Articles Tagged with FINRA Arbitration

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who’ve hidden their outside financial activities. Sometimes, brokers have “side deals” while working at an advisory firm, which they may pitch to existing clients. In a heavily regulated industry, they have to tell their employers and these so-called “outside business activities”, including outside brokerage accounts. When they fail to disclose their other businesses, they can be fired.

FINRA, the federal securities regulator, fined and suspended an ex-Wells Fargo broker “who was terminated by the wirehouse for failing to close three outside brokerage accounts despite being told to do so numerous times by the firm,” according to ThinkAdvisor.com. Without admitting or denying FINRA’s findings, Jacob Popek signed a FINRA Letter of Acceptance, Waiver and Consent on Aug. 31 “in which he consented to the imposition of a $2,500 fine and a three-month suspension from associating with any FINRA member in all capacities.” Wells Fargo declined to comment.

Between November 2018 and April 2020, FINRA stated, “while associated with Wells Fargo, Popek maintained outside brokerage accounts without the firm’s written consent. In October 2018, Popek informed the firm that he maintained three outside brokerage accounts at two other member firms.” Wells Fargo said it “directed Popek to close those accounts. But despite receiving that instruction and multiple subsequent instructions from the firm to close the accounts in 2019, he maintained each of these accounts until July 2019, December 2019, and April 2020, respectively,” according to FINRA.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from financial advisors who’ve swindled investors through unauthorized transactions. Can financial advisers trade your portfolio or buy investments without your permission? Only if you give them “discretionary” authority and definitely not if they’ve failed to obtain your written okay.

Without a doubt, brokers can’t do anything with your assets if they forge your signatures to make a transaction. Joffre Salazar, a former broker with LPL Financial, was terminated by the brokerage firm after he “forged two customers’ signatures and initials on documents connected to the purchase of fixed annuities, which Salazar then also submitted without the customers’ authorization,” according to FinancialAdvisorIQ.com.

Salazar, who first registered with Finra, the federal securities regulator, in 1991, registered with LPL in 2016, according to Finra. In April 2019, LPL filed a termination notice for Salazar, stating that he resigned voluntarily, but two months later amended the form to disclose that it started a review of Salazar’s “involvement in processing [an] annuity application without customer authorization,” Finra stated.

Chicago-based Stoltmann Law Offices has represented Morgan Stanley clients who’ve suffered losses as a result of fraudulent or negligent misconduct by Morgan Stanley and the firm’s financial advisors.

Here is a simple question too many investors do not know the answer to: Can brokers decide on their own when to buy or sell an investment in your account? Answer: Not unless you give them written permission to do so. If brokers ignore your instructions, you can file an arbitration claim and be awarded damages.  Joan A. Rudnick and an entity owned by her, Oak Trail Associates, filed a claim against her broker, Morgan Stanley, in October 2020. The claim charged the broker with “unauthorized trading, breach of contract and duty of loyalty, unjust enrichment and conversion,” according to Investment News.

Rudnick’s claim was filed when her broker sold Apple stock in her portfolio against her wishes. A retiree in her late 70s, Rudnick “had held the Apple stock for a long time and did not intend to sell it,” her attorney told Investment News. “She had put a no-trade restriction on the stock, but it was sold around March 2019. Morgan Stanley acknowledged the shares were sold without Rudnick’s authorization.”  Rudnick was awarded “$482,000 in compensatory damages, $83,372 in federal and state taxes, $45,000 in attorneys’ fees, $25,000 in brokerage fees, $5,000 in expert fees, $1,863 in costs and $375 for a non-refundable filing fee.” A Morgan Stanley spokesperson declined to comment to Investment News. “The arbitration award states the firm denied the allegations in the FINRA statement of claim and asked that it be dismissed in its entirety.” FINRA is the federal securities regulator that handles arbitration claims for investors.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered investment losses from “rogue” brokers. Without question, securities firms are legally obligated to protect your money from brokers who run afoul of the law. Yet these “rogue” brokers often get away with theft right under the noses of their employers.

The case of Hector May, a former broker with Securities America, is a case in point. May, who was employed by Securities America from 1994 to 2018, pled guilty to stealing some $8 million from his clients in 2018, according to Investment News. May was sentenced to 13 years in prison and ordered to pay $8.4 million in restitution in 2019. Was May’s firm responsible for protecting his clients? In charging Securities America for “allegedly failing to safeguard clients” from May, the U.S. Securities and Exchange Commission (SEC) fined Securities America $1.75 million. Securities America Advisors neither admitted to nor denied the SEC’s findings.

The SEC reported that Securities America had knowledge that May wasn’t doing right by his clients. “The SEC alleged that one Securities America surveillance system generated multiple alerts for potentially suspicious withdrawals from client accounts, but its analysts failed to carry out the prescribed processes for investigating those alerts,” Investment News reported. “The commission also alleged that the firm permitted disbursements without the required signatures, and another group failed to contact clients to verify that they had initiated disbursement requests.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers and advisers in FINRA, AAA, and JAMS arbitrations for over fifteen years. One of the biggest problems with resolving investor or consumer complaints is that people are forced to go through a mandatory arbitration process. While this system avoids having to go to court – and can be less expensive – it’s often patently unfair because of lack of diversity among arbitrators.

Another overwhelming issue is that mandatory arbitration, which is in nearly every brokerage and consumer dispute resolution agreement, takes away your right to sue a firm that’s wronged you. That often limits your ability to be made whole and collect damages. And who sits on arbitration panels may restrict your legal options even more.

