Fiduciary Duties

Securities Arbitration – The Basics: What you need to know.

February 23, 2023 | by Staff Attorney

Securities arbitration is a method of resolving disputes between investors and their brokers or brokerage firms, which is governed by the Financial Industry Regulatory Authority (FINRA). FINRA is a self-regulatory organization that oversees the securities industry and provides a forum for resolving disputes between investors and their brokers or brokerage firms.

Securities arbitration through FINRA is a legal process that allows investors to seek redress for claims arising out of their investment accounts, such as fraud, breach of fiduciary duty, unsuitable investment recommendations, selling away or other misconduct. Securities arbitration is generally faster and less expensive than going to court, and the decision of the arbitrator is final and binding on both parties. It is important for investors to understand their rights and legal options if they believe they have been the victim of misconduct by their broker or brokerage firm.

To initiate a securities arbitration through FINRA, an investor must file a Statement of Claim with FINRA, which sets forth the facts and legal basis for the claim. The Statement of Claim must be filed within six years from the occurrence or event giving rise to the claim. However, the occurrence or event that gives rise to a claim is usually considered the date of damages, or the date a reasonable investor knew or should have known about the claim. While brokerage firms usually argue it is the date of purchase, most arbitration panels disagree with that analysis.

Broker Douglas Schmitz Has Customer Complaints

September 25, 2022 | by Staff Attorney

The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that broker Douglas Gene Schmitz (Schmitz), currently employed by Classic, LLC (Classic) has been subject to at least three customer complaints during the course of his career. According to records kept by The Financial Industry Regulatory Authority (FINRA), Schmitz’s customer complaints alleges that Schmitz engaged in misconduct relating to the handling of their accounts, including lack of fiduciary responsibility.

In August 2020, a customer complained that Schmitz violated the securities laws by alleging that Schmitz engaged in lack of fiduciary responsibility. The claim alleges $40,000 in damages and is currently pending.

In July 2020, a customer complained that Schmitz violated the securities laws by alleging that Schmitz did not follow direction to liquidate the customer’s account. The damage amount requested was $5,200. The claim was closed-no action.

In April 2020, a customer complained that Schmitz violated the securities laws by alleging that Schmitz engaged in a trade execution failure. The damage amount requested was $750,000. The claim settled in the amount of $275,000.

Tony Barouti Sold GWG Bonds and Has Over $5 Million In Investor Complaints

September 17, 2022 | by Staff Attorney

Advisor Tony Barouti (Barouti), currently employed by brokerage firm Emerson Equity LLC (Emerson Equity) has been subject to at least 15 disclosures and customer complaints. According to a BrokerCheck report the customer complaints concern alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements. In Barouti’s case many of the complaints totaling over $5 million in claimed damages have occurred from the sale of GWG Holdings L-Bonds. GWG went into bankruptcy. The attorneys at Gana Weinstein LLP represented nearly 100 investors who suffered losses in GWG.

GWG’s business focused on the acquisition of life insurance policies in the secondary market. GWG was offered to investors even though the company had no significant operating history and no profits. Until 2018, GWG’s sole business was to borrow money to buy life insurance policies in the secondary market at prices that are less than the face value of the insurance benefits payable upon the death of the insureds. GWG would then hold the policies until maturity and collect the face value upon the insured’s death.

The contours of the GWG bonds are as follows:

Brokers Earned up to 8% commissions.
GWG bonds are inadequately secured. While GWG claims that the L Bonds are secured by insurance portfolio, in the prospectus, the life insurance policies held by DLP IV and Life Trust “do not serve as direct collateral for the L Bonds” and have been “pledged as direct collateral securing” other debt obligations senior to L Bond investors.
GWG bonds are “auto-renewable.” Like a magazine subscription, unless an L bond investor gives notice ahead of the maturity date that they wish to redeem their investment, the bond is renewed automatically and replaced with a new one with the same terms and interest rate then being offered by GWG. This feature forces investors to be vigilant as expiration approaches.
GWG bonds are unlisted. This means the bonds are not tradable on any stock exchange. Because there is no market for the L Bonds there is no way for an investor to regularly gauge the value of an L Bonds or the credit worthiness of GWG based on market sentiment.
GWG bonds are not rated. L Bonds were not credit rated by any credit rating agency nor were they insured.

