Articles Posted in FINRA Arbitration

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers who have sold highly unsuitable investments to their clients. Brokers have a legal obligation to sell investments that are suitable for their clients’ age, risk tolerance, financial sophistication, and mental capacity. Sometimes, though, they ignore all of these safeguards to take advantage of older customers to generate what they think are easy commissions.

The worst cases that we’ve represented usually involve wealthy elderly clients whose portfolios are pilfered and re-invested in risky vehicles that lose large amounts of money, often leaving them impoverished. These practices are commonly known in the industry as “selling away,” or diverting assets away from investments brokerages normally deem inappropriate for older clients.

Eduardo Tarajano, Sr., 80, is suing his broker Jorge Sonville for investing more than $4 million in a Key Biscayne, Florida, liquor store, which was later sold for $585,000. Sonville, working for Merrill Lynch, had allegedly drained Tarajano’s family trust to buy a stake in the store. Tarajano’s federal suit alleges that Sonville worked with Tarajano’s son and the broker’s cousin to “pilfer the accounts Merrill Lynch was managing.” The cousin reportedly received a commission for the liquor store transaction.

Stoltmann Law Offices is investigating allegations in a grand jury indictment in the United States District Court for the Eastern District of Texas, levied against Keith Todd Ashley, of Collin County, Texas.  According to the indictment, which was filed on November 13, 2020, Ashley ran a Ponzi scheme while a registered representative for Parkland Securities, formally known Sammons Securities Company, and Midland National, a life insurance and annuity company. According to the indictment, Ashley recommended investors purchase UITs (Unit Investment Trusts) through Parkland and another entity called SmartTrust, which was an investment offered by another brokerage firm, Hennion & Walsh. The indictment alleges that Ashley made representations via email to clients that these investments offered returns of anywhere between 3% and 9% per year, with no risk to the investor’s principal, and that the securities were offered through Parkland and SmartTrust.  The indictment further alleges that instead of investing the money as represented, Ashley converted a substantial amount of it – more than $1 million – for his own use.

If you invested with Keith Ashley and believe you have suffered losses in connection with his alleged Ponzi scheme, please contact Stoltmann Law Offices, at 312-332-4200 for a free, no obligation consultation with a securities attorney.  

The news in connection with Mr. Ashley and his scheme turned quite dark just this afternoon when the publication Investment News ran a story indicating that Ashley was arrested in Carrolton,Texas on suspicion of committing murder. The story reports that Ashley is accused of murdering an investor-client in February 2020, staging the murder as a suicide, in some attempt to gain access to the victim’s money. Ashley was discharged from Parkland Securities in October suggesting he was fired for failing to disclose outside business activities.  This is a common response by brokerage firms when it turns out that one of their registered representatives has been running a Ponzi scheme.

Chicago-based Stoltmann Law Offices in investigating cases where brokers have been treated unfairly by their firms.  A growing issue for financial advisors is when they are pushed out of their firms or treated unfairly simply for getting older. When this happens, brokers can file age discrimination lawsuits against their former employers.

Judith Bovitz, a 70-year-old financial advisor with Wells Fargo, sued her employer last year for age and gender discrimination. She claimed Wells retaliated against her by transferring her to a smaller branch office when she complained that younger, male advisors were being assigned more lucrative accounts, according to Reuters. She had a $100 million book of business at the time of the lawsuit. Bovitz spent her 34-year career at Wells and its Prudential Securities predecessor. “I’ve lost hundreds of thousands of dollars a year because other advisors were given accounts,” Bovitz told Advisorhub.com. “I’m sick and tired of being passed over.” The company said it is “reviewing” Bovitz’s allegations.

In 2011, Wells Fargo Advisors, the wealth management unit of Wells Fargo & Co. agreed to pay $32 million to settle a gender bias class-action suit with about 3,000 women advisors. The women claimed that compared with their male advisor counterparts, female advisors were “provided fewer business opportunities by the company. The women also claimed that female advisors were impaired by limited career advancement, work assignments and distribution of accounts,” one of the ways firms chose to shift customers to younger, male advisors.

Chicago-based Stoltmann Law Offices continues to represent investors in claims to recover investment losses in connection with the COVID-19 pandemic.  The carnage wrought by COVID-19 on brick and mortar stores and retail shops has taken down two REITs:  The Pennsylvania Real Estate Investment Trust (PREIT) and the CBL & Associates Properties, Inc. (CBL) each filled for Chapter 11 Bankruptcy this week.  Facing catastrophic losses in connection with retail tenants unable to pay rents, the REITs didn’t seem to believe they had many other options available.  If you were an investor in CBL or PREIT, your shares are now worthless. If you were solicited to invest in CBL or PREIT by a financial or investment adviser, you could have a claim to pursue to recover your losses.

