Articles Tagged with enforcement

According to a recent InvestmentNews article entitled “Raymond James, Baird to pay $850,000 for SEC wrap-fee violations,” the Securities and Exchange Commission (SEC) fined Raymond James and Robert W. Baird $850,000. The SEC accused both firms of failing to establish procedures needed to determine what their clients were being charged in commissions beyond their wrap-fee programs. The firms were not able to determine the fees charged to their clients when advisers “traded away” with a broker-dealer outside their wrap-fee program, making it impossible to determine a correct number. Raymond James will pay $600,000 and Baird, $250,000. A wrap fee is a comprehensive charge levied by an investment adviser to a client for providing a bundle of services, such as investment advice, research or brokerage services. They allow the advisor to simplify the exchange by charging one fee up front. Andrew Ceresney, director of the SEC’s enforcement division stated: “Baird and Raymond James lacked policies and procedures to consider an entire category of cost information and didn’t fully evaluate whether these wrap fee programs were a good fit.” Please call our Chicago-based law offices at 312-332-4200 for a free consultation with an attorney to discuss your options of suing Raymond James or Robert W. Baird for investment losses. We take cases on a contingency fee basis only.

According to a New York Times article this week entitled “To Crack Down on Securities Fraud, States Reward Whistle-Blowers,” securities regulators in Indiana and Utah are using informants, also known as “whistle-blowers,” to protect their residents from financial harm. Whistle-blowers have been helping regulators at the federal level for quite some time now, and now the states themselves are getting involved.

An Indiana whistle-blower was awarded $95,000 for helping state regulators bring an enforcement action against JP Morgan Chase for failing to disclose conflicts of interest to clients about the way the bank invested their money. That was the first award given under Indiana’s whistle-blower program aimed at securities law violators. In this particular case, the informant told regulators about JP Morgan’s practice of steering clients into in-house funds that generated more costs to the clients, and, at the same time, more fees to the bank itself. The award stated JP Morgan’s practices as “outside the standards of honesty and ethics generally accepted in the securities trade and industry.” Indiana’s program was adopted in 2012 by its state legislature and officials can award up to 10% of monetary sanctions received in an enforcement statement to the whistle-blower.

Utah’s program, adopted in May 2011, allows a whistle-blower to receive up to 30% of the proceeds as an award. The first award Utah awarded was in 2014 to an investment adviser who told officials about $150,000 in questionable transactions he had witnessed while analyzing an elderly client’s holdings. He received $20,000 of the money.

On Tuesday, the House passed a bill for legislation that aims to help financial professionals reduce elder fraud by providing them safe harbor if the fraud is reported to state or Federal regulatory and law enforcement entities. The House passed the vote by voice on Tuesday. The bill specifically provides that banks, credit unions, investment advisers, broker-dealers and insurance companies and certain supervisory, compliance and legal employees would be protected from civil or administrative liability as long as these employees received training in how to spot and report predatory activity and disclose any possible exploitation of senior citizens to state or Federal regulatory law enforcement. The bill was introduced last year by Senator Susan Collins (R-Maine), and Senator Claire McCaskill (D-Missouri). They are the chairman and ranking minority member, respectively, of the Senate Special Committee on Aging. It is based on legislation enacted in Maine. The bill has the support of the National Association of Insurance and Financial Advisers (NAIFA), the Insured Retirement Institute (IRI), SIFMA and the North American Securities Administrator Association (NASAA). A 2011 study by MetLife found that seniors lose an estimated $2.9 billion each year to financial fraud.

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.

On Monday, the Securities and Exchange Commission (SEC) slammed two California-based municipal advisory firms with a fine of $200,000. Their executives were also ordered to pay a fine. It was alleged that they used deceptive business practices in dealing with five school districts. It is the first enforcement action the SEC has taken under the municipal advisor antifraud provisions of the Dodd-Frank Act. School Business Consulting Inc. (SBCI) was censured and fined $30,000 while its president and sole employee Terrance Bradley was barred as acting as municipal advisor and was fined $20,000. Keygent LLC was censured and fined $100,000 and two of its directors, Anthony Hsieh and Chet Wang were ordered to pay $30,000 and $20,000, respectively. The SEC found that SBCI retained Keygent, and, during this time, Bradley improperly provided confidential information about the hiring processes of five school districts that were his client to Keygent. The school districts were allegedly not aware that Bradley was sharing confidential information.

