Articles Tagged with FINRA

Kalos Capital And GPB Capital: What Is Their Connection? 

Shepherd Smith Edwards and Kantas (SSEK Law Firm) is continuing to investigate and file cases against Kalos Capital and its financial advisors in relation to GPB Capital investments. Kalos Capital is a FINRA licensed broker-dealer which is a subsidiary of Kalos Financial. Both are based our of the same address in Alpharetta, Georgia. 

According to Kalos’s BrokerCheck Report (FINRA’s official record of firms and brokers), Kalos Financial owns 75% or more of Kalos Capital. According to its website, Kalos Financial was founded by David and Carol Wildermuth in 2004. 

The United States Court of Appeals for the 9th Circuit has refused to overturn the US Securities and Exchange Commission ruling that Wedbush Securities Inc. engaged in inadequate supervision of its own regulatory compliance. The appeals court also affirmed the suspension of the brokerage firm’s president and principal Edward W. Wedbush.

The SEC’s 2016 finding had sustained a 2014 ruling by the Financial Industry Regulatory Authority’s National Adjudicatory Council, which ordered Wedbush to pay a $350K fine for either not filing, or filing late, dozens of documents regarding complaints and judgments that had been brought against the investment firm and its financial representatives. Finra found that Wedbush Securities violated the bylaws and rules of the NASD, the NYSE, and the self-regulatory organization itself 158 times and was delinquent in submitting the documents at issue over a five-year period, from 1/2005 to 7/2010.

Wedbush and its president had tried to argue before the SEC that FINRA was wrong in finding that the broker-dealer failed to supervise reporting requirements. The brokerage firm also questioned whether the hearing it received before the SRO was a fair one since a FINRA rule did not specifically note suspension as a sanction.

FINRA Arbitration Panel Awards Allegis Investment Advisors Client $404,482

A Financial Industry Regulatory Authority arbitration panel has awarded Mark Watson $404,482 in his unauthorized trading case against Allegis Investment Services, Allegis Investment Advisors, and ex-broker Brandon Curt Stimpson. Watson is accusing Stimpson of placing his life savings in investments that were too risky and complex and of making unauthorized trades involving index put options connected to the Russell 2000 Index even though he had told the broker that he only wanted up to 25% of his portfolio involved in these. Instead, Watson alleges, Stimpson invested way more of his money in the index put options.

In his securities arbitration case, Watson also alleged breach of fiduciary duty. Now, a FINRA panel has awarded him nearly $275K in compensatory damages, nearly $54K in interest, and other costs.

Stimpson was fired by Allegis last year for not abiding by the firm’s ethics code and policies. According to his BrokerCheck records, he has been named in eight other customer disputes.

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New Hampshire Says Merrill Lynch Must Pay $400,000 For Not Complying with Telemarketing Rules

Bank of America (BAC) Merrill Lynch has consented to pay $400,000 to resolve claims made by the New Hampshire Bureau of Securities Regulation accusing the firm of improperly soliciting business when it called people who were on do-not-call lists and were not clients. As part of the deal, Merrill Lynch will improve its telemarketing procedures and policies. A spokesperson for the brokerage firm says it has already enhanced internal controls to avoid making inappropriate calls moving forward.

According to the regulator, not only did the broker-dealer fail to fully comprehend how to comply with the state’s rules for telemarketing but also the firm did not reasonably supervise its agents’ telemarketing activities in New Hampshire.

The Financial Industry Regulatory Authority is ordering Wells Fargo Advisors Financial Network (WFAFN) and Wells Fargo Advisors (WFA) to collectively pay $1.5M for anti-money laundering (AML) failures. According to the self-regulatory organization, the two brokerage firms did not comply with a main component of the anti-money laundering compliance program when it did not require some 220,000 new customer accounts to go through an identity verification process. The failures purportedly occurred from 2003 to 2012.

The anti-money laundering compliance program mandates that brokerage firms set up and keep up a written Customer Identification Program that lets them confirm the identity of every customer setting up an account. The broker-dealer should use the CIP to get and verify a minimum amount of identifying data before opening a new customer account. The firms must also keep records of the verification process and let customers know that data is being gathered to confirm their identities.

