Securities Attorney

Senator Warren proposes 21st Century Glass-Steagall Act

November 27, 2013 | by Staff Attorney

On November 12, 2013, Senator Elizabeth Warren warned that the “too big to fail” problem has only worsened since the 2008 financial crisis. JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc., and Well Fargo & Co. each hold more than half of the total banking assets in the country. As large concentrations of wealth reside with a small number of banks, the possibility of another financial crisis looms unless certain reforms are implemented.

While the big banks become more concentrated and more complex, the Dodd-Frank Act’s implementation struggles. The agencies implementing the Dodd-Frank Act have missed more than 60% of the deadlines even though regulators continue to meet with various banks. Not only are regulators dragging their feet, but also the House recently passed two bills to delay provisions of the Dodd-Frank Acts. The Retail Investor Protection Act (RIPA) prevents the Department of Labor from defining circumstances under which an individual is considered a fiduciary. The Swaps Regulatory Improvement Act (SRIA) amends the swaps push-out requirement. The two bills passed by the House compound the delays of the regulatory implementation.

Although the House continues to hinder the Dodd-Frank Act, Senator Warren believes Congress needs to step in order to prevent another financial crisis. Senator Warren along with Senators John McCain, Maria Cantwell and Angus King urges the passage of the “21^st Century Glass-Steagall Act.” As Senator Warren stated, the new Glass-Steagall Act, “would reduce failures of the big banks by making banking boring, protecting deposits, and providing stability to the system even in bad times.”

SEC Order Finds That Former JP Turner Broker Jason Konner Engaged In Churning

November 22, 2013 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently found that broker Jason Konner (Konner) churned the brokerage account of James Carlson (Carlson). The SEC decision ordered Konner to: (1) cease and desist from committing fraud; (2) be barred from association with a broker, dealer, investment adviser, (3) disgorge $55,000 plus prejudgment interest, and (4) pay civil penalties of $150,000. In addition, at least three customer complaints have been initiated against Konner alleging churning, unsuitable investments, fraud, and breach of fiduciary duty.

The SEC allegations against Konner also involved several other J.P. Turner & Company, LLC (JP Turner) registered representatives including Michael Bresner (Bresner), Ralph Calabro (Calabro), and Dimitrios Koutsoubos (Koutsoubos). The SEC alleged that Calabro, Konner, and Koutsoubos between January 1, 2008, and December 31, 2009, churned the accounts of seven customers by engaging in excessive trading for their own gains in disregard of their clients’ investment objectives and risk tolerances. The SEC claimed that Calabro, Konner, and Koutsoubos generated charges totaling approximately $845,000, for their benefit while the clients suffered aggregate losses of approximately $2,700,000.

JP Turner is a registered broker-dealer headquartered in Atlanta, Georgia, with two majority owners. From 2008 to 2009, JP Turner had approximately 200 small or one-person branch offices. Konner joined JP Turner in 2006 and left in December 2011. Thereafter, Konner became employed with DPec Capital.

SEC Finds that Former JP Turner Broker Ralph Calabro Churned A Client’s Account

November 19, 2013 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently found that broker Ralph Calabro (Calabro) churned the brokerage account of Dudley Williams (Williams). The SEC decision ordered Calabro to: (1) cease and desist from committing fraud in violation of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5; (2) be barred from association with a broker, dealer, investment adviser, (3) disgorge $282,000 plus prejudgment interest, and (4) pay civil penalties of $150,000. In addition, at least six customer complaints have been initiated against Calabro alleging churning, unsuitable investments, fraud, and breach of fiduciary duty.

The SEC allegations against Calabro also involved several other J.P. Turner & Company, LLC (JP Turner) registered representatives including Michael Bresner (Bresner), Jason Konner (Konner), and Dimitrios Koutsoubos (Koutsoubos). The SEC alleged that Calabro, Konner, and Koutsoubos between January 1, 2008, and December 31, 2009, churned the accounts of seven customers by engaging in excessive trading for their own gains in disregard of their clients’ investment objectives and risk tolerances. The SEC alleged that Calabro, Konner, and Koutsoubos generated commissions, fees, and margin interest totaling approximately $845,000, while the clients suffered aggregate losses of approximately $2,700,000.

