Category Archives: FINRA News & Alerts

Rely upon Blau & Malmfeldt, a securities law firm in Chicago, for the latest Financial Industry Regulatory Authority (FINRA) news and alerts.

FINRA Fines LPL Financial, LLC for Failure to Supervise Alternative Investment Sales

Last month, FINRA hit LPL Financial, LLC with a $950,000 fine for failing to supervise its registered representatives’ sale of alternative investments.  FINRA also ordered LPL to conduct a comprehensive review of its “policies, procedures, and training and remedy failures.”

FINRA determined that between 2008 and 2012, LPL representatives often recommended that their customers concentrate savings in alternative investments such as non-traded REITs, and in doing so, ignored state regulations that impose concentration limits on the sale of such investments, as well as concentration limits specified in the offering documents of certain investments.

Many alternative investments carry with them very high commissions.  As these commissions are paid from offering proceeds (and therefore do not appear on the customers’ brokerage statements), they are not readily apparent to the customers.  These high commissions often impair the entity and make it ultimately difficult for many alternative investments to succeed.  Despite these problems, and despite the fact that many alternative investments sold between 2006 and 2009 have failed, many brokerage firms such as LPL are pushing more of these investments on their customers.  2013 in fact saw more alternative investment sales than any prior year.

Blau & Malmfeldt is a law firm headquartered in Chicago, Illinois that represents investors nationwide in securities, commodity futures, and shareholder rights disputes.  Contact us at 312-443-1600 to learn more about the services that we offer.

 

FINRA Fines Berthel Fisher Over Non-Traded REIT and Inverse ETF Sales

The Financial Industry Regulatory Authority (FINRA) recently fined broker-dealer firm Berthel Fisher & Company Financial Services, Inc. (Berthel Fisher) and its affiliate, Securities Management & Research, Inc. (Securities Management) $775,000 for supervisory deficiencies. This came as Berthel Fisher and Securities Management failed to supervise sales of non-traded real estate investment trusts (REITs) and leveraged and inverse exchange-traded funds (ETFs) by their registered representatives.

The questionable sales activity took place from January 2008 to December 2012. FINRA discovered that the firms did not have adequate supervisory systems and written procedures in place for sales of the following alternative investment products: non-traded REITs, managed futures, oil and gas programs, equipment leasing programs and business development companies.

In some instances, the firms also failed to either accurately calculate concentration levels for these investments or correctly enforce suitability standards.

Additional questions arose around the sales of leverage and inverse ETFs during the period of April 2009 to April 2012. According to FINRA, Berthel Fisher did not have a “reasonable basis” for certain investment sales and it also did not “adequately” research or review non-traditional ETFs before allowing its registered representatives to make customer recommendations.

Blau & Malmfeldt invites Berthel Fisher 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.

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.

Former Ameriprise Registered Representative Stuart Epley Agrees to Suspension

Former Ameriprise Financial Services, Inc. (Ameriprise) registered representative Stuart Epley recently entered into a settlement agreement with FINRA over allegations that he entered unauthorized trades on behalf of customers.

Specifically, FINRA alleged that Epley effectuated 87 transactions on eight customer accounts without obtaining authorization from these customers.  FINRA also alleged that Epley mismarked 24 order tickets to purchase leveraged ETFs as “unsolicited” when in fact Epley had specifically recommended these investments to his customers.  According to FINRA, Epley marked the order tickets as “solicited” because Ameriprise prohibits its brokers from recommending these investments.

Through the settlement, Epley agreed to a three month suspension during which time he is prohibited from working for any FINRA member firm in any capacity.

Ameriprise had a responsibility to oversee Epley’s business activity and to create a supervision system reasonably calculated to prevent its brokers from violating FINRA rules.  Customers of Epley who suffered losses as a result of his misconduct may recover losses by pursuing claims in arbitration against Epley and Ameriprise at FINRA.

Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.  Contact us at 312-443-1600 to learn about the services we offer.

Oppenheimer Fined for Municipal Bond Sales Practices

The Financial Industry Regulatory Authority (FINRA) recently fined Oppenheimer & Co., Inc. $675,000 for charging customers unfair prices for municipal securities transactions and failing to implement an adequate supervisory system.  FINRA also ordered Oppenheimer to pay more than $246,000 in restitution to the customers.   The firm’s head municipal securities trader, David Sirianni, received a $100,000 fine and a 60-day suspension .

