Articles Tagged with data

Brokerage firms are facing a mounting surge of FINRA arbitration claims and lawsuits for client identity theft and hacking related issues. Brokerage firms and registered investment advisory firms are on notice that hackers and unauthorized third parties are attempting to, and actually being successful, in fraudulently withdrawing funds from investor accounts. In many instances, the brokerage firms can be successfully sued by investors who have had their accounts hacked, their identify stolen or who have had unauthorized sums stolen from their accounts. Our investment fraud law firm has handled these sorts of FINRA arbitration claims in the past and will likely see more of these arbitration claims and lawsuits in the future.

Brokerage firms and RIAs are officially on notice by regulators that they must guard against and supervise to prevent these sorts of ID hacks. Failure to do so can make the firms financially responsible to the investors who were impacted. Unfortunately, these cyber hacks and ID thefts are all too common at brokerage firms. Recently, a Morgan Stanley advisor stole account data from as many as 350,000 clients with some of that information later placed for sale online.

According to a February report issued by the U.S. Securities and Exchange Commission, most of the firms examined by the SEC disclosed they were the subject of a cyber-related incident — 88% of broker-dealers and 74% of RIAs reported they experienced cyber attacks directly or through one or more of their vendors. The majority of the cyber-related incidents involved malware and fraudulent e-mails. Brokerage firms can no longer bury their heads in the sand when it comes to these issues.

The Securities and Exchange Commission and its Chair, Mary Jo White, announced a new program for reducing “undue” risk in the $63 trillion asset management business on Thursday. The industry is comprised of 11,000 investment advisors and more than 10,000 mutual funds registered. Assets under management for most of the largest firms have doubled since 2004. White unveiled a three-part plan for increasing oversight of the industry and reducing “undue” risk to investors. “We are now embarking on a new period of regulatory change, driven by long-term trends in the industry and the lessons of the financial crisis,” White said. The SEC will improve data to determine risk levels and the requirements will be expanded and updated. It will also ensure that registered funds can identify and address risks to newer investment products such as exchange traded funds (ETFs) and derivatives. Finally, the SEC will make sure that brokerage firms have a plan for moving client assets to safety, in case of another financial crisis.

Stoltmann Law Offices is interested in speaking to those investors who may have invested with Merrill Lynch in the fund MLCXX6LSER Index (MLC Index). Craig Kinard, a Merrill Lynch adviser, was accused of making MLC Index recommendations and sales. MLC Index is allegedly one of the most complex investment products that could be sold to a retail investor, and, therefore, is suitable to few investors. The Index involved extreme leverage, commodities, derivatives, options and swaps risk. The MLC Index proved to be too great of a challenge for brokers and customers to understand, and many customers lost money. Also, the Index was subject to enormous costs and fees. Merrill Lynch advertised the Index as having “Low Volatility” and producing “Consistent Returns” to investors and that it provided back testing data showing that the fund would have an annualized return of 6.77% and that from 2002 until 2011 the fund did not have a single negative return year. Merrill Lynch failed to properly explain and disclose the main risks to arbitrage funds in that the hedging strategy, or the correlation assumptions, will not prove accurate. The Fund was volatile. If you lost money with the MLC Fund and Merrill Lynch, please call our securities law firm today to speak to an attorney about your options. The call is free with no obligation. We may be able to help you recover your losses.

The Olympics provide for more scam artists to operate and steal money. Many scam artists use the games to steal personal information such as credit card numbers, bank account numbers and other identifying data. Fake lottery scams are popping back up because of the Olympics. Typically “winners” are notified that they have been selected for a lottery prize, as well as a trip to Brazil to see the Olympics. The victims are then asked to provide the details of their bank accounts in order to facilitate the transfer of funds. If a customer did not enter a lottery, they cannot win.

Another common scam is the Coke scam, wherein victims will get an email claiming they have won a cash prize of $1 million from the Coca-Cola foundation in partnership with the Olympic committee. To claim the prize, the victim must fill out personal information such as whether they prefer a bank transfer or to pick up their check in person in Nigeria.

Many fraudsters also peddle fraudulent merchandise with the Olympics logo on it. Tips are to only make purchases on the Olympics website and to always use a credit card. Beware of any solicitations that are emailed and be vigilant.

The Securities and Exchange Commission (SEC) recently forced Morgan Stanley Smith Barney to pay $1 million in a settlement that marked a turning point in the agency’s focus on cybersecurity issues, an area that the agency has proclaimed a top enforcement priority in recent years. The settlement addressed various cybersecurity deficiencies that led to the misappropriation of sensitive data for approximately 730,000 customer accounts. Morgan Stanley violated the “Safeguards Rule.” Adopted in June 2000, the rule requires registered broker-dealers, investment companies and investment advisers to (1) adopt written policies and procedures that address administrative, technical and physical safeguards reasonably designed to insure the security and confidentiality of customer records and information, (2) protect against anticipated threats or hazards to the security or integrity of customer records and information and (3) protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer.

The SEC found that MSSB failed to implement sufficient safeguards to protect customer information. MSSB lacked reasonably designed and operating authorization modules restricting employee access to only customer data for which the employee had a legitimate business need, failed sufficiently to audit and/or test module effectiveness and did not adequately monitor and analyze employee access to, and use of, information portals. Because of this, a financial advisor, Galen Marsh, was able to access sensitive personally identifiable information relating to the customers of other financial advisors, including their account balances, securities holdings and other personal information. The information he obtained was then offered for sale on at least three sites. This settlement is the first significant enforcement action undertaken by the SEC since it began prodding financial firms to shore up their cybersecurity defenses five years ago.

