Articles Tagged with FINRA AWC

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses because their financial advisor recommended “private securities” without the permission or knowledge of their firms. It’s not unusual for financial advisors to pitch certain stocks that don’t have to follow the strict disclosure rules laid down by the Securities and Exchange Commission (SEC) and FINRA, the regulator of the US securities industry. But these “private” securities still need to be fully reviewed by brokerage firms to protect investors from excessive risk that they don’t want to take. There are multiple industry rules that dictate that brokers know their clients’ risk profiles.

FINRA suspended and fined former Ameriprise broker Jonathan M. Turner for allegedly selling securities in an un-named private company that involved two customers and transactions totaling $200,000. “Turner allegedly directed the customers to Company X and recommend that they invest in its securities, for which he provided certain forms,” FINRA says. Turner allegedly didn’t earn any commissions from the transactions, according to financialadvisoriq.com, “but participated in them without notifying Ameriprise in writing, against FINRA rules.”  Whether the advisor was paid a commission on the transaction is totally irrelevant.

In January 2020, the FINRA complaint adds, “Turner allegedly incorrectly certified to Ameriprise that he had not engaged in any private securities transactions not authorized previously by the firm.” This is extremely common and does not take Ameriprise off the hook.  For a generation, the SEC has warned brokerage firms like Ameriprise that they cannot simply take the broker’s they supervise word for it, to satisfy the firm’s supervisory obligations.

Chicago-based Stoltmann Law Offices is investigating financial advisors who switch clients into more expensive alternative investments that trigger unnecessary fees and investment losses.

FINRA, the federal securities industry regulator, has settled charges with McNally Financial Services Corporation that the broker-dealer failed “to develop appropriate oversight procedures for sales of non-traditional exchange traded products (ETFs).” The regulator found that the firm “failed to supervise a representative offering complex options trading to customers and determined that a firm representative recommended trades with, in some cases, a maximum potential loss nine times higher than maximum potential gain, and in other cases, with an assured loss.”

Brokers often recommend and trade “non-traditional” vehicles such as options contracts and Exchange-Traded Products (ETPs) with the promise of offering higher returns. These products, however, carry higher risk and generate exorbitant fees and commissions for brokers. These investments, Finra notes, “typically are not suitable for retail investors who plan to hold them for more than one trading session.”

Chicago-based Stoltmann Law Offices is investigating claims by investors in connection with financial advisors who switch clients into more expensive investments that trigger unnecessary fees. Overtrading in a brokerage account or “churning” has long been an industry abuse. But some brokers take churning to new limits.

FINRA, the US securities industry regulator, has suspended a former Edward Jones broker for six months and fined him $7,500 for allegedly making more than 800 transactions in four of his clients’ accounts without their authorization or consent, according to thinkadvisor.com.

From December 2017 to November 2018, Albert L. DeGaetano “executed 470 securities transactions in the accounts of a fundraising organization for a charitable hospital without its authorization or consent,” according to the FINRA letter. The 823 securities transactions in all, which included 389 purchases of exchange-traded fund (ETF) bonds, had a total principal value of about $7.2 million and generated approximately $113,000 in total trading costs, according to FINRA.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing financial advisors and brokers who’ve churned their accounts. FINRA, the U.S. securities industry regulator, suspended and fined broker Sebastian Wyczawski, while he was registered with Joseph Stone Capital of Manorville, New York, between June 2016 and January 2017. The broker allegedly engaged in “excessive and unsuitable trading” in the account of an unidentified customer, according to Financialadvisoriq.com.

In addition, between September 2016 and September 2017, Wyczawski also allegedly engaged in excessive and unsuitable trading in the account of another customer FINRA identifies as “Customer 2,” placing 45 trades. FINRA and other regulators consider turnover rates of six or more and cost equity ratios of 20% (an industry metric measuring overtrading) or more as conclusory evidence of excessive trading. Wyczawski consented to a five-month suspension and to pay a $5,000 fine as well as restitution of $21,644 plus interest, all without admitting or denying the findings, FINRA stated.

Two months ago, Wyczawski left Joseph Stone for VCS Venture Securities, in Mineola, New York, according to BrokerCheck, which also notes Wyczawski has two customer disputes on his record, both settled. One, from 2004, sought $75,000 for allegations of unauthorized transactions and was settled for half that amount. The second, from 2018, sought $250,000 over allegations of negligence, unsuitability and overconcentration, among other violations, and was settled for $17,500, according to BrokerCheck.

Chicago-based Stoltmann Law Offices is investigating financial advisors and brokers who trade excessively in client accounts.  “Churning,” or trading excessively to generate broker commissions, is one of the perennial abuses in the securities industry. Investors have been losing millions due to these practices.

FINRA, the U.S. securities industry regulator, said it has ordered New York City-based Aegis Capital Corp. to “pay approximately $2.8 million, including $1.7 million in restitution to 68 customers whose accounts were potentially excessively and unsuitably traded by the firm’s representatives.” FINRA also imposed a $1.1 million fine for Aegis’s supervisory violations, according to fa-mag.com.

“Aegis supervisors failed to detect or act on information that eight Aegis reps excessively and unsuitably traded customer accounts over a period of more than four years, generating $2.9 million in trading costs that would have required the investments to generate more than 71% returns to offset costs,” FINRA stated. FINRA found that “from July 2014 to December 2018, Aegis failed to implement a supervisory system reasonably designed to comply with FINRA’s suitability rule. As a result, Aegis failed to identify and address its representatives’ potentially excessive and unsuitable trading in customer accounts, including trading by eight Aegis representatives who excessively traded 31 customers’ accounts,” the regulator said.

