Securities Lawyers Blog

FINRA Sanctions Salomon Whitney Over Non-Traditional ETF Sales Practices

August 13, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has sanctioned Salomon Whitney, LLC (Salomon Whitney) concerning allegations from July 2008 through November 2009 the firm 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). Non-Traditional ETFs contained risks that increase over time and in volatile markets including risks of a daily reset, leverage, and compounding. FINRA found that Salomon Whitney failed to establish a reasonable supervisory system to monitor transactions in Non-Traditional ETFs, provide adequate formal training, and observe reasonable basis suitability guidelines by failing to perform reasonable due diligence to understand the risks and features associated with the products.

Salomon Whitney has been a FINRA broker-dealer since 2008 and the firm is headquartered in Farmingdale, New York where it conducts a general securities business. Salomon Whitney has approximately 19 brokers registered with the firm.

Non-Traditional ETFs use a combination of derivatives instruments and debt to multiply returns on an underlining asset, class of securities, or sector index. The leverage employed by Non-Traditional ETFs is designed 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.

Gana LLP Files Complaint on Behalf of Five Customers Against JP Turner and National Securities Concerning Ralph Calabro’s Churning

August 12, 2014 | by Staff Attorney

Gana Weinstein LLP has recently filed securities arbitration case on behalf of a group of five investors against J.P. Turner Company, L.L.C. (JP Turner) and National Securities Corporation (National Securities) concerning the alleged complete lack of supervision at JP Turner and National Securities to monitor and prevent Ralph Calabro (Calabro) from churning customer accounts.

As a background, Calabro was expelled from the securities industry when on November 8, 2013, the SEC issued an order (SEC Order) finding that JP Turner registered representatives including Calabro, Jason Konner, and Dimitrios Koutsoubos churned customer accounts and Executive Vice President (EVP), Michael Bresner (Bresner), as head of supervision, failed to supervise the representative’s activities.

The SEC alleged that JP Turner knew that numerous accounts had a cost-to-equity ratio greater than 20%, a number sufficiently high to establish an inference of churning requiring close supervision and corrective action. The reports of these accounts resulted in an report being emailed to principals and the compliance office for review including Bresner. The SEC found that the average number of accounts being reviewed for high costs was shockingly high for each quarter in 2008-2009 and was between 300 and 325 accounts and included more than 100 JP Turner registered representatives. Even though these accounts bore the hallmarks of churning, Bresner testified that he could not recall closing an account, personally contacting any JP Turner customers, or even imposing a trading limitation.

Gana LLP Files Customer Complaint Against JHS Capital Concerning Broker Joe Alijaj

August 11, 2014 | by Staff Attorney

The law office of Gana Weinstein LLP recently filed a securities arbitration on behalf of an investor against JHS Capital Advisors, LLC f/k/a Pointe Capital, Inc. (JHS Capital) concerning allegations that the broker recommended unsuitable investments, churned the account, and ultimately depleted the claimant’s assets.

The claimant is sixty-one years old and spent the majority of his career running seed companies. The claimant alleged that he had little understanding of the stock and bond markets. The complaint alleged that Enver Rahman “Joe” Alijaj (Alijaj), a broker with JHS Capital, cold called claimant and aggressively pursued the opportunity to manage claimant’s money. The complaint alleged that prior to opening his account with JHS, claimant never maintained a brokerage account. The claimant alleged that he explained to Alijaj that he wanted to focus on preservation of his capital.

In reliance on Alijaj’s assurances, the claimant alleged that he provided the broker with a substantial portion of his net worth. Rather than comply with the claimant’s investment needs, the complaint alleged that Alijaj took advantage of the claimant’s inexperience by investing the funds in unreasonably volatile stocks and excessively traded (churned, a type of securities fraud) his account to generate excessive commissions. According to the complaint, within days of opening the account, Alijaj leveraged the account and actively traded speculative small cap stocks in unsuitable investments including A-Power Energy Generation Systems Ltd. (APWR), Silicon Motion Technology Corp (SIMO), and Yingli Green Energy Holdings Co. (YGE).

Gana LLP Files Puerto Rico Municipal Bond Claim Against UBS On Behalf of Client

August 9, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP has recently filed securities arbitration case on behalf of an investor against UBS Financial Services, Inc. and UBS Financial Services, Inc. of Puerto Rico (UBS) involving allegations that UBS’ misleading sales tactics and inappropriate recommendations surrounding Puerto Rico bonds in the Claimant’s portfolio. According to the complaint, UBS encouraged a 26 year-old unemployed single mother to invest her life savings in just three Puerto Rico municipal bonds—Puerto Rico Employees Retirement System Bonds (ERS Bond), Puerto Rico Commonwealth Public Buildings Authority Bonds (Commonwealth Bond), and Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) Industrial Revenue Refunding Bonds (AFICA Bond). In addition, the complaint alleged that UBS recommended that the Claimant take out significant loans to leverage up her investment in these three bonds that were all hovering just above junk status.

