Articles Posted in FINRA Arbitration

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 represented investors in cases against securities brokers and has been investigating claims against LPL and filing arbitration complaints for investors. Can securities brokers who’ve been fleecing investors somehow keep working in the industry? If a firm’s records systems are poorly managed, sadly, the answer is yes. Sometimes they slip through the cracks and continue to steal customers’ funds and place them in bad or fraudulent investments that turn out to be Ponzi schemes.

That was the case with former LPL broker James T. Booth, who worked for the firm from 2018 through 2019. Booth pled guilty to one count of securities fraud in October, 2019, and was barred from the industry by the U.S. Securities and Exchange Commission (SEC). LPL was also cited for “supervisory deficiencies” by FINRA, the industry regulator, in connection with Booth stealing “at least $1 million of LPL customers’ money as part of a multi-year Ponzi scheme,” according to thediwire.com. The regulator fined LPL $6.5 million.

There was a bigger problem at LPL, though: FINRA claims that LPL’s recordkeeping system failed to report millions of customer communications. The firm’s failure “affected at least 87 million records and led to the permanent deletion of more than 1.5 million customer communications maintained by a third-party data vendor. These included mutual fund switch letters, 36-month letters, and wire transfer confirmations that were required to be preserved for at least three years.”

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.”

Stoltmann Law Offices, P.C. has represented investors in arbitration claims against brokerage firms involving non-traded REITs hundreds of times. We understand these products better than the brokers who sell them, which is what makes us effective advocates for our clients. If you invested your hard-earned money in the NorthStar Healthcare REIT and would like to discuss your options to recover your investment losses, please contact Stoltmann Law Offices at 312-332-4200.

On December 23, 2020, it was reported that the NorthStar Healthcare REIT was reducing its share price from $6.25 to $3.89. The facts on the ground for this non-traded REIT do not portend well for investors. According to published reports, the REIT retained a valuation expert to determine how the REIT can get out of the debt it is buried in. Unfortunately, the value of the REITs portfolio is only $1.6 billion but cost $2.2 billion.

Non-Traded REITs are the darlings of brokers and financial advisors. They are perfect investments from their perspective. They offer huge selling commissions, are not “volatile” because they do not trade on the open market, and offer a high income rate. Brokers do not need to “manage”  a position in a non-traded REIT like they do a well-managed portfolio. Even though they get paid 7X more for selling a non-traded REIT than they do for managing an account, (1% fee versus 7% commission), brokers love non-Traded REITs because they get to sell it and forget it.  The investor is left holding the bag when the REIT stops paying distributions, freezes redemptions, and cuts the share price by 70%. Then once the investor looks a little closer, you come to realize that “dividend” you’ve been paid all of these years was actually, mostly, just a return of your money – the REIT takes your money, shells out at least 10% for commissions and fees, puts the rest of it into its real estate portfolio, then shells out distributions that are mostly your own money given back to you.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers who have failed to recognize their clients’ need for lower-risk portfolios. It’s no secret that the COVID pandemic has made the stock and bond markets more volatile. When the outbreak first hit markets, it triggered a massive sell-off in everything from blue chip stocks to municipal bonds.

Yet many broker-advisers failed to protect their clients, keeping them in high-risk portfolios that lost money. Even though they constantly make claims to the contrary, almost no advisor can time markets to fully protect investors. Few saw the pandemic coming, or the devastating impact it would have on the world economy.

After the stock market peaked on February 19, 2020, it dropped 34% in a month, hitting a bottom on March 23. But by June, the market had bounced back, surging 39%. Then, on Oct. 28, the Dow dropped more than 900 points as COVID cases again surged worldwide in a second, record-setting wave. Who could have predicted such stomach-churning volatility? Investors who were risk averse and needed to protect principal – and were overexposed to stocks – got burned the most.

Chicago-Based Stoltmann Law Offices, P.C. is currently investigating reports that Michael Edward Magill raised $700,000 in purported private notes that turned out to be part of a criminal scheme. If you were sold investments by Mr. Magill and lost money as a result, you may have a claim to pursue to recover your investment losses through FINRA Arbitration.

According to a FINRA Acceptance, Waiver, and Consent (AWC) signed by Mr. Magill on December 7, 2020, Mr. Magill was hied by a private company to raise money for it. the FINRA allegations state that Mr. Magill solicited at least three investors to invest a total of $700,000 in this company, representing the investments as short term secured notes.  He urged investors to invest quickly because time was of the essence.  Mr. Magill was paid a salary by this company for his services and also received a commission for the investments he sold.  He also distributed marketing materials for the investments.  The investments were not registered with any regulatory agency and were sold in violation of applicable state and federal securities laws.  The principals of the company for whom Magill raised these funds pled guilty to conspiracy to commit wire fraud.

At all times relevant, Mr. Magill was a dually registered and licensed financial advisor with Foreside Fund Services and as a Registered Investment Adviser with WBI Investments, Inc. out of Boca Raton, Florida.  By virtue of FINRA Rules and the fiduciary duty owed by WBI Investments, both Foreside and WBI could be liable to investors who were caught-up in this scheme.  Stoltmann Law Offices has for many years pursued brokerage firms and investment advisers for these claims and has successfully recover money on victims’ behalf.  These companies have legal obligations to supervise the conduct of their registered representatives. Typically referred to in the securities industry as “selling away”, Magill allegedly did not advise the companies he was registered with of his illicit activities.  Nevertheless, there likely existed a stack of red flags that would have put Foreside Funds and WBI Investments on notice that Magill was participating in what was in reality a fraudulent scheme.

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