Failure to Supervise

BestVest Investments Sanctioned Over Non-Traditional ETF Sales

September 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned (Case No. 2014038906201) brokerage firm BestVest Investments, Ltd. (BestVest) concerning allegations that from January 2012, through August 2014, BestVest failed to establish and maintain a supervisory system reasonably designed to monitor transactions in leveraged, inverse, and inverse leveraged exchange traded funds (Non-Traditional ETFs).

As a background, Non-Traditional ETFs behave drastically different and have different risk qualities from traditional ETFs. While traditional ETFs seek to mirror an index or benchmark, Non-Traditional ETFs use a combination of derivatives instruments and debt to multiply returns on underlining assets, often attempting to generate 2 to 3 times the return of the underlining asset class. Non-Traditional ETFs are also used to earn the inverse result of the return of the benchmark.

However, the risks of holding Non-Traditional ETFs go beyond merely multiplying the return on the index. Instead, Non-Traditional ETFs are generally designed to be used only for short term trading as opposed to traditional ETFs. The use of leverage employed by these funds causes their long-term values to be dramatically different than the underlying benchmark over long periods of time. For example, between December 1, 2008, and April 30, 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while the ProShares Ultra Oil and Gas, a fund seeking to deliver twice the index’s daily return fell six percent. In another example, the ProShares UltraShort Oil and Gas, seeks to deliver twice the inverse of the index’s daily return fell by 26 percent over the same period.

FINRA Bars Former LPL Financial Broker Thomas Caniford From the Industry

September 4, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred former LPL Financial LLC (LPL) broker Thomas Caniford (Caniford) after the broker failed to respond to a letter from the regulator requesting information. While BrokerCheck records kept by FINRA do not disclose the nature of the regulatory inquiry, in February 2015, Caniford was terminated by LPL for cause stating that the broker was terminated for 1) having custody and control of client funds in a bank account in violation of firm policy; and 2) failure to provide bank records requested by the firm.

In addition, Caniford has been the subject of at least two customer complaints and four financial liens all tax related. The customer complaints against Caniford allege a number of securities law violations including that the broker made investments in products not approved by LPL, also referred to as “selling away”, and direct theft and misappropriation of funds.

Caniford entered the securities industry in 1982. From March 2004, until March 2008, Caniford was associated with M Holdings Securities, Inc. Thereafter, from March 2008, until his termination in March 2015, Caniford was associated with LPL.

JHS Capital Advisors Broker Mark Weindling Barred Over Forging Signatures in Deceased Customer’s Account

June 19, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Mark Weindling (Weindling) concerning allegations that Weindling failed to respond to the regulator’s requests to provide information and documents concerning the an investigation into claims that Weindling effected transactions within the account of a deceased customer.

Weindling entered the securities industry in 1982. From October 2007 until April 2012, Weindling was associated with Paulson Investment Company, Inc. Thereafter, in April 2012, Weindling became registered with JHS Capital Advisors, LLC (JHS). On May 16, 2014, JHS filed a Form U5 that terminated Weindling’s registration with JHS.

On the form, JHS reported that Weindling effected transactions within the account of a deceased customer and that he was aware of journal requests containing the forged signature of the deceased customer. Thereafter, FINRA sought to investigate JHS’s statements by sending Weindling requests for information. On January 27, 2015, FINRA sent a letter to Weindling’s counsel requesting that Weindling provide documents and information. Despite, multiple requests for information, Weindling acknowledged receipt of FINRA’s requests but confirmed that he did not intend to provide the requested documents and information.

LPL Financial Fined $11.7 Million Over Securities Practices

June 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) entered into an agreement whereby the regulatory fined LPL Financial LLC (LPL) and fined it $10 million for broad supervisory failures in a number of key areas, including the sales of non-traditional exchange-traded funds (Non-Traditional ETFs), certain variable annuity contracts, non-traded real estate investment trusts (Non-Traded REITs) and other complex products, as well as its failure to monitor and report trades and deliver to customers more than 14 million trade confirmations. As part of the fine FINRA ordered LPL to pay approximately $1.7 million in restitution to customers who purchased non-traditional ETFs.