FINRA said that the firms had a CIP system but it was deficient because of the electronic systems involved. Of the 220,000 new accounts that never had to undergo customer identify verification, some 120,000 of them were closed by the time the problem was identified.

FINRA Fines WGF Investments $700,000 for Supervisory Failures

The Financial Industry Regulatory Authority is fining WGF Investments $700,000 for failing to commit the attention, time, and resources to certain duties related to supervising registered representatives. WGF is a midsize independent brokerage firm.

According to the self-regulatory organization, from 3/07-1/14, WGF did not supervise private securities transactions of one representative and failed to keep up an adequate supervisory system to make sure that the customer transactions taking place were suitable. The broker-dealer also is accused of not properly supervising one representative’s alternative investment sales.

FINRA is ordering Bank of America’s (BAC) Merrill Lynch to pay a $1.9M fine for violating fair price guidelines over seven hundred times during a two-year period. The financial firm also must pay restitution of over $540K to customers that were affected.

According to the self-regulatory organization, Merrill’s credit trading desk purchased MLC notes from retail customers at up to 61.5% under the market price. General Motors had issued the notes prior to its bankruptcy. MLC Notes stands for Motors Liquidation Company Senior Notes.

Out of 716 transactions, 510 of them involved notes bought at markdowns that were greater than 10%. The desk would then sell the notes to brokers at market cost.

The Financial Industry Regulatory Authority Inc. is thinking of giving up its proprietary lock on BrokerCheck information. This would allow for greater examination of a broker’s disciplinary data, including regulatory and arbitration actions, as well as customer complaints. The SRO is currently seeking public comment on this matter through April 6.

Opening up access to BrokerCheck data would allow commercial users to make the reports, known for being pretty dense, friendlier for users. (Some people have said that the information available is “convoluted” and uses language that can be hard for an investor to comprehend.) This could help investors more easily find information about a broker. Also, vendors might be able to establish comparison data and some complaint data on the firm-level could become accessible.

Up until this point, FINRA has been protective about keeping its disciplinary information confidential. Not only has it prevented the automatic downloading of the BrokerCheck database, but also, this information has only been available through one-off data requests by individuals.

Critics of FINRA’s closed door policy have said these limitations protect the financial industry by keeping embarrassing information about firms and brokers private. While this has allowed financial advisers with numerous complaints against them to keep such secrets quiet, invaluable information, such as whether one broker has received more complaints than another, ends up not becoming known. The SRO, however, maintains that it hasn’t been shielding the industry with its BrokerCheck restrictions.

One reason that FINRA is considering making its BrokerCheck data more easily accessible is because it has been under pressure to merge the database’s search results with the Investment Adviser Public Disclosure database. IAPD data is pubic information and can be downloaded automatically. (Last year, FINRA considered putting the two systems together into one database to be made public but now says it is more practical to keep them separate.)

It wasn’t until recently that FINRA was the only regulator to have an online tool that let investors look into the backgrounds of members of the financial services industry. It was in 2010 that the Securities and Exchange Commission widened the IAPD database to include not just investment advisor firm information, but also data about IA representatives.

Last year, as mandated by Dodd-Frank’s Section 919B, the Commission put out a study and recommendations on how to better investor access to information related to broker-dealer and investment adviser registration. AdvisorOne reports that to improve how investors can better access this type of data, the SEC is recommending that search findings for it and the IAPD databases be unified, zip code and other location indicator-related searches be implemented, and educational content to help investors navigate any unfamiliar term definitions or links be included. Dodd-Frank wants these recommendations implemented soon, and FINRA plans to have this completed by the July deadline.

FINRA to Restructure BrokerCheck, Giving Investors More Power, AdvisorOne, March 2, 2012

Finra may give up lock on BrokerCheck, InvestmentNews, March 1, 2012

More Blog Posts:
Appeals Court affirm SEC Finding that Broker Acted “Willfully” When Keeping IRS Lien Information from FINRA, February 24, 2012

FINRA Says Charles Schwab Corp. is Making Customers Waive Right to Pursue Class Action Lawsuits, February 8, 2012

Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses, Institutional Investor Securities Blog, January 6, 2012 Continue Reading ›

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