Securities Attorney

JP Turner Sanctioned Again By Financial Regulator

June 27, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker-dealer J.P. Turner & Company, L.L.C. (JP Turner) concerning allegations JP Turner failed to establish and enforce reasonable supervisory procedures to monitor the outside brokerage accounts of its registered representatives. In addition, FINRA alleged that JP Turner failed to establish an escrow account on one contingency offering and broke the escrow without raising the required minimum in bona fide investments.

This isn’t the first time that FINRA has come down on JP Turner’s practices and that our firm has written about the conduct of JP Turner brokers. Those articles can be accessed here (JP Turner Sanctioned By FINRA Over Non-Traditional ETF Sales and Mutual Fund Switches), here (JP Turner Supervisor Sanctioned Over Failure to Supervise Mutual Fund Switches), and here (SEC Finds that Former JP Turner Broker Ralph Calabro Churned A Client’s Account).

JP Turner has been FINRA firm since 1997. JP Turner engages in a wide range of securities transactions including the sale of municipal and corporate debt securities, equities, mutual funds, options, oil and gas interests, private placements, variable annuities, and other direct participation programs. JP Turner employs approximately 422 financial advisors and operates out of 185 branch offices with principal offices in Atlanta, Georgia.

Brokerage Firms Profit Off of 401(k) Rollovers at Investors’ Expense

June 23, 2014 | by Staff Attorney

A recent article by Bloomberg highlighted a disturbing trend whereby brokers of independent brokerage firms have been able to make substantial profits while providing allegedly unsuitable investment advice and potentially tanking the retirement savings of potentially hundreds and maybe thousands of blue collar workers. These brokerage firms have been able to tap into large corporations with thousands of employees with 401(k) plans and convince them to rollover their accounts to their firm into IRAs. Once there, the brokers recommend unsuitable investments in an already tax-deffered account such as municipal bond funds and variable annuities. Some of the investments are extremely speculative and carry huge commissions and fees. In the end the brokers make hundreds of thousands in commissions while the investor is left with a depleted retirement account.

How the practice works is that brokers form connections with large employers in order to pitch their investment services to employees. Because the employer allows the broker to use their offices and facilities to pitch their investment services, employees often mistakenly believe that the company endorses or has otherwise evaluated the broker. In fact, these companies often have little to no relationship with the broker or a defined screening process.

According to Bloomberg, employees shifted $321 billion from 401(k)-style plans to individual retirement accounts in 2012. As a result, IRAs account assets are up to $6.5 trillion, more than the $5.9 trillion contained in 401(k)-style accounts. However, the shifts have been used by some Wall Street firms to profit at their client’s expense. IRAs often charge higher fees than 401(k) plans which provides brokers an incentive to promote rollovers.

Broker Robert Acri Barred Over Failure to Respond to FINRA Investigation

May 30, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Robert Acri (Acri) concerning allegations that in December 2013, and January 2014, Acri failed to fully respond to a Rule 8210 request for documents and information concerning Acri’s sale of alternative investments and promissory notes.

Acri first entered the securities industry in 1988. From December 2007 through April 2009, Acri was associated with Chicago Investment Group, LLC. After that, he was representative with Spyglass Securities, LLC from June 2010 through June 2011. Acri was last associated with World Equity Group, Inc. from June 25, 2012 through June 6, 2013. World Equity Group terminated Acri by a Form U5 filed on June 10, 2013.

According to Acri’s BrokerCheck Acri listed his outside business activities as being involved in The Synergy Fund, Synergy Private Capital Fund, Kam Private Fund all of which is listed as investment related. In addition, the disclosures state that Acri is the president of IRCA Coporation.

Mislead into Investing in Tenants-in-Common (TIC) Property?

May 22, 2014 | by Staff Attorney

The sales of Tenants-in-Common (TIC) interests grew significantly during the early 2000s from approximately $150 million in 2001 to approximately $2 billion by 2004. The Financial Industry Regulatory Authority (FINRA) has noted that TICs are illiquid investments for which no secondary market exists and that subsequent sales of the property may occur at a discount to the value of the real property interest. FINRA has also warned that the risk that the fces and expenses charged by the TIC sponsor can outweigh the potential tax benefits associated with a Section 1031 Exchange. FINRA also instructed members that they have an obligation to comply with all applicable conduct rules when selling TICs by ensuring that promotional materials used are fair, accurate, and balanced.