In a press release Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, stated that “LPL’s supervisory breakdowns resulted from a sustained failure to devote sufficient resources to compliance programs integral to numerous aspects of its business. With today’s action, FINRA reaffirms that there is little room in the industry for lax supervision and that it will not hesitate to order firms to review and correct substandard supervisory systems and controls, and pay restitution to affected customers.”

This action is only one of many regulatory actions that our firm has tracked concerning LPL and its brokers including the following:

Regulators File Complaints Against Christopher Veale Concerning His Securities Practices

June 8, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Christopher Veale (Veale) has been the subject of at least 12 customer complaints, six judgment and lien of over $1,000,000 and five separate regulatory actions, two investigations by state regulators and one criminal matter involving a felony over the course of his career. Customers have filed complaints against Veale alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, breach of fiduciary duty, misrepresentations and false statements, churning, and fraud, among other claims. Many of the claims involve recommendations in penny stocks and other speculative securities.

An examination of Veale’s employment history reveals that Veale moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Veale’s 18 year career he has worked at 18 different firms.

Since 2008 Veale has been registered with Maximum Financial Investment Group, Franklin Christopher Investment Bankers, Inc., Brookville Capital Partners, Blackwall Capital Markets, Inc., Meyers Associates, L.P., John Thomas Financial, and Legend Securities, Inc., until February 2015.

OneAmerica Securities Sanctioned By FINRA Over Failure to Supervise

May 26, 2015 | by Staff Attorney

As we previously reported, The Financial Industry Regulatory Authority (FINRA) sanctioned and barred financial advisor Matthew Davis (Davis) concerning allegations of misconduct in several customer accounts. Davis was associated with Beneficial Investment Services, Inc. from November 2008, through April 2010. Thereafter, Davis was associated with OneAmerica Securities, Inc. (OneAmerica) from April 2010, through July 2013. The allegations of misconduct included claims of conversion, misrepresentation of customer holdings and account value, forgery, discretionary unauthorized trading, attempts to settle a customer complaint without the firm’s knowledge, and unsuitable investment recommendations.

In a new regulatory action, FINRA alleged that OneAmerica failed to supervise Davis and ignored numerous red flags of misconduct concerning his activities. For instance, FINRA alleged that two customers opened a OneAmerica account with Davis identifying the husband as a 65 years-old and earning between $50,001-75,000 per year. His wife was a “Homemaker” and the couple’s stated Net Worth, excluding their residence, was “$250,001-500,000″ and they had only two years of investment experience limited to stocks, bonds, and mutual funds.

Only three weeks later the couple signed an Option Agreement and were approved to trade options. FINRA found that Davis rapidly traded the options account executing 55 options transactions in May 2012; 52 options transactions in June 2012; and 53 options transactions in July 2012. This activity, according to FINRA, caused a rapid loss of account equity. FINRA found that there were multiple red flags that should have alerted the OneAmerica’s compliance department that Davis’ recommendations were unsuitable. For example, FINRA found that the couple’s account agreement reported minimal investing experience but their options agreement identified purported options (and commodities) trading experience. Also the couple’s new account agreement reported their Investment Objective as Long Term Growth but whereas their options agreement stated their objectives included speculation and hedging. Finally, FINRA alleged that the couple’s new account agreement reported their net worth was $250,000-500,000, whereas the options agreement stated their Net Worth was $640,000.

H. Beck, LaSalle, and J.P. Turner Sanctioned for Inadequate Supervision of Consolidated Reports

May 12, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned three firms, H. Beck, Inc. (H. Beck), LaSalle St. Securities, LLC (LaSalle), and J.P. Turner & Company, LLC (JP Turner) – with fines of $425,000, $175,000 and $100,000, respectively concerning inadequate supervision of consolidated reports provided to customers.

