Securities Lawyers Blog

Broker Investigation: Churning Claims Against Broker Ahmad “Kevin” Wares

September 21, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Ahmad “Kevin” Wares (Wares) has been the subject of at least seven customer complaints one employment separation, and one judgment/lien over the course of his career. Customers have filed complaints against Wares alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, churning, negligence, failure to follow instructions, and misrepresentations among other claims.

An examination of Wares’s employment history reveals that Wares moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Wares’ 15 year career he has worked at 7 different firms of which four have been expelled from FINRA. Since 2008 Wares has been registered with New Castle Financial Services LLC, First Midwest Securities, Inc., and EKN Financial Services Inc. Since September 2012, Wares has been associated with Laidlaw & Company (UK) LTD.

Advisors are not allowed to engage in unauthorized trading. Such trading occurs when a broker sells securities without the prior authority from the investor. The broker must first discuss all trades with the investor before executing them under NYSE Rule 408(a) and FINRA Rules 2510(b). These rules explicitly prohibit brokers from making discretionary trades in a customers’ non-discretionary accounts. The SEC has also found that unauthorized trading to be fraudulent nature.

FINRA Bars Former PFS Investments Broker Malcolm Babin From the Industry

September 20, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred (FINRA AWC No. 20150454876-01) former PFS Investments, Inc. (PFS Investments) broker Malcolm Babin (Babin) after the broker failed to respond to a letter from the regulator requesting information. While BrokerCheck records kept by FINRA do not disclose the nature of the regulatory inquiry, in May 2015, Babin was permitted to resign from PFS Investments stating that the broker was terminated for 1 being involved in a misappropriation; 2) unlicensed security solicitation, and 3) an undisclosed outside business activity and potentially a private securities transaction – also referred to in the industry as “selling away.”

Babin entered the securities industry in 2007 with PFS Investments as a Series 6 broker. A Series 6 license only allows the broker to solicit variable contracts and open-end mutual funds and does not allow the broker to solicit general securities. FINRA alleged that on July 7, 2015 FINRA was investigating allegations that Babin converted customer funds and engaged in undisclosed outside business activities. FINRA requested that Babin provide documents and information by July 14, 2015. The regulatory stated that they received an email from Babin acknowledging receipt of FINRA’s requests for documents but informed staff that he would not cooperate. Consequently, the regulator barred Babin from the securities industry.

The conduct alleged against Babin constitutes a potential “selling away” securities violations. In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

Broker Spotlight: Cantone Research’s Raymond DeRobbio

September 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Raymond DeRobbio (DeRobbio) has been the subject of seven customer complaints and one regulatory action. The customer complaints against DeRobbio allege that the broker made unsuitable investments concerning certain bonds that defaulted. The regulatory complaint against DeRobbio was initiated by the state of Indiana in which DeRobbio withdrew as an agent.

DeRobbio entered the securities industry in 1983 and since that time DeRobbio has been associated with over a dozen firms. Starting in June 2006 through July 2012, DeRobbio was associated with J.P. Turner & Company, L.L.C. From July 2012, until June 2013, DeRobbio was registered with Northeastern Financial Group, Incorporated. Finally, since June 2013, DeRobbio has been registered with Cantone Research Inc. out of a branch located in Tinton Falls, New Jersey.

All brokers and financial advisers have an obligation to their customers to deal with them in a fair manner. That obligation includes 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 costs, 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.

Cape Securities, Inc. Fined $125,000 for Failure to Supervise

September 18, 2015 | by Staff Attorney

On May 5, 2015, the brokerage firm Cape Securities, Inc. (“Cape”) was fined $125,000 by the Financial Industry Regulatory Authority (FINRA) for failing to supervise its personnel, in effect allowing its brokers to recommend unsuitable investments and churn customer accounts.

