Articles Posted in FINRA Enforcement

Stoltmann Law Offices, P.C. is investigating allegations made by the Financial Industry Regulatory Authority (FINRA) that Jose Yniguez sold clients approximately $99,000 worth of investments in an outside company. Fortunately for defrauded investors, TransAmerica Advisors, the company with whom Mr. Yniguez was licensed and registered, could ultimately be liable for any losses in connection with these illicit investment recommendation. Victims of investment fraud can file claims through the FINRA Arbitration process to recover investment losses.

The allegations against Yniguez were unveiled just this week through FINRA regulatory filing called an Acceptance, Waiver, and Consent (AWC).  In this document, which is signed by Yniguez, FINRA Department of Enforcement alleges that on November 19, 2018, TransAmerica reported in a Uniform Termination Notice for Securities Industry (Form U-5) that Yniguez was terminated for “engaging in undisclosed activities with and referring firm and non-firm customers to investment with an outside entity without TransAmerica’s approval.” That Form U-5 spurred FINRA Department of Enforcement’s interest and it launched an investigation into Mr. Yniguez pursuant to FINRA Rule 8210.  FINRA concluded that Yniguez violated FINRA Rules 3270 and 2010 by failing to disclose his involvement with an outside company to TransAmerica. He also solicited eight firm customer to invest in the entity, which is a violation of FINRA Rule 3280.

Just because this activity was undisclosed, does not mean TransAmerica is off the hook. FINRA Rule 3110 requires TransAmerica to adequately supervise its financial advisors. Further, to the extent “red-flags” existed that Mr. Yniguez was engaging in this unauthorized activity, that creates an obligation to “peel the onion” and act. TransAmerica, for example, cannot just ignore emails sent by Yniguez discussing this outside company. It must act and protect both its clients and its own business interests. By failing to reasonable supervise Yniguez, TransAmerica can be liable for negligence to the investors in this scheme. Likewise, due to the fact that outside investments were securities; were sold by a securities broker; to clients of a securities brokerage firm; regardless of whether Yniguez disclosed it to the firm, TransAmerica can be liable for damages due to apparent agency or Respondeat Superior.

Chicago-based Stoltmann Law Offices has represented hundreds of investors who have been victims of one of the most egregious investment frauds: Ponzi schemes. These swindles promise quick riches and rely upon an increasing number of “investors” to keep the operation going, sometimes over a period of years. The schemes eventually blow up when new investors can’t be found to perpetuate it or promoters are outed by investors or associates for faking returns.

The most famous Ponzi scheme – and perhaps one of the largest – involved broker-money manager Bernie Madoff. Over a period of 17 years, Madoff defrauded thousands of investors, lying about profitable trades. In 2009, he was sentenced to 150 years in prison, after pleading guilty to a $65 billion swindle of some 65,000 victims around the world. Many of Madoff’s victims, which ranged from non-profit organizations to celebrities, were financially ruined. A court-appointed “Madoff Victims Fund” has distributed nearly $3 billion to investors. His sons, who worked for their father’s firm, turned Madoff into authorities when they learned of the scam.

Despite the notoriety of the Madoff swindle, Ponzi schemes are still ensnaring innocent investors. As one of the oldest investment fraud vehicles around, the Ponzi scheme has two selling points: Promoters promise outrageous returns in a short period of time and rely upon continuing stream of new victims to “pay off” early investors in fake profits. This perennial false promise of easy riches makes it one of the most durable schemes for dishonest brokers, who continue to sell them — until the frauds collapse.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered investment losses at the hands of financial and investment advisers who churned and burned their accounts. One of the most prevalent abuses in the securities industry is excessive trading, or “churning” client accounts. This practice, which is forbidden by industry regulators like FINRA and the SEC, is done to generate commissions, almost always at the expense of the client. As the stock market swings wildly during the Covid-19 pandemic, brokers take advantage by trading their clients’ accounts to generate commissions.

Brokers can open the door to churning by asking customers if they want an “active” trading strategy, which gives brokers discretionary ability to trade at will. Unless clients give specific directions on how and when to trade, brokers may take the opportunity to trade excessively and charge needlessly high commissions.

