Articles Tagged with FINRA AWC

Chicago-based Stoltmann Law Offices is investigating regulatory filings establishing that former Fifth Third and Merrill Lynch financial advisor David S. Wells has accepted a permanent bar from the securities industry. According to a publicly filed Acceptance, Waiver, and Consent (AWC) filed with the Financial Industry Regulatory Authority (FINRA), Wells accepted the lifetime ban in lieu of appearing for or providing information to FINRA pursuant to FINRA Rule 8210. Wells did not admit to any misconduct. He chose to accept a lifetime bar from the securities industry instead of sitting for an OTR (on the record) interview, answer questions, or provide information to FINRA.

According to David Wells’s FINRA broker/check report, he “resigned” from Fifth Third Securities on June 30, 2021 after admitting he misappropriated funds from three clients. There is no other information available publicly about how much Wells stole or whether he refunded the victims. One fact is certain: his registration with Fifth Third Securities gives victims a change to recover those stolen funds. As a a matter of law, Fifth Third Securities is responsible for the conduct of their agents, like David Wells. Fifth Third had a duty to supervise Wells, his office, his client accounts, and to exercise supervisory authority over Wells to prevent violations of securities rules and regulations. These supervision rules and regulations are a critical part of the securities industry regulatory system and brokerage firms like Merrill Lynch and Fifth Third Securities can be held liable for damages for failing to properly supervise financial advisors like David Wells.

FINRA wields mighty authority over the registered representatives they license under Rule 8210. When FINRA comes calling for information in connection with an investigation under FINRA Rule 8210, financial advisors have two options. 1) They can cooperate fully with FINRA’s investigation or 2) they can voluntarily accept a lifetime bar. It would seem obvious why a financial advisor would accept the life time bar – they do not want to provide FINRA with any information because FINRA is on to something.  Its not quite that simple however. Complying with and responding to a FINRA Rule 8210 request can be difficult and if done without counsel is not advisable. If the registered representative is not being supported by his brokerage firm, it can be a terrifying experience.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with financial advisors who’ve stolen their money. Can a financial adviser ask you to pay him personally to buy investments? If he does, it may be considered theft. Former NY Life Securities broker Jeffrey Scott Anderson was barred by FINRA, the federal securities industry regulator, after he was accused of stealing approximately $26,600 from an elderly client.

According to FINRA, “Anderson convinced an elderly NYLife customer to write five checks totaling $26,600 from October through December 2019 to him personally to purchase investments and insurance. Rather than using the funds for those purposes, FINRA claims that he deposited the money into his bank account and paid personal expenses.” Anderson resigned in March 2020 after “an internal review raised a number of concerns regarding the quality of his business, including repeat replacement and suitability concerns and undisclosed customer complaints.”

Later that year, NY Life disclosed two other customer complaints against him, including one from a customer who provided NYLife with “copies of three personal checks…which were made payable to and endorsed by [Anderson] totaling $16,500.” After he left NY Life, Anderson’s BrokerCheck profile showed other customer theft issues: “Anderson became registered with Pruco Securities but was fired less than three months later for misappropriating funds from a customer while associated with another FINRA member and submitting altered documentation to company investigators during its internal investigation.”

Chicago-based Stoltmann Law Offices represents investors have suffered losses from the negligence and breach of fiduciary duty of registered investment advisors (RIAs).  All too often brokers and RIAs trade in customers’ accounts to generate fees and commissions. This practice reduces their total returns while enriching broker-advisor firms. When regulators crack down on these practices, they usually find it’s a “failure to supervise” by the brokerage firm with whom the advisor is registered.

FINRA, the federal securities regulator, fined Next Financial Group, a $2.6 billion RIA and broker-dealer owned by Atria Wealth Solutions, $750,000 to settle charges that it failed to supervise ‘unsuitable’ trading of mutual funds and municipal bonds by one unnamed broker, according to citywireusa.com. “FINRA found that the broker engaged in short-term trading of Class A mutual fund shares in 19 client accounts, resulting in ‘unnecessary’ front-end sales charges of $925,000 from 2012 until February 19.” Additionally, FINRA found that “from June of 2013 to November of 2016, the broker engaged in short-term trading of Puerto Rican municipal bonds in 16 customer accounts, concentrating five of the accounts in these bonds.”

