Investor Lawyers Blog

“Ask and It Shall Be Received”: Securities Brokers Can Wipe Complaints and Even Legal Claims Off Their Public Records

Published on: June 20, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The New York Times is reporting that on May 24, a Financial Industry Regulatory Authority panel of arbitrators granted Wells Fargo (WFC) broker Michele Kief ‘s request that it recommend that the securities complaint, in which the bank settled for $125,000 allegations of fraud and negligence related to her actions, be deleted from her record. They also agreed that it be noted that the investments at issue were “suitable and safe. “There at least eight other client disputes on BrokerCheck against Kief. BrokerCheck is FINRA’s regulatory database.

Just two months before, FINRA arbitrators also consented to recommend the deletion of a securities arbitration complaint against ex-Charles Schwab (SCHW) executive Kimon P. Daifotis. This was the eighth such recommendation against Daifotis, who ran the Schwab Yield Plus fund that led investors to lose hundreds of millions of dollars.

“As FINRA publishes, advertises and encourages investors to check a broker’s record to gain information about their broker or a prospective broker, FINRA arbitrators often wipe that record clean.” Says William S, Shepherd, a securities attorney who represents investors in cases against brokers. “Everyone would like to wipe our credit record clean, maybe we just need to ask. Also, there is no educational requirement to become a securities broker, not even a high school degree. The only requirements are a 4-month apprenticeship and passing a multi-state state and a FINRA examination. Yet, securities brokers manage millions, some even hundreds of millions, of investors’ money. Their average six-figure income brokers places them in the highest percentiles of earnings in the U.S, along with other licensed professionals. Public disclosures are, and should be, important for those who often turn over their retirement accounts and even entire life savings to be handled by those who call to extoll their expertise.”

LPL Securities Names Ex-SEC Official As Its New General Counsel

Published on: June 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

LPL Securities has hired the Securities and Exchange Commission Division of Enforcement’s ex-acting deputy director David Bergers as LPL Financial Holdings Inc.’s (LPLA) general counsel and managing director for government and legal relations. Following news of the appointment, LPL CEO and Chairman Mark Casady was quick to point out that the firm didn’t choose Bergers because it recently has been in trouble with regulators. That said, Casady did acknowledge that Bergers’ 13 years of SEC experience was one reason he became the top contender for the post. Because of SEC rules, Bergers is not allowed to appear before the Commission as an LPL representative until June 2014.

A source close to our securities fraud law firm says that there are at least seven complaints against Bergers at the moment, with the majority of them involving large seven-figure. Before working at the SEC, Bergers served as assistant general counsel and vice president for Tucker Anthony Inc., a regional brokerage firm.

In regards to LPL’s recent trouble’s with regulators, there was the $7.5 million that the Financial Industry Regulatory Authority ordered the financial firm to pay over nearly three dozen key e-mail system failures (including retention issues) that occurred between 2007 and 2013 involving 28 million business emails and thousands of independent contractor representatives. The SRO accused LPL of inadequate supervision, failure to capture emails and respond to regulator requests, and making misstatements during the SRO’s investigation. In addition to the fine, LPL has to establish a $1.5 million fund for customer compensation.

Former Millennium Global Investments Portfolio Manager Accused of Fraud Involving Nigerian Sovereign Debt Markups

Published on: June 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to prosecutors, Michael Balboa, an ex-Millennium Global Investments Ltd. portfolio manager, took part in a 10-month financial scam that involved marking up the Nigerian sovereign debt in funds he oversaw.

The federal government contends that Balboa and three unnamed co-conspirators engaged in a scheme in which he provided bogus mark-to-market quotes to a valuation agent that then inflated the market prices at month-end for Nigerian warrants. As a result, one fund’s total valuation for the Nigerian warrants was able to go from over $12 million at the start of 2008 to over $84 million in August of that year. Balboa’s Millennium Global Emerging Credit Fund is now insolvent.

He allegedly overstated the value of the securities positions and illiquid securities in the funds, which caused him to earn performance and management fees that were not legitimate. Balboa also purportedly lied to investors repeatedly about how the funds were faring.

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer

Published on: June 18, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to former broker David Evansen, he is the reason that Mitchel C. Atkins, the Financial Industry Regulatory Authority Inc.’s District 7 region director, resigned. His claim differs from the SRO’s statement about how Atkins decided to step down “pursue other interests.” Aktins, as FINRA regional director, was in charge of Florida, Atlanta, New Orleans and Dallas, and he worked with the agency for 20 years.

Evansen said that he wrote to FINRA chief executive Richard Ketchum and regulatory operations EVP Susan Axelrod to let them know that Atkins was indicted on both a misdemeanor and felony charge in Louisiana two decades ago. He said that he couldn’t confirm for sure that his letter is why Atkins resigned but he is convinced that it is.

Per Evansen, Atkins purportedly used bingo game earnings for non-charitable purposes, which is illegal in that state. While the felony charge was dropped, Evansen said that Atkins pleaded guilty to the misdemeanor charge. After Atkins complied with his sentence term, which included conditional probation, community service, and other specifics, his record was expunged.

SEC Risk Fin Director Wants Public Input About Investor Protection-Related Costs and Benefits

Published on: June 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission’s Division of Risk, Strategy and Financial Innovation’s director Craig Lewis wants members of the public to be more proactive about offering information regarding investor-protection related benefits and costs during the rulemaking process. At the Pennsylvania Association of Public Employee Retirement Systems’s spring forum, Lewis said that it would help the regulator if it was given if not quantitative data, then qualitative, descriptive, and thorough information so it could better comprehend the possible effect a rule might have on investor protection.