A recent study by the American Association for Justice found three major, disturbing flaws in the private arbitration system:

Chicago-based Stoltmann Law Offices has represented investors who have suffered losses as a result of their brokerage or investment accounts being infiltrated by hackers.  How safe are your retirement funds from hackers? With massive hacking activity and cybersecurity in the news every day, that’s an essential question to ask your financial advisor. Cybercriminals are trying to steal money and personal financial information 24-7.

Here’s a series of questions to ask: When financial advisors suspect that your retirement accounts are being hacked, have they reported this information to you? Even more importantly, have they reported it to federal authorities such as the FBI or Treasury Department? That’s not only the right thing to do, they are legally obligated to do so.

Of course, if an advisor or third party fails to report suspicious online activity to regulators, they may be breaking the law. The U.S. Securities and Exchange Commission (SEC), for example, recently imposed a $1.5 million fine and settled charges against GWFS Equities, an affiliate of Great West Life and Annuity Insurance Company, “for violating the federal securities laws governing the filing of Suspicious Activity Reports (SARs).”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses in the LJM Preservation and Growth Fund. When broker-dealers sell you investments, they are responsible for fully informing you of the risks at the point of sale. When they fail to give you an honest, transparent disclosure on what they are selling – and the investments tank — you may have an arbitration case that you can pursue to get your money back.

Cambridge Investment Research, Merrill Lynch, and other brokerage firms sold a mutual fund called the LJM Preservation and Growth fund to their customers. The fund’s “value plummeted 80% over two days in early February 2018, after brokers in the previous two years sold $18 million of its shares to more than 550 customers, prompted by sales calls in May 2016 from an LJM wholesaler,” the securities regulator FINRA stated. “The fund was liquidated and dissolved in March 2018.”

What made the fund so volatile that led to its demise? It employed a risky strategy called “uncovered options,” but failed to tell investors that it was a highly complex vehicle prone to catastrophic losses.

Stoltmann Law Offices, P.C. has represented hundreds of investors in arbitration actions against brokerage firms for losses in connection with non-traded Real Estate Investment Trusts (REITs). Non-Traded REITs are the darlings of brokers and their firms because of the huge commissions and “hands-free” management approach they foster. Brokers sell non-traded REITs under the guise of “high income” and “non-stock market risk”, when the money investors receive from REIT distributions is mostly made up of their own money, and are actually as speculative to invest in as the stock of any company.

According to FINRA, the regulatory agency responsible for policing brokers and their firms, Mike Patatian sold made 89 unsuitable recommendations to 59 clients who invested more than $7.8 million in non-traded REITS. FINRA alleges that Patatian did not understand the REITs he sold, including basis features and risks, and therefore lacked a reasonable basis to make the recommendations. Patatian is also alleged to have recommended that clients liquidate annuities, incur surrender charges, and then roll the proceeds into non-traded REITs. He is also accused of inflating client net worth on forms in order to circumvent REIT limitations. Patatian denies FINRA’s allegations, which can be found here.

Stoltmann Law has blogged extensively on issues related to non-traded REITs. Between the speculative risk, high commissions, lack of liquidity, and complicated structure, there are numerous better options for an investor who wants exposure to the real estate sector. There are hundreds of fully liquid REITs traded on the New York Stock Exchange every day for investors that want to invest in REITs. There is no reason to invest in a non-traded REIT other than the sales pitch by the broker selling them.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors who’ve stolen their money. Sometimes brokers are not the least bit subtle about what they do with clients’ assets. They may shift cash into separate accounts and spend it themselves.  Such was the case with Apostolos Pitsironis, a former Janney Montgomery Scott advisor. He is accused of stealing more than $400,000 from his clients from 2018-2019.

In the brokerage business, stealing clients’ funds is often known as “converting” their assets. Brokers may spend the money on gambling, cars or other consumption items. Pitsironis was “discharged in June 2019 after an internal investigation uncovered that the FA transferred funds via unauthorized ACHs from a client’s account to a third-party bank account owned and controlled by Pitsironis,” according to ThinkAdvisor.com. “He later used this money to pay his family’s personal expenses, all the while deceiving both his victims and the financial services firm for whom he worked,” prosecutors stated.  Pitsironis also allegedly spent his clients’ money on casino gambling debts, credit card bills and the lease of a luxury car.

“Janney is committed to serving our clients with the utmost integrity and trust,” the brokerage firm said in a statement obtained by ThinkAdvisor. “Upon discovering the improper actions taken by this advisor with one client account, he was promptly terminated, and the client was fully reimbursed. Janney has fully cooperated with law enforcement and will continue to do so.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors who’ve sold their clients variable annuities. One thing we see constantly in our practice is older investors who’ve been sold variable annuities that are onerously expensive and nearly always fail to live up to expectations. Variable annuities are investment products that offer restrictive access to mutual funds with an insurance wrapper. They are expensive to buy and carry ongoing fees and expenses that eat away at investor return. They also offer a tax incentive that brokers love to use as a sales point that in reality provides no benefit to most investors.

The main reason why variable annuities are usually poor investments is that they charge several layers of fees to investors. Everyone gets a cut from the insurance company to mutual fund managers. It’s very difficult for anyone outside of the middlemen to make money. Brokers and their advisory firms, however, sell them aggressively because the insurance companies that pilfer annuities pay out huge commissions to the salesmen who sell them.

Broker-advisors are perennially being cited for variable annuity marketing abuses. Transamerica Financial Advisors was recently fined $8.8 million by FINRA for “failing to supervise its registered representatives’ (brokers) recommendations for three different products,” which included annuities. The firm was ordered to pay more than $4 million in restitution.  The FINRA settlement cited Transamerica’s failure to monitor transactions that involved clients switching from other investments to annuities, which generated millions in commissions and fees for the firms. This is an egregious practice in the brokerage industry that mostly focuses on older and retired investors.

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