Securities Attorney

Gana LLP Investigates Alleged Fraudulent Activity Related to Credit Suisse’s TVIX Notes

February 21, 2014 | by Staff Attorney

Gana Weinstein LLP, a full-service nationally recognized securities litigation firm, is investigating Credit Suisse Securities (USA) LLC for underwriting and VLS Securities, LLC (VLS) for marketing the VelocityShares Daily 2x VIX Short Term Exchange Traded Notes (TVIX). According to TVIX’s offering documents and marketing materials, TVIX was linked to twice the daily performance of the S&P 500 VIX Short-Term Futures Index. The offering documents stated that TVIX was designed for investors who seek exposure to the applicable underlying index.

TVIX do not represent ownership in any basket of securities, instead TVIX acts as a debt instrument that is supposed to track an index and on which the issuer pays the note based on the terms of the offering documents. As a result, investors may receive a cash payment at maturity. TVIX began trading on November 30, 2013 at a $100 per share price. On February 21, 2012, Credit Suisse temporarily suspended the issuance of new shares of TVIX, due to internal limits reached on the size of TVIX, according to Credit Suisse.

On March 22, 2012, the TVIX shares decline in price by over 29% as rumors were circulating that Credit Suisse was considering whether to begin reissuing shares of TVIX. On March 23, 2012 after Credit Suisse announced that it would reopen issuance of TVIX, the shares dropped another 30% in value.

Will I Win My FINRA Securities Arbitration Claim?

February 19, 2014 | by Staff Attorney

One of the most common questions I receive as a FINRA securities attorney is whether or not a client is likely to prevail at a FINRA arbitration hearing. My first gut reaction, and the one I tell clients, is honestly I just don’t know. Most clients are puzzled by this answer because after handling hundreds of arbitration claims one would think I would have a better sense and certainty as to the strength of the case. However, the answer to whether the client would win at arbitration is not just a function of the strength of the case.

The better way to phrase the question is: What is the likely outcome of my securities case? That question is more readily answerable. I tell clients that it has been our experience that approximately 80% of all cases filed will be resolved through settlement or other means sometime prior to hearing. Recent data released by FINRA supports that approximately 80% of cases never make it to hearing. According to FINRA, of all arbitrations decided between 2009 and 2013 between 75% and 79% of those claims are resolved either through settlement, withdrawn, or means other than a hearing.

But what of the 20% of cases that do go to hearing? What are the chances of success at the FINRA arbitration hearing? The answer to that question is again usually unknowable at the time it’s first asked. There are so many considerations that go into determining the likelihood of success, many of which are unknown at the outset. Once of the biggest unknowns at the outset is who the arbitrators will be.

UBS Peurto Rico Bond Funds Vulnerable as S&P Downgrades Puerto Rico Debt to “Junk”

February 4, 2014 | by Staff Attorney

According to Bloomberg News Puerto Rico’s general obligation bonds were cut one step to speculative grade, otherwise known as “junk” status, by Standard & Poor’s citing reduced access to liquidity. The territory has $16.2 billion of debt as of June 30, according to the Government Development Bank for Puerto Rico. Investors nationwide are expected to be effected as about 70 percent of U.S. municipal mutual funds own Puerto Rico securities according to Morningstar Inc. However, investors in Puerto Rico bond funds that were heavily invested in Puerto Rico debt are expected to be hit the hardest.

As we previously reported, a credit rating agency downgrade followed by a default or restructuring of Puerto Rico’s debt seems inevitable. How did Puerto Rico end up here? Unfortunately, its the same familiar Wall Street drama that is now perfectly mirroring the mortgage securities crisis experienced only six years ago. Wall Street firms sell Puerto Rico bonds as safe, tax-free, high-yielding investments and politicians and policy makers take no interest in stopping the underwriting, issuance, and debt selling machine. Moreover, firms know that by packaging unloved and unwanted municipal bonds and other assets into mutual funds the firms can sell speculative assets to retirees and other investors seeking income as conservative and diversified bond funds.

Firms such UBS, sold proprietary bond funds to customer such as the Puerto Rico Fixed Income Fund and the Puerto Rico Investors Tax-Free Fund series that invested up to 140% of their assets in Puerto Rico debt through the employment of leverage. While UBS recommends that Puerto Rico residents should, in some cases, invest up to 100%+ of their assets in the Funds, UBS secretly recommends that UBS Puerto Rico, the firm’s island subsidiary, liquidate its own UBS bond fund holdings due to UBS the overconcentration risk. Thus, according to complaints filed against the firm, UBS’ recommendation to clients to invest in the funds was a conflict of interests with the firm’s own internal analysis that found the funds to be too risky.

