Articles Posted in FINRA

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers who churn customer accounts. One of the most perennial abuses in the brokerage industry is when broker-adviser “churn” accounts to generate extra commissions or fees. When that happens, it’s difficult for clients to make money because their accounts are consumed by transaction fees.

Marc Augustus Reda, a registered representative for Spartan Capital Securities in New York City, was recently charged by FINRA, the securities industry regulator, with overcharging clients some $2 million. “From 2017 through 2019,” reports fa-mag.com, “Reda, among other things, recommended unsuitable investments to his clients and traded excessively in those accounts, the FINRA complaint said. His activities resulted in 66 clients paying a total of $952,764 in commissions and fees, while incurring total net losses of $934,482,” FINRA said.

Reda generated the excessive fees through an “active trading” strategy in which he made trades without his clients’ specific permission. FINRA noted that “Reda failed to consider that the substantial commissions and costs associated with his investment strategy made it unlikely his customers could make any profits.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with financial advisors and insurance agents who sell unsuitable insurance products. All too often, securities brokers who lose their licenses to sell stocks, bonds, and mutual funds find an escape hatch to remain in the financial services industry: They move on to sell insurance products. These “rogue” brokers, however, haven’t necessarily changed their ways. They may continue their abusive sales practices by selling insurance products instead.

A recent academic paper profiling “wandering” financial advisers who jump from securities to insurance found that “a little over one-third of advisors who exit the brokerage industry remain in at least one other regime, that advisors are significantly more likely to change regimes after committing serious misconduct, and that wandering advisors with a history of misconduct are significantly more likely to engage in future misconduct.”

In this study, “regime” means transitioning from selling securities to insurance products, noting “wandering advisors with a history of serious misconduct disproportionately end up in the highly-fragmented state insurance regimes.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses in the LJM Preservation and Growth Fund. When broker-dealers sell you investments, they are responsible for fully informing you of the risks at the point of sale. When they fail to give you an honest, transparent disclosure on what they are selling – and the investments tank — you may have an arbitration case that you can pursue to get your money back.

Cambridge Investment Research, Merrill Lynch, and other brokerage firms sold a mutual fund called the LJM Preservation and Growth fund to their customers. The fund’s “value plummeted 80% over two days in early February 2018, after brokers in the previous two years sold $18 million of its shares to more than 550 customers, prompted by sales calls in May 2016 from an LJM wholesaler,” the securities regulator FINRA stated. “The fund was liquidated and dissolved in March 2018.”

What made the fund so volatile that led to its demise? It employed a risky strategy called “uncovered options,” but failed to tell investors that it was a highly complex vehicle prone to catastrophic losses.

Stoltmann Law Offices, P.C. is a Chicago-based investor rights law firm that offers nationwide representation to investors who suffer investment losses as a result of unscrupulous, negligent, or fraudulent misconduct of financial advisors. In a tale as old as time, people prefer to avoid paying taxes if they can do so legally. The legality of tax breaks can be a touchy and constantly developing subject.  An increasingly popular way for very wealthy land owners to generate massive tax write-offs is called the “conservation easement.”  Simply put, in exchange for promising not to develop land, in the name of conservation, a land owner promises not to develop the tract. By doing so, the value of the property depreciates – because it cannot be developed – and theoretically, the owner of the land gives up something of value – the right to develop and exploit the land.  The land owner then gets a tax deduction, which depends on two critically important factors: 1) the value of the property before the easement; and 2) the value after the easement. The spread between these two numbers is then used as a tax deduction.

And there is where the fraud begins, according to the IRS. Recent report published by Bloombergtax describes the increasing aggression with which the IRS and Department of Justice are prosecuting conservation easement transactions as crimes.  One very notable transaction being investigated by the Manhattan District Attorney’s Office involves former President, Donald Trump, and an approximate $25 million tax break he received in connection with a conservation easement on land he owned in upstate New York. The tax scam begins with the appraisal of the land at values exponentially higher than reality, to appraisals after the easement well-below reality.  That increases the spread – the tax loss – taken by the owner.  These appraisals are done by professional outfits with attorneys and appraisers who sign off on all of these deals, and who can find themselves in a serious lurch with authorities.

