Category Archives: LPL Financial LLC News

Blau & Malmfeldt is investigating Blake Richards of LPL Financial and his fund misappropriation. Get the latest news on LPL Financial and Blake Richards.

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.

 

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.

Non-Traded REIT Sales Skyrocketing at Broker-Dealer LPL

The Wall Street Journal is reporting that commissions from alternative investments at broker-dealer firm LPL Financial, LLC are up 75% in the third quarter of 2013 due in large part to LPL’s sales of securities in non-traded real estate investment trusts (REITs).  Alternative investments now account for 12% to 14% of LPL’s securities sales.  With more than 13,000 registered representatives, LPL is the largest independent securities broker-dealer in the United States.

Brokerage firms generally receive commissions of 7% to 10% on the sales of alternative investments such as non-traded REITs.  Another 5% to 10% typically goes to the investment company’s “sponsor” as a placement fee.  These sponsors are typically controlled by the same individuals that are ultimately in charge of the investment companies.

The commissions are typically paid by the investment company in which the securities were issued using investor proceeds.  In other words, when you purchase $10,000 in non-traded REIT securities, $700 of your money is paid to your broker and another $500 to $700 might go to the non-traded REIT’s sponsor as a placement fee.  These commissions do not show up on brokerage statements but are rather typically buried in the fine print of offering documents. Many  brokers falsely represent to their customers that “they do not make anything” by selling alternative investments.

Obviously, when up to 15% of investor proceeds is used to pay commissions, the investment company is impaired.  To make matters worse, non-traded REITs often pay astronomical management fees to an outside business manager.  In addition, non-traded REITs often pay “dividends” that are above and beyond the cash available from the entities’ operations.  Money is often borrowed, or worse cash is used from the sale of securities to new investors, to pay these “dividends.”  These illusory returns  give the entities the appearance of viability so that even more money can be raised from new investors, which results in more up-front commissions to the brokers and sponsors.

Non-traded REITs are huge cash cows for the sponsor company’s that receive up-front placement fees and for brokers like LPL that make huge commissions on the sales of securities in these entities, but they are generally very poor investments for brokerage customers.  Even when real estate markets perform well, it is very difficult for non-traded REITs to overcome the massive fees that they are subjected to.  The bottom line is that these often illiquid investments rarely make any sense for brokerage customers.

Blau & Malmfeldt expects that LPL will face many customer complaints and arbitration actions in years to come as a result of its sale of securities in non-traded REIT and other alternative investments today.

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

 

Former LPL Broker Arthur Lin Indicted in Connection with Ponzi Scheme

A federal grand jury last Friday indicted two Chicago area men with fraud in connection with a Ponzi scheme that they operated.  The government alleges that Marcin Malarz, formerly of Lake Forest, and Arthur Lin, of Palatine, fraudulently raised over $9M from approximately 25 investors causing at least $5.5M in losses.

Between 2006 and 2010, Lin used his position as branch office manager of LPL Financial, LLC (LPL) in Itasca, IL, to recruit investors in Malarz Equity Investments LLC (MEI), a company that Malarz managed.  MEI claimed to make money by converting old apartment buildings into refurbished condominiums.  According to the government, Malarz misappropriated over $2M from MEI to pay for personal expenses and make to Ponzi interest payments to older investors.  Malarz made commission payments to Lin’s wife (rather than to Lin directly) – apparently in an effort to avoid detection – of 10% on investments that Lin steered into MEI.

The government contends that Malarz and Lin made misrepresentations to investors about the expected and actual returns on MEI investments, the ways MEI would use investor funds, and Malarz’s ability to personally guarantee investments and loans.  In the indictment, the government seeks forfeiture of at least $5.5M of ill-gotten proceeds as well as Lin’s houses in Palatine and Barrington.  Each fraud count contains a maximum 20 year prison sentence.

Lin agreed in January 2012 to a $485,583 settlement in a civil case that the Securities and Exchange Commission (SEC) had brought against Malarz, Lin, and associate Jacek Sienkiewicz of Rolling Meadows, IL.  The SEC waived all but $158,240 of that settlement based upon Lin’s representation of his financial condition in an August 16, 2011 statement that Lin submitted to the court.

It appears that Malarz and Sienkiewicz have fled the country and are hiding in Poland.

FINRA records show Lin was a registered broker with LPL from 09/2006 – 04/2010.  Lin was previously employed by A. G. Edwards and Sons, Inc. from 10/2001 – 10/2006

LPL had a duty to supervise Lin.  Specifically, LPL had a duty pursuant to industry rules to enforce a supervisory system reasonably calculated to ensure that Lin complied with all applicable laws and regulations and to prevent Lin from engaging in illicit outside business activities.  It appears that LPL failed to adequately supervise Lin.

Lin’s former customers may be able to recover investment losses by pursuing claims against LPL in arbitration at FINRA.  Lin’s brokerage customers are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 for a no obligation consultation.  Blau & Malmfeld is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

Blau & Malmfeldt Investigates Former LPL Broker Blake Richards

On May 23, 2013, the Securities and Exchange Commission brought civil charges against former LPL Financial LLC (LPL) broker Blake Richards.  The SEC claims that Richards violated antifraud provisions of the federal securities laws.

The SEC has alleged that Richards committed fraud by promising investors that the funds provided to him would be invested safely in life insurance, fixed income annuities, and blue chip stocks.  Richards, it appears, instructed investors to write checks to fake companies like “Blake Richards Investments” or “BMO Investments,” and then misappropriated the proceeds.  It appears that Richards misappropriated more than $2M of investor proceeds.

The SEC has also alleged that Richards used LPL letterhead to make official looking, but fake, account statements which he transmitted to his clients.  It also appears that Richards produced cashier’s checks, personal checks, and deposit slips when his clients tried to liquidate their investments.

Richards was a registered representative of LPL, the largest independent securities broker-dealer firm in the United States from May 2009 until May 2013.  Richards was previously registered with Ameriprise Advisor Services, Inc., another large, independent broker-dealer.   LPL and Ameriprise had a duty to supervise all of Richards’ outside business activities and it appears that they failed miserably in this respect.

If you were victimized by Blake Richards, you may be able to recover a portion of your losses against LPL or Ameriprise through a FINRA arbitration proceeding.  Please call Blau & Malmfeldt at 312-443-1600 or email Paul Malmfeldt at pmalmfeldt@blau-malmfeldt.com to schedule a free consultation.  Blau & Malmfeldt is a law firm that represents investors across