Articles Tagged with Fidelity

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”.

AdobeStock_35532974-1-300x200Were you a client of TD Ameritrade, Charles Schwab, ETrade or Fidelity? Were your account positions sold out to satisfy margin calls? If so, under some circumstances, the brokerage firm can be sued to recover the losses associated with the margin blowout activity.

Ordinarily, brokerage firms have the right to liquidate investors out of various positions to satisfy margin calls. We are currently representing clients who were told by the brokerage firm they had a specific period of time to satisfy the margin calls. Unfortunately, the firms then proceeded to sell the clients out of those positions prior to the time given to satisfy the margin calls. The verbal representations made by the firm modified the contract and required the firms to give the investors that period of time to satisfy the calls.

The FINRA arbitration claims process or class-action lawsuits can be used to recover damages associated with the margin blowouts. Please call our law firm in Chicago Illinois for a no-cost review by an attorney.

AdobeStock_90383187-1-300x194According to a recent article from cnbc.com, fraudulent wire transfer emails by hackers are on the rise. According to the Financial Industry Regulatory Authority (FINRA), the authority first started noticing this trend five years ago, and are suggesting that investors be warned of this fact. Most firms have a two-factor authorization method to keep customers safe, but hacking continues to occur. In 42 cases going back to 2012, criminals hacked an investor’s email and requested brokerage firms make a wire transfer on their behalf. Criminals continue to use email schemes to defraud financial institutions and their customers using wire transfer requests. Many brokers then sign forms stating that they have spoken with the customer who made the request before processing the transaction, even when they had not. These brokers typically face suspensions and/or fines because of their actions. We have pursued FINRA arbitration claims against brokerage firms that failed to reasonably protect the assets of their customers. Firms have a duty to protect clients and prevent their accounts from being hacked. Brokerage firms like Merrill Lynch, Scottrade, Charles Schwab, Morgan Stanley, Fidelity, UBS, and Linsco have all been sued in recent years for security breaches when it comes to protecting client accounts. To learn how to sue brokerage firms, please call our investment fraud law firm at 312-332-4200. There’s no fee unless we win and recover.

Fidelity Management Trust Co. has been accused of breaching its ERISA fiduciary duties for allegedly receiving unreasonable compensation through its brokerage window feature and a kickback scheme with an investment advice company. Fidelity allegedly selected mutual funds with higher expense ratios for the plan brokerage window that allowed the investment firm to rake in “significant amounts” in revenue-sharing payments in violation of the Employee Retirement Income Security Act. The lawsuit was filed in the U.S. District Court for the District of Massachusetts by participants in the Delta Air Lines Inc. retirement plan. As of 2014, the plan had approximately $7.5 billion in assets, of which more than $2.8 billion were invested through Fidelity’s brokerage window. The participants paid Fidelity enormous fees simply for obtaining access to mutual funds that were already established on Fidelity’s platform. It was also alleged that Fidelity earned unreasonable compensation by engaging in a kickback scheme with Financial Engines Advisors or to participants, according to the complaint.

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