According to FINRA former brokerage firm CapWest Securities, Inc., (CapWest) violated industry content standards in communications with the public. FINRA found that the communications: (1) were not fair and balanced and failed to provide a sound basis for evaluating TIC investments being promoted; (2) used exaggerated and or misleading statements; (3) used prohibited statements by projecting the results of the products being promoted; and (4) used customer testimonials without proper disclosures. FINRA also found that CapWest violated supervisory standards by failing to implement effective supervisory procedures. FINRA found that all of these violations and conduct were inconsistent with just and equitable principles of trade.

FINRA’s investigation involved CapWest’s promotion and sales of Section 1031 Exchanges and TIC investments that started being sold in the early 2000s. CapWest made public communications to promote tax-deferred exchanges of real property under Section 1031 of the Internal Revenue Code (IRC) as well as TIC investments. The IRC permits an investor to defer paying capital gains tax on the sale of real estate held for use for investment by exchanging the investment for “like-kind” property of equal or greater value.

The Risks of Investing In Variable Annuities

May 5, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has barred broker Mark R. Talley (Talley) formerly of Fifth Third Securities, Inc. concerning allegations of misrepresenting the properties of a variable annuity product to a customer. Our firm has received complaints concerning variable annuities from a number of clients complaining that their broker failed to explain the risks of these complex products.

A variable annuity is an investment and insurance product with significant risks and features the investor should be aware of before investing. Recently the Securities and Exchange Commission (SEC) released a publication entitled: Variable Annuities: What You Should Know. The SEC encouraged investors considering a purchase of a variable annuity to “ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you.”

A variable annuity is a contract with an insurance company where the insurer agrees to make periodic payments to you. The investor chooses investments to be made in the annuity and the value of the variable annuity will vary depending on the performance of the investment options chosen. The investment options for a variable annuity are usually mutual funds.

New York State Fines AXA Equitable $20 Million Over Variable Annuity Products

April 23, 2014 | by Staff Attorney

Governor Andrew M. Cuomo announced on March 17, 2014, that AXA Equitable (AXA) agreed to a consent order to pay a $20 million fine to the New York Department of Financial Services (DFS) for violations relating to certain variable annuity products. The DFS investigation uncovered that AXA made changes to certain variable annuity products that limited potential returns for existing customers without providing adequate notice to New York. New York stated that AXA’s omissions limited the DFS’ ability to protect consumer by requiring existing customers to affirmatively “opt in” to the altered product rather than remaining in that investment by default. According to New York, AXA’s actions affected tens of thousands of New Yorkers with variable annuity products at AXA.

A variable annuity is complex bundled financial and insurance product. A variable annuity is a contract with an insurance company where the insurer agrees to make periodic payments to you and the investor chooses the investments made in the annuity. The value of your variable annuity will vary depending on the performance of the investment options chosen. The investment options for a variable annuity are usually mutual funds.

The Securities and Exchange Commission (SEC) released a publication entitled: Variable Annuities: What You Should Know. In the publication, the SEC encouraged investors considering a purchase of a variable annuity to “ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you.” Often times the benefits of variable annuities are outweighed by the other provisions including surrender charges, mortality and expense charges, management fees, and rider costs. Variable annuities are also high sales commission products for financial advisors and sometimes advisors push these products on persons who do not need them or cannot benefit from them. For example, since an IRA account is already tax deferred it makes little sense to use an IRA account to hold a variable annuity investment.

Bill Tatro and Mary Helen Caprice Mallett Accused of Selling Unsuitable Private Placements Securities Part II

April 1, 2014 | by Staff Attorney

This post continues our investigation into the recent bar of broker William (Bill) Tatro by the Financial Industry Regulatory Authority (FINRA) and his relationship with Mary Helen Caprice Mallett (Mallett), Tatro’s wife, colleague, and business partner.

Mallett has also had a large number of customer complaints initiated against her. Mallett’s BrokerCheck reveals that she was associated with First Allied at roughly the same time as Tatro. Thereafter, from September 2010 until May 2011, Mallett was associated with Morgan Stanley Smith Barney (Morgan Stanley). From 2011 until June 2013, Mallett was associated with Independent Financial Group, LLC. Mallett is also associated or is involved in Biltmore Wealth Advisors, LLC, Capital Financial Management, Ltd, South Race Street, LLC, Red Rock, LLC, Mango Lizard LLC, and EZ Plan LLC.

