Securities Lawyers Blog
The attorneys at Gana Weinstein LLP have been following the collapse of a series of mutual funds managed by Cushing Asset Management. The funds involved include:
Cushing Closed-End Funds
Cushing Renaissance Fund
Cushing Mutual Funds Investor Update
Articles Posted in Suitability
Gana LLP Investigation: Broker Duane Smith
According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Duane Smith (Smith) has been the subject of at least two customer complaint and one employment separation. The customer complaints against Smith allege a number of securities law violations including that the broker made unsuitable investments, negligence, fraud, and breach of fiduciary duty among other claims.
Smith entered the securities industry in 1995 and is both a licensed broker and a principal. From 1995, until September 2008, Smith was registered with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch). Upon termination from Merrill Lynch the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Smith was due to allegations by the firm that Smith violated the firm’s policies by facilitating a client investment in an account that was held outside of Merrill Lynch, recorded information on blank authorization forms previously signed by a client, and failed to obtain supervisory approval for correspondence that he sent to multiple clients. Thereafter, in March 2014, Smith became associated with Neidger, Tuck, and Bruner, Inc. in Englewood, Colorado.
It is important for investors to know that all advisers have an obligation and responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.
Gana LLP Investigation: Claims Against Broker George Lincoln
According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker George Lincoln (Lincoln) has been the subject of at least three customer complaints, one regulatory action, and one employment separation. The customer complaints against Lincoln allege a number of securities law violations including that the broker made unsuitable investments among other claims.
Lincoln entered the securities industry in 1991. From November 2005, until January 2014, Lincoln was registered with CCO Investment Services Corp. (CCO Investment). In December 2013, CCO Investment filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Lincoln was due to a regulatory action by the state of Vermont alleging violations of the securities laws.
The state of Vermont’s action against Lincoln alleged that the broker altered material information of the books and records of his brokerage firm in order to suggest that his clients were more aggressive and risky investors than their actual circumstances and stated risk tolerances. According to the allegations, Lincoln made these alterations in order to concentrate his client’s investments in certain funds that were unsuitable.
JP Turner Broker Homer Vining Suspended for Failing to Comply with an Arbitration Award
According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Homer Vining (Vining) has been the subject of at least one customer complaint and three regulatory actions. The customer complaint against Vining alleges a number of securities law violations including that the broker made misrepresentations concerning penny stocks and a claim of investment sold away from the firm among other claims.
Vining entered the securities industry in 1991. From 2005 through August 2009, Vining was associated with Ameriprise Advisor Services, Inc. Thereafter, from August 2009, until March 2015, Vining was associated with J.P. Turner & Company, L.L.C. (JP Turner).
Vining has three regulatory actions against him. The first is a suspension by FINRA for failing to comply with an arbitration award. The second is also a suspension by FINRA for failing to comply with an arbitration award. The third regulatory action is by the state of Georgia which suspended Vining until the broker comes into good standing with FINRA.
Broker Spotlight: Broker Christopher Orlando
According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Christopher Orlando (Orlando) has been the subject of at least two customer complaints, and one judgement or lien. Customers have filed complaints against Orlando alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations, and exorbitant commissions and fees among other claims.
Orlando entered the securities industry in 2002. From August 2006 until November 2009, Orlando was registered with J.P. Turner & Company, L.L.C. (JP Turner). From there, Orlando was associated with Brookstone Securities, Inc. until June 2012. Thereafter, Orlando was a registered representative of Joseph Gunnar & Co. LLC from June 2012, until December 2013. Finally Orlando was registered with National Securities Corporation from December 2013 until July 2015.
It is important for investors to know that all advisers have an obligation and responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.
Think Twice Before Investing in Equity Indexed Annuities
As long time readers of our blog know, this is not the first time we have alerted investors to the potential pitfalls to investing in equity indexed annuities. Recently, the Wall Street Journal ran an article concerning a probe being conducted by Sen. Elizabeth Warren (D., Mass.) regarding sales incentives for annuities products issued by insurance companies. The senator’s investigation comes on the heels of a speech given by Luis Aguilar, Commissioner to the Securities and Exchange Commission (SEC), before the North American Securities Administrators Association (“NASAA”), stating that the SEC is looking closely at sales practices with respect complex securities including equity-indexed annuities, leveraged and inverse-leveraged exchange traded funds, reverse convertibles, alternative mutual funds, exchange traded products, and structured notes.
According to news sources, the senator’s focus is on indexed annuities which have become widely known within the industry for granting perks to agents. Sen. Warren is said to have quoted from some of the marketing materials aimed at insurance agents describing sales incentives including “four days in the heart of California’s wine country at the prestigious Calistoga Ranch and Spa”; a trip to South Africa to visit Cape Town and Kruger National Park; and the ability to win “tour the Mediterranean on a private yacht, like royalty, celebrities, and the wealthy elite.” According to the report, Sen. Warren is concerned that earning perks may provide a greater incentive for making recommendations that acting in their clients’ best interest.
Equity indexed-annuities promise a return tied to a stock-market index while protecting against losses if the market falls. Sounds good right. Except there are serious limitations built into the products which make them both very expensive and limited to almost CD like returns. Accordingly, if the market has a blockbuster year, your equity-linked annuity will not perform in kind.
