Articles Posted in Unauthorized Trading

shutterstock_94066819The Financial Industry Regulatory Authority (FINRA) barred (Case No. 201303930510) broker Kai Cheng (Cheng) concerning the broker’s failure to respond to requests for information concerning the regulators investigation into claims that Cheng engaged in conduct including entering into personal financial transactions with a customer, using a personal email address to communicate with a customer, and unauthorized trading in a customer account. In addition, to the FINRA bar Cheng has one employment separation and one customer dispute disclosed on his BrokerCheck record. The customer complaint contains allegations of unsuitable investments, failure to follow instructions, unauthorized trading, and omissions of material facts.

Cheng first entered the securities industry in 2005 as a broker with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) with the title of “First Vice President” and worked there until he was discharged in 2015. On March 2, 2015, Merrill Lynch filed a Uniform Termination Notice (Form U5) that reflected that Cheng was discharged on February 4, 2015. According to FINRA the Form U5 stated that Cheng was terminated for conduct including entering into personal financial transactions with a customer, using a personal email address to communicate with a customer and unauthorized trading in a customer account.

FINRA then sought to investigate these allegations and during the course of FINRA’s examination, the agency sent a letter to Cheng’s counsel pursuant to FINRA Rule 8210 requesting Respondent to provide on the record testimony. According to FINRA Cheng failed to provide testimony. Cheng’s failure to appear resulted in a bar from the industry.

shutterstock_187697825The Financial Industry Regulatory Authority (FINRA) sanctioned (Case No. 2014040633301) broker Tyler Powell (Powell) concerning allegations that Powell exercised discretion in a customer’s account without obtaining prior written authorization from the customer.

Powell first became registered with FINRA in 2007 through his association with a A.G. Edwards & Sons, Inc. From January 2008, to August 2014, he was associated with Wells Fargo Advisors, LLC (Wells Fargo) and registered with FINRA. Since August 2014, Powell has been associated with Stifel, Nicolaus & Company, Incorporated (Stifel Nicolaus).

NASD Conduct Rule 2510(b) prohibits registered representatives from exercising discretion in a customer account unless the customer has provided written authorization to the broker and the brokerage firm to exercise discretion. Advisors are not allowed to engage in unauthorized trading. Such trading occurs when a broker sells securities without the prior authority from the investor. A broker must first discuss all trades with the investor before executing them. The SEC has also found that unauthorized trading to be fraudulent nature.

shutterstock_184430645According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Leonard McAbee (McAbee) has been the subject of at least three customer complaints, one regulatory action, one judgment and/or lien, and one employment separation. The customer complaints against McAbee allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, and churning (excessive trading), among other claims. The regulatory action against McAbee involved allegations that McAbee made trades in an account at the direction of a third-party without a properly signed power of attorney.

McAbee entered the securities industry in 1990. From April 2011 till present McAbee has been registered as a broker with National Securities Corporation.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. Many of the claims against McAbee involving claims of unauthorized trading, churning, and excessive trading.

shutterstock_88744093According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Delguercio (Delguercio) has been the subject of at least eight customer complaints, two financial matters, and one employment separation. The customer complaints against Delguercio allege a number of securities law violations including that the broker made unsuitable investments, unauthorized activity, negligence, fraud, and misrepresentations among other claims.

One customer complaint filed in September 2013, alleged that from February 2007, through February 2012, that Delguercio made unauthorized transfers of funds from her account and the claimant’s now deceased husband and alleging $10,400,000 in damages. Another complaint filed in May 2012, alleged that Delguercio made unauthorized transactions and liquidations in the customers accounts leading to claims of over $1.2 million.  After reading an earlier version of this article Mr. Delguercio reached out to our firm to comment stating that the woman in above arbitration provided a power of attorney to her husband and denies the charges made in the complaint.  Mr. Delguercio stated that he expects that his position will be vindicated in a future arbitration hearing on this matter.

Delguercio entered the securities industry in 1995. From 2004, until January 2010, Delguercio was registered with PNC Investments (PNC). Upon termination from PNC the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Delguercio was due to allegations by the firm that Delguercio received a verbal complaint from a customer alleging that Delguercio misrepresented a GNMA Bond. PNC then reviewed the complaint and Delguercio resigned at that time. Delguercio disputes PNC’s account of events. Thereafter, from December 2009, through February 2012, Delguercio was associated with UBS Financial Services Inc. Finally, Delguercio has been a registered representative with Herbert J. Sims & Co. Inc. since February 2012.

shutterstock_127357511Our firm has been tracking the developments related to Thomas Buck’s termination from Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), now known as Bank of America, NA (Bank of America) under highly unusual circumstances.  (See Top Merrill Lynch Broker Thomas Buck Terminated Under Unusual Circumstances; Update On Broker Thomas Buck Investigation).  Now, according to records kept by FINRA, Buck has accepted a bar from the securities industry.

Buck’s downfall played out quickly.  Buck was terminated from Merrill Lynch on March 6, 2015, shocking colleagues.  At the time of his termination there was only one customer complaint against Buck steaming from a dispute in 2006.  Now, over the past four months customers have filed 11 additional complaints against him.  All of the complaints have similar allegations against Buck in that the customers allege that during a time period Buck engage in unauthorized trades in corporate debt and equities. Several of the complaints allege excessive trading and misrepresentations.