In April 2011, Morgan Stanley filed a Form U5 taking the position that Mallett “engaged in outside business activities without prior written approval of [Morgan Stanley] and facilitated clients’ relationships with an outside investment manager”, believed to be Tatro, “who was not approved by or affiliated with [Morgan Stanley].” According to a lawsuit Morgan Stanley filed against Mallett she told Morgan Stanley that she and Tatro had used the same investment strategy over the previous nine years, presumably while associated with First Allied, and that she had bought Tatro’s book of business. However, Morgan Stanley charged that Mallett had falsely told them Tatro was no longer servicing his former clients.

Allen Olander of Centaurus Financial Sanctioned Over Variable Annuity Sales

March 31, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Allen B. Olander (Olander) of Centaurus Financial, Inc. (Centaurus) concerning allegations that Olander failed to disclose an IRS lien on his Form U4, borrowed money from a customer, and made unsuitable recommendations in the sale and exchange of variable annuities. This is the second Centaurus broker that we have recently reported has been sanctioned.

Olander first became registered as an registered broker in 1993. Olander holds a Series 6 license that allows him to sell only open end mutual funds and variable annuities. From October 2007, to July 2011, Olander was associated with Centaurus. Olander’s BrokerCheck discloses that customers have filed at least 12 complaints against Olander concerning his conduct in handling their accounts. Many of the complaints involve the suitability or failure to disclose certain risks and features of variable annuities.

FINRA found that in May 2011, Olander received a lien by the Internal Revenue Service (IRS) in the amount of $42,465. According to FINRA, Olander failed to amend his Form U4 to disclose the lien. Disclosure of tax liens is important for investors because it lets the public know that the broker has had financial difficulties managing their own affairs and may be tempted to recommend products and services that are overly expensive in order to satisfy debts.

JP Turner Sanctioned By FINRA Over Non-Traditional ETF Sales and Mutual Fund Switches

March 20, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) ordered J.P. Turner & Company, L.L.C. (JP Turner) to pay $707,559 in restitution to 84 customers for sales of unsuitable leveraged and inverse exchange-traded funds (Non-Traditional ETFs) and for excessive mutual fund switches. The current fine and is just one of several sanctions that regulators have brought against JP Turner brokers concerning the firms sales and supervisory practices.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, was quoted in the settlement stating that “Securities firms and their registered reps must understand the complex products they are selling and the risks inherent to the products, and be able to determine if they are suitable for investors before recommending them to retail customers.”

As a background, Non-Traditional ETFs are novel products that have grown significantly in popularity since 2006. By 2009, over 100 Non-Traditional ETFs existed in the market place with total assets of approximately $22 billion. A leveraged ETF seeks to deliver two or three times an index or benchmark return the ETF tracks. Non-Traditional ETFs can also be “inverse” or “short” meaning that the investment returns the opposite of the performance the index or benchmark. While both ETFs and Non-Traditional ETFs track indexes, Non-Traditional ETFs contain significant risks that are not associated with traditional ETFs. Non-Traditional ETFs have additional risks of daily reset, use of leverage, and compounding.

Silver Oak Securities Fined Over Non-Traditional ETF Sales

March 12, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Silver Oak Securities, Inc. (Silver Oak) concerning allegations from January 2009, to December 2010, Silver Oak failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws regarding the sale of leveraged and inverse Exchange-Traded Funds (Non-Traditional ETFs). Silver Oak has been a FINRA member since 2007 and is in Jackson, Tennessee, and employs 122 registered individuals at 28 branch offices.

Non-Traditional ETFs have grown significantly in popularity since 2006. By 2009, over 100 Non-Traditional ETFs had been issued with total assets under management of approximately $22 billion. A leveraged ETF seeks to deliver two or three times an index or benchmark return the ETF tracks. Non-Traditional ETFs can also be “inverse” or “short” returning the opposite of the performance the index or benchmark. Non-Traditional ETFs contain significant risks that are not found in traditional ETFs. Non-Traditional ETFs have risks associated with a daily reset, use of leverage, and compounding.

In addition, the performance of Non-Traditional ETFs over long periods of time tend to differ significantly from the performance of the underlying index or benchmark the fund tracks. For example, between December 2008, and April 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while a leveraged ETF that tracked the index’s daily return fell six percent. Another related leveraged ETF seeking to deliver twice the inverse of the index’s daily return fell by 26 percent. These risks, among others, prompted FINRA to issue a Notice to Members clarifying brokerage firm obligations when selling Non-Traditional ETFs to customers.