Stoltmann Law Offices, a Chicago-based investment and securities fraud law firm, has been prosecuting claims on behalf of burned investors against banks and brokerage firms since 2005.  We have seen it all; from the Tech Wreck, where investors were torched by the advice to put their entire retirement funds into NASDAQ darlings; to the Financial Crisis where Wall Street engineers manufactured every sort of derivative possible to off load their risk onto the accounts of retirees and investors alike. Now, as interest rates rise, inflation grips the economy, and the market waivers, the old adage that some things never change, is prescient.

For the last decade, big banks like JP Morgan Chase, RBC, and Bank of America-Merrill Lynch have been creating “structured notes” and selling them to their clients by the billions. These “notes”, they claim, offer an investor some of the upside of owning a company’s stock or an index, and some of the perks of a fixed income investment. Now, the common-sense response to this would be, no, I’ll just invest in preferred stock, or traded-REITs if I want income with growth potential. But Wall Street’s salesmen and their masters dress-up these incredibly complicated and conflicted “notes” and pump them up with grandeur and promise.

One specific investment that has fallen on particularly hard times right now is the:

Stoltmann Law Offices, a boutique securities, investment, and consumer fraud law firm in Chicago, has represented victims of fraud and Ponzi schemes since 2005, recovering tens of millions of dollars for out clients and restoring their financial security and freedom.  On September 9, 2022, it was reported that an Ameriprise financial advisor, Dusty Lynn Sternadel, was barred from the securities industry by FINRA for failing to cooperate with FINRA’s requests for information in connection with an investigation launched by the regulator.  The investigation stemmed from a regulatory filing made by Ameriprise wherein it stated it had terminated Sternadel for cause “for violation of company policies for misappropriation of client funds.”

The FINRA investigation into Sternadel did not get very far because she refused to cooperate with the regulator.  When financial advisors fail to cooperate with a FINRA investigation, FINRA Rule 8210 provides FINRA with the authority to essentially end the advisor’s career. The penalty for not cooperating with the regulatory investigation is harsh and brokers like Sternadel know this, yet she chose to take the lifetime ban instead of cooperate.  The FINRA AWC states that FINRA sent Sternadel a request to testify and produce documents, and that on August 30, 2022, during a phone call, Sternadel stated she would not cooperate or appear and understood the penalty for her refusal.

The Ameriprise disclosure regarding her termination is very vague, yet combined with the FINREA action, is disconcerting. According to the Ameriprise filing, Sternadel was terminated for cause for misappropriating (converting) client funds. Neither the Ameriprise termination notice nor the FINRA AWC state how much money was allegedly misappropriated or from how many Ameriprise customers. There are no customer complaints disclosed yet on Sternadel’s FINRA  Broker/Check Report.

Stoltmann Law Offices is investigating cases where brokers have traded excessively and churned their clients’ accounts. FINRA, the U.S. securities industry regulator,  reached a settlement with R.W. Baird for allegedly overcharging commissions on thousands of stock trades in 2019 and 2020. The firm will pay more than $416,000 in fines and restitution.

FINRA alleged “a substantial failure to supervise the commissions the firm was collecting, citing a minimum-commission policy of $100 per trade that resulted in inappropriately large fees for clients who made smaller transactions,” Barron’s reported. FINRA cited one case involving a Baird client who “purchased two shares of Apple stock for $772 and paid the $100 commission, amounting to 13% of the principal transaction.”

FINRA cited three rules that Baird allegedly violated in its trading activity, including FINRA Rule 2121, which sets terms for fair prices and commissions. That rule offers guidance that firms should cap commissions at 5%, but notes that percentage “is a guide, not a rule. FINRA urges brokers to think of the 5% threshold as a ceiling, not a floor, noting that other factors might render a commission at that level too high.”