PREIT and CBL are publicly traded Real Estate Investment Trusts (REITs).  These REITs are listed on the New York Stock Exchange and trade on a fairly liquid basis. Any individual REIT maintains investments in any number of properties, from as few as two, to as many as twenty or more. REITs are concentrated real estate investments and should only play a small role in an investor’s otherwise well-managed, diversified portfolio of investments.  If your accounts have more than 10% invested in REITs, you should consider setting up an appointment with your financial advisor to discuss your broader asset allocation.

REITS, whether they are traded or the more speculative, illiquid non-traded REITs, may be unsuitable for most retail investors for another reason. Many retail investors have most of their net-worth concentrated in property already – their home – and do not need to have any additional exposure to complicated, potentially high risk investments like REITs.

Chicago-based Stoltmann Law Offices is investigating incidences of investors whose brokerage accounts have been hacked. Market regulators are investigating reports that customers of the popular online trading app Robinhood were ripped off. Hackers reportedly obtained account information of Robinhood customers, then transferred funds out of their accounts. The customers have contacted the U.S. Securities and Exchange Commission and FINRA, the securities industry regulator, to probe the thefts.

How safe is your money in an online brokerage account? It should be protected by numerous safeguards, although lately cyberthieves have found a way to steal money directly from investors. During the COVID pandemic, online trading soared, with millions of day traders using their phones and other devices to trade stocks and other securities. But as a recent wave of customer complaints suggest, their accounts have been hacked and money taken from their accounts, according to Bloomberg News.

In a statement to Bloomberg, Robinhood did not take responsibility for the thefts:

Stoltmann Law Offices, a Chicago-based securities and investor rights law firm continues to investigate claims by investors who were sold investments in the fraudulent note scheme Future Income Payments. Investors have rights and if you were solicited to invest in Future Income Payments by your financial advisor, you may have a claim to pursue for negligence or fraud. According to an article that appeared on ThinkAdvisor, former SagePoint financial advisor Troy Baily solicited several clients to invest in securities offered by Future Income Payments (“FIP”).  FIP turned out to be a multi-million dollar pension scam with investors losing everything.  According to the article, Baily submitted to what is called an “Acceptance, Waiver, and Consent” with the Financial Industry Regulatory Authority as a result of these ill-fated solicitations.

An AWC  is essentially the formal settlement of a regulatory investigation conducted by FINRA of a licensed financial advisor. In this instance, Baily accepted FINRA’s conclusion that he solicited four SagePoint clients to invest a total of $210,000 in securities offered by Future Income Payments.  In so doing, he violated FINRA Rule 3280 and FINRA Rule 2010. As punishment for his violations, Baily accepted a six-month suspension and a fine in the amount of $5,000.  Although an AWC is technically not an admission of fault or guilt, the facts alleged by FINRA are clear and do not require interpretation – Baily sold FIP investments to his SagePoint clients.

The best bet for victims, especially those who were Baily’s clients, is to pursue his broker-dealer, SagePoint through FINRA Arbitration. As we have said in the past, brokerage firms are ultimately responsible and liable for the misconduct of their agents. Here, there are two separate routes investors can take to recover against SagePoint. The first is through the legal theory of apparent agency, or Respondeat Superior. This is an age-old legal concept that the principal is responsible for the conduct of its agent, so long as the conduct is performed in the course and scope of that agency relationship. Here, Baily sold securities, provided investment and financial advice, to clients to invest money in FIP. That is clearly within the scope of his agency relationship with SagePoint.

Chicago-based Stoltmann Law Offices is representing investors who were solicited by their financial advisors to invest in junk-bonds offered by now bankrupt Hornbeck Offshore. The bonds sold to our clients were rated D by Standard and Poor’s at the time of the solicitation, which is as low as bond ratings go.  This was not even speculation, it was financial homicide. The financial advisor at issue in our clients’ cases, Thomas M. Bonik was registered with NTB Financial Corporation (f/k/a Neidiger, Tucker, Bruner), which is headquartered in Colorado and has offices all over the country.  Mr. Bonik’s office was primarily in St. Augustine, Florida.

Hornbeck Offshore had been struggling financially for years.  The company is primarily engaged in offshore oil drilling and transportation. The persistently low prices for oil and gas for the past few years resulted in Hornbeck struggling financially due to a heavy debt load. Part of that debt was in the form of bonds purchased by investors.  Covid was the last straw for this struggling company and in June it filed a pre-packaged Chapter 11 plan in the Bankruptcy Court for the Southern District of Texas.  These pre-packaged plans are negotiated in advance with the “Secured” creditors, and typically burn bond holders like our clients. No surprise, our clients have lost every dime they invested in these Hornbeck bonds.

Financial advisors recommend clients invest in corporate or municipal bonds that are technically “junk” rated because these bonds have much higher yields than higher rated bonds. In the persistent low-rate environment in the US and to some degree the worldwide economy has been in since after the financial crisis, investors and advisors alike reach for higher yields, often investing in esoteric alternatives to grab that extra yield.  In this instance, the recommendation was to invest in corporate bonds that were rated “D” by S&P, which defines this rating as:

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers who’ve fleeced clients. This is a sad occurrence, but sometimes brokers take advantage of clients and steal their money. We’ve investigated countless cases when this has happened.