JP Turner is a registered broker-dealer headquartered in Atlanta, Georgia, with two majority owners. From 2008 to 2009, JP Turner had between 180 and 200 branch offices, most of which were small or one-person offices. There were approximately five hundred registered representatives in JP Turner’s offices in 2008 and 2009. Calabro joined JP Turner in 2004 and left in 2011. Thereafter, Calabro became associated with National Securities Corp. (National Securities) as a registered representative but not a securities principal. While at JP Turner, Calabro acted as a principal and registered representative in JP Turner’s Parlin, New Jersey office. Calabro’s customer base increased from ten in 2004 to seventy by 2010.

Broker James Tallant Suspended Over Allegations of Excessive Trading and Quantitative Unsuitable Investments

November 12, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) suspended broker James Glenn Tallant (Tallant) for three months and fined him $15,000 including the disgorgement of $8,560.44 in commissions. FINRA alleged that Tallant exercised discretionary trading authority without written authorization in four securities accounts in violation of NASD Conduct Rule 2510(b) and FINRA Rule 2010. In addition, FINRA found that Tallant engaged in excessive trading and quantitatively unsuitable in violation of NASD Conduct Rule 2310 and IM-2310-2.

Tallant has been a registered representative with Morgan Stanley from 2005 through July 2013. FINRA alleged that Tallant’s securities violations involved a 49 years old woman, divorced, and with two children. The client owned and operated a women’s boutique clothing store and had an annual income of approximately $140,000 and an estimated net worth of approximately $300,000.

The client’s IRA account investment objectives capital appreciation and aggressive income. FINRA found that between March 2009, and March 2010, Tallant executed 39 purchase and sale securities transactions in the client’s individual account amounting to $147,366.50 with gross commissions totaling $8,739.56. In the client’s three other accounts Tallant’s trading totaled between $99,000 and $261,000 over the same time period. In 2009 alone, Tallant’s total gross commissions were $200,927.

What are Leveraged or Non-Traditional ETFs?

November 6, 2013 | by Staff Attorney

A leveraged Exchange Traded Fund (non-traditional or leveraged ETFs) is a security that employs debt, or leverage, in order to amplify the returns of an underlying stock position. Leveraged ETFs are generally available for most security indexes such as the S&P 500 and Nasdaq 100. A leveraged ETF with 300% leverage will return 3% if the underlying index returns 1%. Nontraditional ETFs can also be designed to return the inverse of the benchmark.

Leveraged ETFs are generally used only for short term trading. The Securities Exchange Commission (SEC) has warned that most leveraged ETFs reset daily, meaning that they are designed to achieve their stated objectives on a daily basis. As a result, the performance of nontraditional ETFs held over the long term can differ significantly from the performance of their underlying index or benchmark during the same period. The Financial Industry Regulatory Authority (FINRA) has acknowledged that leveraged ETF carry significant risks and are inherent complexity of the products. Accordingly, FINRA advises brokers that nontraditional ETFs are typically not suitable for retail investors.

Recently, FINRA sanctioned and suspended broker Michael E. French (French) over allegations that the broker recommended unsuitable transactions in leveraged and inverse ETFs in the accounts of elderly customers. FINRA also alleged that French held the leveraged ETFs in his customers’ accounts for extended periods contrary to Wells Fargo Advisor’s (Wells Fargo) written supervisory procedures.

Managed Futures Funds Erase Investor Gains with Excessive Fees

November 5, 2013 | by Staff Attorney

From January 2003 through the end of 2012, Morgan Stanley enticed over 30,000 customers to invest $797 million collectively into a managed-futures fund called Morgan Stanley Smith Barney Spectrum Technical L.P. The prospectus for Spectrum Technical fund characterized the fund as potentially profitable “when traditional markets are experiencing losses” and recommended the fund as a way to diversify beyond traditional stocks and bonds. The prospectus boasted that over a twenty-three year period, people who invested ten percent of their assets in managed futures outperformed portfolios comprised only of stocks and bonds.

