Articles Posted in FINRA Arbitration

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.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with financial advisors who fleece older clients. In our practice, we’ve seen countless scams where older investors are lured into fraudulent investments. Unfortunately, investment and financial advisors frequently exploit and rip off elderly clients, who are often trusting yet vulnerable.

Common ruses involve “estate planning” seminars that come with a “free” lunch or dinner. Afterwards, brokers are known to peddle scam investments to those who show up. Lately though, investors are aggressively pitched through emails, texts and phone calls. These swindles mushroomed during the pandemic. According to the FBI, the number of scams targeting Americans over the age of 60 exploded during the pandemic, with upwards of 92,000 victims in 2021 alone involving estimated losses of nearly $2 billion, a 74% increase from 2020.

In the typical phone scam, fraudsters call older Americans, who are most likely to pick up the phone and listen to a pitch – and send money. Even former FBI and CIA director William Webster was targeted in a Jamaican lottery scam in 2014 when a caller claimed he won a sweepstakes, reports CBS News. The unsolicited caller became threatening when Webster declined to pay $50,000 to collect the winnings.  “If it can happen to me, it can happen to you,” Webster warned in a public service announcement.

Chicago-based Stoltmann Law Offices is representing clients who’ve suffered investment losses from advisors who sold fraudulent investments products and offerings. Firms like UBS argue these are frequently, “selling away” claims, suggesting they have no liability for the wrongs of their brokers who go far afield to rip off their clients. The big banks are wrong.

UBS Financial Services is suing Robert Turner, of McGregor, Texas, on fraud allegations and is asking a judge to seize Turner’s assets to help UBS offset the cost of repaying its customers for some $17 million in losses. Turner is a former broker with UBS.

The lawsuit alleges Turner solicited at least 23 UBS customers to buy “purported investments” issued by Fairfax Financial Corporation. UBS claims the products were not authorized by the broker and didn’t know Turner was selling them. Turner, 67, worked at UBS for 25 years before going to work for Stifel, Nicolaus & Co. in October 2021. He has since resigned from Stifel and has lost his license as a financial adviser.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who have violated securities laws. When brokerage houses or investment advisers make big “block” stock trades, there are numerous rules they must follow to ensure that other investors don’t get burned. They are not allowed to “front run,” an illegal brokerage practice of a stockbroker placing an order for their own account ahead of the client’s, knowing when the client’s order is placed it will move the market and create a profit for the broker.

Disruptive Technology Solutions LLC, a software services company, and affiliated funds, have filed a demand for arbitration against Morgan Stanley with FINRA, the federal securities industry regulator, according to The Wall Street Journal.

“Disruptive alleges that Morgan Stanley and a senior executive there leaked information ahead of the fund’s sale of more than $300 million of Palantir in February 2021, resulting in tens of millions of dollars in damages,” the Journal reports. Disruptive is seeking compensatory and punitive damages. Palantir is a software firm that provides a wide range of platforms from artificial intelligence to supply chain products.

Stoltmann Law Offices, a Chicago-based investor rights law firm, represents investors across the country in suits against brokerage firms, investment advisors, investment banks, and insurance companies. Typically, we offer our services on a contingency-fee basis which means we do not get paid until you do.  We understand most of our prospective clients come to us having already been financially burned and rarely have the wherewithal to pay out of pocket for legal services.

Our attorneys are currently investigating claims by investors against Morgan Stanley involving fired Morgan Stanley broker Robert David, Jr., of Farmington Hills, Michigan. According to a regulatory filing, Robert David Jr. played fast and loose with client information on Morgan Stanley documents used by compliance to approve investments by clients in high risk junk bonds.  The information David manufactured included client net-worth, liquid net-worth, and changing the risk tolerance on client documents. Morgan Stanley has limitations in place for soliciting investments in high risk junk bonds to protect against over-concentration risk. David altered these documents to avoid these compliance protocols and restrictions. It was also alleged by FINRA that David made 538 unauthorized trades in eight client accounts.