As a background, a consolidated report is a single document that combines information regarding a customer’s financial holdings. Consolidated reports are used to supplement, but do not replace, official account statements disseminated by brokerage firms and market makers. FINRA released a regulatory notice reminding firms that consolidated reports must be clear, accurate and not misleading. Because these reports are not official reports FINRA is concerned that if consolidated report making is not rigorously supervised there is the potential for communications to be inaccurate, confusing, or misleading to customers. Consolidated reports can also be used for fraudulent or unethical purposes.

In the agency’s findings, FINRA determined that numerous registered representatives of the three firms prepared and disseminated consolidated reports to customers either without adequate review or any prior review by a principal. In particular, H. Beck and J.P. Turner did not have any written procedures specifically addressing the use and supervision of consolidated reports. In addition, while LaSalle had written procedures related to consolidated reports, it failed to enforce the procedures.

National Securities Broker Vito Balsamo Under FINRA Investigation Over V.W. Industries Sales

May 6, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has filed a complaint against broker Vito Balsamo (Balsamo) concerning allegations that Balsamo engaged in private securities transactions – also known as “selling away” – in ownership interests in a limited liability company called V.W. Industries, LLC (VWI) without first receiving written approval from his member firm. FINRA also alleged that Balsamo failed to provide testimony requested by FINRA staff.

According to the BrokerCheck records kept by FINRA Balsamo has been the subject of at least 4 customer complaints, 2 criminal matters, one regulatory action, and one judgment and lien over the course of his career. Customers have filed complaints against Balsamo alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, breach of fiduciary duty, misrepresentations and false statements, and churning, among other claims. The claims involve different investment recommendations including claims involving equity securities among other speculative securities.

Balsamo entered the securities industry in 1991. From 1999 until May 2008, Balsamo was associated with Joseph Stevens & Company, Inc. Thereafter, from April 2008, until February 2012, Balsamo was associated with National Securities Corporation (National Securities).

Paul Godlewski Formerly of Allstate Financial Barred Over Outside Business Activities Investigation

May 5, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Paul Godlewski (Godlewski) concerning allegations Godlewski refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities. Such activities may, under certain circumstances also involve investment transactions referred to as “selling away” in the industry. According to FINRA BrokerCheck records Godlewski has disclosed outside business activities include Preferred Systems, Inc., PA Tags & Notary, and certain rental property real estate interests. It is unclear whether FINRA’s investigation concerns these particular outside business activities.

Godlewski entered the securities industry in 2004, when he became associated with Allstate Financial Services, LLC (Allstate). Godlewski held a Series 6 license which is for an Investment Company and Variable Contracts Products Representative. On January 12, 2015, Allstate filed a termination notice (known as a Form U5) with FINRA disclosing that Godlewski was discharged from the firm.

According to FINRA, in March 2015, the agency began investigating whether Godlewski had engaged in outside business activities and failure to follow Allstate’s procedures concerning televised public appearances. As part of its investigation, on March 12, 2015, FINRA sent a request to Godlewski for certain documents and information. According to FINRA, Godlewski stated on a call with FINRA staff on March 16, 2015, that he will not cooperate with the investigation. Consequently, Godlewski was barred by FINRA.

Ameriprise Broker Scott N. Smith Sanctioned Over Falsification of Firm Records

April 2, 2015 | by Staff Attorney

Please note: This article does NOT relate to Scott D. Smith – a current Ameriprise Advisor.

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Scott Smith (Smith) concerning allegations that between October 2009 and January 2013, Smith mismarked as unsolicited order tickets for thousands of trades that were actually solicited by the broker. By doing so, FINRA found that Smith caused Ameriprise Financial Services, Inc.’s (Ameriprise) books and records to be inaccurate.

Smith entered the securities industry in 1982. Since 2005, Smith has be associated with Ameriprise until his registration was terminated in February 2013. FINRA alleged that from October 2009 through January 2013, Smith executed 8,169 trades. According to FINRA, Smith marked the order tickets for 6,207 of those trades, or 76%, as being unsolicited. An unsolicited trade means that the broker did not make a recommendation to the client to purchase the particular security. By marking a trade as unsolicited, the broker typically is claiming that the investment opportunity was not brought to the client’s attention by the broker and instead the client instructed the broker to execute the trade on his or her behalf.