Securities Lawyers Blog

UBS Preparing to Face Investor Claims Over Puerto Rico Bond Funds

September 23, 2014 | by Staff Attorney

According to UBS’ second quarter earnings report, the bank is now looking at over $600 million in claims brought by Puerto Rico investors, who have suffered significant losses related to their investments in closed-end bond funds. The Financial Industry Regulatory Authority (FINRA) has been inundated with a plethora of claims in connection with the closed-end UBS Puerto Rico Bond Funds. Investors are looking to be made whole after they purportedly received misleading information regarding these investments. While the majority of the claims were filed against UBS Financial Services of Puerto, other firms, including Merrill Lynch, Banco Popular, Santander Securities, and Oriental Financial Services have also been named as Respondents in many of the claims.

UBS recognizes the perilous situation that it now faces with respect to these claims, explaining, “declines in the market prices of Puerto Rico municipal bonds and of UBS Puerto Rico sole-managed and co-managed closed-end funds since August 2013 have led to multiple regulatory inquiries, as well as customer complaints and arbitrations with aggregate claimed damages exceeding [$]600 million filed by clients in Puerto Rico who own those securities.”

Some of the claims that UBS face, including clients represented by our firm, include allegations of unsuitability, over-concentration, fraud, and breach of contract among others. FINRA and the Municipal Securities Rulemaking Board require broker dealers to have a reasonable basis to support the suitability of their recommendations to customers. Legal representatives for many claimants have said that the UBS employees prioritized commissions when they sold the closed-end bond funds to Puerto Rican investors, who were not economically equipped to make those investments.

Broker Ismail Elmas Terminated Over Outside Business Activities

September 22, 2014 | by Staff Attorney

According to broker Ismail Elmas’ (Elmas) Financial Industry Regulatory Authority (FINRA) BrokerCheck records the representative was recently discharged from CUSO Financial Services, LP (CUSO Financial) concerning allegations that the broker “converted client funds for personal use as well as participated in an unauthorized outside business activity involving investments without the firm approval…” Previously Elmas was associated with CUNA Brokerage Services, Inc.

Shortly thereafter, a customer filed a complaint against Elmas alleging that the broker took the client’s variable annuity contract, surrendered it, and sent the proceeds to a third-party – which the client says was unauthorized activity. In addition, since Elmas was terminated from CUSO Financial authorities have been unable to locate the broker. In articles, officials say that Elmas, 49, has been missing since July 29^th and have warned that Elmas may be armed and should not be approached. According to reports Elmas was last seen leaving his home in his gray 2008 Toyota Prius.

The allegations against Elmas are consistent with a “selling away” securities violation. Selling away occurs when a financial advisor solicits investments in companies or promissory notes that were not approved by the broker’s affiliated firm. Under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees. In order to properly supervise their brokers each firm is required to establish and maintain a system to supervise the activities of each registered representative to achieve compliance with the securities laws. Selling away often occurs in environments where the brokerage firms either fails to put in place a reasonable supervisory system or fails to actually implement that system and meet supervisory requirements.

Gana LLP Investigation – Former RBC Capital Markets Broker Michael Zukowski

September 18, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Michael Zukowski (Zukowski) concerning allegations that Zukowski recommended unsuitable transactions in inverse and inverse-leveraged Exchange Traded Funds (Non-Traditional ETFs) in the accounts of his customers.

Zukowski first became registered with FINRA as a securities representative in 1989. Thereafter, from July 2005 to November 2010, he was registered in that same capacity through RBC Capital Markets, LLC (RBC) where he worked in the firm’s Massachusetts office. On December 23, 2010, RBC filed a Termination Notice (Form U5) stating that Zukowski was permitted to resign for “failure to meet Firm expectations.”

On August l8, 2011, RBC filed a an amended disclosure stating that an Administrative Complaint filed by the Massachusetts Securities Division (MSD) stated that: “The Massachusetts Securities Division alleged Michael Zukowski made unsuitable recommendations to brokerage and advisory clients regarding the purchase and sale of leveraged, inverse and inverse-leveraged exchange traded funds.” Thereafter, on November 12, 2012, Zukowski entered into a Consent Order with the MSD concerning the allegations of unsuitable recommendations where Zukowski consented to sanctions including a Cease and Desist and a five year bar to act as a “broker-dealer agent, investment adviser, investment adviser representative and issuer-agent” in the State of Massachusetts. Finally, on November 16, 2012, RBC filed another amended Form U5 and disclosed a written complaint by two customers indicating that the “Clients allege material omissions and unsuitable advice regarding non-traditional ETFs, in period 2/2009 to 12/2009.”

