Securities Lawyers Blog

FINRA Sanctions Larry Steven Werbel for Selling Away and Other FINRA Violations

June 4, 2014 | by Staff Attorney

On March 10, 2014, Larry Steven Werbel submitted a Letter of Acceptance, agreeing to accept the sanctions handed down by the Financial Industry Regulatory Authority (FINRA) for alleged violations relating to the sale of penny stocks during his tenure at LPL Financial, LLC.

Larry Werbel entered the securities industry in 1976 as a Series 1, Registered Representative at Cigna Financial Advisors, Inc., where he was employed for twenty years. Thereafter, in February 2009, after a thirteen-year stint at FSC Securities Corporation, Werbel began working for LPL Financial, until his termination in February 2011.

During a three-week period, spanning from on or about October 26, 2010 through on or about November 17, 2010, while registered with LPL Financial, Werbel allegedly solicited eight customers to invest in QLotus Holdings Inc. (“QLTS”), a low-priced security that Werbel himself had previously purchased. According to FINRA, Werbel’s firm, LPL Financial, prohibited the solicitation of low-priced securities, such as QLTS, and so Werbel coded the QLTS sales as unsolicited despite the fact that they were all solicited. Werbel’s improper coding caused LPL’s books and records to be inaccurate in violation of NASD Rule 3110(a).

Gana LLP Files Claim Against First Allied Securities on Behalf of Luxtera Investors

June 2, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP filed a complaint with the Financial Industry Regulatory Authority (FINRA) on behalf of four investors against First Allied Securities, Inc. (First Allied) concerning broker Amram a/k/a Rami Yahalom’s solicitation and sale of Advanced Equities private placements. According to the complaint, First Allied and Yahalom sold the investors AE Luxtera Investments II, LLC (Luxtera), a private placement in a technology start-up company by misrepresenting Luxtera’s prospects and failing to conduct even basic due diligence on the company before recommending the investment to clients.

In the context of a Regulation D offering, FINRA requires broker-dealers to conduct a reasonable investigation of the issuer and the securities they recommend in offerings. The investors alleged that First Allied failed to meet FINRA’s due diligence requirements and made representations that were misleading. The investors alleged that Yahalom and First Allied marketed Luxtera and other private placements as “late stage equities” that were a mere 12-36 months from going public through an IPO. Luxtera was also allegedly sold to customers under the false premise that the company would provide “Higher near-term investment returns than the public equity markets” while providing “Greater short-term liquidity and lower risk profiles.”

However, according to the complaint, these representations were misleading and false. The complaint alleged that First Allied sought to raise $43 million for Luxtera based on a $175 million valuation that was 22 times Luxtera’s projected 2008 revenues. In addition, the investors alleged that while First Allied knew that Luxtera had only achieved $1 million in sales as of November 30, 2008, their broker provided them with a slide-show presentation that projected 2009 sales as high as $89,447,500 and 2010 sales could reach $341,883,000. The complaint alleged that First Allied lacked a good faith basis to believe that Luxtera would experience 8,945% sales growth in one year and 34,188% sales growth over the next two years when the company was then suffering losses in excess of $30 million a year.

Broker Robert Acri Barred Over Failure to Respond to FINRA Investigation

May 30, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Robert Acri (Acri) concerning allegations that in December 2013, and January 2014, Acri failed to fully respond to a Rule 8210 request for documents and information concerning Acri’s sale of alternative investments and promissory notes.

Acri first entered the securities industry in 1988. From December 2007 through April 2009, Acri was associated with Chicago Investment Group, LLC. After that, he was representative with Spyglass Securities, LLC from June 2010 through June 2011. Acri was last associated with World Equity Group, Inc. from June 25, 2012 through June 6, 2013. World Equity Group terminated Acri by a Form U5 filed on June 10, 2013.

According to Acri’s BrokerCheck Acri listed his outside business activities as being involved in The Synergy Fund, Synergy Private Capital Fund, Kam Private Fund all of which is listed as investment related. In addition, the disclosures state that Acri is the president of IRCA Coporation.