According to FINRA’s investigation, from July 1, 2008, through June 30, 2009, Oppenheimer marked up 89 customer transactions in amounts ranging from 5.01 percent to 15.57 percent higher than its contemporaneous cost.  54 of these transactions saw markups above 9 percent.

Sirianni accomplished this by buying municipal securities from a broker-dealer on Oppenheimer’s behalf. Then, for at least a night, the bonds remained in inventory before they became available for resale to the firm’s customers at an “unfair price” as determined solely by Sirianni.

FINRA determined that Oppenheimer failed to adequately supervise Sirianni.  Specifically, FINRA determined that Oppenheimer’s supervisory system was “deficient because supervisory personnel relied solely on a surveillance report that only captured intra-day transactions to review the fairness of markups/markdowns in municipal securities transactions.”

Blau & Malmfeldt invites Oppenheimer customers who purchased municipal bonds 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.

J.P. Turner & Company Ordered to Pay Restitution to Customers Who Purchased Leveraged and Inverse ETFs

The Financial Industry Regulatory Authority (FINRA) recently ordered J.P. Turner & Company, LLC, to pay $707,559 in restitution to 84 of its customers after determining that the broker-dealer firm engaged in improper conduct in connection with leveraged and inverse exchange-traded funds (ETFs).

Leveraged and inverse ETFs are complicated and risky investment products that are unsuitable for many investors.  FINRA found that J.P Turner’s registered representatives sold these products to many customers despite the fact investments were plainly unsuitable for them.  In addition, FINRA found that J.P. Turner failed to train its registered representatives with respect to these products.

It appears that many of J.P. Turner’s registered representatives also engaged in improper mutual fund “switching.”  A broker-dealer firm has the obligation to detect unsuitable switches that result in unjustified commissions and sales charges for customers.  FINRA found that 2,800 unsuitable mutual fund switches resulted in 66 customers paying commissions and sales charges in the amount of more than $500,000.

It is possible for customers of J.P. Turner to recover losses above and beyond the restitution payments that they will receive as a result of FINRA’s regulatory action by pursuing claims against J.P. Turner in arbitration.

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

JP Morgan Chase Registered Representatives Barred After Converting Elderly Customer’s Funds

The Financial Industry Regulatory Authority (FINRA) recently announced that it has barred two former registered representatives of JP Morgan Chase Securities, LLC, Fernando L. Arevalo and Jimmy E. Caballero, after determining that they converted approximately $300,000 from an elderly widow with “diminished mental capacity,” and subsequently failed to fully cooperate with its investigation.

According to FINRA’s investigation, the elderly customer liquidated two annuities and deposited approximately $300,000 of proceeds into a bank account that Arevalo had opened for her on April 18, 2013.

Caballero then withdrew the funds using a cashier’s check and deposited the funds into a joint account that he had previously opened in his name and the name of the widow’s at a different bank on May 1, 2013.

The bank questioned the deposits.  Arevalo then picked up the elderly customer and drove her to the bank to confirm that she  had deposited the funds.

Caballero and Arevalo then misappropriated the funds for their personal use.  The widow was neither aware of the withdrawals and purchases nor did she authorize any of the transactions.

Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.  Contact us at 312-443-1600 to learn about the services we offer.

FINRA Suspends Former National Securities Corporation Registered Representative Jaime Andres Diaz

FINRA recently filed a complaint against Jaime Andres Diaz, a registered representative of securities broker-dealer firm National Securities Corporation from July 2007 to December 2011.

In 2012, Diaz was suspended from FINRA after failing to respond to requests for information.

FINRA alleges that between December 2009 and November 2011, Diaz took approximately $850,000 from four of his clients (one of whom was elderly), and an additional $50,000 from a representative who worked at his firm.

Diaz told his clients that their money would be used to invest in New York City real estate and restaurants, but he instead used the funds for personal use and to pay earlier investors.

Diaz is also accused of “selling away” from his member firm because he participated in private securities transactions without informing the firm, violating FINRA rules.

FINRA alleges that Diaz knowingly defrauded his clients and acted manipulatively, and that he made improper use of his clients’ funds. He also failed to respond to multiple requests for information, further violating FINRA rules, and filled out his firm’s semi-annual compliance questionnaire with false answers.