Buck’s team managed nearly $1.5 billion in investor assets and was one of the Merrill Lynch’s largest producers.  According to FINRA, Buck engaged in misrepresentations and other misconduct in the handling of customer accounts.  FINRA alleged that beginning by at least 2009, Buck used unethical and improper business practices to generate increased commissions and enhance his status as a top-producing broker.  According to FINRA, Buck held customer assets in commission-based accounts instead of fee-based accounts for the sole purpose of generating higher revenues even though he knew that some customers would have paid substantially lower fees by using fee-based accounts.  In fact, FINRA goes on to allege that Buck misled customers about the relative costs of fee-based or commission-based trading for their accounts.  In addition to these claims FINRA alleged that Buck exercised discretion in customer accounts without written or oral authorization, and made unauthorized trades in certain accounts.

shutterstock_61142644As we previously reported, (See Top Merrill Lynch Broker Thomas Buck Terminated Under Unusual Circumstances) news sources have been investigating the termination of financial advisor Thomas Buck (Buck) and his daughter Ann Buck by Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), now known as Bank of America, NA (Bank of America) under circumstances that some would consider unusual.

Buck’s team managed nearly $1.5 billion in investor assets, was one of the company’s largest producers, and has been associated with Merrill Lynch since. Despite all these factors that would likely lead Merrill Lynch to continue to wish employ Buck, allegations were made that Buck executed unauthorized trades in client accounts.

Buck’s termination happened on March 6, 2015, and shocked colleagues. One person was quoted in news articles foreshadowed additional developments saying “There is a lot more out there. I think it’s a little bit of heavy-handedness on Merrill’s part. Tom was shocked.”

shutterstock_20354401The Financial Industry Regulatory Authority (FINRA) fined and suspended broker Debra Lyman (Lyman) concerning allegations that between January 2013 through November 2013 Lyman engaged in unauthorized or discretionary trading in six client accounts without proper written permission.

Lyman was associated with Morgan Stanley from 1998 , through January 17, 2014. Respondent was terminated by the firm for exercising discretion in client accounts without obtaining written authorization. In addition to the FINRA complaint, Lyman has been the subject of at least five customer complaints, the majority of which complain of high commissions and fees associated with unauthorized and excessive trading activity, commonly known and referred to as churning.

NASD Conduct Rule 2510(b) prohibits brokers from exercising discretionary power in a customer’s account unless such customer has given prior written authorization to the broker and the brokerage firm has accepted the account as discretionary. FINRA alleged that from January through November 2013, Lyman effected discretionary transactions in at least six customer accounts without obtaining prior written authorization from the customers and without the accounts being accepted as discretionary by Morgan Stanley.

shutterstock_145368937The Financial Industry Regulatory Authority (FINRA) fined and suspended broker Leonard Tanner (Tanner) concerning allegations between October 2010, and January 2014, Tanner executed discretionary transactions in approximately 90 accounts of customers under a verbal authorization but without prior written authorization from those customers or approval of his brokerage firm City Securities Corporation (City Securities).

Tanner became a broker with a FINRA firm in 1969. From July 1995 until October 2010, Tanner was associated with PNC Investments. Since October 2010, Tanner has been registered with City Securities.

FINRA alleged that Tanner exercised discretion in executing transactions in the accounts of approximately 90 customers. FINRA found that Tanner received prior verbal authorization from his customers for these transactions for their investment strategies but exercised discretion in executing those transactions. FINRA determined that Tanner did not obtain written authorization from his customers and that City Securities did not approve these accounts for discretionary trading.

shutterstock_95643673According to broker Michael Gates (Gates) Financial Industry Regulatory Authority (FINRA) BrokerCheck records the representative was recently sanctioned concerning allegations that from January 2011, through October 2011, he effected approximately 22 discretionary transactions for two firm customers without written authorization from the customers or approval from the firm.

Gates first entered the securities industry in September 1997. Thereafter, in April 2004, Gates became registered with Wells Fargo Advisors, LLC (Wells Fargo). In March 2012, Wells Fargo terminated Gates alleging that the broker may have entered mutual fund sales without authorization of his clients. After termination of his registration with Wells Fargo, Gates became registered with Morgan Stanley where he is currently registered. In addition, at least two customers have filed complaints against Gates alleging unsuitable investments, and excessive trading (churning).

NASD Rule 2510 prohibits brokers from exercising any discretionary power in a customer’s account unless there is written authorization and the account has been accepted by the member. FINRA alleged that Gates was not approved by his firm to exercise discretion in the customers accounts but nonetheless effected 22 discretionary transactions for two customers.

shutterstock_178801082According to broker Adamson Wright’s (Wright) Financial Industry Regulatory Authority (FINRA) BrokerCheck records the representative was recently sanctioned concerning allegations that from May 2010 through February 2011, he effected approximately 249 mismarked order tickets as being “unsolicited” orders when the trades were “solicited” causing the firm to maintain inaccurate books and records.

Respondent Wright entered the securities industry in 1995 with UBS Financial Services Inc. until January 2010. In January 2010, Wright became registered with Ameriprise Financial Services, Inc. (Ameriprise) and then was terminated from Ameriprise in June 2011. In July 2011, Wright became registered with InterCarolina Financial Services Inc.

In addition, at least five customer complaints have been filed against Wright alleging unsuitable investments and unauthorized discretionary trading. These complaints include allegations involving unsuitable options trading. Two clients alleged an unsuitable purchase of China Agritech (CAGC). The number of complaints made by investors against Wright is relatively large by industry standards. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Far fewer brokers have multiple customer complaints approaching the number of complaints made against Wright. Brokers must disclose different types of events, not necessarily all of which are customer complaints. These disclosures can include IRS tax liens, judgments, and even criminal matters.

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