National Securities Advisor Kevin Dziubela Has Suitability Customer Complaints

March 6, 2021 | by Staff Attorney

According to records kept by The Financial Industry Regulatory Authority (FINRA) financial advisor Kevin Dziubela (Dziubela), currently employed by National Securities Corporation (National Securities) has been subject to at least three customer complaints during the course of his career. Dziubela’s customer complaints alleges that Dziubela recommended unsuitable investments in various equity based investments and makes allegations including breach of fiduciary duty, misrepresentation and omissions, and negligence among other allegations of misconduct relating to the handling of their accounts.

In August 2019 a customer complained that Dziubela violated the securities laws by alleging that Dziubela made investments recommendations that the client alleges involved breach of fiduciary duty, misrepresentation and omissions, and negligence. The claim alleges $200,000 in damages and settled for $60,000.

In April 2019 a customer complained that Dziubela violated the securities laws by alleging that Dziubela made investments recommendations that the client alleges involved breach of fiduciary duty, misrepresentation and omissions, and negligence. The claim alleges $48,231 in damages and is currently pending.

In February 2015 a customer complained that Dziubela violated the securities laws by alleging that Dziubela made investments recommendations that the client alleges involved breach of fiduciary duty and negligence. The claim alleges $900,000 in damages and settled for $45,000.

Gana Weinstein LLP Files Complaint On Behalf of Clients Alleging William Fox Sold Unsuitable Alternative Investments

April 13, 2020 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP recently filed a complaint on behalf of a client alleging that William Fox (Fox) and The Fox Alliance, registered with New England Securities (now MML Investors Services LLC) and First Allied Securities, Inc., (First Allied) and the firms failed to supervise Fox’s recommendations and investment activity in alternative investments. The complaint alleges that Fox constructed an investment plan for the Claimants that violated multiple securities laws.

Claimants trusted their investment advisor to prudently invest their income savings that was to be used for their retirement. Fox’s website boasts that the firm’s definition means “a collaboration designed with the intent of leveraging expertise, increasing returns and/or appropriately reducing risk for the parties involved.” Further, Fox claims to provide investors with “institutional caliber investments.”

However, the Claimants alleged that in fact Fox did the exact opposite of what he claims and abused Claimants’ trust by recommending an investment strategy consisting of large concentrations in illiquid, low-quality, speculative, high commission alternative investments that no institution would ever touch. For more than a decade the claim stated that Fox recommended that Claimants invest over $2 million in illiquid securities such as non-traded real estate investment trusts (Non-Traded REITs), private placements, equipment leasing programs, oil and gas programs, and annuities. Of the nearly $3 million Claimants gave Fox to invest the vast majority ended up in these types of programs.

Gana Weinstein Represents Clients With Losses Due To Structured Note Products

October 21, 2019 | by Staff Attorney

The law offices of Gana Weinstein LLP are currently representing investors who were surprised to find out that the “bonds” that were recommended by their advisors have almost completely stopped paying interest while plummeting in value. What many investors in this situation did not realize was that they were not sold bonds at all but instead complex structured products that go by a variety of names including steepener notes, adjustable rate market notes, spread linked notes, or structured notes. Regulators have already stated that it is improper to sell these investments as a fixed income substitute or to compare them to bonds in terms of producing a revenue stream. However, in our firm’s experience it appears that many brokers have been selling structured products as bond alternatives.

Structured products range in risk from benign to extreme. However, most structured products produce inferior risk/return profiles than ordinary debt or equity instruments because the brokerage firms that issue these products seek to profit from the spread between the payment to investors and the amount of money the brokerage firm can make from the issuance. When dealing with complex structured products most investors will lack the ability to understand the merits of investments nor are they appropriate for investors seeking a fixed or reliable income and have a desire for preservation of capital.

Some of the more complex structured products that our firm is seeing reference two different bond yield curves and sometimes one stock market index in order to compute if interest will be paid and how much. A math degree is needed to even begin to comprehend the probabilities of payment on these kinds of instruments. The biggest driving factor on payment – assuming the S&P 500 Index performs well – is the spread between interest rates on various treasuries. The structured products often reference the spread between either the 2 year and the 5, 10, and 30 year treasury bonds for the most part. The wider the spread the greater the profit and payment from the structured product.

Advisor John Holland Subject to Customer Complaints and Employment Terminations

October 17, 2019 | by Staff Attorney

The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that financial advisor John Holland (Holland), currently employed by Cetera Advisor Networks LLC (Cetera Advisor) has been subject to at least three customer complaints and two employment termination for cause during the course of his career. According to records kept by The Financial Industry Regulatory Authority (FINRA), Holland’s customer complaints alleges that Holland recommended unsuitable investments, negligence, and breach of fiduciary duty among other allegations of misconduct relating to the handling of their accounts.