National Securities Corporation had a duty to enforce a supervision system reasonably calculated to ensure that its registered representatives were acting in compliance with applicable laws and regulations.  It appears that National Securities Corporation failed in this respect and it is possible that victims of Diaz may recover losses by pursuing claims against National Securities Corporation for its failure to adequately supervise Diaz.

Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.  Contact us at 312-443-1600 to learn about the services we offer.

Former LPL, Berthel Fisher, and Morgan Stanley Broker James Scott McKee Pleads Guilty to Securities Fraud

On October 25, 2013, former securities broker James Scott McKee  pled guilty to nine counts of aggravated theft and securities fraud in connection with a string of customer funds thefts between 2008 and 2010.

The Financial Industry Regulatory Authority (FINRA) previously banned McKee from working in the securities industry effective October 11, 2012.  According to McKee’s FINRA records, he improperly induced customers to invest in outside real estate ventures, and embezzled money from customer accounts to pay off past investors and personal expenses.  In one case, McKee recommended that a church invest $100,000 in a risky startup real estate venture.  McKee forged company documents, including suitability and disclosure reports to further his scheme.

In June 2013, 19 investors who have suffered losses as a result of McKee’s apparent wrongdoing filed a lawsuit against Steve Master and the companies Master owns seeking $2.5 million in damages.  The lawsuit claims that Master and his companies benefited from McKee’s scheme and are therefore liable for their losses.

McKee was a registered representative of the following broker-dealer firms:  LPL Financial Corporation, Eugene, OR (11/2002 – 09/2008); Berthel, Fisher & Company Financial Services, Inc., Springfield, OR (09/2008 – 11/2010); and, Morgan Stanley Smith Barney, Eugene, OR (12/2010 – 10/2011).

Brokerage firms are required to enforce supervisory systems reasonably calculated to ensure that their brokers are acting in compliance with all applicable rules and regulations.  It appears that McKee’s former broker-dealer firms may have failed in this respect.  It is possible that McKee’s customers may be able to recover their losses by pursuing claims against these firms for their supervisory failures through arbitration at FINRA Dispute Resolution.

FINRA records show a total of 19 customer complaints have been filed against McKee’s former brokerage firms in connection with his wrongdoing.  FINRA records show that some of these arbitration claims have resulted in substantial settlements.

Former customers of McKee are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 to discuss recovery options.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

FINRA Suspends Registration of Aaron Kazinec Formerly of METLIFE Securities, LLC

The Financial Industry Regulatory Agency suspended the registration of Aaron Kazinec, a Fort Lauderdale broker most recently registered with MetLife Securities, Inc., the Metropolitan Life Insurance Company’s securities broker-dealer arm.

Kazinec was associated with MetLife from 2007 to 2012. He was previously associated with MML Investors Services, Inc., the broker-dealer arm of Mass Mutual, from 1998 to early 2007. Before that, he was associated with Pruco Securities Corporation in Newark, New Jersey, from 1994 to 1998.

There have been 13 customer complaints against Kazinec over the years, and three cases are still pending.

MetLife terminated Kazinec in December 2012 after discovering that he had been accepting checks without payee information from his customers. He then deposited those checks in personal accounts, the FINRA disciplinary complaint states.

FINRA alleges that Kazinec misappropriated funds from at least four of his customers between May 2009 and August 2012, telling them to write checks payable to “cash” and leading them to think that he would use the money to make investments for them. Instead, he used $745,250 of his clients’ money for his own benefit.

Kazinec also failed to properly disclose a tax lien of approximately $22,000 to FINRA.

Kazinec is now banned from associating with any FINRA member in any capacity. He accepted FINRA’s proscribed sanctions without admitting or denying FINRA’s allegations.

MetLife had a duty to supervise Kazinec.  Specifically, MetLife had a duty to enforce a supervisory system reasonably calculated to ensure that Kazinec acted in compliance with all applicable industry rules and regulations and to ensure that Kazinec did not engage in any illicit outside business activities.  It appears that MetLife failed in this respect.

It is possible for Kazinec’s victims to recover investment losses by pursing claims against MetLife for the company’s negligence in supervising Kazinec.

Investors who worked with Kazinec are encouraged to contact Blau & Malmfeldt at 312-443-1600 to discuss possible recovery options. Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.