Articles Posted in FINRA

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from trading risky options contracts. All too often brokers recommend trading strategies that are far too risky for their clients, who end up losing a lot of money. One such investment approach is options trading, or the right to buy or sell a security at a certain price in the future. If you guess right on an option, you can make money, provided you buy or sell at the right time at the right price. But in a volatile market, which has pretty much been standard fare the past two years, the chances of guessing right are slim.

Investors lost an estimated $1 billion trading options during the pandemic, according to fa-mag.com. Many traded off broker advice or random tips on “meme stocks” from online platforms such as Reddit. These “mom-and-pop day traders” may have lost up to $5 billion when the costs of middlemen such as market makers is tallied. Worse yet, the day traders may have lost even more on “leveraged” trades involving borrowed money.

“Turns out, taking leveraged flyers on meme stocks mentioned on Reddit’s WallStreetBets trading forum is harder than it looks,” fa-mag reported, citing a new study from the London Business School. “Spurred by Reddit posts and urged on by Twitter and TikTok influencers, daily volume in bullish contracts set record after record as stuck-at-home tinkerers flocked to the contracts in an effort to juice up returns.”

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who have violated their firms’ compliance rules. If they are following the law, broker-advisors have to follow a set of rules to ensure that they are doing right by their clients. In the real world, though, this doesn’t always happen. Sometimes firms don’t supervise what their brokers are selling along with inappropriate investment strategies.

Few investors know that brokerage firms must employ a professional called a “chief compliance officer (CCO).” This person acts as a watchdog to oversee broker activities and police trades so that rules and guidelines set by federal securities regulators such as FINRA and the Securities and Exchange Commission (SEC) are followed to the letter. What if the CCO isn’t doing their job? They can be sued.

FINRA states “that if a CCO has other business responsibilities (such as at firms where the CEO also serves as CCO), the CCO can be held liable for failure to supervise in his or her business line capacity, notwithstanding the CCO title.”

Chicago-based Stoltmann Law Offices represents elderly investors who’ve been defrauded by financial advisors, insurance agents, and investment advisers. Did you know that brokerage firms are required to maintain a list of “trusted contacts” for their older clients? That ensures that investors have a safeguard against broker abuses. A relatively new rule from FINRA, the federal regulator for the U.S. securities industry “requires firms, for each of their non-institutional customer accounts, to make a reasonable effort to obtain the name and contact information for a trusted contact person (TCP) age 18 or older.”

Why does such a rule exist? To protect senior investors, who are frequently the target of scam investments, excessive trading, and sales of products that take on unnecessary risk.

“A trusted contact,” according to FINRA, “is a person you authorize your financial firm to contact in limited circumstances, such as if there is a concern about activity in your account and they have been unable to get in touch with you. A trusted contact may be a family member, attorney, accountant or another third-party who you believe would respect your privacy and know how to handle the responsibility. You may establish more than one trusted contact.”

Chicago-based Stoltmann Law Offices is representing clients who’ve suffered losses from investing in GWG Holdings bonds.  The news has been bitter for GWG investors this year. GWG (Nasdaq: GWGH) stated on April 6 that it received a letter from the Nasdaq Stock Market notifying the company that it was not in compliance “as a result of not having timely filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.”

In January, the company stated that it would miss nearly $14 million in interest payments on “L” Bonds that were due on January, 15, 2022. GWG is a financial services firm based in Dallas that owns and manages a diverse portfolio of life insurance policies that included some $1.8 billion in face value of life insurance policy benefits.

GWG has told investors it isn’t paying interest on its bonds — or dividends — on its Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock. L Bonds are unrated bonds that based on life insurance settlements. They are created to purchase life insurance contracts and have yielded between 1% and 5% of the market price as broker commissions. The company has been selling high-yield bonds since 2012. The 2020 offering of $2 billion in L Bonds of a value of $2 billion was sold by advisors from 127 firms.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with financial advisors who’ve had conflicts of interest when representing investors. Is your broker-dealer working in your best interest? Sometimes it’s difficult to tell, particularly when they don’t reveal hidden conflicts. Broker-Dealers who fail to properly inform their clients may be guilty of violating U.S. Securities and Exchange Commission (SEC) regulation “Best Interest (BI).”

In a study conducted by Finra, the federal securities regulator, the agency found that “firms are failing to update their existing policies and procedures to reflect Reg BI’s requirements by “making recommendations that were not in the best interest of a particular retail customer based on that retail customer’s investment profile and the potential risks, rewards and costs associated with the recommendation,” the self regulator said. FINRA also found that brokers and their registered reps “recommended transactions that were excessive in light of a retail customer’s investment profile and placed the broker-dealer’s or associated person’s interest ahead of those of retail customers.”

What should brokers be doing to protect clients? Firms should be “identifying and mitigating conflicts of interest by identifying, disclosing, and eliminating or mitigating conflicts of interest across business lines, compensation arrangements, relationships or agreements with affiliates, and activities of their associated persons,” FINRA said. This means brokers need to “implement policies and procedures to identify and address conflicts of interest, such as through the use of conflicts committees or other mechanisms or creating conflicts matrices tailored to the specifics of the firm’s business that address.” Firms also should be “identifying conflicts across business lines and how to eliminate, mitigate or disclose those conflicts.”

