Articles Tagged with Options

Stoltmann Law Offices is investigating cases where brokers have violated rules on selling “naked shorts,” an extremely speculative options trading strategy.  In volatile markets, brokers transact strategies designed to make money on stocks their clients don’t own, known in the industry as “naked short selling.” In a recent regulatory action, Finra, the federal securities industry regulator,  announced that it has fined UBS Securities LLC (UBS) $2.5 million for violating Regulation SHO (Reg SHO) governing naked shorts for “violations and supervisory failures spanning a period of nine years.”

FINRA found that “from 2009 to 2018, UBS did not timely close out at least 5,300 ‘failure to deliver positions’ and routed or executed more than 73,000 short sales in securities with an unsatisfied close-out requirement without first borrowing or arranging to borrow the shares.”

According to the U.S. Securities and Exchange Commission, “in a naked short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard two-day settlement period. As a result, the seller fails to deliver securities to the buyer when delivery is due; this is known as a ‘failure to deliver’ or ‘fail.’” The agency last updated its rule on short selling in 2008 to curb abuses in the industry.

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from trading risky options contracts. All too often brokers recommend trading strategies that are far too risky for their clients, who end up losing a lot of money. One such investment approach is options trading, or the right to buy or sell a security at a certain price in the future. If you guess right on an option, you can make money, provided you buy or sell at the right time at the right price. But in a volatile market, which has pretty much been standard fare the past two years, the chances of guessing right are slim.

Investors lost an estimated $1 billion trading options during the pandemic, according to fa-mag.com. Many traded off broker advice or random tips on “meme stocks” from online platforms such as Reddit. These “mom-and-pop day traders” may have lost up to $5 billion when the costs of middlemen such as market makers is tallied. Worse yet, the day traders may have lost even more on “leveraged” trades involving borrowed money.

“Turns out, taking leveraged flyers on meme stocks mentioned on Reddit’s WallStreetBets trading forum is harder than it looks,” fa-mag reported, citing a new study from the London Business School. “Spurred by Reddit posts and urged on by Twitter and TikTok influencers, daily volume in bullish contracts set record after record as stuck-at-home tinkerers flocked to the contracts in an effort to juice up returns.”

Chicago-based securities and investor protection law firm Stoltmann Law Offices, P.C., is currently investigating claims involving William Edward Torriente (Eddy Torriente) in connection with allegations he engaged in unauthorized trading. Eddy Torriente, who was employed with Comerica Securities from 2011 to September 2020, worked out of a branch office in Scottsdale, Arizona.  According to public reports, Eddy Torriente voluntarily resigned from Comerica on September 21, 2020 while undergoing an internal investigation by Comerica into allegations made by a client that Torriente placed unauthorized transactions in the client’s accounts.  Typically, if a complaint by an investor client is unfounded, the advisor doesn’t leave the firm.  According to FINRA, the complaint was “denied” by the firm but the timeline indicates there was very little time between the receipt of the complaint and the firm “denying” it.  Even more intriguing, Torriente “voluntarily resigned” before this client complaint was even received.  Mr. Torriente is now registered as an investment adviser representative for Wealthsource Partners, but is currently not a registered representative of a FINRA broker/dealer. If you or someone you know had dealings with Mr. Torriente and believe he executed trades in your account on an unauthorized basis, you should contact Stoltmann Law Offices for a consultation.

Unauthorized trading is a fundamental violation in the securities industry. These claims take multiple different shapes. The most obvious form is when a financial advisor, who does not have formal “discretion” in a customer’s account, goes ahead and places trades, either buys/sells stocks, bonds, options, mutual funds, etc., without first receiving approval from the client. These claims can also take the form of a failure to execute or failure to follow a client’s instructions.  If, for example, a client tells a broker to buy 100 shares of Apple, and the broker doesn’t do it, that is a failure to execute, and a form of unauthorized trading. These claims can become even more nuanced however and could involve situations where the broker fills some orders as instructed, but ignores others, or simply uses his discretion on what orders to execute.  Financial advisors simply cannot exercise this sort of discretion in a client’s account without formal, written agreements providing that discretion.

A broker who trades on an unauthorized basis violates several FINRA Rules and state securities regulations in doing so. For example, in Arizona, it is a violation of the Arizona Securities Act to trade on an unauthorized basis. See R14-4-130(16) which specifically identifies “Making unauthorized use of of securities or funds of a customer…for personal benefit” as an unethical practice in violation of the Arizona Securities Act, A.R.S. §§ 44-1961(A)(13) and 44-1962(10). Brokers traditionally trade on an unauthorized basis for one reason – to generate commissions.  Further, FINRA Rule 2010 prohibits unauthorized trading because such a practice is considered to be inapposite to the concept of commercial honor and just and equitable principles of trade.

Chicago-based Stoltmann Law Offices continues to investigate investor claims related to UBS YES products.  In recent years, with savings yields at rock bottom, investors have been eager to attempt to safely earn a higher return on their money. Wall Street has responded with so-called “yield enhancement strategies” (YES) designed to pump up returns. But these strategies eek out this extra yield by employing extremely risky options trading strategies.

What brokers haven’t told investors in countless pitches, however, is that yield enhancement products are complicated and carry numerous hidden risks. The UBS YES program, involving an “iron condor” options trading plan, has attracted a great deal of attention recently. Investors are suing UBS, the Swiss wealth management firm, claiming they lost money when UBS brokers enrolled them in the strategy. Arbitration claims against the company have also been filed with FINRA, the securities industry regulator.

Investors who invested in the UBS YES program claim they suffered losses, even though the firm claimed the strategy was “conservative” and “low risk,” according to Wealthmanagement.com. What investors apparently were not told is how complex and convoluted the YES strategy was:

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