The Claimant is a 26 year-old single mother, dedicates all of her time towards caring for her eighteen-month-old daughter. Unfortunately, the Claimant’s father passed away in October 2010 causing Claimant to receive life insurance proceeds from his passing. The Claimant used some of those proceeds to pay off the debts that she had accrued over the years and sought to use the remaining portion to invest for the future of her and her daughter.

Claimant alleged that UBS completely disregarded the risks inherent to the Puerto Rico municipal bonds and constructed a portfolio comprised solely of these soon-to-be-defunct securities. Claimant’s brokers Ramon M. Almonte (Almonte) and Juan E. Goytia (Goytia), recommended an approximate 130% concentration, through the use of leverage, in municipal debt. Claimant alleged that the bonds were portrayed as safe, secure, fixed-income securities that would preserve her principal while providing tax-free income. Contrary to UBS’ portrayal, the bonds recommended are volatile investments carrying a multitude of risks. According to the complaint UBS’ unsuitable recommendations and inappropriate asset allocation ultimately cost the Claimant most of her money.

Broker Robert Livingstone Barred Over Alleged Sales of Newland Strategies to Customers

August 8, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Robert Livingstone (Livingstone) concerning allegations that Livingstone failed to respond FINRA’s request for documents concerning claims that Livingstone deposited a customer’s money into a private company called Newland Strategies.

Livingstone first became registered with FINRA in 1992 as a General Securities Representative with Morgan Stanley DW, Inc. Thereafter, in 2001, Livingstone registered with BB&T Investment Services, Inc. (BB&T). Livingstone remained registered with BB&T until the firm filed a Form U5 that terminated his registration with on October 3, 2013. BB&T stated on Livingstone’s BrokerCheck that a “client alleged she thought she invested 200,000 with BBTIS through her BBTIS rep in February 2013. However, it was deposited into a private company called Newland Strategies by her rep and was told she lost $68,000.”

FINRA alleged that in October 2013, BB&T terminated Livingstone’s registration after the firm investigated a customer complaint against Livingstone alleging participation in a private securities transaction. On March 21, 2014, FINRA investigated the customer complaint against Livingstone and requested documents and information from Livingstone. FINRA stated that Livingstone did not produce the requested documents and information after several requests. It was alleged that on April 24, 2014, Livingstone informed FINRA that he would not comply with requests. As a result of Livingstone’s failure to provide documents and information as required by FINRA Rule 8210, FINRA found that Livingstone violated FINRA Rules 8210 and 2010 and imposed a bar from the financial industry.

Gana LLP Investigates Claims of Churning Involving Newport Coast Securities Brokers (Part II)

August 6, 2014 | by Staff Attorney

This post picks up our prior article concerning our investigation of claims concerning churning and failure to supervise after The Financial Industry Regulatory Authority (FINRA) made allegations stating that from September 2008, through May 2013, Newport Coast Securities, Inc. (Newport Coast) and five of its registered representatives excessively traded and churned 24 customers’ accounts. The five brokers named in the complaint are Douglas Leone (Leone), Andre LaBarbera (LaBarbera), David Levy (Levy), Antonio Costanzo (Costanzo), and Donald Bartelt (Bartelt). In addition, FINRA alleged that the representatives’ supervisors, including Marc Arena (Arena) and Roman Tyler Luckey (Luckey) and the firm’s Compliance Department managers knew took no meaningful steps to curtail the misconduct.

Newport Coast was formerly known as Grant Bettingen, Inc., and has been a FINRA member since 1986. Newport Coast is a wholly owned subsidiary of Rubicon Financial, Inc. (Rubicon), and until March 2013, was based in Irvine, California. The firm is currently based in New York and has approximately 45 branch offices and 122 registered representatives.

Douglas A. Leone entered the securities industry in 1993. He associated with a dozen different firms before joining Newport Coast in October 2008. From October 2008 through March 2013, Leone was associated with Newport Coast. Leone worked from his home office but was part of a Long Island, New York branch of Newport Coast. Leone is currently associated with Salomon Whitney LLC.

FINRA Files Complaint Against Newport Coast Securities, Five Brokers, and Two Supervisors Over Churned Accounts

August 4, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating claims of churning and failure to supervise in wake of the allegations made by The Financial Industry Regulatory Authority (FINRA) concerning allegations that from September 2008, through May 2013, Newport Coast Securities, Inc. (Newport Coast) and five of its registered representatives excessively traded and churned 24 customers’ accounts. In addition, FINRA alleged that the representatives’ direct supervisors, including Marc Arena (Arena) and Roman Tyler Luckey (Luckey) and the firm’s Compliance Department managers knew what was transpiring but took no meaningful steps to curtail the misconduct. To the contrary, FINRA found that managers, a supervisor, and the firm’s former President profited through overrides on these churned accounts.