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from investing in GWG Holdings L-Bonds. The company stated recently that it would miss nearly $14 million in interest payments on “L” Bonds that were due on January, 15, 2022. On Monday (Feb. 14), GWG issued a statement that “We know many [investors] will have questions, and we don’t yet have all the answers, but we are committed to finding the best path forward,” according to Investment News.

In the interim, GWG isn’t paying interest on its bonds — or dividends — on its Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock. L Bonds are unrated bonds that are based on life insurance settlements. They are created to purchase life insurance contracts and have yielded between 1% and 5% of the market price as broker commissions. Yet the maturity of GWG Bonds has ranged from 2 to 7 years, yielding 5.5% to 8.5%.

“A reader of GWG’s communication would gather that they had no intention of making the missed payments even within the grace period of 30 days,” noted alphabetastock.com. “This could lead some holders of the L Bonds and trustees to accelerate their bonds, which would make them due immediately, and as a result, payable, further stretching the company’s resources. There is growing concern that this acceleration could create a ‘run’ on the company that could be financially ruinous not only for GWG but its L Bondholders as well.”

Chicago-based Stoltmann Law Offices is investigating financial advisors who switch clients into more expensive investments that trigger unnecessary fees. Financial advisors and brokers who work on commission often make “exchanges” that switch clients from one investment into a very similar different investment. They often use the rationale that “you’ll make more money” in these new investments, but the truth is that they’ll make more in commissions and fees.

NY Life Securities has agreed to “pay a total of $263,347 to settle allegations that, as a result of supervisory failures, it failed to prevent several of its clients from being charged excessive, unnecessary fees after one of its brokers engaged in unsuitable mutual fund and cross-product switches,” according to FINRA, the federal securities regulator, as reported by ThinkAdvisor.com.

“On hundreds of occasions” between January 2015 and March 2019, a broker at the firm, identified only as “Broker A,” recommended that 10 clients buy and sell Class A mutual funds after holding the shares for short periods of time, according to FINRA

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered investment losses as a result of negligence, breach of fiduciary duty, and other violations by UBS Financial Services and its financial advisors.

Recently, FINRA, the U.S. securities industry regulator,  ordered UBS to pay more than $800,000 to two couples who had lost money in the company’s YES strategy, according to AdvisorHub.com.Investors Robert and Marcia Shinbrot recovered their full $269,337.09 loss plus prejudgment interest of $45,009.80 while Nicholas and Brigit Trentalange recovered their full $421,868.58 loss plus prejudgment interest of $70,499.93, according to the FINRA award.

Robert Shinbrot and Nicholas Trentalange were business partners in ForwardThink Group, a company acquired for $46 million by tech consulting firm Perficient in 2014. A separate FINRA panel awarded Houston investor Daniel Ferber the full $358,000 in damages he had sought, but denied his requests for interest and fees and costs.

Chicago-based Stoltmann Law Offices is investigating regulatory filings establishing that former Fifth Third and Merrill Lynch financial advisor David S. Wells has accepted a permanent bar from the securities industry. According to a publicly filed Acceptance, Waiver, and Consent (AWC) filed with the Financial Industry Regulatory Authority (FINRA), Wells accepted the lifetime ban in lieu of appearing for or providing information to FINRA pursuant to FINRA Rule 8210. Wells did not admit to any misconduct. He chose to accept a lifetime bar from the securities industry instead of sitting for an OTR (on the record) interview, answer questions, or provide information to FINRA.

According to David Wells’s FINRA broker/check report, he “resigned” from Fifth Third Securities on June 30, 2021 after admitting he misappropriated funds from three clients. There is no other information available publicly about how much Wells stole or whether he refunded the victims. One fact is certain: his registration with Fifth Third Securities gives victims a change to recover those stolen funds. As a a matter of law, Fifth Third Securities is responsible for the conduct of their agents, like David Wells. Fifth Third had a duty to supervise Wells, his office, his client accounts, and to exercise supervisory authority over Wells to prevent violations of securities rules and regulations. These supervision rules and regulations are a critical part of the securities industry regulatory system and brokerage firms like Merrill Lynch and Fifth Third Securities can be held liable for damages for failing to properly supervise financial advisors like David Wells.

FINRA wields mighty authority over the registered representatives they license under Rule 8210. When FINRA comes calling for information in connection with an investigation under FINRA Rule 8210, financial advisors have two options. 1) They can cooperate fully with FINRA’s investigation or 2) they can voluntarily accept a lifetime bar. It would seem obvious why a financial advisor would accept the life time bar – they do not want to provide FINRA with any information because FINRA is on to something.  Its not quite that simple however. Complying with and responding to a FINRA Rule 8210 request can be difficult and if done without counsel is not advisable. If the registered representative is not being supported by his brokerage firm, it can be a terrifying experience.

Chicago-based Stoltmann Law Offices represents investors have suffered losses from the negligence and breach of fiduciary duty of registered investment advisors (RIAs).  All too often brokers and RIAs trade in customers’ accounts to generate fees and commissions. This practice reduces their total returns while enriching broker-advisor firms. When regulators crack down on these practices, they usually find it’s a “failure to supervise” by the brokerage firm with whom the advisor is registered.

FINRA, the federal securities regulator, fined Next Financial Group, a $2.6 billion RIA and 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 19.” 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.”

Certain classes of mutual funds and related investments carry higher commissions and fees than others. Broker-advisors are required to tell clients that trading in and out of these investments will generate higher income for the firm and its representatives. They are also required under FINRA rules to fully disclose the downside of the investments, which should be suitable for the client’s age and risk tolerance.

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