Investing in junk-bonds can be a high risk investment plan. These sorts of corporate bonds offer considerably higher coupon payments, usually 7% per year or higher, but carry with them a substantially higher risk of default. If a company goes out of business, runs into cash shortfalls, and then seeks some sort of restructuring, like through a Chapter 11 Bankruptcy filing, the bond holders can be wiped out completely. Most public companies that issue bonds to investors publicly are rated by the three primary ratings agencies – Standard & Poor’s, Moody’s, and Fitch.  Although each is slightly unique, generally, all three rate bonds using a AAA to D structure. AAA is reserved for the absolute highest credit reliability, like that of United Kingdom. According to published reports, only two United States companies have earned a AAA rating, Microsoft and Johnson & Johnson. In order for a bond to be rated junk, its ratings typically need to fall below BBB- on the Standard and Poor’s scale, and are considered to be “high risk” by definition. Investing in junk bonds may be suitable for investors seeking high income so long as they are comfortable with the high risk inherent in such a strategy. In a rising interest rate environment, this strategy could spell doom for investors.

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 investors who’ve suffered losses from investing in unregistered securities based on the recommendation of their financial advisor.  All too often, brokers pitch investors on making a quick profit on unregistered securities. These investments, typically not on the radar screen of regulators, can easily lose money. They can skirt the safeguards of state and federal securities laws.

A group of securities regulators recently launched a crack-down on a company marketing unregistered securities. The North American Securities Administrators Association (NASAA) and the U.S. Securities and Exchange Commission (SEC) jointly announced a “$100 million settlement with BlockFi Lending, LLC (BlockFi) concerning its lending products and practices. Thirty-two state securities regulators have agreed to the terms of a settlement with BlockFi to resolve its past unregistered activities. More jurisdictions are expected to follow.”

The settlement focused on BlockFi’s sales of unregistered securities to retail investors through BlockFi interest accounts (BIAs).  “BlockFi promoted its BIAs with promises of high returns for investors who purchased the products. The company took control of and pooled its investors’ loaned digital assets, and exercised sole discretion over the pooled digital assets, including how to use those assets to generate a return and pay investors the promised interest.”

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, P.C. is a securities investor arbitration and litigation law firm that focuses its efforts on representing investors in claims seeking recovery of lost funds. We have been monitoring and representing investors who invested in various GWG bond holdings in arbitration actions against brokerage firms responsible for soliciting them too invest in GWG. Since January, GWG has failed to make interests payments to its investors in its L-Bonds and according to reports in both the Wall Street Journal and InvestmentNews, the company is now planning to file for Chapter 11 Bankruptcy protection.

Once again, GWG failed to file its annual report with the SEC because it still had not hired an auditor to replace Grant Thorton, who resigned at the end of 2021. For a public-reporting company like GWG to go more than three months without an auditor is a bad sign and means that bankruptcy is likely right around the corner. According to InvestmentNews, this filing could come as early as this week.

Stoltmann Law Offices has written previously on the issues related to the GWG bonds. Although a purported class action lawsuit is now pending against GWG, the best and surest way for investors to attempt to recover their losses, which will be substantial in the event of a bankruptcy filing, is through individual FINRA Arbitration claims against the brokerage firms responsible for selling GWG bonds to investors.  Due diligence on offering like the L-Bonds by the broker/dealers that sell these investments is of paramount importance to investors and compliance with FINRA Rules and securities regulations. Pursuant to FINRA Rule 2111, a brokerage firm cannot offer an investment to a client unless it first has a reasonable basis to believe the investment is suitable for at least some clients. This due diligence requirement has been expounded upon for many years through FINRA Regulatory Notice 10-22, NASD Notice to Members 05-26 and 03-71.  If a brokerage firm offers a security like the GWG L-Bonds without performing industry standard due diligence, then the firm can be liable for breach of fiduciary duty, negligence, or state securities act violations.  Further, even if the firm did perform industry standard due diligence, but ignored red flags that the offering was destined to fail and had no reasonable chance at success, then the brokerage firm can be liable for negligently approving the investment for sale to clients, despite the existence of red flags.

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses as a result of their broker excessively trading and churning their accounts. Brokers have been known to take advantage of clients who have margin accounts and give them permission to trade at will. Although investors place a great deal of trust in their broker-advisors, sometimes this confidence is abused.

FINRA, the federal securities regulator, found in a recent report that brokers don’t always pay attention to customers’ risk tolerance and violate FINRA rules on risk monitoring. To say this is no surprise to the attorneys at Stoltmann Law Offices, who have fifty years of combined experience representing investors in claims against brokerage firms, is an understatement. According to FINRA, “Firms are required to monitor the risk of the positions held in these accounts during a specified range of possible market movements according to a comprehensive written risk methodology,” which has a stack of rules governing the conduct of brokers and the firms that supervise them.

FINRA’s guidelines on informing clients on portfolio risk include the following:

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