Chicago-based Stoltmann Law Offices is investigating financial advisors who switch clients into more expensive investments that trigger unnecessary fees. Financial advisors and brokers who work on commission often make “exchanges” that switch clients from one investment into a very similar different investment. They often use the rationale that “you’ll make more money” in these new investments, but the truth is that they’ll make more in commissions and fees.

NY Life Securities has agreed to “pay a total of $263,347 to settle allegations that, as a result of supervisory failures, it failed to prevent several of its clients from being charged excessive, unnecessary fees after one of its brokers engaged in unsuitable mutual fund and cross-product switches,” according to FINRA, the federal securities regulator, as reported by ThinkAdvisor.com.

“On hundreds of occasions” between January 2015 and March 2019, a broker at the firm, identified only as “Broker A,” recommended that 10 clients buy and sell Class A mutual funds after holding the shares for short periods of time, according to FINRA

Stoltmann Law Offices, P.C. is a Chicago-based investor rights and securities law firm that has represented investors nationwide for almost 17 years. Investors who are defrauded by financial advisors have rights and can pursue arbitration against firms like Wells Fargo in an attempt to recover investment losses.  On November 2, 2021, FINRA, which is the federal regulator of broker/dealers like Wells Fargo Advisors and James Seijas, issued an “Acceptance, Waiver, and Consent” (AWC) in which James Seijas consented to a life-time ban from the securities industry. The reason for the ban was a result of Seijas consciously failing to respond to FINRA’s requests for information authorized by FINRA Rule 8210. If an advisor does not comply or cooperate with FINRA’s investigation, then the regulator will seek to bar the advisor for life. This is a stiff sentence for non-compliance but is not uncommon when brokers facing seriously allegations by customers or regulators are asked to comply with information requests or sit for an interview on the record.

The AWC was prompted by a filing made by Wells Fargo on Form U-5, which is a securities industry form filed with regulators when a broker’s registered ends with a firm like Wells Fargo.  The U-5 Wells Fargo filed identified the reason for him no longer being registered with the firm and was enough to trigger an investigation by FINRA. The AWC does not say what that Form says, and even more peculiarly, his FINRA BrokerCheck Report does not say anything about him being terminated for cause, which is a required disclosure. What his BrokeCheck Report does reveal, however, is the existence of two pending customer complaints. Both complaints have to do with the recommendation to invest in a fraudulent hedge fund or an investment which was part of a Ponzi scheme.

According to AdvisorHub, Seijas is a defendant in a pending claim which alleges he was involved in a $30 million-plus crypto-currency investment scheme. This claim is pending in Hillsborough County, Florida, against Seijas and several other defendants, including Wells Fargo. The prevalence and sudden popularity of cryptocurrency creates a perfect storm for scammers and unsuspecting victims. There is a lot of “FOMO” – fear of missing out – when it comes to crypto-currency. Investors are eager to dip their toes into the pool but many are reluctant to dive in by opening accounts with crypto-exchanges like Coinbase. Instead, investors get involved with purported “hedge” funds that allegedly invest in crypto, like those that invested with Seijas.

Chicago-based Stoltmann Law Offices is investigating allegations against Eric Hollifield that came to light as a result of a regulatory filing by the Financial Industry Regulatory Authority (FINRA).  According to FINRA, the regulator launched an investigation into Eric Hollifield who was a registered representative of LPL Financial and Hamilton Investment Counsel.  The investigation was in connection with a customer complaint filed in arbitration against Dacula, Georgia-based Hollifield that alleges he stole or misappropriated $1,240,000 from the account of an elderly client. This complaint was filed on August 25, 2021 and came on the heels of LPL terminating Hollifield for cause for “failing to disclose an outside business activity.”  On September 1, 2021 Hamilton Investment Counsel followed LPL’s lead and terminated Hollifield for cause or failing to disclose an outside business activity.

Since Hollifield failed to respond to FINRA’s request for information, pursuant to FINRA Rule 8210, Hollifield accepted a lifetime ban from the securities industry.  Brokers agree to these lifetime bans, instead of cooperating with an investigation, for any number of reasons.  Obviously, given the allegations made by the pending customer complaint and the terminations from LPL and Hamilton, a reasonable conclusion to draw is, Hollifield chose to accept a lifetime bad from FINRA as opposed to disclosing or admitting information to FINRA that could be used against him by criminal authorities. It is important to realize, the facts in the customer complaint and the information contained in the FINRA AWC are mere allegations and nothing has been proven.

LPL has a long history of failing to supervise its financial advisors, like Hollifield. We have blogged on these issues numerous times.  Pursuant to FINRA Rule 3110, brokerage firms like LPL have an iron-clad responsibility to supervise the conduct of their brokers, like Hollifield.  Similarly, brokers have an obligation to disclose “outside business activities” to their member-firm pursuant to FINRA Rule 3270.  LPL cannot get off the hook, however, just because Hollifield failed to disclose an outside business. There are a few reasons for this and they are important.  First, brokers do it all the time and LPL knows it. Therefore, as required by both FINRA regulations and LPL’s open internal policies the procedures, LPL’s compliance and supervision apparatus is geared towards detecting undisclosed outside business activities because it is commonly through these outside businesses, that financial advisors execute their worst schemes and frauds on their clients.  Further, to the extent red flags existed that Hollifield was running an undisclosed outside business or doing something else that violated securities regulations, then LPL can be held liable for negligent supervision, at a minimum. Case law supports the imposition of liability on LPL under these circumstances.  See McGraw v. Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010).

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 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.

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