Stoltmann Law Offices is investigating cases where brokers have overtraded to generate commissions in risky investments. FINRA, the federal securities industry regulator, has fined Next Financial Group, a broker-dealer owned by Atria Wealth Solutions, $750,000 to settle charges that it failed to supervise ‘unsuitable’ trading of mutual funds and municipal bonds by one unnamed broker, according to citywireusa.com.

FINRA found that the broker “engaged in short-term trading of Class A mutual fund shares in 19 client accounts, resulting in ‘unnecessary’ front-end sales charges of $925,000 from 2012 until February 2019.” All told, the broker racked up some $5 million in sales charges in the seven-year period. Additionally, FINRA found that “from June of 2013 to November of 2016, the broker engaged in short-term trading of Puerto Rican municipal bonds in 16 customer accounts, concentrating five of the accounts in these bonds.”

‘These bonds carried risks not associated with other municipal bonds because of concerns about the Puerto Rican economy and subsequent restructuring of Puerto Rican debt. The risk of such concentration was compounded by frequent trading in the PR Bonds because of the repeated payment of upfront costs that would decrease any investment returns,” FINRA said in its complaint. The investors in the Next case lost more than $4 million from their Puerto Rican bond investments.

Stoltmann Law Offices are investigating cases where brokers have sold clients single-stock, Exchange-Traded Funds (ETFs). Massachusetts Secretary of the Commonwealth William Galvin office has announced a probe of single stock ETF offerings, according to Investment News. Galvin’s office, Investment News reports, is “seeking to protect ‘Main Street investors’ from harm by initiating a sweep of complex single stock exchange traded fund offerings recently made public.”

“These are risky products, investing in only one stock, with no diversity cushion whatsoever,” Galvin said in a statement. “For nearly all Main Street investors, there is no difference between investing your money in single-stock ETFs and gambling with that money at a casino,” he added. “Under no circumstances should an investor use these products as a long-term investment.”

ETFs are typically broad-based baskets of stocks, bonds and other securities in one package. They are known for their tradability and relatively low costs. But some of these products can pose high risks to investors, who can lose money.

Stoltmann Law Offices represents investors that were sold high-risk structured products. FINRA, the federal securities industry regulator, fined J.P. Morgan $200,000 for “failing to reasonably supervise a broker who made unsuitable, unauthorized trades in his grandmother’s account with the firm,” according to thinkadvisor.com.

From March 2014 through March 2019, Evan Schottenstein, along with his brother, Avi Schottenstein, another broker at Morgan, “allegedly made the trades in question, which were largely in structured products, according to FINRA. During that period, Evan Schottenstein was responsible for his grandmother’s investment strategy and made all trade recommendations for her account, FINRA said. At the time, the grandmother was 88 years old, retired and widowed.

“Evan Schottenstein filled his grandmother’s account with structured products, exceeding his firm’s limits for such investments,” FINRA stated. “The firm used an ‘exception report’ that generated monthly alerts when structured products exceeded a 50% threshold for a client’s net account equity and a 15% threshold for a client’s liquid net worth,” FINRA noted.

Stoltmann Law Offices is investigating brokers who have failed to protect customers’ personal information from identity theft. The Securities and Exchange Commission (SEC) has separately charged J.P. Morgan Securities, UBS Financial Services and TradeStation Securities, for “deficiencies in their programs to prevent customer identity theft, in violation of the SEC’s Identity Theft Red Flags Rule, or Regulation S-ID.”

 “From at least January 2017 to October 2019, the firms’ identity theft prevention programs did not include reasonable policies and procedures to identify relevant red flags of identity theft in connection with customer accounts or to incorporate those red flags into their programs. In addition, the SEC’s orders find that the firms’ programs did not include reasonable policies and procedures to respond appropriately to detected identity theft red flags, or to ensure that the programs were updated periodically to reflect changes in identity theft risks to customers.”

“Regulation S-ID is designed to help protect investors from the risks of identity theft,” said Carolyn Welshhans, Acting Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit. The agency’s actions “are reminders that broker-dealers and investment advisers must design and operate identity theft prevention programs that are appropriately tailored to their businesses and update them in response to the increased threat and changing nature of identity theft.”