According to the Commission’s recently published guidance on how it performs economic analysis to support rulemaking, there are four basic elements, including:

1) Identifying the justification for why there should be a rulemaking.

Radio Host Dave Ramsey and Financial Advisers Get Into Twitter Fight

Published on: June 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Dave Ramsey, a well-known radio host, recently got into a twitter war with fee-only financial advisers. The advisers had criticized the radio personality, who is also an author, for telling his readers to expect a 12% investment return and for promoting brokers who are commission-based. Ramsey hosts the popular “The Dave Ramsey Show,” which is a program about money and life.

One adviser, Carl Richards, Tweeted that Ramsey’s advice was “dangerous.” Ramsey responded to his critics also via Twitter, saying that he provides assistance to more people in minutes than all of these advisers ever will.

Another adviser, David Grant, questioned whether the investment professionals that Ramsey recommends on online pay the host for that endorsement. Ramsey did not respond. However, his website does state that local providers that are endorsed do pay a fee for the “local advertising.” All recommended providers, however, have to be Financial Industry Regulatory Authority Inc. members.

Brokerage Firms Change Hands as Insurers Divest In House Securities Firms, While REIT Manager Schorsch Buys First Allied Securities

Published on: June 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Symetra Financial Corp. (SYA), an insurance company, is leaving the independent brokerage business after it sells its broker-dealer Symetra Investment Services Inc. to Manulife Financial Corp. (MFC) unit John Hancock Financial Services Inc. (JHF). Symetra chief executive Tom Mara said that considering the company’s products at this time, owning the brokerage firm as a “distribution channel” isn’t a “good strategic fit” any longer.

The insurer’s brokerage company has approximately 280 registered representatives. Manulife is making the buy in part because it wants to broaden its asset-management business. (Last year, it agreed to buy Wellington West Financial Services Inc. from National Bank of Canada.)

However, ever since the credit crisis, Symetra isn’t the only insurer to get rid of their independent broker-dealers because of the risks and expenses involved with being part of the securities industry. (The declined in variable annuities sales hasn’t encouraged insurance companies to stay in the broker business either.)

CBOE Will Pay $6M Penalty Over SEC Charges Alleging Failure to Enforce Trading Rules

Published on: June 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Chicago Board Options Exchange, which is the largest options exchange in the United States, has consented to pay $6 million penalty to settle Securities and Exchange Commission charges accusing it of not fulfilling its obligation to enforce trading rules and failing to stop one firm member from engaging in abusive-short selling. The exchange is settling and taking corrective action but is not admitting to/denying wrongdoing.

While CBOE is an SRO (self-regulating organization), the SEC has wide oversight over trading. This is the first penalty that an exchange is paying for purported regulatory oversight failures. The Commission is also censuring the exchange, which means a tougher sanction could result if the alleged violation occurs again.

According to the regulator, in 2008, CBOE transferred the monitoring of member firms’ compliance via a rule for curbing abusive short-selling practices to a different department. This, contends the SEC, hurt the exchange’s ability to enforce the rule. (Short-selling involves a trader betting that a stock will drop in value. Short-sellers borrow the shares of a company, sell them, and then purchase them when the stock fails, giving them back to the lender while keeping the price difference. Unfortunately, too much short-selling focusing on weak companies can cause them to fail, inciting market volatility.)

Muni Bonds Draw Investors But Come With Serious Risks

Published on: June 11, 2013 | by Shepherd Smith Edwards & Kantas, LLP

With many municipalities exhibiting better financial health and tax-free bonds touting pretty good returns, municipal bonds are attracting investors. However, this doesn’t mean that you, as a prospective investor, shouldn’t approach munis with caution.

Investors don’t pay a commission when they purchase a municipal bond, but they do have to pay a “markup,” which is the difference between the price paid and the broker’s cost. Unfortunately, many brokers don’t tell customers about this markup, instead focusing on the benefits of yield rather than disclosing more about the price. Because of this, most retail investors don’t know how much these trades are costing them in charges. You should know that these markups can be pretty high.

The Wall Street Journal reports that according to a study from research firm Securities Litigation and Consulting Group, out of one in 20 trades, investors that purchased $250,000 or less in municipal bonds paid a 3.04% markup or greater, which, at today’s rates, is one year’s worth of interest income (compare that to the under $10 in commission investors pay when purchasing stock from the majority of online brokers-.004% interest on $250,000; meantime, management fees for mutual funds are approximately 1% yearly. The study examined close to 14 million trades involving long-term, fixed-rate munis between April ’05 to April ’13.

As Their Prices Hit a 2-Year Low, Gold ETFs Liquidate En Masse

Published on: June 10, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Gold, once a hot commodity in the markets, is, at least for now, considered incredibly passé. ETF Trends editor Tom Lydon says that over 600,000 pounds of gold have been disposed of this year. He says that gold is out of favor for at least a couple of reasons: Central Banks aren’t as interested, and investors are currently looking more to back stocks and bonds, since both are doing relatively well.

Lydon, however, was quick to point out that gold isn’t gone for good, especially when investors will want to hedge against inflation and markets when the need arises once again. Meantime, investors may be opting to buy just a small amount of gold to stick in their portfolios.

Gold ETFs