Certain classes of mutual funds and related investments carry higher commissions and fees than others. Broker-advisors are required to tell clients that trading in and out of these investments will generate higher income for the firm and its representatives. They are also required under FINRA rules to fully disclose the downside of the investments, which should be suitable for the client’s age and risk tolerance.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers whose firms promote high risk alternative investments and private placements. Did you know that brokerage firms can be held accountable when their brokers sell high-risk, illiquid investments that are unsuitable for their clients? Such was the case with Sanctuary Securities, which was forced to pay more than $530,000 in fines and restitution to investors for  “failures to supervise certain product sales,” according to Advisorhub.com.

Sanctuary was fined $160,000 and ordered to pay restitution of $370,161.39 plus interest “for the various supervisory failures dating as far back as 2014 that were uncovered over multiple FINRA examinations, according to a letter of acceptance, waiver and consent finalized on July 1.” Formerly David Noyes and Company, Indianapolis-based Sanctuary has about 190 registered brokers and 35 offices. The company said that no current employees were involved in this action. The FINRA enforcement action involved the firm’s sales of money-losing, risky products called “leveraged exchange-traded funds (ETFs).” These investments multiply gains and losses based on market movements of popular securities indexes. These “non-traditional” or “alternative” investments can lose money for investors if brokers or investors guess wrong on market movements.

According to FINRA, from January 2014 through December 2018, “Sanctuary did not sufficiently address the unique features and risks related to solicited sales of inverse and leveraged ETFs (collectively, non-traditional ETFs) as required by suitability obligations under FINRA Rule 2111. Around 30 brokers recommended customers purchase about $5 million worth of non-traditional ETFs, resulting in significant net losses for those who held their positions for extended periods of time. The firm, meanwhile, generated roughly $60,000 in commissions over the course of about 600 purchases in 150 customer accounts,” FINRA stated.

Stoltmann Law Offices, P.C., a boutique Chicago-based law firm that offers representation nationwide to investors, has been fighting brokerage firms and investment firms for decades over variable annuities and insurance products.  Variable annuities, equity-indexed annuities, whole life insurance, variable life insurance, whatever they are called, and the names can get really complicated, these insurance products are designed to do two things.  First, they are designed to move money from your pocket to the insurance company.  Second, they are designed to pay handsome commissions to the salesmen who solicit clients to invest or purchase these annuity and insurance products.

Recently, FINRA, which is the regulatory body responsible for policing the brokerage/investment markets, fined O.N. Equity Sales Company, out of Cincinnati, Ohio, for failing to supervise and surveil the sale and switching of annuities and insurance policies by their clients.  FINRA penalized ON Equity $275,000 and ordered the firm to pay restitution to aggrieved investors in the amount of $1,001,146.86.  FINRA’s investigation found that O.N. Equity (ONESCO) failed to establish, maintain, and enforce a supervisory system reasonably designed to supervise the sale of variable annuities. Because of ONESCO’s failures, the firm failed to detect and deter sales practice abuses by Richard Wesselt. In a parallel action, Wesselt consented to a permanent bar from the securities industry as a result of his misconduct. According to the FINRA action, he violated FINRA Rule 2111 (suitability), in connection with the recommendation to 78 investors to purchase variable annuities, that were inconsistent with the customers’ investment profiles, risk tolerance, liquidity needs, and time horizon.  Using what he called his “Infinite Banking” strategy, he pursued investors to liquidate their retirement accounts, including 401(k)s or IRAs, and use the  proceeds to buy variable annuities, and then liquidate the variable annuities to build cash value in whole life insurance policies. Wesselt was ONESCO’s highest producer in 2016 – big surprise given his proclivity to sell high commission products like variable annuities and life insurance policies.

If a financial advisor ever recommends the liquidation of mutual funds or other securities in an IRA or 401(k) account in order to buy a variable annuity, stop what you are doing and start looking for a new financial advisor.  The main attraction to variable annuities has always been that the money grows tax-deferred like an IRA.  By investing IRA funds in a variable annuity, that benefit is irrelevant. Instead, what you are doing is agreeing to pay your broker a huge 5%+ up front commission and the insurance company 3%-4% of your money per year in various fees and charges.  Variable annuities also charge huge surrender fees for money withdrawn in the first several years, although some offer a 10% withdrawal without penalty. Lastly, the mutual fund options for variable annuity sub-accounts are greatly reduced versus what an investor can invest in through a traditional IRA.  Variable annuities are rarely suitable for any investor. Unless you check the following boxes, variable annuities are not for you: 1) you maximize your tax-deferred retirement savings every year, i.e., you are contributing the max amount to your 401Ks and IRAs; 2) You actually need life insurance; and 3) you are young enough that you don’t need the money invested in the annuity for at least ten years.  Few people check these boxes, and yet according to reports, there is almost $2 trillion dollars locked away in these products, with more than $35 billion in sales in 2020.