These conservation easements became increasingly complex over time, involving massive tracts of land and found themselves being marketed and sold by FINRA registered broker/dealers as Regulation D private placement investments.  The purpose of this scenario for investors is the tax break for the land owners trickles-down, through a series of complicated trusts and transactions, to the investor.  Sometimes investors get upwards of 10X their investment back in the form of a tax write off.  Usually, the write-off is for between 2X and 6X the investment. For example, if an investor puts $25K into a conservation easement offering 4X reduction, that investor can write-off $100,000 in income for tax purposes the next year.  For high income investors, that is a dream scenario.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors who’ve stolen their money. Sometimes brokers are not the least bit subtle about what they do with clients’ assets. They may shift cash into separate accounts and spend it themselves.  Such was the case with Apostolos Pitsironis, a former Janney Montgomery Scott advisor. He is accused of stealing more than $400,000 from his clients from 2018-2019.

In the brokerage business, stealing clients’ funds is often known as “converting” their assets. Brokers may spend the money on gambling, cars or other consumption items. Pitsironis was “discharged in June 2019 after an internal investigation uncovered that the FA transferred funds via unauthorized ACHs from a client’s account to a third-party bank account owned and controlled by Pitsironis,” according to ThinkAdvisor.com. “He later used this money to pay his family’s personal expenses, all the while deceiving both his victims and the financial services firm for whom he worked,” prosecutors stated.  Pitsironis also allegedly spent his clients’ money on casino gambling debts, credit card bills and the lease of a luxury car.

“Janney is committed to serving our clients with the utmost integrity and trust,” the brokerage firm said in a statement obtained by ThinkAdvisor. “Upon discovering the improper actions taken by this advisor with one client account, he was promptly terminated, and the client was fully reimbursed. Janney has fully cooperated with law enforcement and will continue to do so.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors who’ve sold their clients variable annuities. One thing we see constantly in our practice is older investors who’ve been sold variable annuities that are onerously expensive and nearly always fail to live up to expectations. Variable annuities are investment products that offer restrictive access to mutual funds with an insurance wrapper. They are expensive to buy and carry ongoing fees and expenses that eat away at investor return. They also offer a tax incentive that brokers love to use as a sales point that in reality provides no benefit to most investors.

The main reason why variable annuities are usually poor investments is that they charge several layers of fees to investors. Everyone gets a cut from the insurance company to mutual fund managers. It’s very difficult for anyone outside of the middlemen to make money. Brokers and their advisory firms, however, sell them aggressively because the insurance companies that pilfer annuities pay out huge commissions to the salesmen who sell them.

Broker-advisors are perennially being cited for variable annuity marketing abuses. Transamerica Financial Advisors was recently fined $8.8 million by FINRA for “failing to supervise its registered representatives’ (brokers) recommendations for three different products,” which included annuities. The firm was ordered to pay more than $4 million in restitution.  The FINRA settlement cited Transamerica’s failure to monitor transactions that involved clients switching from other investments to annuities, which generated millions in commissions and fees for the firms. This is an egregious practice in the brokerage industry that mostly focuses on older and retired investors.

Chicago-based Stoltmann Law Offices is investigating claims of investment fraud against Altoona, Wisconsin based investment adviser, Michael Shillin. According to FINRA, the national regulator for brokers and brokerage firms, Shillin was registered with Alliance Global Partners from May 2018 until he submitted his resignation on October 2, 2020. Previously, Shillin was registered with Raymond James Financial, from where he was terminated for cause, according to FINRA.

Brokerage firms like AGP and Raymond James have legal obligations to supervise and monitor the conduct of their financial advisors.  Legally, individual brokers like Shillin are an extension of their firms, so long as their conduct is performed within the course and scope of providing investment advice. If you are a victim of any of Shillin’s misconduct, you have rights and could have a claim to pursue against the brokerage firm he was registered with at the time.