In 2010, Keygent retained SBCI to serve on its advisory board. Keygent gained access to contacts through Bradley. Bradley then assisted in drafting the request for qualification documents that the five school districts used in their hiring process. Bradley gave Keygent information like advanced copies of draft interview questions and details of competitors’ proposals, sometimes including competitors’ fees. He never informed the districts he was sharing the information, creating a conflict of interest.

At a recent Financial Industry Regulatory Authority (FINRA) conference, regulators discussed how variable annuities, complex products that are often marketed to seniors, are still at issue. Russ Ryan, FINRA senior vice president and deputy chief of enforcement stated in yesterday’s InvestmentNews: “Variable annuities are just very frequently involved in our cases.” On Monday, James Day, FINRA vice president and enforcement chief counsel, told an IRI audience that variable annuities exist at a nexus that FINRA targets. He stated “They are at the sweet spot of complex products marketed to retirees and people about to retire.” Recently, FINRA hit MetLife with a record $25 million penalty for misleading variable annuity sales. The regulator found that MetLife financial advisers made misrepresentations and omissions of fact in 72% of 35,500 applications the firm approved between 2009 and 2014 to replace clients’ existing variable annuities with new ones. The new products were touted as less expensive and more beneficial, when clients would have been better off keeping their existing investments. Most of the issues centered on training and supervision of the advisers involved in the sales. IRI audiences are encouraged to “be more vigilant,” and a little more skeptical in reviewing these transactions.

Another area where FINRA will be cracking down is on L-share variable annuities, products that offer increased liquidity and a shorter surrender-penalty period of about three years instead of seven. Some sort of heightened procedures may be required for those who have a fairly high percentage of L-shares with long-term riders. This may have a major financial impact on anybody who sells a lot of variable annuities and, particularly, a lot of L-shares.

LPL Financial told brokers last month that they will no longer be able to receive a commission or fee from the accounts belonging to direct family members of theirs. On January 1st, brokers must hand off accounts to other brokers not related to them, or they will not be able to collect any commissions from the transactions. The rule is for the “lineal family line” which includes parents, grandparents, children, children-in-law and grandchildren. The plans included are individual retirement accounts, 401(k)s and other employer-sponsored retirement plans. This comes on the heels of the Employee Retirement Income Security Act of 1974 (ERISA), and LPL is attempting to get increased enforcement in that area, as other brokerage firms have not been following the rule, nor have regulators been enforcing it. The point of the rule is to eliminate what could be possible conflicts of interest within the industry. LPL has been hit with a series of fines over the past few years, including an $11.7 million fine in May.

The Financial Industry Regulatory Authority (FINRA) brought enforcement claims against ACN Securities. The disciplinary actions were issued because of the failure of a CEO to terminate an employee that asked to be terminated, improper withdrawal of almost $100,000 from a bank account, operating without required capital and accepting a loan from a customer. FINRA named Simon Taylor in a complaint because of his failure to file notice of an employee termination after one of its registered employees asked to leave.

Taylor is the CEO and COO of ACN. He is also the firm’s majority owner for the past five years. The employee who requested to leave did so for the first time in May 2014, and continued to request it many times after that. Simon failed to disclose the requests to FINRA in a timely manner. If you made investments with ACN Securities, you could be entitled to recover them through the FINRA arbitration process. Please call our securities law firm at 312-332-4200 to speak to an attorney about your options. We are based in Chicago, Illinois.


The Securities and Exchange Commission (SEC) is investigating JP Morgan over the way it sells its own mutual funds and other proprietary products. The SEC’s enforcement division has been looking in to whether the bank and its brokerage affiliate adopted a strategy that uses bonuses and other incentives to encourage their financial advisors to steer clients into in-house funds, structured notes and other investments that generate larger fees for the bank. The investigation also reviewed JP Morgan’s pensions and other accounts and delved into whether JP Morgan is holding up its fiduciary standard, which means JP Morgan must put its clients financial interests ahead of its own.

Stoltmann Law Offices sues firms such as JP Morgan in the Financial Industry Regulatory Authority (FINRA) arbitration forum. If you lost money with JP Morgan, please call us at 312-332-4200 to speak to an attorney about your options.

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