Articles Tagged with FINRA AWC

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.

Chicago-Based Stoltmann Law Offices, P.C. is currently investigating reports that Michael Edward Magill raised $700,000 in purported private notes that turned out to be part of a criminal scheme. If you were sold investments by Mr. Magill and lost money as a result, you may have a claim to pursue to recover your investment losses through FINRA Arbitration.

According to a FINRA Acceptance, Waiver, and Consent (AWC) signed by Mr. Magill on December 7, 2020, Mr. Magill was hied by a private company to raise money for it. the FINRA allegations state that Mr. Magill solicited at least three investors to invest a total of $700,000 in this company, representing the investments as short term secured notes.  He urged investors to invest quickly because time was of the essence.  Mr. Magill was paid a salary by this company for his services and also received a commission for the investments he sold.  He also distributed marketing materials for the investments.  The investments were not registered with any regulatory agency and were sold in violation of applicable state and federal securities laws.  The principals of the company for whom Magill raised these funds pled guilty to conspiracy to commit wire fraud.

At all times relevant, Mr. Magill was a dually registered and licensed financial advisor with Foreside Fund Services and as a Registered Investment Adviser with WBI Investments, Inc. out of Boca Raton, Florida.  By virtue of FINRA Rules and the fiduciary duty owed by WBI Investments, both Foreside and WBI could be liable to investors who were caught-up in this scheme.  Stoltmann Law Offices has for many years pursued brokerage firms and investment advisers for these claims and has successfully recover money on victims’ behalf.  These companies have legal obligations to supervise the conduct of their registered representatives. Typically referred to in the securities industry as “selling away”, Magill allegedly did not advise the companies he was registered with of his illicit activities.  Nevertheless, there likely existed a stack of red flags that would have put Foreside Funds and WBI Investments on notice that Magill was participating in what was in reality a fraudulent scheme.

Stoltmann Law Offices, a Chicago-based securities and investor rights law firm continues to investigate claims by investors who were sold investments in the fraudulent note scheme Future Income Payments. Investors have rights and if you were solicited to invest in Future Income Payments by your financial advisor, you may have a claim to pursue for negligence or fraud. According to an article that appeared on ThinkAdvisor, former SagePoint financial advisor Troy Baily solicited several clients to invest in securities offered by Future Income Payments (“FIP”).  FIP turned out to be a multi-million dollar pension scam with investors losing everything.  According to the article, Baily submitted to what is called an “Acceptance, Waiver, and Consent” with the Financial Industry Regulatory Authority as a result of these ill-fated solicitations.

An AWC  is essentially the formal settlement of a regulatory investigation conducted by FINRA of a licensed financial advisor. In this instance, Baily accepted FINRA’s conclusion that he solicited four SagePoint clients to invest a total of $210,000 in securities offered by Future Income Payments.  In so doing, he violated FINRA Rule 3280 and FINRA Rule 2010. As punishment for his violations, Baily accepted a six-month suspension and a fine in the amount of $5,000.  Although an AWC is technically not an admission of fault or guilt, the facts alleged by FINRA are clear and do not require interpretation – Baily sold FIP investments to his SagePoint clients.

The best bet for victims, especially those who were Baily’s clients, is to pursue his broker-dealer, SagePoint through FINRA Arbitration. As we have said in the past, brokerage firms are ultimately responsible and liable for the misconduct of their agents. Here, there are two separate routes investors can take to recover against SagePoint. The first is through the legal theory of apparent agency, or Respondeat Superior. This is an age-old legal concept that the principal is responsible for the conduct of its agent, so long as the conduct is performed in the course and scope of that agency relationship. Here, Baily sold securities, provided investment and financial advice, to clients to invest money in FIP. That is clearly within the scope of his agency relationship with SagePoint.

Chicago-based Stoltmann Law Offices  represents investors who’ve suffered losses from dealing with unscrupulous investment brokers. On April 28, 2020, the Financial Industry Regulatory Authority’s (FINRA) Department of Enforcement filed a complaint against an ex-Ameriprise representative, alleging he converted more than $42,000 of an elderly client’s funds for his own use. Sean Michael Refsnider, of Haddon Heights, New Jersey, was a representative at Ameriprise from 2012 until Aug. 20, 2019. The company stated he was fired after it concluded that his client’s funds were “misappropriated.” FINRA is the chief U.S. regulator of broker dealers.