Ameriprise Advisor Michael Hainsworth Sanctioned Over Misleading REIT Sales

May 29, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Ameriprise Financial Services (Ameriprise) broker Michael Hainsworth (Hainsworth) concerning allegations that the broker made certain misrepresentations and unbalanced statements in the sale of non-traded real estate investment trusts (REITs) by sending emails to potential investors that failed to provide a sound basis for evaluating the facts.

Hainsworth has been a broker in the securities industry since 1994. From 2007 through June 2009 Hainsworth was associated with Prime Capital Services, Inc. Thereafter, he was associated with brokerage firm Securities America, Inc. from July 2009 through September 2011. Finally, he was associated with Ameriprise from May 2009, through April 2012. Thereafter, Ameriprise filed a Form U5 Uniform Termination Notice stating that Hainsworth had been terminated from Ameriprise.

FINRA alleged that between May and October 2010, Hainsworth sent emails regarding a REIT to four potential investors. FINRA found that the emails were misleading and failed to provide a sound basis for evaluating the facts of the investment. In one email, Hainsworth stated that “My recommendation is to take $50,000 out of the market in your Trust account and $50,000 out of your IRA and allocate it to the…REIT…This pays 6.25 and matures Dec 3lst, 2015.”

Former MML Investors and AXA Advisors Broker Monte Miron Barred From Brokerage Industry

May 28, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned MML Investors Services, LLC (MML Investors a/k/a MassMutual Life Insurance Company) broker Monte Miron (Miron) concerning allegations that Miron made unauthorized trades in client accounts and that the broker failed to disclose certain tax liens on his Form U4 in a timely manner.

Miron first became registered with member firm Dean Witter Reynolds Inc. in September 1982. Miron has been registered with 11 firms between October 1998 and August 2012. From 2005 to January 2008, Miron was associated with MetLife Securities Inc. From December 2007 through September 2012, Miron was a representative with AXA Advisors, LLC.

According to Miron’s brokerage disclosures the broker has had three customer complaints filed against him. The complaints involve allegations of account manipulation, excessive trading, and a misrepresentation concerning a variable annuity.

Broker Jeffrey Schrader Barred Over Selling Away Allegations

May 27, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Jeffrey Schrader (Schrader) concerning allegations that the broker engaged in private securities transactions and failed to cooperate with FINRA’s investigation.

Schrader entered the industry in June 1998. From November 2005, until March 2009, Schrader was associated with Merrill Lynch, Pierce, Fenner & Smith Inc. In March 2009, Schrader became associated with Western International Securities, Inc. (Western). Schrader conducts securities transactions on through his own business, Schrader Wealth Management.

FINRA found that between 2009 and 2010 Schrader, while associated with Western, engaged in over $145,000 worth of private securities transactions with three investors without providing written notice or receiving approval from Western. FINRA alleged that two of the nine investors were customers of Western at the time that their investment was made away from the firm.

FSC Securities Broker Timothy Moran Barred From Industry Over Involvement in Hampton Capital Management

May 23, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred FSC Securities Corporation (FSC Securities) broker Timothy Moran (Moran) concerning allegations that the broker: (1) engaged in private securities transactions without providing his employer with prior written notice; (2) failed to respond to FINRA requests for information; (3) provided false information to FINRA; and (4) failed to disclose a tax lien on a Form U4. Moran was ordered to disgorge $200,000, in ill-gotten gains in addition to the bar.

Moran was first became employed in the securities industry in February 1993. From June 2008, through April 2010, Moran was associated with Cambridge Investment Research, Inc. Thereafter, from May 2010, until December 2011, Moran was registered through his association with FSC Securities. On December 9, 2011, FSC Securities filed a Uniform Termination Notice (Form U5) terminating Moran’s registration. FSC filed an amended Form U5 filing in which the firm disclosed that it had terminated Moran’s employment while he was under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct. FSC Securities also reported that Moran had referred clients to an unapproved investment fund.

FINRA alleged that Moran engaged in private securities transactions without providing FSC Securities with written notice in violation of NASD Conduct Rule 3040 and FINRA Conduct Rule 2010. During 2010, FINRA found that Moran subleased office space to Thomas Hampton. Hampton allegedly used the space to operate a private hedge fund, Hampton Capital Management (HCM). Moran was also found to have loaned Hampton money to help start HCM. HCM purportedly bought and sold exchange traded funds based on a proprietary trading strategy implemented by a computer program.