Stoltmann Law Offices is investigating cases where brokerage firms haven’t paid their representatives. In a new arbitration filing, 10 ex-Morgan Stanley brokers in the New York City area raised claims that the firm “improperly deferred” compensation in violation of the Employee Retirement Income Security Act of 1974 (ERISA) and also violated New York state law by withholding those funds when they left, according to Advisorhub.com.

“When claimants  (the brokers) – after many years of working for Morgan – decided to part ways with their employer, Morgan Stanley decided to deny them a substantial portion of the compensation that their brokers had earned for their dedicated work, and keep their hard-earned money to itself,” lawyers for the 10 brokers wrote in the complaint, which also tacks on a claim of violations of FINRA’s catch-all Rule 2010 requiring members act with “high standards.,”  advisorhub.com reported.

In 2020, several ex-Morgan advisors filed a class-action lawsuit against the company. The complaint “alleges that financial advisors may lose substantial amounts of their deferred compensation when they leave the company, and that this is not lawful because the deferred compensation plan (it alleges) is governed by the Employee Retirement Income Security Act of 1974 (ERISA).”

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from investing in options strategies that went wrong. Along those lines, an arbitration panel recently ordered UBS to pay more than $1.4 million to a husband and wife who accused the bank of misrepresenting a complex YES options trading strategy that tanked, according to barrons.com.

“Dozens of investors have filed arbitration claims against UBS for alleged misrepresentations in how the strategy was marketed and implemented. A customer has also filed a lawsuit against the company seeking class action status,” Barrons reported. UBS, which has previously denied the allegations, has won some arbitration cases, but lost others.

Approximately 1,500 customers participated in the YES strategy. Assets invested in YES accounts ballooned to $5.7 billion in December 2018, according to the lawsuit seeking class action status. The strategy suffered substantial losses totaling about $1.2 billion, according to the lawsuit.

Stoltmann Law Offices is a Chicago-based securities and investment fraud law firm that offers representation to investors nationwide on a contingency fee basis. We are currently investigating “selling away” claims involving Merrill Lynch and a financial advisor from their San Francisco office, Richard Hogan. The most important take-away from this post is to understand it does not matter that Merrill Lynch calls it, if the misconduct involved investments and clients, Merrill Lynch is responsible for the conduct of its agent – full stop.  “Selling away” is a securities industry moniker used to deflect responsibility for unapproved investment recommendation by rogue brokers.  The law makes it clear that the firm, Merrill Lynch, has an obligation to supervise their broker’s conduct and the law also allows for investors to make agency-based claims agains Merrill Lynch too.

According to a recent filing by the Financial Industry Regulatory Authority (FINRA), Richard A. Hogan conceded to a twelve month ban and a $10,000 fine as a result of an investigation by the regulator into alleged misconduct committed by Mr. Hogan. According to FINRA, Hogan participated in “private securities transactions” involving three Merrill Lynch clients and about $630,000 in Asia-based funds. the funds were a Hong Kong based equity fund and a Vietnam based equity fund. FINRA further stated that Mr. Hogan misrepresented to Merrill Lynch what his involvement was in these funds, which Merrill Lynch apparently did not offer on their platform.  Once Merrill Lynch found out otherwise, in July 2020, Merrill Lynch fired him.

“Private Securities Transaction” is more securities industry code for investments made or solicited by brokers “outside” of the firm with whom they are registered. Brokers like Hogan have an obligation under FINRA Rule 3280 to disclose transactions of this nature and receive approval from the firm, before participating in it.  According to FINRA, Hogan never disclosed that he recommended these Asia-Fund investments to firm clients, which was something he was required to disclose.  Hogan then became a very easy mark for FINRA to exercise its police power over registered brokers, suspend, and fine him.

CNBC
FOX Business
The Wall Street Journal
Bloomberg
CBS
FOX News Channel
USA Today
abc NEWS
DATELINE
npr
Contact Information