Articles Tagged with FINRA

On August 5, 2019, FINRA fined Morgan Stanley registered representative Ken Kavanagh $25,000 and suspended him from practicing in the securities industry for eighteen after discovering that he concealed his outside business activity. According to FINRA’s order, beginning in 2003, Kavanagh provided personal management services to professional athletes. In October 2007, he registered his business as CEO-Sports in New Jersey, then formed another LLC in Pennsylvania, MGMT LLC. His services included coordinating travel and dinner arrangements, housing, bill payment, opening and managing bank accounts, and referrals to other professionals for tax return preparations and wills. Kavanagh had approximately 42 clients and generated at least $5 million in fees from 2012 through 2018 for providing these services.

FINRA Rule 3270 (formerly NASD Rule 3030) prohibits FINRA financial advisors from engaging in outside businesses unless they are properly disclosed to and approved by the advisor’s  brokerage firm. Mr. Kavanagh did not disclose his interest in MGMT or CEO-Sports to Morgan Stanley. He also attested in annual questionnaires required by Morgan Stanley that he was not involved with any outside business activities. He named a close relative as the sole owner or member of MGMT and CEO-Sports and also as the authorized representative on the each company’s bank accounts.  As a result of these FINRA Rule violations, FINRA fined Kavanagh $25,000 and suspended him for eighteen months.

As Stoltmann Law Offices previously alerted investors, Kavanagh has not been registered in the securities industry since resigning from Morgan Stanley in April 2018 after a client complained of his undisclosed outside business activities. On August 15, 2018, a customer also complained that Kavanagh placed unauthorized trades and forged documents.

On December 27, 2018, John G. Schmidt was charged in a 128 count indictment by the Montgomery County, Ohio Prosecuting Attorney. According to Investment News, the Prosecutor alleges that Schmidt, while employed a financial advisor for Wells Fargo Advisors, stole money from clients while operating a Ponzi scheme. The Prosecutor further alleges that Schmidt created fictitious account statements in order to hide his fraud from his investor clients.

According to Schmidt’s publicly available FINRA BrokerCheck Report, he was employed with Wells Fargo Advisors Financial from 2006 to October 24, 2017 when he was terminated for cause “after allegations of unauthorized money movement between clients, and after the Firm was notified of an allegation of the existence of inaccurate statements which appear not to have been generated or approved by the Firm.” Only days after Schmidt was fired by Wells Fargo, the customer complaints began rolling in alleging he had stolen money. Some of those cases have been settled but a few are still pending.  On September 25, 2018, the Securities and Exchange Commission filed a civil complaint against Schmidt outlining the details of this Ponzi scheme.

Schmidt’s Ponzi scheme is why the SEC and FINRA have mandated for generations now that brokerage firms adequately supervise their brokers.  In 1989 the SEC clearly outlined a brokerage firm’s supervisory responsibilities:

Investors who are exposed to unscrupulous financial advisors are starting to feel some serious pain. If you have lost a substantial amount of money over the course of the last few months, and your account is on margin, it might get a lot worse.  The good news is, your losses may be recoverable by filing a claim through FINRA Arbitration.

Over the last few weeks the stock market has seen some pretty steep losses.  All major US equity indices, the Dow Jones Industrial Average, the S&P 500, the NASDAQ, and the Russell 2Kare all, as of the date of this post, down at least 10% from their late summer/early fall all-time highs – officially “correction” territory.  Even more disconcerting, all of these indices are now down between 4.4% and 11.5% year-to-date.

What our experience in representing investors in arbitration and litigation for almost twenty years  has taught us is in circumstances like this market, with increased short-term losses spilling into a longer-term trend, like a year-to-date loss, is investors who have been overexposed to excessive trading or churning and margin abuses get hammered hard and fast. The previous seven or eight years has marked a perfect storm for brokers to engage in churning and margin trading without consequences because the markets have largely gone straight up since the spring of 2009, with only minor blips along the road. When investors don’t notice losses in their accounts, they simply are not alerted to what their broker may be doing. If your broker trades too much in your account, this generates commissions which eats away at your return. If the trading is done on margin, that only increases the drag on the account because of margin interest. The higher this Cost-Equity Ratio gets, the more your account has to earn just to may for the broker’s fees and commissions. Margin also can exponentially increase the risk profile of an account. Investors may not notice this wear and tear until the market performance no longer keeps up with the cost of the trading, at which point the losses can accumulate rapidly.