According to the Letter of Acceptance, Waiver and Consent (AWC), for a sixteen-month period, spanning October 2011 through February 2013, Cape’s supervisory system and written supervisory procedures, pertaining to the review of actively traded accounts, failed to adequately address and identify numerous items. According to FINRA, Cape’s supervisory policies and procedures failed to address (1) the process by which transactions are reviewed, (2) risks in customer accounts, and (3) methods by which Cape conducted its suitability analysis. According to the AWC, Cape never made use of clearing firm exception reports in their review of actively traded accounts and had no written supervisory procedures relating to the monitoring of complex trading strategies.

In addition, during the period of October 2011 through September 2012, registered representatives in Cape’s Manhattan branch conducted trades in several leveraged exchange traded funds (“ETFs”) and sold covered calls to customers. This trading activity caused customer accounts to have excessive turnover ratios, which indicates churning of customer accounts. According to FINRA, Cape did not inquire into the suitability of this trading activity despite all the indications of excessive trading and its awareness of the strategies being recommended.

Broker Spotlight: Advisor Robert Batchen Unauthorized Trading Claims

September 17, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Batchen (Batchen) has been the subject of at least five customer complaints, one judgement/lien, and one employment separation for cause over the course of his career. Customers have filed complaints against Batchen allege claims including that the broker made unsuitable investments, unauthorized trades, and failure to follow instructions among other claims. In addition to customer complaints, Batchen was also subject to an employment separation from Wells Fargo Advisors LLC (Wells Fargo) where the broker resigned during an internal review of allegations of unauthorized trading.

Batchen entered the securities industry in 1990. From January 2008, until September 2012, Batchen was associated with Wells Fargo. Currently, Batchen is a registered representative of Uhlmann Price Securities, LLC.

Advisors are not allowed to engage in unauthorized trading. Such trading occurs when a broker sells securities without the prior authority from the investor. The broker must first discuss all trades with the investor before executing them under NYSE Rule 408(a) and FINRA Rules 2510(b). These rules explicitly prohibit brokers from making discretionary trades in a customers’ non-discretionary accounts. The SEC has also found that unauthorized trading to be fraudulent nature.

FINRA Sanctions Broker James Madden Over Unauthorized Trades

September 16, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker James Madden (Madden) (Case No. 2014040336501) alleging that from March 2010, to February 2014, Madden exercised discretion in executing transactions in the accounts of l5 customers. FINRA found that Madden had received prior verbal authorization from his customers for the transactions but exercised his discretion in executing those transactions on future dates. FINRA found that Madden did not obtain written authorization from his customers to exercise discretion in their accounts and his brokerage firm, Raymond James & Associates, Inc. (Raymond James) did not approve the accounts for discretionary trading.

According to the BrokerCheck records kept by FINRA Madden has been the subject of at least three customer complaints, one regulatory action, and one employment termination for cause. Customers have filed complaints against Madden alleging securities law violations including that the broker made unsuitable investments and unauthorized trades among other claims.

Madden entered the securities industry in 1983. From 1993, until April 2009, Madden was associated with Citigroup Global Markets Inc. Thereafter, from March 2009, until February 2014, Madden was a registered representative with Raymond James. In February 2014, Raymond James filed a Form U5 stating that Madden’s termination was for cause and due to allegations of unauthorized trading. Finally, since February 2014, Madden has been associated with Thurston, Springer, Miller, Herd & Titak, Inc.

BestVest Investments Sanctioned Over Non-Traditional ETF Sales

September 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned (Case No. 2014038906201) brokerage firm BestVest Investments, Ltd. (BestVest) concerning allegations that from January 2012, through August 2014, BestVest failed to establish and maintain a supervisory system reasonably designed to monitor transactions in leveraged, inverse, and inverse leveraged exchange traded funds (Non-Traditional ETFs).

As a background, Non-Traditional ETFs behave drastically different and have different risk qualities from traditional ETFs. While traditional ETFs seek to mirror an index or benchmark, Non-Traditional ETFs use a combination of derivatives instruments and debt to multiply returns on underlining assets, often attempting to generate 2 to 3 times the return of the underlining asset class. Non-Traditional ETFs are also used to earn the inverse result of the return of the benchmark.

