Securities Lawyers Blog

Senator Warren proposes 21st Century Glass-Steagall Act

November 27, 2013 | by Staff Attorney

On November 12, 2013, Senator Elizabeth Warren warned that the “too big to fail” problem has only worsened since the 2008 financial crisis. JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc., and Well Fargo & Co. each hold more than half of the total banking assets in the country. As large concentrations of wealth reside with a small number of banks, the possibility of another financial crisis looms unless certain reforms are implemented.

While the big banks become more concentrated and more complex, the Dodd-Frank Act’s implementation struggles. The agencies implementing the Dodd-Frank Act have missed more than 60% of the deadlines even though regulators continue to meet with various banks. Not only are regulators dragging their feet, but also the House recently passed two bills to delay provisions of the Dodd-Frank Acts. The Retail Investor Protection Act (RIPA) prevents the Department of Labor from defining circumstances under which an individual is considered a fiduciary. The Swaps Regulatory Improvement Act (SRIA) amends the swaps push-out requirement. The two bills passed by the House compound the delays of the regulatory implementation.

Although the House continues to hinder the Dodd-Frank Act, Senator Warren believes Congress needs to step in order to prevent another financial crisis. Senator Warren along with Senators John McCain, Maria Cantwell and Angus King urges the passage of the “21^st Century Glass-Steagall Act.” As Senator Warren stated, the new Glass-Steagall Act, “would reduce failures of the big banks by making banking boring, protecting deposits, and providing stability to the system even in bad times.”

Coker & Palmer Broker Sanctioned Over Allegations of Failure to Conduct Due Diligence on Private Placement Offering

November 26, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Michael A. Barina (Barina) over allegations that Barina failed to conduct reasonable due diligence into the offering a private placement security. In addition, FINRA alleged that the broker commingled certain funds.

Barina first became registered with FINRA in 1999. Barina was registered from November 13, 2009, through November 14, 2011, with Coker & Palmer, Inc. (Coker & Palmer). In November 2011, Barina became registered with Aegis Capital Corp. until May 2013. Thereafter, Barina was registered with Merrimac Corporate Securities, Inc. until October 2013.

Brokerage firms and brokers are responsible for conducting due diligence on all securities recommended by a broker. The due diligence requirement is heightened where the investment recommendation is a private placement offering or other type of non-public offering where there is no public information available and brokerage firm is acting as the underwriter of the securities.

Wells Fargo Sanctioned by FINRA Over Allegations of Supervisory Failures

November 25, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Wells Fargo Advisors, LLC (Wells Fargo) and imposed a $150,000 fine over allegations that the firm failed to establish, maintain and enforce a supervisory system that was reasonably designed to adequately review and monitor the transmittal of funds from the accounts of customers to third party accounts in violation of NASD Rules 3010, 3012(a)(2)(B)(i) and FINRA Rule 2010.

Wells Fargo is a FINRA member and a full service broker-dealer with its principal offices located in St. Louis, Missouri. Wells Fargo employs over 20,000 registered individuals and maintains over 7,000 registered locations.

Under FINRA Rule 3010, a brokerage firm owes a duty to properly monitor and supervise its employees. The rule states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…”

SEC Order Finds That Former JP Turner Broker Jason Konner Engaged In Churning

November 22, 2013 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently found that broker Jason Konner (Konner) churned the brokerage account of James Carlson (Carlson). The SEC decision ordered Konner to: (1) cease and desist from committing fraud; (2) be barred from association with a broker, dealer, investment adviser, (3) disgorge $55,000 plus prejudgment interest, and (4) pay civil penalties of $150,000. In addition, at least three customer complaints have been initiated against Konner alleging churning, unsuitable investments, fraud, and breach of fiduciary duty.

The SEC allegations against Konner also involved several other J.P. Turner & Company, LLC (JP Turner) registered representatives including Michael Bresner (Bresner), Ralph Calabro (Calabro), and Dimitrios Koutsoubos (Koutsoubos). The SEC alleged that Calabro, Konner, and Koutsoubos between January 1, 2008, and December 31, 2009, churned the accounts of seven customers by engaging in excessive trading for their own gains in disregard of their clients’ investment objectives and risk tolerances. The SEC claimed that Calabro, Konner, and Koutsoubos generated charges totaling approximately $845,000, for their benefit while the clients suffered aggregate losses of approximately $2,700,000.

JP Turner is a registered broker-dealer headquartered in Atlanta, Georgia, with two majority owners. From 2008 to 2009, JP Turner had approximately 200 small or one-person branch offices. Konner joined JP Turner in 2006 and left in December 2011. Thereafter, Konner became employed with DPec Capital.

Former Merrill Lynch Broker David Zeng Barred From the Financial Industry

November 21, 2013 | by Staff Attorney

David G. Zeng (Zeng) was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that the broker failed to respond to the regulator’s inquiries concerning at least a dozen customer disputes initiated against the broker. The customer complaints against Zeng include claims of misrepresentations, fraud, unsuitable investments, and unauthorized trading concerning stock investments.