The Spectrum Technical fund earned $490.3 million in trading gains and money-market interest income from 2003 through 2012. However, investors who remained in the fund during this period did not receive any of the returns because the commissions, expenses, and fees paid to fund managers and Morgan Stanley totaled $498.7 million. Thus, Spectrum Technical investors lost $8.3 million simply because the fees charged to the fund were greater than the gains.

Morgan Stanley advertised to clients that its managed futures funds performed well when the stock market was hit hard in 2000 and late 2007 and even gained 22.5 percent after fees in 2008. The firm further stated that it only sells these funds to qualified investors, and that it clearly defines the risks and fees for customers. Although these disclosures may provide insight as to the effect of fees on investor gains, information regarding fund managers’ conflicts of interest is often buried deep in the fund’s prospectus or regulatory filings.

Do I Have a Securities or Investment Claim?

October 29, 2013 | by Staff Attorney

This is the most common question a potential client asks during an initial interview. This article is directed to those investors who are wondering if they have a claim but have not yet sought a consultation. Hopefully, this article will provide some insight into what a securities fraud attorney looks at when reviewing a potential client’s claim. However, I would stress that all evaluations are individual in nature and while this article is meant to provide generally instructive insight, only a full one-on-one consultation with an attorney can provide a full review of your claim and provide individual guidance.

In my analysis of a potential client’s securities claim I look at two primary factors: 1) the strength of the liability case; and 2) the ability to collect from the defendant. The answer to these two factors weigh heavily in moving forward with the potential client’s claim. The strength of the liability of the claim is the initial assessment of how likely a judge or arbitration panel would likely find the defendant liable for misconduct. The ability to collect factor looks at what potential defendants could be liable for the misconduct the client is alleging and the ability of those defendants to compensate the client’s losses. In many cases, the second factor will not need to be seriously investigated.

What factors influence the strength of the liability of the case? This is a hard question to answer because each case is different and liability is premised on different factors given the type of claims being made. In cases of fraud or misrepresentation the strength of the case often lies in the ability to prove the false statements made to the client. Written communications, emails, advertisements, and other documents that can be proven false or misleading tend to make stronger cases. If a securities regulator has also found the defendant’s conduct to be fraudulent or misleading or has disciplined the same or another brokerage firm for similar conduct such evidence helps to strengthen the case.

Advanced Equities and First Allied Sales of Fisker Automotive Private Placements Under Scrutiny – Part II

October 23, 2013 | by Staff Attorney

This article continues my in depth look into how unsuspecting investors are sold speculative private placements.

While investors were told that Fisker Auto’s prospects were fantastic, nothing could have been further from the truth. In February 2012, the DOE loan had been frozen after $192 million had been given to the company because it hadn’t hit certain milestones with its Karma car product. The last payment Fisker had received from the DOE was in May 2011. Yet, according to investors, Advanced Equities and First Allied continued to sell Fisker Auto shares without disclosing that the DOE was no longer backing the venture, presumptively because the auto makers chances of success had grown increasingly slim.

From December 2011 into 2012, Advanced Equities increasing began to run into fundraising problems. As Fisker Auto fell into a increasing number of technical, delivery, and political problems with its cars the car maker’s ability to attract new capital plummeted. Yet, the company still needed money. So the brokerage firms turned to threatening investors by telling them that unless they agreed to invest more money into Fisker Auto their current shares will be diluted and their preferred stock will be converted to common stock.