The instances are all too familiar to us: Usually it’s elderly, retired women who are preyed upon. A recent case involving a 73-year-old client is a case in point. A former LPL broker, Matthew O. Clason, of Chesire, Connecticut, is accused of stealing more than $300,000 from the client, “with whom he formed a personal relationship.” Clason, who had been a registered broker since 2004, sold securities from his client in 45 transactions over the last 20 months, the SEC said in its suit filed against the broker.

“He transferred about $330,000 [from proceeds of the sales of client assets] to a joint checking account they had opened at a large national bank, funding most of it through securities sold from a non-retirement account that charged the client 1.54% of her assets under management,” the SEC reported. The agency is requesting “that the court enter an order freezing Clason’s assets and requiring an accounting. The SEC also seeks permanent injunctive relief, disgorgement plus prejudgment interest, and civil penalties.” Clason, who was registered with LPL and Integrated Wealth Concepts, could not be reached for comment, according to AdvisorHub.com. He was fired by LPL on August 13 for failing to comply with firm policies with respect to handling client funds, the SEC said.

Stoltmann Law Offices, P.C. is a Chicago-based securities, investor protection, and consumer rights law firm that offers victims representation on a contingency fee basis nationwide. We’ve represented investors who’ve suffered losses in connection with the recommendation to invest in variable annuity products.

One strategy that unscrupulous brokers employ is to switch clients out of variable annuities into other insurance products or mutual funds. This move, of course, generates even more commissions, but may not be in the best interest of their customers. With variable annuities, investors who cash out of them within a short period of time also may incur high “surrender” fees, which are onerous. Variable annuities – the more complex and costly version of low-cost fixed annuities – are often oversold by brokers and advisors. Due to high “surrender” fees, they may lock in investors for a certain period of time. Then they may be paying even more commissions and fees in new investments.

Such practices hurt investors and have caught the attention of FINRA, the securities industry regulator. FINRA recently fined Wells Fargo Advisors Financial Network and Clearing Services more than $2 million for switching 100 clients from annuities to other products.  The regulator found that from January 2011 through August 2016, Wells Fargofailed to supervise the suitability of recommendations that customers sell a variable annuity and use the proceeds to purchase investment company products, such as mutual funds or unit investment trusts.”

Chicago-based securities and investor protection law firm Stoltmann Law Offices, P.C., is currently investigating claims involving William Edward Torriente (Eddy Torriente) in connection with allegations he engaged in unauthorized trading. Eddy Torriente, who was employed with Comerica Securities from 2011 to September 2020, worked out of a branch office in Scottsdale, Arizona.  According to public reports, Eddy Torriente voluntarily resigned from Comerica on September 21, 2020 while undergoing an internal investigation by Comerica into allegations made by a client that Torriente placed unauthorized transactions in the client’s accounts.  Typically, if a complaint by an investor client is unfounded, the advisor doesn’t leave the firm.  According to FINRA, the complaint was “denied” by the firm but the timeline indicates there was very little time between the receipt of the complaint and the firm “denying” it.  Even more intriguing, Torriente “voluntarily resigned” before this client complaint was even received.  Mr. Torriente is now registered as an investment adviser representative for Wealthsource Partners, but is currently not a registered representative of a FINRA broker/dealer. If you or someone you know had dealings with Mr. Torriente and believe he executed trades in your account on an unauthorized basis, you should contact Stoltmann Law Offices for a consultation.

Unauthorized trading is a fundamental violation in the securities industry. These claims take multiple different shapes. The most obvious form is when a financial advisor, who does not have formal “discretion” in a customer’s account, goes ahead and places trades, either buys/sells stocks, bonds, options, mutual funds, etc., without first receiving approval from the client. These claims can also take the form of a failure to execute or failure to follow a client’s instructions.  If, for example, a client tells a broker to buy 100 shares of Apple, and the broker doesn’t do it, that is a failure to execute, and a form of unauthorized trading. These claims can become even more nuanced however and could involve situations where the broker fills some orders as instructed, but ignores others, or simply uses his discretion on what orders to execute.  Financial advisors simply cannot exercise this sort of discretion in a client’s account without formal, written agreements providing that discretion.

A broker who trades on an unauthorized basis violates several FINRA Rules and state securities regulations in doing so. For example, in Arizona, it is a violation of the Arizona Securities Act to trade on an unauthorized basis. See R14-4-130(16) which specifically identifies “Making unauthorized use of of securities or funds of a customer…for personal benefit” as an unethical practice in violation of the Arizona Securities Act, A.R.S. §§ 44-1961(A)(13) and 44-1962(10). Brokers traditionally trade on an unauthorized basis for one reason – to generate commissions.  Further, FINRA Rule 2010 prohibits unauthorized trading because such a practice is considered to be inapposite to the concept of commercial honor and just and equitable principles of trade.

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