Churning has been the subject of numerous regulatory actions over several decades. Broker Frank Venturelli, a representative for First Standard in Red Bank, New Jersey, was cited by FINRA for excessive trading between 2016 and 2018. According to FINRA settlement, clients lost more than $373,000 during that period. Venturelli was suspended from the industry for 11 months and ordered to pay partial restitution of $30,000 to his clients.

Chicago-based Stoltmann Law Offices  represents investors who’ve suffered losses from dealing with unscrupulous investment brokers. On April 28, 2020, the Financial Industry Regulatory Authority’s (FINRA) Department of Enforcement filed a complaint against an ex-Ameriprise representative, alleging he converted more than $42,000 of an elderly client’s funds for his own use. Sean Michael Refsnider, of Haddon Heights, New Jersey, was a representative at Ameriprise from 2012 until Aug. 20, 2019. The company stated he was fired after it concluded that his client’s funds were “misappropriated.” FINRA is the chief U.S. regulator of broker dealers.

According to the FINRA complaint, Refsnider allegedly “procured a check from `Customer A’ in the amount of $20,000 and then used the funds to pay his mortgage and other personal expenses.” Refsnider allegedly also had used a debit card linked to the client’s account to make purchases totaling about $17,317, in addition to $4,300 in cash withdrawals, the complaint said. Ameriprise said in a statement that it “quickly detected and stopped the activity, ensured the client was fully reimbursed, terminated the advisor and notified the proper authorities.”

In the past, Ameriprise has been cited by regulators for failure to protect customer assets. The U.S. Securities and Exchange Commission (SEC) fined Ameriprise $4.5 million in 2018 to settle charges “that it failed to safeguard retail investor assets from theft by its representatives.” According to the SEC’s order, five Ameriprise representatives “committed numerous fraudulent acts, including forging client documents, and stole more than $1 million in retail client funds over a four-year period.” The SEC also found that Ameriprise, a registered investment adviser and broker-dealer, “failed to adopt and implement policies and procedures reasonably designed to safeguard investor assets against misappropriation by its representatives.” The five Ameriprise representatives were based in Minnesota, Ohio, and Virginia, and three previously pled guilty to criminal charges. Each of the representatives was terminated by Ameriprise for misappropriating client funds and barred from selling securities by FINRA.

FINRA permanently barred former Securities America financial advisor, Bobby Wayne Coburn (“Coburn”) on August 27, 2019 after he failed to appear at the disciplinary hearing. This came after Securities America terminated Mr. Coburn on March 20, 2019 for soliciting multiple clients to invest in an unapproved private securities transaction. He also tried to settle a complaint made by a customer without notifying the firm. According Mr. Coburn’s FINRA BrokerCheck report, the securities were in the form of promissory notes and real estate securities.

On notice of Coburn’s violations, FINRA promptly initiated an investigation into Coburn in July 2019. According to the Acceptance, Waiver, and Consent (“AWC”) FINRA entered against Coburn, Securities America learned in January 2019 that Coburn sold unregistered securities to clients in 2010 and 2011. Securities America also discovered the Coburn settled a customer complaint relating to this scheme in 2016 without providing the required notice to his firm and FINRA.  When FINRA requested documents and information from Coburn, he informed FINRA that he was no longer working in the securities industry and refused to produce the documents and information, in violation of FINRA Rule 8210. FINRA also found that Coburn violated Rule 2010, which is a “catch all” rule requiring that brokers and firms conduct business with “high standards of commercial honor” and maintain “just and equitable principles of trade”. FINRA permanently barred Coburn from the securities industries for violating these rules.

Coburn’s career in the financial services industry began in 1986 at Ameritas Investment Corp. During his thirty-three year career, he bounced from firm to firm, and landed at Securities America in January 2009. He worked from the Fort Meade, Florida branch office. Two customers have filed complaints against Coburn, including one complaint related to the real estate investment scheme. According to his BrokerCheck report, Coburn sold the client an investment in a Costa Rica real estate development, which did not make the required payments pursuant to the promissory note. The complaint for $32,000 was settled for $7,000. The entire settlement was paid by Coburn. Another client of Coburn and Securities America formally complained about an unsuitable variable annuity that Coburn sold, and the $5,000 complaint was settled for nearly $55,000, with Coburn contributing $5,000.