The Financial Industry Regulatory Authority (FINRA) announced yesterday that they fined Deutsche Bank Securities Inc. $6 million for failing to provide complete and accurate trade data in an automated format in a timely manner when requested by FINRA and the Securities and Exchange Commission (SEC). FINRA and the SEC request certain trade data known as “blue sheets” to assist in the investigation of market manipulation and insider trading. Federal securities laws require firms to provide this information to FINRA and the SEC regularly upon request. Blue sheets provide these regulators with detailed information about securities transactions, including the security, trade date, price, share quantity, customer name, and whether it was a buy sale or short sale. This information allows the regulators’ ability to discharge their enforcement and regulatory mandates. Firms must electronically submit these blue sheets when requested without exception.

FINRA found that from at least 2008 until 2015, Deutsche Bank experienced significant failures with its blue sheet systems used to compile and produce blue sheet data, including programming errors in system logic and the firm’s failure to implement enhancements to meet regulatory reporting requirements. This caused the bank to submit thousands of blue sheets to the regulators that misreported or omitted critical information on over one million trades. Also, a significant number of Deutsche Bank’s blue sheet submissions did not meet regulatory deadlines. Firms typically have 10 business days to respond to a blue sheet request. Between January 2014 and August 2015, more than 90 percent of Deutsche Bank’s blue sheets were not submitted to FINRA on a timely basis.

According to an article in yesterday’s InvestmentNews entitled “Massachusetts follows FINRA’s Lead with Crackdown on Rogue Brokers,” the state’s Securities Division launched a sweep of 241 firms with above-average numbers of broker with misconduct reports on their records. The point of the “sweep” is to learn details of broker-dealers’ hiring policies and procedures. Firms that hire brokers with checkered pasts may turn them into places that harm investors. These firms will receive stronger scrutiny from FINRA, which is stepping up its use of data to identify brokers with a record of compliance problems who keep resurfacing, and is warning firms not to rehire them. FINRA’s “firm culture” examination to evaluate brokerages was launched earlier this year.

Massachusetts requested hiring information from January 2014 to the present, including a number of brokers fired or placed on heightened supervision in that period. Firms have until June 20th to respond. The letter went to firms in which over 15% of their current reps have at least one current disclosure incident on their record, according to the statement. That number exceeds the average percentage found among all Massachusetts-registered broker-dealers, according to the statement. Disclosure events can be allegations from disputes that end up in securities arbitration to illegal conduct, according to the state’s Securities Division.

A Deutsche Bank AG unit will pay more than $4 million to settle allegations that it failed to properly report data on millions of options trades, according to the Financial Industry Regulatory Authority (FINRA). The alleged conduct happened between 2010 and 2015 and violated FINRA rules aimed at identifying holders of large options positions who may be trying to manipulate the market or violate other industry rules. NASDAQ and the International Securities Exchange also took part in the investigation. The bank allegedly made enhancements to its reporting systems after hiring an independent consultant to review them.

The U.S. Securities and Exchange Commission (SEC) settled charges with Tobin Smith and his former company, NBT Group. The former market analyst and TV news commentator agreed to settle charges that he and his company fraudulently promoted a penny stock to investors. The SEC alleged that Smith and NBT were paid to prepare and disseminate emails, online blogs, articles and other communications touting the stock of IceWEB, a data storage company. Smith and NBT did not fully disclose their compensation to investors, who did not find out the increase in IceWEB’s share price. The SEC also claimed that promotional materials contained false and misleading statements intended to artificially increase the trading volume and share price of IceWEB’s stock.

According to the SEC, Smith entered into two separate agreements on NBT’s behalf to promote IceWEB and its stock in exchange for $330,000 in cash and IceWEB stock. The company could earn incentive fees of more than $250,000 if the marketing campaigns succeeded in increasing share price. Smith and NBT only disclosed some of their compensation and never informed investors that they would earn incentive fees if the stock price increased above a certain amount. They also falsely touted that IceWEB provides the cheapest storage box and the lowest cost/highest performance solution to public and private data storage centers such as Dropbox, iCloud, Evernote, Google Drive and Facebook. Smith did not know whether or not these companies were actually customers of IceWEB.

The Securities and Exchange Commission (SEC) recently charged Steven Zoernack and his firm, EquityStar, for concealing past incidents and providing false and misleading statements to investors. Allegedly, Zoernack and his company, EquityStar, which he owned and operated, sold more than $5.6 million of interests in two private investment funds to over 40 investors. The SEC claims that Zoernack withdrew $1 million of the investors’ funds in secret. He also allegedly made certain that customers would not find out about his two past fraud convictions, his bankruptcy filling and other money related violations. The SEC statement also alleged that he hired a firm to manipulate internet search results of his name by flooding the internet with fraudulent information indicating his success as a fund manager and investor. He also allegedly used aliases to provide the illusion that EquityStar was larger than just himself, provided false data to Morninstar Inc. to receive a five star rating and distributed false advertising materials. Zoernack did not register himself or his funds with the SEC or any state. He is currently awaiting the scheduling of a public hearing before an administrative judge.

CNBC
FOX Business
The Wall Street Journal
Bloomberg
CBS
FOX News Channel
USA Today
abc NEWS
DATELINE
npr
Contact Information