The five brokers named in the complaint are Douglas Leone (Leone), Andre LaBarbera (LaBarbera), David Levy (Levy), Antonio Costanzo (Costanzo), and Donald Bartelt (Bartelt). FINRA alleged that the misconduct by the brokers was so extreme and egregious in nature that it should have quickly drawn scrutiny and been stopped. FINRA alleged that the brokers’ trading caused numerous “red flags” of misconduct including: (i) cost-to-equity ratios often over 100%; (ii) turnover rates often over 100; (iii) extraordinary amounts of in-and-out trading; (iv) customer accounts were highly margined and often concentrated in one security; (v) large numbers of transactions where the total commission/markup per trade exceeded 3% or 4%; (vi) there was a deceptive mix of riskless principal and agency trading in numerous accounts with higher cost trades generally exceeding $1,000 per trade were executed on a riskless principal basis whereas lower cost trades, typically involving sales of the same securities, were executed on an agency basis; (vii) inverse and/or leveraged Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) remained in accounts for multiple trading sessions; (viii) solicited trades were inaccurately characterized as unsolicited; and (ix) nearly all of the customer accounts exhibited large losses.

FINRA also alleged that after FINRA Enforcement issued Wells Notices, Levy and Costanzo attempted to dissuade some of their customers from cooperating with FINRA’s investigation. In one instance, Costanzo offered to compensate a customer for his losses but conditioned his offer on the customer’s signing a letter stating that he would not testify at a hearing. In another instance, FINRA found that Levy traveled to Logan, Iowa, to tell a customer that he would not receive any restitution if the broker wound up barred but promised the customer that he would assist in the preparation of a claim against Newport Coast if the customer signed a letter informing FINRA that the customer would not participate in a disciplinary hearing.

Broker Kevin Nevin Sanctioned Over Alleged Sales of Private Securities Transactions

August 4, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Kevin Nevin (Nevin) concerning allegations that Nevin participated in 11 private securities transactions totaling $690,000 over the course of two years without first disclosing his participation his member firm. Through this conduct, FINRA found that Nevin violated NASD Conduct Rules 3040 and 2110.

Nevin entered the securities industry in 1994 and is currently a representative of Capital Guardian, LLC. In March 2006, Nevin became associated with VSR Financial Services (VSR) until February 2011, when he was terminated. In addition, to the recent FINRA complaint, Nevin has also been subject to three customer complaints. Some of the customer complaints concern allegations of unsuitable sales practices and securities fraud concerning variable annuities. Another customer complaint concerns the recommendation of oil & gas and real estate related private placements.

FINRA alleged that during part of the time he was registered with VSR, Nevin operated out of an office with another VSR registered representative referred to by the initials “PL.” FINRA found that PL was involved with at least three private placement offerings involving real estate and/or appurtenant property rights entities in the state of Colorado: Breakwater Capital Group, LLC; Yokam Land Holdings, LLC; and South Platte Land & Water, LLC. FINRA found that PL assured Nevin that he had informed VSR of the involvement in the Colorado water rights and real estate activity and that the private placement offerings were conducted entirely under the operations of PL’s real-estate agency. According to FINRA, PL told Nevin that he could recommend investments in these offerings to his customers and earn commissions on any ensuing investments if he obtained a real-estate license.

FINRA Sanctions Michael Wurdinger and Anil Vazirani Over GWG Debenture Sales

August 1, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating claims concerning allegations made by the Financial Industry Regulatory Authority (FINRA) that Michael Wurdinger (Wurdinger), from approximately February 2012, to February 2013, Wurdinger failed to adequately supervise sales of GWG Renewable Secured Debentures (GWG), an illiquid and high-risk alternative investment in violation of NASD Rule 3010 and FINRA Rule 2010. As a result of FINRA’s investigation Wurdinger was suspended for six months.

Wurdinger was associated as a securities principal with Center Street Securities, Inc. (Center Street) from June 2009, until April 2013, when he resigned. Since November 4, 2013, Wurdinger has been associated as with Wells Fargo Advisors, LLC. Center Street has 84 registered representatives and 67 branches offices nationwide.

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. GWG then collects the face value of the insurance benefit and the company hopes 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.

James Applewhite Fined Over Allegations of Unauthorized Discretionary Trading

July 31, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned financial advisor James Applewhite (Applewhite) concerning allegations that from about January 2010, through October 2012, Applewhite exercised discretion by effecting approximately 171 transactions in eight customer accounts without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary accounts as required by NASD Rule 2510(b). FINRA found that the discretion was generally exercised pursuant to a strategy previously agreed upon with the customers. Nonetheless, FINRA alleged the firm did not permit discretionary trading, except for managed accounts, with pre-approved written discretion. As a result FINRA found that Applewhite violated NASD Rule 2510(b) and FINRA Rule 2010.

Applewhite entered the securities industry in November 1983. During all periods mentioned in the FINRA finding he was associated with Wells Fargo Advisors, LLC. Applewhite’s employment with Wells Fargo ended on October 22, 2012. Thereafter, Applewhite became registered with BB&T Securities, L.L.C f/k/a Scott & Stringfellow, LLC.

The allegations made against Applewhite constitute unauthorized trading. Unauthorized trading occurs when a broker sells, buys, or exchanges, securities without the prior consent or authority from the investor. Unless an investor gives discretion to make trades, the broker must first discuss all trades with the investor before executing them. Even if the a customer verbally grants a broker discretion such an agreement is not valid under industry rules The SEC has found that unauthorized trading also constitutes securities fraud due to its fraudulent nature. No omission of information could be more material than the failure to inform the investor of his or her own purchases and sales.