According to the FINRA complaint, Refsnider allegedly “procured a check from `Customer A’ in the amount of $20,000 and then used the funds to pay his mortgage and other personal expenses.” Refsnider allegedly also had used a debit card linked to the client’s account to make purchases totaling about $17,317, in addition to $4,300 in cash withdrawals, the complaint said. Ameriprise said in a statement that it “quickly detected and stopped the activity, ensured the client was fully reimbursed, terminated the advisor and notified the proper authorities.”

In the past, Ameriprise has been cited by regulators for failure to protect customer assets. The U.S. Securities and Exchange Commission (SEC) fined Ameriprise $4.5 million in 2018 to settle charges “that it failed to safeguard retail investor assets from theft by its representatives.” According to the SEC’s order, five Ameriprise representatives “committed numerous fraudulent acts, including forging client documents, and stole more than $1 million in retail client funds over a four-year period.” The SEC also found that Ameriprise, a registered investment adviser and broker-dealer, “failed to adopt and implement policies and procedures reasonably designed to safeguard investor assets against misappropriation by its representatives.” The five Ameriprise representatives were based in Minnesota, Ohio, and Virginia, and three previously pled guilty to criminal charges. Each of the representatives was terminated by Ameriprise for misappropriating client funds and barred from selling securities by FINRA.

Stoltmann Law Offices is investigating allegations that Linan Abrego (aka Ma Rosa Linan Abrego) misappropriated client funds at Merrill Lynch. According to published reports,  Abrego was barred by FINRA for failing to appear or respond to an inquiry in connection with her termination from Merrill Lynch on June 10, 2019 for misappropriating client funds. The misconduct reported by FINRA alleges that Linan Abrego of McAllen, Texas, failed to appear as required by FINRA Rule 8210 and accepted a lifetime ban from the securities industry, instead of answering FINRA or providing information in furtherance of FINRA’s investigation. According to her publicly available FINRA BrokerCheck Report, Ms. Linan Abrego was registered with Merrill Lynch as a broker and financial advisor from December 6, 2016 to June 10, 2019 when she was terminated for cause by Merrill Lynch for “misappropriating client funds.” Pursuant to FINRA Rule 8210, if FINRA requests a broker sit for on the record testimony (called an OTR) and the broker either refuses or simply does not show up or refuses to provide answers to written questions, or refuses to produce documents requested by FINRA in the course of their investigation, this can be grounds for being permanently barred from the securities industry. It is the equivalent of a career death sentence. Once a broker is barred for life by FINRA, absent extraordinary circumstances, that person will need to seek a career change.

Typically, brokers who refuse to show up for a Rule 8210 request do so knowing they are sacrificing their securities licenses. Some brokers may be near retirement or are not interested in maintaining their licenses, so they rather not submit themselves to an OTR, which can be stressful and require retaining legal counsel. Other brokers fail to show up for an OTR because they fear the testimony they will give may be incriminating if they are truthful. The FINRA AWC agreed to and signed by Ms. Linan Abrego only states he failed to show up for the OTR and provides no further explanation for barring her from the securities industry. Linan Abrego did this willingly, and instead of providing testimony from FINRA about why she was fired by Merrill Lynch, she chose to accept a lifetime ban from the securities industry.

Routinely, financial advisors who steal money from their clients do it in such a manner which should have alerted the firm’s compliance or supervision departments. Many times this sort of theft is facilitated by the broker simply forging withdrawal forms or requests. Another common way brokers steal money is to set up a third party LLC or other entity to which the broker directs client money directly from their accounts through wire transfers.  Sometimes the clients allow these transfers because the broker tells them these transfers are an investment in a company, or it’s where her commissions are paid to. No matter the ruse, sophisticated brokerage firms like Merrill Lynch are required to have procedures in place to catch their brokers if they attempt to steal client money. Whether there were unauthorized withdrawals or transfers from your accounts, every FINRA brokerage firm, like Merrill Lynch must have robust Anti-Money Laundering rules and regulations in order to ensure a level of alertness in these circumstances. Failing to properly execute these procedures which results in a broker stealing client money results in liability for the firm for negligent supervision, putting Merrill Lynch on the hook for the losses.

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