Monthly Archives: January 2014

FINRA Fines Stifel, Nicolaus for Rule Violations in Connection with Non-Traditional ETF Sales

The Financial Industry Regulatory Authority (FINRA) recently issued fines totaling $550,000 against broker-dealer Stifel, Nicolaus & Company, Inc. (Stifel Nicolaus ) and its affiliate Century Securities Associates, Inc. (Century Securities).  FINRA had alleged that Stifel Nicolaus and Century Securities violated FINRA rules in connection with their sale of non-traditional, leveraged and inverse exchange-traded funds (ETFs) between 2009 and 2013.   FINRA also ordered Stifel Nicolaus and Century Securities to pay approximately $475,000 in restitution to 65 customers.

FINRA determined that Stifel Nicolaus and Century Securities made unsuitable ETF recommendations to customers with conservative investment objectives through their registered representatives.  FINRA also determined that Stifel Nicolaus and Century Securities’ registered representatives did not understand these products’ unique features and risks.

FINRA found widespread problems with the firms’ supervisory systems for these non-traditional ETFs.   The firms apparently had neither written supervisory procedures relating to these products nor programs designed to provide adequate training for their registered representatives selling these products.

Brokerage customers of Stifel Nicolaus and Century Securities can recover losses by pursuing claims against the firms in arbitration at FINRA Dispute Resolution.  FINRA rules required Stifel Nicolaus and Century Securities to make suitable recommendations to their brokerage customers and it appears that they failed in this respect.  It also appears that the firms misrepresented non-traditional ETFs to many brokerage customers.

Blau & Malmfeldt invites Stifel Nicolaus and Century Securities customers who suffered losses in non-traditional ETFs to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

Recovery Options for Victims of Lynn Alan Simon’s Ponzi Scheme

In June 2013, FINRA announced its suspension of Lynn Alan Simon of Newburgh, Indiana, a former registered representative in CFD Securities’ Kokomo, Indiana office  Simon had operated two Evansville, Indiana businesses as its sole owner under the names Financial Security Planning and The Insurance Shoppe.

FINRA suspended Simon for  “selling away” from CFD Securities – i.e., for selling  securities that were not approved by CFD Securities.

Things only went downhill from there for Simon.  In September 2013, Simon was arrested for allegedly bilking more than $1 million from at least a dozen local investors. He currently faces three counts of securities fraud, Class B felonies, and a charge of unlawful sale of a security, a Class C felony.

Simon’s fraud began to come to light in April 2013 when his wife contacted the Sheriff’s office after he went missing for two days. Two weeks later, an Evansville-based client of Simon, filed a complaint with the Indiana’s Secretary of State after he had stopped receiving interest payments on an investment that he had made with Simon.  Simon remained missing until September 2013, at which time the authorities tracked him down and arrested him.

Court documents reveal that numerous elderly clients lost money through Simon’s “investments.”  Clients were apparently promised high rates of returns on their investments–as high as 11%.  Simon allegedly presented typewritten promissory notes to his customers, showing a rate of return and a maturity date.

In typical Ponzi scheme fashion, Simon apparently used money from new customers to pay interest and principal to old customers while misappropriating a great deal of customer money.

It is possible for Simon’s victims to recover their losses from CFD Securities by pursuing a case in either court or in arbitration at FINRA Dispute Resolution.  Securities industry rules required CFD Securities to adequately supervise Simon and it appears that CFD Securities failed in this respect.   CFD Securities may also be liable to Simon’s victims as a “controlling person” under the Indiana Securities Act.

Blau & Malmfeldt invites Simon’s customers to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

National Futures Association Takes Emergency Action Against Novo Trading and its Principal Thomas H. O’Connell, Jr.

The National Futures Association (NFA) recently announced a member responsibility action against NFA member and commodity trading advisor Novo Trading LLC (Novo) along with the firm’s principal Thomas H. O’Connell, Jr.  Novo is based in Oak Park, Illinois.  NFA took this emergency action in order to protect Novo’s customers.   

Novo opened its doors in September 2013 as a commodity trading advisor.   O’Connell became registered through Novo as a principal and associated person.  Additionally, Jerry J. Considine became listed as a principal and chief executive officer of the firm; however, Considine did not become registered as an associated person.  

To solicit customers, Novo and O’Connell allegedly utilized two websites with false and misleading promotional material that included “inaccurate rates of return (ROR) and grossly overstated assets under management (AUM).”  These results purportedly went back to 2008.

NFA found that the firm’s alleged trading results dating back to 2008 were suspicious because Novo did not specify that these results were achieved on proprietary accounts and because Novo, Considine Trading (Novo’s predecessor) and Considine were not registered from 2008 through September 2013.

NFA conducted an unannounced examination at Novo’s offices in Oak Park, Illinois in early December and requested that Novo provide financial documentation supporting its AUM and ROR claims.  Novo failed to satisfy NFA’s document request.   

NFA also could not determine funding sources for Novo’s commodity brokerage account.  Upon further review, the NFA discovered that Considine had opened accounts in his own name and a new one in a family member’s name on the day following NFA’s examination.

Based on these findings, NFA suspected that Considine and Novo had used the money in the Novo account to fund the trading account belonging to Considine’s family member. In addition, Novo’s bank statements indicated that Considine regularly transferred hundreds of thousands of dollars out of the account to at least one other unidentified checking account.

Considine and O’Connell failed to comply with NFA’s request to provide documents verifying the owner of the unidentified account to which the funds were transferred.

NFA was unable to determine the source of funding for Novo’s bank account and therefore speculated that Novo and Considine had utilized customer money to fund trading accounts for Considine’s personal benefit and for the benefit of his family member. Novo allegedly also misled and lied to the NFA during the examination.

Blau & Malmfeldt invites Novo customers to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

Recovery Options for Solaris Opportunity Fund Investors

The Securities and Exchange Commission recently announced that the U.S. District Court in Chicago has entered an order of permanent injunction against Oakbrook, Illinois resident Patrick G. Rooney (“Rooney”) and his company Solaris Management, LLC .   Solaris Management managed various hedge funds including the Solaris Opportunity Fund LP.

The SEC alleged that Rooney and Solaris had changed the investment strategy of its Solaris Opportunity Fund LP (the “Fund”) by concentrating the Fund’s assets in a financially-troubled microcap company, Positron Corp.

The SEC alleges thatnRooney concealed not only the position in Positron but the fact that he had become Positron’s Chairman in 2004.  Both Rooney and Solaris Management concealed the Fund’s position in  Positron and Rooney’s role as  Positron’s Chairman from the Fund’s investors for more than four years.

Rooney finally disclosed the relationship to investors in March 2009; however, the SEC alleged that Rooney falsely represented that the purpose of the investment in Positron was to “safeguard the Fund’s investments.” The SEC determined that “a concentrated, undiversified, and illiquid position in a cash-poor company with a lengthy track record of losses” benefited no one but Rooney himself.

It appears that Rooney and Solaris breached fiduciary obligations owed to the Fund and to investors in the Fund by concentrating the Fund’s assets in Positron and by concealing this investment from the Fund’s investors.

Blau & Malmfeldt invites investors in Solaris Opportunity Fund to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.