Adam Gana is Quoted in OnWallStreet.com

September 17, 2014 | by Staff Attorney

Adam Gana, managing partner of Gana Weinstein LLP was quoted in an article by Suleman Din entitled “Hammered by FINRA in Dispute with Morgan Stanely, Advisor Pays $200k.” The article discusses an advisor who took on Morgan Stanley in a contract dispute who lost and was hit with a judgment of approximately $200,000.

Advisor Raymond Clark Suspended Over Allegations of Securities Related Misconduct

September 17, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Raymond Clark (Clark) and imposed findings: (1) suspending the broker for three months and fined $6,000 for using his personal email account to communicate with a customer; (2) suspended for four months and fined $10,000 for making false statements to his firm; and (3) suspended for two months and fined $4,000 for failing to report a customer complaint to his firm. FINRA imposed the suspensions to run consecutively and suspended Clark for an additional three months in all supervisory capacities and ordered him to requalify by examination as a securities representative and securities principal.

According to Clark’s BrokerCheck, the broker was registered with Paulson Investment Company, Inc. from December 2008 through May 2009. From June 2007 through January 2009, Clark was registered with J.P. Turner & Company, L.L.C. From May 2009 until August 2010, Clark was registered with First Midwest Securities, Inc. Finally, from August 2010, through August 2014, Clark was registered with Dynasty Capital Partners, Inc. (Dynasty Capital). Clark’s background check also reveals two regulatory complaints and at least nine customer complaints. Only a relatively small percentage of brokers have any complaints on their records and fewer still have as many as Clark.

The complaints against Clark include claims of unauthorized trading, inappropriate use of margin, securities fraud, breach of fiduciary duty, unsuitable investments, churning, and misrepresentations.

FINRA Files Complaint Against Broker Anthony Diaz

September 16, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought a complaint against broker Anthony Diaz (Diaz) concerning a host of industry violations. Diaz entered the securities industry in January 2000 and has been registered with eleven different firms over fourteen years. Diaz is currently employed by IBN Financial Services, Inc., (IBN Financial) since September 2012.

Diaz has a long and troubled history of securities related violations and misconduct. There have been at least 14 customer complaints filed against Diaz, he has been subject to 5 firm terminations, and has two judgments. FINRA also found that Diaz was fired or permitted to resign by six of the eleven member firms with which he was registered for. On or about November 21, 2002, Edward Jones fired Diaz for providing inaccurate information during a supervisory review, was terminated by Raymond James Financial Services, Inc. because it was “no longer comfortable supervising”, was permitted to resign on April 1, 2009, by First Allied Securities, Inc. because he had a history of customer complaints and administrative infractions., was fired by SII Investments, Inc. for unauthorized trading, was fired by Kovack Securities, Inc. because of complaints alleging unauthorized trades, and finally was fired by Sandlapper Securities, LLC for soliciting sales of variable annuities without being properly appointed by the issuing company.

FINRA alleged that from March 2010, through May 2011, Diaz induced approximately eighty customers to enter into variable annuity exchanges causing significant surrender charges without a reasonable basis for recommending these exchanges. FINRA found that each customer invested in the same fund, had the same subaccount allocation, and had the same rider selected. FINRA alleged that Diaz recommended the annuity exchanges without having an understanding of the features of the new product and used the same three invalid justifications for nearly all of these exchanges.

Oak Ridge Financial Services Sanctioned Over Non-Traditional ETF Sales Practices

September 15, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm The Oak Ridge Financial Services Group, lnc. (Oak Ridge) in connection with allegations that Oak Ridge failed to establish and maintain a supervisory system regarding the sale of leveraged, inverse and inverse leveraged exchange-traded funds (Non-Traditional ETFs) that were reasonably designed to achieve compliance with the securities laws.

Oak Ridge became a FINRA member in 1997 and is headquartered in Golden Valley, Minnesota. Oak Ridge engages in a general securities business, employs 57 registered representatives, and operates out of a single office.

Non-Traditional ETFs contain drastically different characteristics, including risks, from traditional ETFs that simply seek to mirror an index or benchmark. Non-Traditional ETFs use a combination of derivatives instruments and debt to multiply returns on underlining assets. The leverage employed by Non-Traditional ETFs is designed not simply to mirror the index but to generate 2 to 3 times the return of the underlining asset class. Non-Traditional ETFs can also be used to return the inverse or the opposite result of the return of the benchmark.

FINRA Sanctions B. C. Ziegler and Company For Failure to Supervise Church Bond Sales (Part II)

September 12, 2014 | by Staff Attorney

This post picks up on our first article on The Financial Industry Regulatory Authority (FINRA) sanctioning brokerage firm B. C. Ziegler and Company (B. C. Ziegler) and ordering the brokerage firm to pay $150,000 on allegations that the firm failed to implement a supervisory system reasonably designed to ensure that material economic information regarding Church Bonds was disclosed to the firm’s brokers, trading desk, and customers.