The State of Indiana recently imposed a $450,000 civil penaltyagainst LPL Financial for failing to supervise the company’s financial advisors on a state-wide basis.  The fine was based on two material deficiencies in LPL’s supervisory system. First, due to an alleged software glitch, LPL supervisors were not monitoring or supervising an undisclosed number of emails. There is an obligation for LPL to supervise all incoming and outgoing correspondence with firm clients. This obligation is rooted in FINRA Rule 3110(b)(4), which provides:

The supervisory procedures required by this paragraph (b) shall include procedures for the review of incoming and outgoing written (including electronic) correspondence and internal communications relating to the member’s investment banking or securities business. The supervisory procedures must be appropriate for the member’s business, size, structure, and customers. The supervisory procedures must require the member’s review of:

(A) incoming and outgoing written (including electronic) correspondence to properly identify and handle in accordance with firm procedures, customer complaints, instructions, funds and securities, and communications that are of a subject matter that require review under FINRA rules and federal securities laws.

AdobeStock_82110313-1-300x125Stoltmann Law Offices is investigating Jon Pariser, of Pacific Grove, California, who consented to a lifetime bar from the securities industry. Jon Pariser refused to provide information in connection with a FINRA investigation into allegations that he had referred clients to an unregistered advisor who then recommended those clients invest money in unsuitable investments.  More specifically, and according to published reports, Jon Pariser represented to his clients that he was retiring and began referring them to Christopher Parris, an unregistered advisor who was previously suspended by FINRA. Parris then recommended an investment in First Nationale Solutions, which the SEC has alleged to be a Ponzi scheme.

If you or someone you know lost money as a result of misconduct engaged in by former Independent Financial Group financial advisor Jon Pariser of Pacific Grove, California, please contact our securities investor-protectionlaw firm in Chicago for a free no obligation consultation with an attorney.  We are a contingency fee firm meaning unless we recover money for you we do not get paid.

According to a recent InvestmentNews article, former broker Bradley Mascho allegedly failed to appear at a hearing with the Financial Industry Regulatory Authority (FINRA). Mr. Mascho was terminated from Western International Securities in December 2017. He and Dawn Bennett, who also worked at Western International, were the subjects of an investigation by the Securities and Exchange Commission (SEC) that involved the sale of more than $20 million in convertible and promissory notes to at least 46 investors from December 2014 until July 2017. In connection with its fraud case against Ms. Bennett, the SEC also charged Mr. Mascho with aiding and abetting an offering fraud by the firm. He was the previous chief financial officer of DJB Holdings, Bennett’s investment firm. According to FINRA’s Letter of Acceptance, Waiver and Consent (AWC) against him, it stated that the regulatory body was investigating him for “potential serious violations, including fraud, undisclosed outside business activities, and private securities transactions.” These are all violations of securities laws and internal firm rules and regulations.

Bradley Mascho was previously registered with IDS Life Insurance Company in Minneapolis, Minnesota from March 1997 until July 1999, American Express Financial Advisors in Minneapolis from March 1997 until July 1999, Legg Mason Wood Walker in Baltimore, Maryland from September 1999 until February 2006, Royal Alliance Associates in Washington, D.C. from February 2006 until October 2009 and Western International Securities in Frederick, Maryland from October 2009 until December 2017. He has one customer dispute against him and one criminal pending charge alleging that he conspired to commit securities fraud, aided and abetted and conspired to commit wire fraud. All are felonies. He has one civil pending charge against him and has been permanently barred from the industry. This is according to FINRA records online.

