Articles Tagged with FINRA

Chicago-based Stoltmann Law Offices offers representation on a contingency fee basis to investors nationwide that have suffered investment losses as a result of unscrupulous financial advisors who’ve misrepresented the risks of investments or traded their accounts without express permission.

The U.S. Securities and Exchange Commission (SEC) has obtained a partial judgement against Michael F. Shillin, a former Raymond James financial advisor, “accused of defrauding at least 100 investment advisory clients, many of whom were elderly, by fabricating documents and making misrepresentations about their investments,” according to thediwire.com.

Shillin, according to the SEC, “allegedly told certain clients that they had subscribed for Initial Public Offering or pre-IPO shares, or that he had bought stocks on their behalf, in certain `coveted companies.’ He also is accused of misrepresenting the purchase of life insurance policies with long-term care benefits, with several clients rolling over their existing policies into new ones, which were either non-existent or had far fewer benefits than he claimed.”

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 representing investors who’ve suffered losses from dealing with broker-advisors who’ve executed unsuitable short-term trading strategies. When a broker takes your money in and out of investment products intended to be held long term, like Unit Investment Trusts or mutual funds, the brokerage firm can be liable for any losses sustained.

FINRA, the U.S. securities industry regulator, recently concluded a sweep of Unit Investment Trust (UIT) sales that resulted in a combined $16.8 million in restitution payments and $6.6 million in fines against six firms, according to Advisorhub.com. UITs are mutual-fund-like vehicles sold by brokers that carry high up-front fees or “loads”.

The regulator reached a settlement with two Wells Fargo Advisors broker-dealers “that agreed to pay $3.1 million in fines and restitution over failure to supervise improper short-term trading of UITs. The sanctions, which were levied against the firm’s core Wells Fargo Clearing Services broker-dealer and Wells’ independent Financial Network unit, included almost $2.5 million in restitution and $650,000 in fines.” The FINRA sweep previously “also hit Merrill Lynch, which paid the lion’s share of the penalties with $11.65 million in fines and restitution, as well as Stifel Nicolaus & Co., Cambridge Investment Research, and Oppenheimer & Co.”

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.

Stoltmann Law Offices, P.C., a Chicago-based investors rights and securities law firm offering nationwide representation on a contingency-fee basis, has represented hundreds of investors over the years who have suffered losses in non-Traded Real Estate Investment Trusts (REITs).  These investments are sold, not bought, meaning financial advisors push these products on investors because of the high commission rates they pay out. These investments are illiquid, meaning an investor cannot just sell out and get their money out, and they are on the speculative side of the risk scale.  Although they are sold by financial advisors as providing stable value and high income in a low interest rate environment, REITs are anything but stable and are certainly high risk.

Recently, the SmartStop Strategic Student & Senior Housing Trust sent a letter to shareholders, on behalf of the board of trustees, warning of the REITs financial problems.  The letter, as reported by TheDIWire, paints a dire picture about the REIT’s financials, including blaming Covid twice for its underperforming properties. The REIT only owns two student housing properties and four senior housing properties. The REIT came to market in 2017 through a private placement and then opened to the public market in May 2018, raising about $110 million from investors.  According to the letter sent to investors, the Strategic Student & Senior Housing Trust is mired in debt and does not have sufficient cash to make necessary payments on certain bridge loans, absent a restructuring of that debt. These are certainly dire times for this REIT and the investors could be left holding the empty bag if the REIT liquidates.

Non-Traded REITs are by nature illiquid and high risk. Although pitched by financial advisors as being “non-correlated” to the stock market, the only reason this is the case is because the non-traded characteristic means the price doesn’t reset every day, like publicly-traded funds, for example. These non-traded REITs are mired in conflicts of interest, are very complicated structurally, and are designed to do one thing: save the owner of the real estate on taxes.  That’s the entire purpose of the REIT structure – its a tax savings vehicle for SmartStop.

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.”

Stoltmann Law Offices is a Chicago-based securities and investor rights law firm dedicated to a nationwide practice to recover money lost by investors as a result of the misconduct of financial advisors and their brokerage and investment firms. We have prosecuted at least one hundred cases over the years against Morgan Stanley and were not surprised to learn about David Todd Levine and his being barred by FINRA, the State of Colorado, and the Securities and Exchange Commission. These bars were “by consent” meaning none of the allegations made against Mr. Levine were proven. It just means instead of fighting them, Mr. Levine will instead never be able to legally provide investment advice to anyone for the rest of his life.

According to an Order Instituting Administrative Proceedings (OIP) filed by the SEC, which parroted claims made by the Colorado Securities Commissioner, Mr. Levine recommended that clients invest in a Bitcoin investment being run by his brother. In so doing, Mr. Levine allegedly failed to disclose that his brother was a fugitive from the law in the United States, living abroad. The Commission further alleged that Mr. Levine failed to disclose this criminal history to any of his clients and further failed to verify the legitimacy and ownership of the Bitcoin that was apparently part of this investment scheme. The SEC also alleged that Mr. Levine failed to develop a method for ensuring the transfer of funds and Bitcoin, which allowed his brother to steal $1.5 million. Levine also allegedly failed to disclose the high risk nature of this investment scheme.  If you are a victim of Mr. Levine’s alleged Bitcoin scam, and you were a client of his and Morgan Stanley, you could have a viable claim to pursue against Morgan Stanley.

Although it is alleged that Levine failed to disclose this investment and his involvement in it to Morgan Stanley, that does not automatically release Morgan Stanley from potential liability.  Whether Morgan Stanley can be found liable by FINRA arbitrators depends on two issues regardless of disclosure by Levine.  1) Were there sufficient red flags that Levine was soliciting his clients to invest in this Bitcoin investment so has to put Morgan Stanley on constructive notice of it? 2) Were clients reasonable to believe that Levine was acting within the course and scope of his employment with Morgan Stanley in recommending an investment in a Bitcoin related deal? Typically, advisors leave enough of a paper trail behind them that reasonable supervision and compliance should discovery this sort of outside activity. Levine was offering it to Morgan Stanley clients after all, so a few phone calls by Morgan Stanley and they would have uncovered what was happening. Moreover, investors would certainly be reasonable in assuming what Levine was doing was legitimate and was through or at least tacitly approved by Morgan Stanley.  This “apparent agency” issue could make Morgan Stanley liable for your losses. Courts agree. See McGraw v. Wachovia Securities, 856 F. Supp. 2d 1053 (N.D. Iowa 2010).

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.

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.”

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