Crypto related currencies have been called a lot of things. The next big thing. A bright, shiny object.  When top financial regulators say they aren’t comfortable that they haven’t learned about the full dangers of crypto, you’re wise to be wary too. Investment promoters often try to convince hungry investors they can turn hot topics of the day from oil and gas fracking to self-driving cars into wealth.

But often the only wealth that surfaces from their drumbeat is an abundant pile of victims.  Crypto crooks stole over $4 billion from investors this year, the blockchain consulting firm CipherTrace warned in a new study.  Even the sophisticated are vulnerable and increasingly so.

“Exchanges and users are facing a greater sophistication in the tactics, techniques and procedures (TTPs) cybercriminals are using to target the cryptocurrency space. In the case of exchange robberies, hackers have developed advanced methods to overcome even the current “best practice” security in place at the more vigilant exchanges,” CipherTrace cautioned.

On August 5, 2019, FINRA fined Morgan Stanley registered representative Ken Kavanagh $25,000 and suspended him from practicing in the securities industry for eighteen after discovering that he concealed his outside business activity. According to FINRA’s order, beginning in 2003, Kavanagh provided personal management services to professional athletes. In October 2007, he registered his business as CEO-Sports in New Jersey, then formed another LLC in Pennsylvania, MGMT LLC. His services included coordinating travel and dinner arrangements, housing, bill payment, opening and managing bank accounts, and referrals to other professionals for tax return preparations and wills. Kavanagh had approximately 42 clients and generated at least $5 million in fees from 2012 through 2018 for providing these services.

FINRA Rule 3270 (formerly NASD Rule 3030) prohibits FINRA financial advisors from engaging in outside businesses unless they are properly disclosed to and approved by the advisor’s  brokerage firm. Mr. Kavanagh did not disclose his interest in MGMT or CEO-Sports to Morgan Stanley. He also attested in annual questionnaires required by Morgan Stanley that he was not involved with any outside business activities. He named a close relative as the sole owner or member of MGMT and CEO-Sports and also as the authorized representative on the each company’s bank accounts.  As a result of these FINRA Rule violations, FINRA fined Kavanagh $25,000 and suspended him for eighteen months.

As Stoltmann Law Offices previously alerted investors, Kavanagh has not been registered in the securities industry since resigning from Morgan Stanley in April 2018 after a client complained of his undisclosed outside business activities. On August 15, 2018, a customer also complained that Kavanagh placed unauthorized trades and forged documents.

In this digital era, where iris biometrics are flowering prints of digits are still being relied upon by brokerages and banks to catch crooks and to stop them from working at cashiers’ windows.  A few days ago, Citigroup Global Markets was fined $1.25 million in part for failing to screen over 500 employees through fingerprinting, a technology first employed in the United States in the first decade of the 20th century.

Three workers with criminal convictions fell through the cracks. While it does happen, finger pointing of financial firms for failure to do mandatory fingerprinting by regulators is rare.  Two years ago, FINRA fined J.P. Morgan the same amount for not fingerprinting 2,000 workers.

FINRA and state regulators require fingerprinting for broker-dealers. The SEC doesn’t mandate fingerprinting for investment advisers, but some states do for the smaller advisers who are under their oversight. All job applicants to the FDIC must submit fingerprints.

Why FINRA Enforcement is cracking down on “cockroach” brokers. The entire article can be viewed at the link below. The most recent case is that of 10 employees, including the president, of the now-defunct Global Arena Capital Corp out of New York City, left their former firm where they were accused of using misleading sales pitches, churning account and other violations. Before that, a group of seven brokers, who were being supervised, left HFP Capital Markets to join Global Arena. These cases are examples of “cockroaching,” a practice in which brokers stay in the securities industry by moving between risky or expelled firms while committing securities violations. See link below

https://www.investmentnews.com/article/20150915/FREE/150919947/finra-cracks-down-on-cockroach-brokers

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