Stoltmann Law Offices continue to investigate broker Timothy Tilton Ayre of Massachusetts, who has been charged by FINRA with the unlawful distribution of unregistered cryptocurrency securities and fraud.  The FINRA complaint alleges that Ayre bought the rights to HempCoin in 2015.  He repackaged it as a security backed by his own company Rocky Mountain Ayre, Inc. (RMTN).  Calling it “the first minable coin backed by marketable securities”,  Ayres sold HempCoin telling investors that each coin was equivalent to 0.10 shares of RMTN common stock. After selling more than 80 million HempCoin securities, FINRA charged Ayre with the unlawful distribution of an unregistered security because HempCoin was never registered and no exemption applied.  FINRA also alleges Ayre defrauded investors in RMTN by making materially false statements and omissions regarding RMTN and its financial statements, along with the unlawful distribution of HempCoin and failing to disclose his creation of it.

AdobeStock_35532974-1-300x200Stoltmann Law Offices continue to investigate Securities America, after it was fined $175,000 by FINRA. Between August 2014 and January 2016, FINRA charged that brokers with Securities America, overlooked or violated suitability concerns with two classes of variable annuities that were sold.  During this time frame, FINRA alleged that Securities America received close to $53 million from sales of share class variable annuities, including over $6 million from the sale of 1,904 L-share contracts.  These products have shorter surrender periods, and are therefore more expensive.  Investors pay a higher fee in exchange for increased liquidity which is unsuitable for many investors.  Firms that fail to disclose to investors these risks and fees, are more likely to be confronted with allegations of misconduct in the course of their business.

AdobeStock_194438920-300x200Former Beverly Hills, California-based Stockcross Financial Services broker Herbert Voss was permanently barred from the financial services industry by the Financial Industry Regulatory Authority (FINRA). This is according to a recent Letter of Acceptance, Waiver and Consent (AWC) signed by Mr. Voss, he consented to a permanent bar because he refused to answer questions levied by FINRA in connection with an ongoing investigation against him. Pursuant to his publicly available FINRA BrokerCheck report, prior to being employed by Stockcross, Voss was a registered representative with UBS Financial Services, also in Beverly Hills, until 2009.
Herbert Voss has eight customer complaints on his record, one of which is currently pending. These customer complaints allege excessive and inappropriate trading in various mutual funds, recommendation of unsuitable corporate bonds, mutual fund switching, unauthorized and excessive trading, churning, breach of fiduciary duty, breach of contract, negligent misrepresentation, suitability, and fraud, among other industry violations. Excessive trading, also referred to as “churning,” is when a broker trades in and out of securities, sometimes on a daily basis. This is a tactic used to generate large commissions for the broker. Churning causes the investor to pay excessive fees and commissions, and usually results in substantial account losses.
Please call our Chicago-based securities law firm today for a free, no-obligation consultation with an attorney if you suffered losses with Herbert Voss. We take cases on a contingency fee basis only which means we only make money if you recover yours.

AdobeStock_200379710-300x200Recently, United Kingdom-based Laidlaw & Co. was sanctioned by the Financial Industry Regulatory Authority (FINRA). According to the firm’s BrokerCheck report with FINRA, the firm has five regulatory sanctions against it. In May 2018, FINRA sanctioned Laidlaw in connection to allegations that it failed to establish and maintain a supervisory system, as well as written supervisory procedures, that were adequately designed to guarantee that representatives’ recommendations of leveraged and inverse exchange traded funds (ETFs), were in compliance with securities laws and rules. FINRA also found that the firm did not impose “product-specific limitations” on its representatives’ ability to recommend that customers trade in or hold non-traditional ETFs. Representatives allegedly solicited 869 purchases of non-traditional ETFs and 946 sales of non-traditional ETFs spanning 312 client accounts. In 2016, the firm was sanctioned in connection to allegations it charged unfair and unreasonable commissions, as well as a “handling fee” on certain equity transactions. Specifically, FINRA found it charged more than $27,000 in excessive commissions on 421 transactions. The firm was fined $10,000 and censured, and was ordered to pay restitution exceeding $27,000.

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