Articles Tagged with Charles Schwab

Chicago-based Stoltmann Law Offices is investigating cases where investors have suffered losses from “robo-advisors.” In recent years, the rise of robo-advisors has been dramatic. These highly automated platforms will not only recommend securities and mutual funds, but create entire portfolios online or through a do-it-yourself (DIY) phone app.

The convenience and speed of making trades on your smartphone, however, doesn’t always reduce the chance that you’ll lose money. Many of the algorithms used to push securities don’t pay close attention to personal risk tolerance and are often loaded with hidden fees. And many robo accounts may automatically funnel customers funds into cash accounts, which are a money-losing proposition when you account for inflation.

The mega-brokerage Charles Schwab, which operates one of the largest robo platforms (Intelligence Portfolios), recently disclosed that it will take a $200 million charge in the second quarter regarding the U.S. Securities and Exchange Commission’s (SEC) probe into its robo practices.

Chicago-based Stoltmann Law Offices, P.C. represents clients nationwide in securities and investment arbitrations and litigation. One area we are very familiar with, is to look for all liable parties when investment advisors commit securities fraud. In many instances, there are multiple potentially liable parties beyond the primary bad actors, including banks that facilitate the illegal movement of funds and brokerage/clearing firms that facilitate illegal trading schemes.  Cherry-picking is one of those trading schemes that brokerage or clearing firms are geared to supervise for and prevent. In the event you are a victim of a cherry-picking scheme orchestrated by your trusted investment advisor, you may have a viable claim against the brokerage firm or custodial firm that executed the trades on behalf of the investment advisor.

According to published reports, Barrington Asset Management and Gregory D. Paris executed an allocation scheme which resulted in profits to the firm and losses to firm advisor clients.  In a civil complaint filed June 28, 2021, the Securities and Exchange Commission alleged that Barrington Asset Management and Gregory D. Paris, who was the firm’s chief compliance officer, executed this “cherry-picking scheme” in violation of several federal securities laws including Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act (“Exchange Act”) and Rules 10b-5(a), 10b-5(b) and 10b-5(c) thereunder; and Sections 206(1) and 206(2) of the Investment Advisers Act (“Advisers Act”). According to the SEC complaint, Barrington Asset Management executed this scheme through a pooled trading fund called the Barrington Opportunity Fund.

As investment advisors, Barrington Asset Management cannot execute securities transactions. They must use a FINRA registered broker/dealer to do so. In this circumstance, this brokerage firm plays the role of “custodial” firm, where the firm physically holds cash on behalf of the RIA’s clients and also executes or brokers securities trades. These are generally back-office functions and these companies, like Schwab, Fidelity, TD Ameritrade, and Interactive Brokers, typically disclaim away any responsibility to supervise for the suitability of the transactions at issue. What they cannot disclaim away, however, are their obligations under the Bank Secrecy Act and Patriot Act to supervise for illegal activities. One of the most common schemes executed by RIAs like Barrington Asset Management is the “cherry-picking” scheme, and these firms typically do have compliance and supervisory systems in place to check for and prevent such illegal activity. When they fail to detect this sort of scam, they could be secondarily liable for aiding and abetting breach of fiduciary duty, or for negligent supervision.  Here, the facts also reflect that Barrington Asset Management trading in leveraged ETFs, which are extremely high risk and volatile investments.  According to the SEC complaint, the manner in which trades were allocated statistically represented a 1 in a billion outcome for the Advisor – Paris. The SEC identifies these firms as “clearing broker A”and “clearing broker B”.

A new report from the Financial Industry Regulatory Authority (FINRA) relays that financial services firms’ offerings of digital investment advice need sound governance and supervision. These include effective means of overseeing suitability of recommendations, conflicts of interest, customer risk profiles and portfolio rebalancing. The report also outlines lessons for investors and says training and education are crucial for financial professionals who use digital investment advice tools. The report also noted that global spending on digital wealth management services is expected to increase drastically. The five key areas in which the report outlines effective practices are:

Governance and supervision of algorithms

Customer profiling, including assessing customer risk capacity and willingness

The United States Supreme Court recently upheld a decision to allow Northstar Financial Advisors Inc. to sue Charles Schwab on behalf of its clients for breach of contract. The 9th U.S. Circuit Court of Appeals claimed that the fund’s fundamental policies were sufficient to form a binding contract. Schwab allegedly deviated from the explicit objectives of a mutual fund sold to its investors. The objective was to track the Lehman Brothers U.S. Aggregate Bond Index and avoid industry bets. Brokers allegedly invested over 25% of assets in mortgage securities and collateralized mortgage obligations. The fund lost 4.8% and the index rose 7.85%.

Stoltmann Law Offices is investigating Chris Yoo and Summit Asset Strategies. We are specifically looking into investors who may have lost money in the Summit Stable Opportunities Fund I or the Summit Stable Value Fund. The Securities and Exchange Commission (SEC) investigated Chris Yoo, the owner and operator of Summit Asset Strategies Investment Advisors and Summit Asset Strategies Wealth Management in Bellevue, Washington. Through the investment firms, Yoo operated the Summit Stable Opportunities Fund I and the Summit Stable Value Fund.

The SEC accused Yoo of improperly withdrawing $900,000 in assets of the Summit Stable Value Fund. The advisory fees he and his firm collected were as a result of the net fund profits of the Fund, which invested in domestic and international debts and stocks, including Korean stocks and notes. In all, over 20 investors invested more than $7.5 million in promissory notes of the Fund and they were to get a fixed return on the notes. In 2011, Yoo began withdrawing assets from the Fund that exceeded its net profits. Around that time, he also began inflating the value of the Fund’s internal assets. This allowed him to receive higher commissions.

Chris Yoo (who also goes by Chris Youngdong Yoo or Young Dong Yoo) was registered with IDS Life Insurance Company in Minneapolis, Minnesota from October 1998 until September 2001, American Express Financial Advisors in Minneapolis from October 1998 until September 2001, Charles Schwab in San Francisco, California from September 2001 until June 2004 and First Tennessee Brokerage in Memphis, Tennessee from June 2004 until February 2006. He is not currently registered with any firm, according to his FINRA BrokerCheck report.

Stoltmann Law Offices is investigating Charles Schwab broker Nicholas P. Vargas for his involvement in a check-kiting scheme. According to a Financial Industry Regulatory Authority (FINRA) complaint filed, Mr. Vargas converted funds from Schwab’s bank affiliate. A check-kiting scheme is one in which the account holder writes a check for an amount, knowing there are insufficient funds in that account, depositing the check into a second account and withdrawing funds from the second account before the check has a chance to clear. Vargas used converted funds from Schwab’s affiliate bank by using three separate bank accounts. In total, he converted $49,390 from the banks in his illegal scheme. Vargas also allegedly failed to respond to the FINRA investigation against him by failing to provide necessary documents and failing to respond to the investigation against him.

Vargas was registered with Charles Schwab in San Francisco, California from May 2001 until November 2012. He is not currently registered with any firm, nor is he licensed within the industry. If you would like to sue Nicholas P. Vargas, you may do so in the FINRA arbitration process. We sue firms such as Charles Schwab for failing to supervise their employees. Our number is 312-332-4200.

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