FINRA found that while the firm maintained a Credit Watch List to check for delinquent and missed Church Bond payments, this list was only produced periodically and not every time a Church Bond issuer fell five weeks behind on its sinking fund payments. Accordingly, FINRA found that B. C. Ziegler violated NASD Rule 3010 by failing to establish and maintain a supervisory system reasonably designed to ensure that material economic information, such as delinquent sinking fund payments, was disclosed to the firm’s brokers and customers who were sold Church Bonds in secondary market transactions.

FINRA found that prior to September 2010, B. C. Ziegler did not inform its brokers, trading desk, or customers when an issuer was more than 30 days behind on its sinking fund payments, an indicator of financial distress. Further, it was alleged that from September 2010, through at least May 2012, B. C. Ziegler’s registered representatives and trading desk were informed only periodically when a Church Bond issuer fell five weeks behind on its sinking fund payments through the Credit Watch List causing B.C. Ziegler’s supervisory system to not be reasonably designed to consider material economic information in the pricing of Church Bonds in secondary market transactions. The result, FINRA found, was that the firm had similar pricing for secondary market trades in Church Bonds that were current and delinquent with sinking fund payments.

B. C. Ziegler and Company Sanctioned Over Allegations of False and Misleading Advertising

September 11, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm B. C. Ziegler and Company (B. C. Ziegler) and ordering the brokerage firm to pay $150,000 in connection with allegations that from January 1, 2009, through May 30, 2012 B. C. Ziegler failed to implement a supervisory system reasonably designed to ensure that material economic information regarding Church Bonds, including information concerning delinquent sinking fund payments, was disclosed to the firm’s brokers, trading desk, and customers, and was factored into the pricing of Church Bonds sold to customers in secondary market transactions. In addition, it was alleged that B. C. Ziegler used Church Bond sales material with customers that was not fair and balanced. The sales material prominently promoted the yields associated with Church Bonds without balancing the presentations by disclosing the risks. FINRA also alleged that B. C. Ziegler distributed unbalanced internal-use-only Church Bond sales material to its registered representatives, causing the firm to violate NASD Rule 2211(d)(1) and FINRA Rule 2010.

B. C. Ziegler has been a registered broker-dealer since 1948 and is a full service brokerage firm headquartered in Chicago, Illinois. A primary business of the firm is the underwriting and sale of fixed income products, including debt issued by religious institutions known as “Church Bonds” and senior living facilities (Senior Living Bonds). The firm has approximately 22 branch offices and 200 registered representatives.

According to FINRA, B. C. Ziegler specializes in underwriting and selling Church Bonds for religious institutions. Church Bonds are generally issued by nonprofit religious entities and as such are exempt from registration as a security with the SEC. While there is no established secondary market for Church Bonds, FINRA found that B. C. Ziegler frequently facilitated secondary trading among its customers for Church Bonds it underwrote. A Church Bond sinking fund is a pool of money funded with periodic payments by an issuer for the purpose of accumulating money to make annual or semi-annual coupon payments due to investors of Church Bonds. A Church Bond issuer behind on its sinking fund payments is not in strict compliance with its trust indenture and may be a sign of an issuer’s financial distress.

FINRA Sanctions 79 Capital Securities Over GWG Debenture Sales

September 10, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm 79 Capital Securities, LLC (79 Capital) and broker Michael Ward (Ward) concerning allegations around June and July 2012, 79 Capital and Ward posted on the website of a business networking organization sales material regarding GWG Renewable Secured Debentures (GWG Debentures), an illiquid and high-risk alternative private placement investment that omitted material information concerning the debentures. Additionally, FINRA alleged that the firm and Ward failed to record basic suitability information and create new account forms for customers involved in two transactions for the purchase of debentures. Finally, FINRA found that respondents also permitted an employee whose FINRA registration had not been approved, to sell the GWG Debentures and in doing so failed to enforce the firm’s written procedures requiring the creation of new account forms and prohibiting unregistered persons from effecting securities transactions.

According to our investigation, 79 Capital is the third brokerage firm or broker to be sanctioned by FINRA in the past year concerning the improper sale of GWG Debentures. See Broker Sanctioned Over Unsuitable Sales of Private Placement Securities (FINRA sanctioned Karen Geiger); FINRA Sanctions Michael Wurdinger and Anil Vazirani Over GWG Debenture Sales (FINRA sanctioned brokers associated with Center Street Securities, Inc.).

As a background, GWG Holdings, Inc. purchases life insurance policies on the secondary market at a discount to the face value of the policies. Once purchased, GWG pays the policy premiums until the insured dies and then GWG collects the face value of the insurance hoping to earn returns by collecting more upon the maturity of the policies than it has paid to purchase the policy and service the premiums. FINRA found that the company has a limited operating history and has yet to be profitable.