On December 21, 2020, FINRA barred Mr. Shillin from the securities industry permanently for filing to respond to a request for information under FINRA Rule 8210. According to FINRA, Shillin was alleged to have falsified documents and emails in connection with a phony life insurance policy.  He is also alleged to have represented to a client that he bought shares of Space-X for their account but instead may have converted the funds. Instead of cooperating with FINRA with respect to the agency’s investigation into these allegations made by clients, Mr. Shillin chose to accept a lifetime ban from the securities industry.

Chicago-Based Stoltmann Law Offices has been representing California investors before FINRA arbitration panels for many years. We are looking into allegations made by an investor that allege that Ryan Raskin, who was registered with Merrill Lynch until he was discharged for cause in March 2020, executed unauthorized trades for a client. Merrill Lynch denied that complaint outright, which is a common practice used by brokerage firms when clients come to them with a complaint without being armed with an experienced FINRA investor-rights lawyer.

According to a story published by AdvisorHub.com, Raskin was employed with Merrill Lynch since 2016. On January 13, 2021, Mr. Raskin was barred by FINRA for failing to respond to requests for information. FINRA has the authority, under FINRA Rule 8210, to seek information and documents from any licensed, registered representative, even after the are terminated or are not working in the securities industry. As part of their enforcement mandate to enforce securities law and regulations, FINRA is given pretty broad discretion to seek out information related to its investigations, and in the event a broker like Raskin refuses to cooperate or ignores a valid request for information from FINRA, the penalty is a lifetime ban from the securities industry.  Sometimes brokers do this because they are out of the business and don’t really care if they lose their license to provide investment advice. Sometimes brokers ignore FINRA because they have something serious to hide.

Mr. Raskin was discharged from Merrill Lynch in March 2020 for “conduct involving business practices inconsistent with Firm standards, including inappropriate investment recommendation.” The impetus for FINRAs Rule 8210 request was this discharge by Merrill Lynch, which was reported to FINRA on Form U-5. Although the FINRA Acceptance, Waiver, and Consent (AWC), which was signed by Mr. Raskin, does not state any specific allegations with respect to misconduct. Still, Merrill Lynch discharged Mr. Raskin for “inappropriate investment recommendations” and one customer did make a complaint against him for unauthorized trading.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors affiliated with the Cetera financial group.  The securities regulator FINRA recently fined three Cetera Financial Group broker-dealers $1 million, claiming that Cetera’s “supervisory systems and procedures were deficient when handling securities transactions.”

Like many advisory firms, Cetera employs representatives who are “dually registered,” meaning they are broker-dealers and registered investment advisers. In the Cetera case, their representatives managed more than $80 billion in assets across 47,000 accounts. According to U.S. Securities and Exchange Commission (SEC) exams conducted in 2013, 2015 and 2017, Cetera was “aware of the supervisory deficiencies.”

Without admitting or denying the allegations, Cetera recently signed a FINRA letter of Acceptance, Waiver, and Consent and agreed to FINRA’s sanctions, which included a censure and an agreement that they would review and revise, as necessary, systems, policies and procedures related to the supervision of dually-registered reps’ securities transactions, according to ThinkAdvisor.com.

Chicago-based Stoltmann Law Offices has represented scores of senior investors who’ve suffered losses from dealing with brokers who’ve sold them inappropriate investments. It’s a story we’ve seen all too often: A senior investor is “befriended” by a broker, who then sells them investments that are extremely risky and lose money. Before they know it, their nest egg is scrambled.

Regulators and consumer watchdogs have been trying to protect seniors for decades from rapacious brokers, advisors and insurance agents. The industry police are outnumbered by hundreds of thousands of salespeople selling anything from junk variable annuities to exchange-traded products that generate high commissions for the brokers while fleecing investors’ investment accounts.

Under a relatively new rule from FINRA, the securities industry regulator, older investors may garner somewhat more protection from unscrupulous advisors and brokers. It will provide a safeguard against broker-advisors from gaining entrees into their financial affairs through various vehicles. “FINRA Rule 3241 limits the ability of a broker-dealer to be named as a beneficiary, executor, trustee, or power of attorney for one of their customers,” according to The National Law Review. “Broker-dealers must provide written notice to their firm, and the firm must assess the situation and determine whether to approve or disapprove of the fiduciary relationship.”

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