Gregory Bray and Matt Maberry Under Investigation By FINRA For Unsuitable Security Sales
The Financial Industry Regulatory Authority (FINRA) recently sanctioned supervisor Gregory Bray (Bray) concerning allegations that Bray failed to adequately supervise the firm’s chief executive officer and compliance officer Matt Maberry (Maberry), who FINRA refers to by the initials “MM”, concerning sales of certain complex products and recommendations of Class A mutual fund shares. In September 1996, Bray became registered with Alton Securities Group, Inc. (Alton Securities) where the alleged misconduct took place.
FINRA alleged that Bray was responsible for supervising the sales activity of Maberry. Maberry was responsible for all other supervisory functions at the Alton Securities. FINRA found that Bray’s supervision of Maberry’s sales activity consisted of a daily review of a trade blotter reflecting trades made by Maberry to customers together with conversations with Maberry regarding trading activity.
FINRA found that Maberry recommended and sold certain complex products to his customers. For example, FINRA found that Maberry recommended and sold leveraged or inverse exchange traded funds and leveraged/inverse mutual funds. In addition, Maberry is alleged to have recommended and sold a steepener note designed to increase in value as the gap between short and long term interest rates increased. FINRA found that Maberry’s sales were unsuitable because he lacked a reasonable basis to recommend these products to his customers because he did not fully understand the potential risks associated with these securities.
Broker Dealer Financial Services Corp. Sanctioned Over Non-Traditional ETF Practices
The Financial Industry Regulatory Authority (FINRA) entered into an agreement whereby the regulatory fined Broker Dealer Financial Services Corp. (BDFS) concerning allegations that between March 2009 and April 2012, BDFS failed to establish and maintain a supervisory system, including written procedures, that was reasonably designed to ensure that the firm’s sales of leveraged or inverse exchange-traded funds (Non-Traditional ETFs) complied with the securities laws.
BDFS is a FINRA member firm since 1979 and headquartered in West Des Moines, Iowa. The firm employs about 270 registered representatives located in more than 130 branch offices throughout the country.
According to FINRA, from March 2009 to April 2012, BDFS failed to implement a supervisory system, including written procedures, reasonably designed to ensure the suitability of Non-Traditional ETF sales. For instance, FINRA issued guidance that specifically dealt with issues related to the sales and supervision of Non-Traditional ETFs. FINRA’s guidance requires a firm to have a reasonable basis for believing that a product is suitable for any customer before recommending any purchase of that product. Part of having a reasonable basis for making the recommendation includes understanding the terms and features of the Non-Traditional ETFs being offered including how they are designed to perform, how they achieve that objective, and the impact that market volatility, the ETF’s use of leverage, and the customer’s intended holding period.
Broker Lawrence LaBine Accused of Selling Unsuitable Alternative Investments
Gana Weinstein LLP, a securities law firm, is investigating customer complaints against Lawrence Labine, a broker located in Scottsdale, Arizona. Gana Weinstein LLP’s investigation is on the heels of regulatory investigations into LaBine’s conduct.
On April 28, 2015, the Department of Enforcement of Financial Industry Regulatory Authority filed a complaint against Mr. Lawrence LaBine. According to the Complaint, from April 2009 through August 2009, LaBine sold senior debentures (Series D) issued by Domin-8, a company that developed software for real estate management companies. During that period, LaBine was registered with DeWaay Financial Network, a FINRA regulated broker-dealer. The Complaint alleges the LaBine made fraudulent misrepresentations and omissions of material fact to five customers in connection with the sale of the Series D senior debentures.
At the time of those sales, LaBine was receiving regular updates about Domin-8’s poor financial condition from senior management at Domin-8 and the company’s lead investment banker, and had arranged to receive compensation and other valuable consideration from the company – such as a seat on Domin-8’s board of directors – for meeting Series D fundraising targets he had arranged with the company. The information about Domin-8’s financial condition and LaBine’s personal incentive to sell Series D was material to the investors, yet LaBine failed to disclose that information to his customers according to the Complaint.
Broker Investigation: Advisor Mark Gardner
According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Mark Gardner (Gardner) has been the subject of at least nine customer complaints, one firm termination, and one regulatory action. Customers have filed complaints against Bell alleging a number of securities law violations including that the broker made unsuitable investments among other claims. Most of these claims involve recommendations in equities.
Gardner entered the securities industry in 1977. Since 2008, Gardner has been associated with Oppenheimer & Co. Inc. until November 2008. From December 2010 until July 2012, Gardner was associated with Lake Forest Securities LLC. Currently, Gardner is associated with J.H. Darbie & Co., Inc.
In the regulatory action that was brought against Gardner, FINRA alleged that on or about November 5, 2008, Gardner executed three equity securities purchase transactions to open an investment account on behalf of a corporation without that corporation’s knowledge. FINRA found that Gardner accepted the purchase orders from a person who did not have authorization to act on behalf of the corporation. In addition, FINRA found that Gardner failed to verify whether the individual who placed the purchase orders had been granted authorization by the corporation. The transactions in question totaled $2,203,020.