Benjamin Cox of Red River Securities Settles Charges Over Improper Sales Of Oil and Gas Private Placements

February 3, 2014 | by Staff Attorney

Broker Benjamin Cox (Cox) has settled charges brought by the Financial Industry Regulatory Authority (FINRA) concerning improper sales of oil and gas private placement offerings sold by Red River Securities LLC (Red River). Cox accepted a one-year bar from the securities industry and a fine of $5,000.

Cox entered the securities industry in 2010 when he joined Red River. Cox was employed at Red River until termination in March 2012. According to Cox’s BrokerCheck, in March 2012, Red River filed a termination notice stating that a potential client called Red River explaining that his suitability information was not accurate and was not the information that the client had provided to Cox.

FINRA alleged that from September 2011, through March 2012, Cox cold called potential investors for oil and gas offerings offered and sold by Red River. During the calls with potential investors, Cox was responsible for documenting suitability information from the potential investors to ensure that the investments were appropriate for those investors. FINRA found that Cox was supposed to verify the potential investor’s name, address, occupation, and obtain financial and investment experience information in order to evaluate the suitability of the oil and gas private placements for the customer.

The Problem of Senior Investor Abuse – A Securities Attorney’s Perspective

January 21, 2014 | by Staff Attorney

The financial abuse of seniors continues to be a significant problem in the United States. Nearly 40 million people are age 65 and older and the number is expected to grow to 89 million by 2050. However, even though seniors comprise of a large portion of the population they make up the vast majority of clients that seek our firm’s assistance as securities attorneys.

Securities regulators have taken increased interest in recent years to stress to brokerage firms the need to implement increased supervision and devise specific policies to address issue facing senior investors. FINRA recently published its 2014 Business Conduct Priorities where the regulator stated that its examiners will continue to focus on how firms engage with senior investors with a focus on suitability determinations as well as disclosures and communications. FINRA has also stated that firms must develop policies and procedures to identify and address situations where issues of diminished capacity may be present.

In a 2010 article published by the SEC, the regulator summarized practices that financial services firms and brokers must adhere to in order to properly service the accounts of senior investors in areas including:

Maurice Chelliah of World Group Securities Barred Over Allegations of Improper Investment Recommendations

December 23, 2013 | by Staff Attorney

Maurice Joseph Chelliah (Chelliah) was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that Chelliah converted $90,000 from two World Group Securities, Inc. (WGS) clients and made unsuitable recommendations to five WGS customers. FINRA alleged that Chelliah recommended that these customers refinance their primary residences and use the proceeds to purchase securities and insurance policies that they did not need and that were beyond the customers’ ability to afford. FINRA found that as a result of Chelliah’s recommendations some of the customers lost their securities, their life insurance policies, and their residences when they were unable to keep their mortgages current.

FINRA alleged that Chelliah violated NASD Rule 2110 and FINRA Rule 2010 by converting customer funds. These rules provide that a member, “in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.” FINRA found that two of Chelliah’s customers were 80 and 75 years-old respectively and were unsophisticated investors. Chelliah recommended that the customers liquidate their mutual fund shares. Following the liquidation, $90,000 in proceeds was transferred to Chelliah’s three outside businesses. The customers had provided these funds to Chelliah in order for him to pay monthly bills and expenses on their behalf but instead Chelliah used these funds for his own personal benefit.

FINRA also alleged that Chelliah made unsuitable transactions in at least five customer accounts. NASD Rule 2310 provides that “in recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs…”

David Kauffman of First Allied Barred Over Allegations of Sale of Private Placements

December 20, 2013 | by Staff Attorney

Broker David Charles Kauffman (Kauffman) was recently barred by The Financial Industry Regulatory Authority (FINRA) over his failure to respond to FINRA’s investigation over allegations that he engaged in personal private securities transactions, used unapproved email addresses, and introduced clients to individuals associated with non-approved investment opportunities.

Kauffman began his career in the securities industry in 1993 and has been registered with 13 FINRA member firms. From March 2006 through September 2010, Kauffman was registered with FINRA as a General Securities Principal and a General Securities Representative at First Allied Securities, Inc. (First Allied). First Allied terminated Kauffman for violating firm policies pertaining to his personal private securities transactions, used unapproved email addresses, and introduced clients to individuals associated with non-approved investment opportunities. Thereafter, Kauffman was registered with MCL Financial Group, Inc. through December 2011. Kauffman’s BrokerCheck discloses that Kauffman was also employed by David Kauffman Insurance Services, One-Less Putt, MCS Golf, 928 LLC, and EDT Property Services.