Gana LLP Investiga las ventas de Bonos del Fondo de Puerto Rico hechas por UBS Puerto Rico, Popular Securities, y a Santander Securities

October 22, 2013 | by Staff Attorney

La caída en los precios de los bonos de Puerto Rico ha causado pérdidas financieras sustanciales a los inversionistas en activos que les fueron vendidos como como bonos seguros y garantizados. Según el New York Times, la raíz de los problemas de Puerto rico es el hecho de que 3.7 millones de sus habitantes tienen aproximadamente $87 billones de deudas pendientes (alrededor de $23,000 de deuda por cada hombre, mujer y niño) y por el aumento en el costo de las pensiones. Puerto Rico ha experimentado una disminución en la población y una cifra alta de desempleo causando que la deuda financiera del país pase a un segundo plano y dejando a una población menor y más pobre con la carga de la deuda sobre sus hombros.

Las pérdidas de valor en los bonos de Puerto Rico han sido de tal magnitud que han quedado fuera del mercado de valores. El gobierno se ha visto en la obligación de financiar sus operaciones con créditos de banco y medidas a corto plazo que no son sostenibles. Los bonos de Puerto Rico están ampliamente mercadeados por fondos mutuos locales expedidos por algunas de las firmas de corretaje más grandes en la isla, se encuentran incluidas UBS Puerto Rico, Popular Securities, Inc., y Santander Securities, Corp. Si la situación financiera continua empeorando, se teme que Puerto Rico necesite alguna intervención federal para poder salir de su situación financiera.

La pérdida de los inversionistas atada a la liquidación de activos de los fondos de bonos se estima que ha alcanzado los cientos de millones de dólares. Sin embargo, una cifra total y exacta de los daños es imposible de determinar en estos momentos. Algunos inversionistas ya han realizado reclamaciones a sus casas de corretaje bajo el reclamo que las pérdidas que han sufrido han sido de tal magnitud que se han perdido en una gran parte o de manera completa, sus ahorros de retiro. Estos inversionistas reclaman que las casas de corretajes les vendieron fondos de bonos como unos seguros, estables, como inversiones que producirían ingresos garantizados. Sin embargos, estos fondos de bonos no solamente han sido un riesgo crediticio concentrado en los valores de Puerto Rico sino que también, en el caso de los fondos de apalancamiento (leverage funds) de UBS, utilizaron sobre un 53% en apalancamiento exacerbando así las pérdidas. A manera comparativa, en cuanto a los fondos de bonos municipales en los Estados Unidos solamente se permite utilizar alrededor de la mitad del apalancamiento utilizado por UBS.

Capstone Asset Planning Company Fined Over Misleading Church Bond Mutual Fund Disclosures

October 19, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Capstone Asset Planning Company (CAPCO) alleging that from 2010 through 2012, CAPCO distributed communications to the public concerning the Capstone Fund that failed to accurately reflect the change in the fund’s performance. In addition, FINRA alleged that the Capstone Fund’s website contained a misleading statement concerning the fund’s redemption policy and compared church bonds to corporate bonds without disclosing the material differences between them. As a result, FINRA found that CAPCO violated the content and communications standards under Rules 2210(d)(1)(A), 2210(d)(2)(B), and 2210(d)(2)(B).

CAPCO is a brokerage firm with one office in Houston, Texas, and 22 registered representatives. CAPCO is a mutual fund underwriter and is a subsidiary of Capstone Financial Services, Inc. CAPCO served as the principal underwriter and distributor of shares of the Capstone Church Capital Fund (Capstone Fund). Capstone Fund’s holdings were approximately 87% church mortgage bonds and 13% church mortgage loans. From 2009 to 2012, the net assets of the Capstone Fund declined as a result of the decrease in the fair value of the fund’s assets. The Capstone Fund stopped accepting sales on January 24, 2013.

Under NASD Rule 2210(d)(1)(A) communications must be “based on principles of fair dealing and good faith,” “fair and balanced,” and must “provide a sound basis for evaluating the facts in regard to any particular security.” Similarly, NASD Rule 2210(d)(1)(B) prohibits members from making “false, exaggerated, unwarranted or misleading statement or claim in connection with any communication.”