However, the risks of holding Non-Traditional ETFs go beyond merely multiplying the return on the index. Instead, Non-Traditional ETFs are generally designed to be used only for short term trading as opposed to traditional ETFs. The use of leverage employed by these funds causes their long-term values to be dramatically different than the underlying benchmark over long periods of time. For example, between December 1, 2008, and April 30, 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while the ProShares Ultra Oil and Gas, a fund seeking to deliver twice the index’s daily return fell six percent. In another example, the ProShares UltraShort Oil and Gas, seeks to deliver twice the inverse of the index’s daily return fell by 26 percent over the same period.

FINRA Bars Former Stifel, Nicolaus Broker Kenneth Hornyak Over Short Term Trading

September 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Kenneth Hornyak (Hornyak) (Case No. 2013038511901) alleging that the broker failed to respond the regulator’s requests for documents and information. FINRA’s investigation appeared to focus on claims that Hornyak engaged in potential discretionary trading, unauthorized trading, and unsuitable short-term trading in Unit Investment Trusts (UITs). On May 11, 2015, Hornyak informed FINRA that he would not appear for questioning and the regulator subsequently barred the broker.

According to the BrokerCheck records kept by FINRA Hornyak has been the subject of at least four customer complaints, one regulatory action, and two employment terminations for cause. Customers have filed complaints against Hornyak alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, churning, and excessive sales charges among other claims.

Hornyak entered the securities industry in 1998 with Morgan Stanley. From March 2006, until January 2014, Hornyak was associated with Stifel, Nicolaus & Company, Incorporated. In January 2014, Stifel, Nicolaus terminated Hornyak for cause alleging that Hornyak was terminated because of violation of firm policies regarding exercising discretion without written authorization.

FINRA Sanctions Rainmaker Securities Over Numerous Violations Involving Private Placements

September 14, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned Rainmaker Securities, LLC (Rainmaker Securities) and its President Glen Anderson (Anderson) (Case No. 2013035059001) alleging that From June 2011 through September 2014, Rainmaker Securities, acting through Anderson, failed to devote adequate time, attention, and resources toward supervision. FINRA found that the firm’s lack of a culture of compliance, Rainmaker and Anderson repeatedly violated FINRA rules that required to: (i) establish and maintain a supervisory system reasonably designed to achieve compliance with securities laws and regulations; and (ii) establish, maintain and enforce written supervisory procedures to supervise its brokers.

Anderson began in the securities industry in 2005. In January 2010, Anderson joined Rainmaker Securities to become its President. Rainmaker became a FINRA registered firm on March 18, 2005, and is approved to conduct business in the origination and sale of private placements. Rainmaker Securities has six branches and 34 registered persons.

FINRA’s investigation related to many aspects of the sale of private placements including solicitation, due diligence, false advertising, suitability documents, and more. The various allegations largely regard Rainmaker Securities’ marketing and sales of the following private placement securities offerings: (a) Buttonwood Social Network Fund LLC (Facebook Fund); (b) Eudora Global LLC (Eudora Global); (c) The Incubation Factory Technology Fund, LLC (TIF Fund); and (d) The Idea Fund LLC (IDEA Fund).

FINRA Bars Thomas Hogle Over Investigation Into Unsuitable Trades in a 101 Year Old’s Account

September 13, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred (Case No. 20150443048) broker Thomas Hogle (Hogle) after the broker failed to respond to a letter from the regulator requesting information. While the BrokerCheck records kept by FINRA do not disclose all the facts being investigated by the regulatory inquiry, FINRA sent Hogle a request for documents in connection with their investigation that unsuitable investment recommendations were made in an account of a 101 year-old customer. On April 15, 2015, Hogle acknowledged FINRA’s requests but refused to produce documents or information resulting in the bar from the securities industry.

According to the BrokerCheck records Hogle has been the subject of at least one customer complaint and three financial matters and liens. The customer complaints against Hogle allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, and churning (excessive trading) among other claims.

Hogle entered the securities industry in 1998. From April 2008, until September 2011, Hogle was associated with Nelsonreid, Inc. Thereafter, from October 2011, until May 2015, Hogle was a registered representative of B.B. Graham & Company, Inc.