Chicago-based Stoltmann Law Offices, P.C., has represented hundreds of investors over the years in both arbitration and litigation against LPL Financial. Many of these claims involved situations where the financial adviser sold the investor an investment that ended up being a Ponzi-like scheme. Rhett Bedwell, it would seem, falls into that category of former LPL brokers who sold clients fraudulent investments.

According to published reports, Rhett Bedwell, of Rogers, Arizona, while a registered broker with LPL Financial allegedly transferred a client’s IRA to an IRA custodian, using forged documents, and invested the client’s IRA in a Ponzi scheme. According to regulatory documents filed by LPL Financial, Bedwell was under an internal investigation at the firm at the time he was “permitted to resign” and was also subject to customer complaints, event though there is only one customer complaint disclosed on his FINRA BrokerCheck Report.   On February 10, 2021, Bedwell signed a FINRA Acceptance, Waiver, and Consent (AWC) which barred him for life from the securities industry. By failing to respond to FINRA’s request for information in connection with a regulatory investigation, Bedwell sealed his professional fate.

In circumstances like this, investors need to realize the brokerage firm with whom the broker was registered, in this instance, LPL Financial, is legally responsible for his misconduct under two independent legal theories. First, as a licensed, registered financial adviser, anything Bedwell did as a financial adviser, is part of the scope and course of his agency with LPL Financial. Investors don’t sue the brokerage firm when brokers cause property damage, for example, because LPL is not responsible for what the firm’s brokers do outside of providing financial and investment advice. But in this circumstance, surely from the investor’s perspective, Bedwell was providing financial and investment advice at all times.  The second road that should be taken is a direct claim against LPL for negligent supervision.  The securities rules are clear and the obligations are rock solid that LPL must maintain adequate supervision and compliance over its brokers in order to prevent and to deter violations of state and federal securities laws. Either way, LPL can be liable for the misconduct of its brokers.

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.

Chicago-Based Stoltmann Law Offices has been representing California investors before FINRA arbitration panels for many years. We are looking into allegations made by an investor that allege that Ryan Raskin, who was registered with Merrill Lynch until he was discharged for cause in March 2020, executed unauthorized trades for a client. Merrill Lynch denied that complaint outright, which is a common practice used by brokerage firms when clients come to them with a complaint without being armed with an experienced FINRA investor-rights lawyer.

According to a story published by AdvisorHub.com, Raskin was employed with Merrill Lynch since 2016. On January 13, 2021, Mr. Raskin was barred by FINRA for failing to respond to requests for information. FINRA has the authority, under FINRA Rule 8210, to seek information and documents from any licensed, registered representative, even after the are terminated or are not working in the securities industry. As part of their enforcement mandate to enforce securities law and regulations, FINRA is given pretty broad discretion to seek out information related to its investigations, and in the event a broker like Raskin refuses to cooperate or ignores a valid request for information from FINRA, the penalty is a lifetime ban from the securities industry.  Sometimes brokers do this because they are out of the business and don’t really care if they lose their license to provide investment advice. Sometimes brokers ignore FINRA because they have something serious to hide.

Mr. Raskin was discharged from Merrill Lynch in March 2020 for “conduct involving business practices inconsistent with Firm standards, including inappropriate investment recommendation.” The impetus for FINRAs Rule 8210 request was this discharge by Merrill Lynch, which was reported to FINRA on Form U-5. Although the FINRA Acceptance, Waiver, and Consent (AWC), which was signed by Mr. Raskin, does not state any specific allegations with respect to misconduct. Still, Merrill Lynch discharged Mr. Raskin for “inappropriate investment recommendations” and one customer did make a complaint against him for unauthorized trading.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors affiliated with the Cetera financial group.  The securities regulator FINRA recently fined three Cetera Financial Group broker-dealers $1 million, claiming that Cetera’s “supervisory systems and procedures were deficient when handling securities transactions.”

Like many advisory firms, Cetera employs representatives who are “dually registered,” meaning they are broker-dealers and registered investment advisers. In the Cetera case, their representatives managed more than $80 billion in assets across 47,000 accounts. According to U.S. Securities and Exchange Commission (SEC) exams conducted in 2013, 2015 and 2017, Cetera was “aware of the supervisory deficiencies.”

Without admitting or denying the allegations, Cetera recently signed a FINRA letter of Acceptance, Waiver, and Consent and agreed to FINRA’s sanctions, which included a censure and an agreement that they would review and revise, as necessary, systems, policies and procedures related to the supervision of dually-registered reps’ securities transactions, according to ThinkAdvisor.com.

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