Articles Posted in FINRA Enforcement

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from dealing with broker-advisors who’ve defrauded their clients. The Securities and Exchange Commission (SEC) has charged Michael F. Shillin with defrauding at least 100 investment advisory clients by “fabricating documents and making misrepresentations about their investments,” according to Thediwire.com.

According to the SEC, Shillin, a former Raymond James advisor, allegedly told certain clients, many of whom were elderly, that they had “subscribed for Initial Public Offering (IPO) or pre-IPO shares, or that he had bought stock on their behalf, in certain `coveted companies.’” In addition, Shillin is accused of misrepresenting the purchase of life insurance policies with long-term care benefits, with several clients rolling over their existing policies into new ones, which were either non-existent or had far fewer benefits than he claimed.

For example, The SEC stated, “one of his clients reportedly decided to retire early when he was told that he was $450,000 richer after Shillin had purchased SpaceX stock for him. Another client was allegedly told that his life insurance policy contained a long-term care benefit, which the client learned was untrue after he was diagnosed with stage IV cancer.” According to the SEC, Shillin “went to great lengths to deceive his clients,” including setting up an online portal so they could monitor their portfolio of securities and profits – much of which were “pretend.”

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who’ve hidden their outside financial activities. Sometimes, brokers have “side deals” while working at an advisory firm, which they may pitch to existing clients. In a heavily regulated industry, they have to tell their employers and these so-called “outside business activities”, including outside brokerage accounts. When they fail to disclose their other businesses, they can be fired.

FINRA, the federal securities regulator, fined and suspended an ex-Wells Fargo broker “who was terminated by the wirehouse for failing to close three outside brokerage accounts despite being told to do so numerous times by the firm,” according to ThinkAdvisor.com. Without admitting or denying FINRA’s findings, Jacob Popek signed a FINRA Letter of Acceptance, Waiver and Consent on Aug. 31 “in which he consented to the imposition of a $2,500 fine and a three-month suspension from associating with any FINRA member in all capacities.” Wells Fargo declined to comment.

Between November 2018 and April 2020, FINRA stated, “while associated with Wells Fargo, Popek maintained outside brokerage accounts without the firm’s written consent. In October 2018, Popek informed the firm that he maintained three outside brokerage accounts at two other member firms.” Wells Fargo said it “directed Popek to close those accounts. But despite receiving that instruction and multiple subsequent instructions from the firm to close the accounts in 2019, he maintained each of these accounts until July 2019, December 2019, and April 2020, respectively,” according to FINRA.

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 has represented investors who’ve suffered losses from dealing with financial advisors who’ve stolen their money. Can a financial adviser ask you to pay him personally to buy investments? If he does, it may be considered theft. Former NY Life Securities broker Jeffrey Scott Anderson was barred by FINRA, the federal securities industry regulator, after he was accused of stealing approximately $26,600 from an elderly client.

According to FINRA, “Anderson convinced an elderly NYLife customer to write five checks totaling $26,600 from October through December 2019 to him personally to purchase investments and insurance. Rather than using the funds for those purposes, FINRA claims that he deposited the money into his bank account and paid personal expenses.” Anderson resigned in March 2020 after “an internal review raised a number of concerns regarding the quality of his business, including repeat replacement and suitability concerns and undisclosed customer complaints.”

Later that year, NY Life disclosed two other customer complaints against him, including one from a customer who provided NYLife with “copies of three personal checks…which were made payable to and endorsed by [Anderson] totaling $16,500.” After he left NY Life, Anderson’s BrokerCheck profile showed other customer theft issues: “Anderson became registered with Pruco Securities but was fired less than three months later for misappropriating funds from a customer while associated with another FINRA member and submitting altered documentation to company investigators during its internal investigation.”

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.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers whose firms promote high risk alternative investments and private placements. Did you know that brokerage firms can be held accountable when their brokers sell high-risk, illiquid investments that are unsuitable for their clients? Such was the case with Sanctuary Securities, which was forced to pay more than $530,000 in fines and restitution to investors for  “failures to supervise certain product sales,” according to Advisorhub.com.

Sanctuary was fined $160,000 and ordered to pay restitution of $370,161.39 plus interest “for the various supervisory failures dating as far back as 2014 that were uncovered over multiple FINRA examinations, according to a letter of acceptance, waiver and consent finalized on July 1.” Formerly David Noyes and Company, Indianapolis-based Sanctuary has about 190 registered brokers and 35 offices. The company said that no current employees were involved in this action. The FINRA enforcement action involved the firm’s sales of money-losing, risky products called “leveraged exchange-traded funds (ETFs).” These investments multiply gains and losses based on market movements of popular securities indexes. These “non-traditional” or “alternative” investments can lose money for investors if brokers or investors guess wrong on market movements.

According to FINRA, from January 2014 through December 2018, “Sanctuary did not sufficiently address the unique features and risks related to solicited sales of inverse and leveraged ETFs (collectively, non-traditional ETFs) as required by suitability obligations under FINRA Rule 2111. Around 30 brokers recommended customers purchase about $5 million worth of non-traditional ETFs, resulting in significant net losses for those who held their positions for extended periods of time. The firm, meanwhile, generated roughly $60,000 in commissions over the course of about 600 purchases in 150 customer accounts,” FINRA stated.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers who churn customer accounts. One of the most perennial abuses in the brokerage industry is when broker-adviser “churn” accounts to generate extra commissions or fees. When that happens, it’s difficult for clients to make money because their accounts are consumed by transaction fees.

Marc Augustus Reda, a registered representative for Spartan Capital Securities in New York City, was recently charged by FINRA, the securities industry regulator, with overcharging clients some $2 million. “From 2017 through 2019,” reports fa-mag.com, “Reda, among other things, recommended unsuitable investments to his clients and traded excessively in those accounts, the FINRA complaint said. His activities resulted in 66 clients paying a total of $952,764 in commissions and fees, while incurring total net losses of $934,482,” FINRA said.

Reda generated the excessive fees through an “active trading” strategy in which he made trades without his clients’ specific permission. FINRA noted that “Reda failed to consider that the substantial commissions and costs associated with his investment strategy made it unlikely his customers could make any profits.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses in the LJM Preservation and Growth Fund. When broker-dealers sell you investments, they are responsible for fully informing you of the risks at the point of sale. When they fail to give you an honest, transparent disclosure on what they are selling – and the investments tank — you may have an arbitration case that you can pursue to get your money back.

Cambridge Investment Research, Merrill Lynch, and other brokerage firms sold a mutual fund called the LJM Preservation and Growth fund to their customers. The fund’s “value plummeted 80% over two days in early February 2018, after brokers in the previous two years sold $18 million of its shares to more than 550 customers, prompted by sales calls in May 2016 from an LJM wholesaler,” the securities regulator FINRA stated. “The fund was liquidated and dissolved in March 2018.”

What made the fund so volatile that led to its demise? It employed a risky strategy called “uncovered options,” but failed to tell investors that it was a highly complex vehicle prone to catastrophic losses.

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 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.

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