Mislead into Investing in Tenants-in-Common (TIC) Property?

May 22, 2014 | by Staff Attorney

The sales of Tenants-in-Common (TIC) interests grew significantly during the early 2000s from approximately $150 million in 2001 to approximately $2 billion by 2004. The Financial Industry Regulatory Authority (FINRA) has noted that TICs are illiquid investments for which no secondary market exists and that subsequent sales of the property may occur at a discount to the value of the real property interest. FINRA has also warned that the risk that the fces and expenses charged by the TIC sponsor can outweigh the potential tax benefits associated with a Section 1031 Exchange. FINRA also instructed members that they have an obligation to comply with all applicable conduct rules when selling TICs by ensuring that promotional materials used are fair, accurate, and balanced.

According to FINRA former brokerage firm CapWest Securities, Inc., (CapWest) violated industry content standards in communications with the public. FINRA found that the communications: (1) were not fair and balanced and failed to provide a sound basis for evaluating TIC investments being promoted; (2) used exaggerated and or misleading statements; (3) used prohibited statements by projecting the results of the products being promoted; and (4) used customer testimonials without proper disclosures. FINRA also found that CapWest violated supervisory standards by failing to implement effective supervisory procedures. FINRA found that all of these violations and conduct were inconsistent with just and equitable principles of trade.

FINRA’s investigation involved CapWest’s promotion and sales of Section 1031 Exchanges and TIC investments that started being sold in the early 2000s. CapWest made public communications to promote tax-deferred exchanges of real property under Section 1031 of the Internal Revenue Code (IRC) as well as TIC investments. The IRC permits an investor to defer paying capital gains tax on the sale of real estate held for use for investment by exchanging the investment for “like-kind” property of equal or greater value.

Sales of Non-Traded REITs Contributes to Increased Broker Dealer Revenues

May 21, 2014 | by Staff Attorney

Despite the broad market’s recent volatility, 2013 brought the twenty-five largest independent broker dealers double-digit revenue growth on average, according to an Investment News report. After a weak 2012, these independent broker dealers roared to a 13.2% year over year increase in revenue, recording $18.46 billion in 2013 according to this year’s Investment News survey.

The overall strength of the S&P 500, gaining 29.6% in 2013 was one contributing factor to the 2013 success of independent broker dealers. The other factor however, was a flood of commissions generated from record sales of alternative investment products, namely non-traded real estate investment trusts (REITs). As Eric Schwartz, chief executive of Cambridge Investment Research explained, “There were two reasons for last year’s results. The stock market was up 30%, and there was an unusually high percentage of dollars in alternatives and REITs being sold. Remember, a number of REITs had public listings, and clients reinvested back into other REITs.”

According to the Investment News survey, the top ten independent broker-dealers with the most growth from alternative investments include: (1) Independent Financial Group; (2) Triad Advisors; (3) Royal Alliance Associates; (4) National Planning Corp.; (5) First Allied Securities; (6) Lincoln Financial Network; (7) Cambridge Investment Research; (8) Commonwealth Financial Network; (9) Ameriprise Financial Services; 10) LPL Financial.

Wall Street Wants to Sell Private Equities to Average Joes

May 20, 2014 | by Staff Attorney

We now have the answer to what they will think up next. According to a New York Times article, one of Wall Street’s most exclusive investment products, sold to the wealthy, is moving toward the mainstream investor. Private equity funds. These vast pools of capital that buy and sell companies will become accessible to smaller investors if supports have their way under a plan being contemplated by the Nasdaq stock exchange.

The plan calls for a market where investors in private equity funds can sell their interests to individuals whose net worth falls short of the usual requirements for such investments. Today, private equity funds are limited by the Investment Company Act of 1940 limits their investors to “qualified purchasers,” or individuals with at least $5 million in investments.

Other rules that stand in the way of the sale of alternative investments to the masses include Regulations D. Under Regulation D, private placements can only be sold to “accredited investors.” Under Rule 501 an “accredited investor” is any person who has a net worth in excess of $1,000,000 — excluding residence — or has an annual income in excess of $200,000 in two most recent years.