In May 2019 a customer complained that Holland violated the securities laws by alleging breach of fiduciary duty and negligence. The claim alleges $1,000,000 in damages and is currently pending.

In August 2014 Securities Management & Research, Inc. (Securities Management) and BFC Planning Inc. (BFC Planning) discharged Holland alleging that he altered client documents.

SEC Brings Action Against Christopher McClure Over Undisclosed Fees

June 7, 2019 | by Staff Attorney

According to BrokerCheck records financial advisor Christopher McClure (McClure), currently employed by Westport Capital Markets, LLC (Westport Capital) has been subject to at least two customer complaints and a regulatory action brought by the SEC during the course of his career. According to records kept by The Financial Industry Regulatory Authority (FINRA), McClure’s customer complaints allege that McClure breached his fiduciary duty among other allegations.

In December 2017 The Securities and Exchange Commission (SEC) Connecticut-based investment advisory firm and its principal, McClure, with breaching their fiduciary duties and defrauding advisory clients by repeatedly purchasing securities that generated significant amounts of undisclosed compensation.

The SEC’s complaint filed in the U.S. District Court for the District of Connecticut alleged that Westport Capital and McClure invested advisory clients’ funds in risky securities that generated hundreds of thousands of dollars in undisclosed mark-ups for Westport and resulted in more than $1 million in losses for clients. The SEC found that Westport purchased securities from underwriters at a discount to the public offering price and then, acting as a principal for its own account, re-sold those same securities to its advisory clients at higher prices without disclosing the mark-up. The SEC further alleged that Westport and McClure defrauded a client by acting contrary to the client’s express objectives and instead repeatedly investing the client in risky offerings that generated hidden mark-ups. Moreover, the SEC also found that Westport and McClure made false and misleading representations to clients regarding the compensation that Westport would receive from their accounts.

Advisor Gary Meier Sanctioned by Washington State Over Penny Stock Trading

May 1, 2019 | by Staff Attorney

According to BrokerCheck records financial advisor Gary Meier (Meier), formerly employed by Boz & Company LLC (Boz) and Cambridge Investment Research, Inc. (Cambridge Investment) has been subject to at least eight customer complaints and two regulatory actions. According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Meier’s customer complaints allege that Meier made was negligent, breached his fiduciary duty, and made unsuitable investments in penny stocks and low priced securities.

In February 2017 the State of Washington Securities Division found that from approximately 2008 to 2017 Meier made unsuitable investment recommendations to his client and engaged in other unethical business practices. The state found that Meier executed transactions in client accounts without obtaining prior client authority to do so and purchased speculative penny stocks for client accounts. It was found that Meier purchased the same three penny stocks for nearly all of his clients – Rentech, Cytodyn, or Provectus Biopharmaceutical stock – regardless of their investment profile. It was found that Meier added to client holdings of these three penny stocks and most of his client accounts were heavily concentrated in these three penny stocks. These purchases resulted in large losses in client accounts.

Washington State also alleged that Meier mislead clients in order to assuage investor concerns about the penny stocks. Meier purportedly provided clients with grossly exaggerated future values of the three stocks indicating that large returns in the near future would occur. Further, it was found that Meier was forced to resign from Cambridge Investment when the firm objected to Meier’s investment practices. Thereafter, it was found that Meier did not register with another firm until July 14, 2015, with Boz, an investment adviser owned by his son.

Broker Jesse Krapf Has A Customer Complaint

May 1, 2019 | by Staff Attorney

According to BrokerCheck records financial advisor Jesse Krapf (Krapf), currently employed by Benchmark Investments, Inc. (Benchmark Investments) has been subject to at least one customer complaint and two debt related judgements or tax liens. According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Krapf’s customer complaints allege that Krapf made was negligent and breached his fiduciary duty to the customer.

In October 2018 a customer filed a complaint alleging that Krapf violated the securities laws including negligence and breach of fiduciary duty causing $500,000 in damages. The claim is currently pending.

Krapf also has two unsatisfied debts including a $3,247 tax lien from May 2015. The fact that a broker cannot manage his own personal finances is material information for a client to consider. In addition, the types of products clients have alleged were unsuitable are high commission products that may be recommended to generate high profits for the advisor at the expense of the client.