Articles Posted in LPL Financial

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 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 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.

Chicago-based Stoltmann Law Offices continues to represent investors who’ve suffered losses in connection with financial advisors who have oversold energy stocks and other energy-related investments. With the COVID-19 pandemic depressing demand for everything from gasoline to jet fuel, it’s been a mostly rotten year for energy stocks. In fact, when news first hit the markets in early March, stocks in many oil & gas companies and funds that invested in them crashed. At one time, the Energy Select SPDR (XLE), an exchange-traded fund that invests in energy companies, was down as much as 58%.

The net effect of tens of millions of Americans sheltering in place, avoiding travel and not commuting slashed demand for fuels. Only a handful of people were getting on jets, buses, ships, trains, or driving to work. That resulted in energy companies eliminating dividends and losing money.  While the economy has recovered somewhat as more states have re-opened in recent months, energy demand is nowhere near where it was at the beginning of 2020. The U.S. economy is now in a recession, which may continue into 2021.

What is important to realize about oil/gas prices is, the decline in energy demand actually began a few years ago – primary energy consumption dropped by half in 2019 alone — hasn’t stopped brokers from selling investments in oil & gas companies. They have sold stocks, limited partnerships, and mutual funds that concentrate in fossil fuels, which are volatile commodities and have a long history or volatility.

Chicago-based Stoltmann Law Offices continues to see a surge of complaints from investors who bought unlisted or non-traded Real Estate Investment Trusts (REITs). For most investors, the prospect of getting a higher yield on any investment has been alluring. With rates near zero, it’s been hard to earn a return that beats inflation. Enter REITs and funds that invest in them. These are special vehicles that bundle real estate properties into one investment: You can invest in everything from apartment buildings to storage units.

Many REITs are listed and traded on stock exchanges, but some are not, which are called “private” or “unlisted” REITs. In their heyday, REITs routinely paid double-digit yields. Unlisted or “non-traded” REITs have been a consistent sore spot for investors in recent years. Many are loaded with fees and commissions, which dramatically lower investors’ net returns. They even may be money losers, even though they are sold with the promise that 90% of the income generated by properties they hold must be paid to investors. Middleman expenses, which can be as high as 15%, eat up returns in most cases.

Disclosure of the actual financial condition of these vehicles has also been troublesome. It’s hard for investors to know the true value of the properties within these vehicles, which have been aggressively sold by broker-dealers, who make high commissions selling them. When the COVID-19 crisis wracked the economy earlier this year – at first hitting commercial real estate developers and owners particularly hard – REITs that specialized in retail and office properties got clobbered. Retail and Hotel REITs were down 48% and 53%, respectively (as of April 15), according to Deloitte. Investors in these funds, of course, may be still experiencing large losses.

Stoltmann Law Offices, P.C, a Chicago-based securities law firm specializing in representing investors nationwide, continues to hear from investors who have suffered devastating losses in alternative investments.  One of the most common and popular alternative investments peddled by brokers over the last several years are “business development companies” or “BDCs”. The most common issuer of BDCs is a company called Franklin Square, and brokerage firms have pushed hundreds of millions of dollars in these speculative investments to unsuspecting investors for a decade.

FSKR, the publicly-traded BDC called FS KKR Capital Corp. (NYSE: FSKR), was created by the merger of four Franklin Square non-traded BDCs in December 2019:

  • FS Investment Corporation II (FSIC II)

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses as a result of financial advisors who sell investments that are technically “unauthorized” by their firms. These side gigs, while profitable for the broker due to high commissions, are prohibited by FINRA, the industry regulator.

Brokers may pitch clients on a private securities transaction, for example. Of course, the investors rarely have any clue that what they are being asked to invest in is “unauthorized” or a “private securities transaction.” Sometimes these take the form of stock offerings that are unlisted. Broker Henry A. Taylor III, for example, then working for the Cetera brokerage firm, sold $30,000 in private stock that invested in a trucking firm. Taylor did not notify his firm of the sale and had initially deposited his client’s check in his personal account.

After a FINRA arbitration claim was filed, the regulator fined Taylor $7,500 and suspended him for three months earlier this year. Taylor neither admitted nor denied the findings of the FINRA action. The original transaction took place three years ago.

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, P.C. continues to see a surge of investor cases involving “alternative” investments like non-traded REITs, BDCs, oil and gas LPs, and other private placements. These “alts” are almost always considered to be on the speculative end of the risk scale, and frankly, they usually perform poorly and result in investor losses.

Alternative investments cover a wide variety of unconventional investment vehicles. They may employ novel or quantitative trading strategies or pool money for investments in commodities or real estate, for example. The one thing they all usually have in common is steep management fees along with commissions. Both expenses come out of investors’ pockets. Examples of alternative investments, or “alts” in industry parlance, include unlisted or “private” Real Estate Investment Trusts (REITs), private equity, venture capital and hedge funds. While they are generally sold to high-net worth investors who can afford to take on increased risk, they are usually illiquid and complex. Brokers who sell these vehicles may not fully disclose how risky they are. Most of these investments are unregulated, so supervision by regulators is typically light or non-existent.

Investors can file arbitration claims with FINRA if brokers sell inappropriate alternative investments to clients. A year ago, FINRA censured and fined the broker-dealer Berthel Fisher in connection with sales of “inappropriate” alternative investments. FINRA awarded six investors $1.1 million and fined the firm $675,000. Berthel Fisher has had a history of running afoul of investors and regulatory fines. In 2014, the firm was fined $775,000 by FINRA for “supervisory deficiencies, including Berthel Fisher’s failure to supervise the sale of non-traded real estate investment trusts (REITs), and leveraged and inverse exchange-traded funds (ETFs).” The firm was also selling managed commodity futures; oil and gas programs; business development companies; leveraged and inverse Exchange Traded Funds and equipment leasing programs.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with unscrupulous investment brokers selling exchange-traded products. Many of these high-risk products are unsuitable for retail investors.

With the COVID-19 crisis roiling financial markets, many investors have been sold products that rise when market indexes or individual securities fall. Many “exchange-linked products” (ETPs) often use borrowed money, or leverage, to magnify gains when the market drops, but they can also increase losses. They are generally only suitable for sophisticated investors and are linked to complex underlying futures contracts.

When the coronavirus crisis first made major headlines in the U.S. in early March, the stock, bond and commodities markets crashed. Since markets over-react to widespread greed and fear, traders went into mass selling mode over (later justified) expectations that demand for nearly everything from luxury goods to commodities would drop dramatically.

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