Industry Regulatory Authority (FINRA) panel is ordering Legend Securities, CEO Anthony Fusco, and three of the firm’s former brokers to pay one investor $966,708 in damages. Legend Securities was expelled by the self-regulatory authority two years ago and is no longer in operation.

The claimant, Frederick Blake, alleged the following:

Secretary of the Commonwealth of Massachusetts William Galvin has imposed a $1.1M fine on target=”_blank” rel=”noopener noreferrer”>LPL Financial (LPLA) after finding that the brokerage firm did not properly register 651 of its advisors in the state. Galvin’s office contends that for six years, LPL let these brokers work in Massachusetts despite the lack of registration and that this violates the state’s securities laws.

In Massachusetts, a brokerage firm is required to register its agents before they are allowed to engage in securities-related business in the state. As of May 9, LPL had 4,219 agents who were registered in the state.

However, the lack of registration by 651 of its agents between March 2013 and April 4, 2019 prevented Massachusetts securities regulators from being able to check their qualifications and histories to ensure that investors who worked with them were in safe hands. 441 of these unregistered agents acted as financial advisors to at least one or more state residents during the period at issue. The other 210 agents supervised the agents who were advisors to these customers.

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded 23 investors $3M in their claim against Spire Securities, its CEO David Lloyd Blisk, and CCO Suzanne Marie McKeown. The broker-dealer and its executives were accused of inadequately supervising former broker Patrick Evans Churchville, whom the investors contend fraudulently sold them investments that caused them to lose money in a $21M Ponzi scam.

Churchville sold the investments through ClearPath Wealth Management, a registered investment adviser that he operated outside of Spire Securities. Still, the claimants contended that the broker-dealer should have prevented Churchville from causing them financial harm while he was a Spire Securities broker and could have done so had they properly overseen him.

Churchville pleaded guilty in 2016 to criminal charges accusing him of operating a $21M Ponzi scam. In 2017, he was sentenced to seven years in prison for tax evasion and wire fraud.

The Financial Industry Regulatory Authority is ordering CFD Investments to pay a $125K fine over what the self-regulatory authority (SRO) found to be the inadequate supervision of its registered representatives when they sold variable annuities(VAs) to customers. FINRA said that between 7/2014 and 7/2016 the broker-dealer did not set up, keep up, or enforce written procedures or a supervisory system designed in a reasonable enough manner that would allow the firm to properly oversee these transactions.

The SRO found that of the 1,574 VA purchase and exchanges made by the firm during the period in question, over 18% of them were L-share contracts, most of which came with long-term riders. However, according to FINRA, many of broker-dealer’s customers that bought these shares wanted a long-term investment horizon and would have benefited more from being sold B-share contracts. Also, unlike L-share contracts, B-share contracts don’t come with 30-50 basis point annual fees.

Inadequate Supervision and Inappropriate Recommendations

The Financial Industry Regulatory Authority (FINRA) is ordering Merrill Lynch to pay $300K after finding that it did not properly supervise former broker Eva Weinberg, who went to prison for defrauding former NFL football player Dwight Freeney. Merrill, which is now a wholly-owned Bank of America (BAC) subsidiary, consented to the fine and censure imposed for not properly investigating and overseeing Weinberg even after the firm had internally flagged three of her emails and a $1.7M default judgment had been rendered against her in a civil case. (It should be noted that this case is not listed on her BrokerCheck record but was reported by InvestmentNews.)

What Weinberg’s BrokerCheck record does state is that she began working in the industry in 1988, but then in 2004 she took several years away to work at a real estate company owned by a man named Michael Stern, who is also now in prison for defrauding Freeney. Even before Freeney, however, Stern already had a criminal record.

FINRA said that when Weinberg applied to Merrill for employment in 2009, she did not mention the years she had spent working for Stern. The broker-dealer went on to hire her in their Miami office where she worked with professional athletes, including Freeney. She is the one who introduced the former NFL player to Stern.

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