In September 2010, First Allied made two filings with FINRA disclosing it had terminated Kauffman for conduct including engagement in private securities transactions in connection with several private placement offerings without providing written notice to the firm. FINRA alleged that one of the offerings Kauffman was involved in was entity named Gulf Coast Oil & Rig, LLC (Gulf Coast). Thereafter, FINRA staff sought information, documents, and testimony from Kauffman to determine, among other things, his role and compensation in connection with the private securities transactions, as well as the status of Gulf Coast’s business. Initially, Kauffman cooperated with the examination by providing some information and documents. However, FINRA alleged that Kauffman failed to respond properly to further requests.

FINRA Bars Gevorg Daldumyan of Transamerica Over Allegations Concerning Condominium Cooperative Investments

December 16, 2013 | by Staff Attorney

Gevorg Daldumyan was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that he failed to appear for testimony concerning condominium cooperative investments.

Daldumyan was registered with World Group Securities, Inc. (WGS) from 2002 through January 2012. Thereafter, Daldumyan was associated with Transamerica Financial Advisors, Inc. (Transamerica) or its predecessor. On June 19, 2012, Transamerica filed a Form U5 with FINRA stating that Daldumyan had voluntarily resigned on May 21, 2012, during an internal review by the firm arising from “information that the registered representative made investments in a condominium cooperative in Arnienia which appear not to have been disclosed to the firm.” Daldumyan is no longer associated with any FINRA member.

Due to the U5 Form filing, FINRA sent requests to Daldumyan for more information concerning the outside investments. By letter dated May 20, 2013, FlNRA staff requested that Daldumyan appear for on-the-record testimony. In response to the letter, Daldumyan stated that he would not appear for testimony at any time. Consequently, Daldumyan violated FINRA Rule 8210 by refusing to appear and provide testimony and was barred from association with any FINRA member firm.

Are You Investing in Bad Bond Funds?

December 12, 2013 | by Staff Attorney

Bad may be a little strong. There are not magic signs to determine if you have a bad bond fund. However, as Morningstar explains, there are red flags that investors can look at to determine if they are in a fund that is likely to fail. If a fund has multiple red flags, chances are it is best to leave that fund alone.

High Yield

Uncharacteristically high yields generally spells trouble for a fund. Yield is generally defined as a snapshot of how much income a fund is paying as an annual percentage of its net assets under management. Just remember there is no such thing as a perfect investment or a free lunch. There isn’t any extra source of return that does not have some corresponding risk. Sometimes that risk takes the form of credit risk, sometimes liquidity risk and sometimes it is simply risk of wild fluctuations in price. Whatever the the risk, it exists. Try not to invest in only the highest yielding funds. Try to determine how your fund of choice performed during the 2008 and 2009 market crisis and see if the amount of loss is something you can stomach in the future.

Churning Zero Coupon Bond Treasuries

December 11, 2013 | by Staff Attorney

The Securities and Exchange Commission (SEC) investigates broker-dealer’s actions, including cases of misrepresentation, market manipulation, theft of customers’ funds, illegal schemes and the sale of unregistered securities. If the broker-dealer violates a securities law, the SEC enforces administrative action and civil penalties. In other circumstances, an investor may file a complaint with Financial Industry Regulatory Authority (FINRA).

Recently, a complaint was filed against Robert O. Klein (Klein) and J.P. Morgan Securities LLC (J.P. Morgan). The client asserted the following claims, the broker-dealer and the securities firm breached their fiduciary duty, broker-dealer’s investment strategy used unauthorized margin transactions, and the broker-dealer selected investments that were unsuitable for their account. Although Klein denies any misconduct, J.P. Morgan has settled two claims against Klein. In both instances, clients alleged that the investment strategy was unsuitable and overly concentrated in a short Treasury bond positions. Klein responded to these allegations by stating that the losses were the result of a rapid deterioration in market conditions and he employed the appropriate investment strategy.

Although each investor portfolio differs, Klein appears to be facing allegations of employing unsuitable investment strategies in four other cases pending before FINRA. The claimants allege that Klein misrepresented the level of risk and used margins to leverage managed accounts. Past allegations faced by Klein have dealt with Zero Coupon Treasury bond (Zero Coupon Treasuries).