It is also possible that Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), Zeng’s employing firm during the majority of the customer complaints, failed to properly supervise Zeng’s securities activities. Under FINRA Rule 3010, a brokerage firm is obligated to properly monitor and supervise its employees. The rule states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…” Thus, brokerage firms are responsible for monitoring a broker’s investment recommendations to clients, outside business activities, and representations to investors.

Zeng became registered with FINRA in 2001 at Morgan Stanley Dean Witter Inc until June 2005. From June 2005 until May 2009, Zeng was associated with UBS Financial Services, Inc. Thereafter, from April 17, 2009, until December 20, 2011, Zeng was employed by Merrill Lynch and worked out of the firm’s Santa Fe, New Mexico office.

Mark F. Spangler Convicted of Fraud and Money Laundering

November 20, 2013 | by Staff Attorney

A well-known investment adviser, Mark F. Spangler (“Spangler”), was convicted by a federal jury of 32 criminal counts of wire fraud, money laundering and investment advisor fraud. He defrauded friends and family by diverting their investments into two-risky startup companies. U.S. Attorney Mark Durkan stated, “This defendant used his position of trust as a tool to cheat his clients out of money for their mortgages, their children and grandchildren’s education, their retirement and plans for charitable giving.”

Spangler’s illicit activity was uncovered after a FBI raid of his house in September 2011. While investors faced insurmountable losses, Spangler used their money to investment in startup companies and to live a life of luxury. At trial the evidence and witness testimony established that Spangler repeatedly violated his fiduciary duty as an investment adviser by misleading investors about where their money was invested. Spangler supplied investors with false quarterly statements with inflated values for their accounts. He told clients that their assets were valued at $73 million; however the actual value recovered was approximately $28 million. By falsifying account statements to clients, investors suffered a substantial loss of $45 million.

In certain situations, when an investor requested to liquidate accounts, Spangler paid out these investors with capital raised by new investors. The Ponzi scheme began to unravel as the private fund was unable to satisfy redemption requests. Eventually, the Spangler Group filed for receivership proceedings. Receivership occurs when a company cannot meet its financial obligations or enters into bankruptcy. The filing for receivership in state court by the Spangler Group was a red flag for the SEC and the U.S. Attorney’s Office.

SEC Finds that Former JP Turner Broker Ralph Calabro Churned A Client’s Account

November 19, 2013 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently found that broker Ralph Calabro (Calabro) churned the brokerage account of Dudley Williams (Williams). The SEC decision ordered Calabro to: (1) cease and desist from committing fraud in violation of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5; (2) be barred from association with a broker, dealer, investment adviser, (3) disgorge $282,000 plus prejudgment interest, and (4) pay civil penalties of $150,000. In addition, at least six customer complaints have been initiated against Calabro alleging churning, unsuitable investments, fraud, and breach of fiduciary duty.

The SEC allegations against Calabro also involved several other J.P. Turner & Company, LLC (JP Turner) registered representatives including Michael Bresner (Bresner), Jason Konner (Konner), and Dimitrios Koutsoubos (Koutsoubos). The SEC alleged that Calabro, Konner, and Koutsoubos between January 1, 2008, and December 31, 2009, churned the accounts of seven customers by engaging in excessive trading for their own gains in disregard of their clients’ investment objectives and risk tolerances. The SEC alleged that Calabro, Konner, and Koutsoubos generated commissions, fees, and margin interest totaling approximately $845,000, while the clients suffered aggregate losses of approximately $2,700,000.

JP Turner is a registered broker-dealer headquartered in Atlanta, Georgia, with two majority owners. From 2008 to 2009, JP Turner had between 180 and 200 branch offices, most of which were small or one-person offices. There were approximately five hundred registered representatives in JP Turner’s offices in 2008 and 2009. Calabro joined JP Turner in 2004 and left in 2011. Thereafter, Calabro became associated with National Securities Corp. (National Securities) as a registered representative but not a securities principal. While at JP Turner, Calabro acted as a principal and registered representative in JP Turner’s Parlin, New Jersey office. Calabro’s customer base increased from ten in 2004 to seventy by 2010.

Michael Blake Sanctioned Over Sales of Real Estate Securities

November 17, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Michael James Blake (Blake) over allegations that Blake engaged in the unlawful sale of securities including, upon information and belief, securities linked to Longest Drive, LLC and Grace Communities, LLC. According to FINRA, Blake participated in private securities transactions involving the investment of more than $3.2 million by approximately 28 investors in 3 investment contracts without providing prior written notice to his firms of his proposed roles in the transactions. FINRA imposed a $10,000 fine and banned Blake from association with any broker-dealer for one year.

The allegations against Blake are consistent with a “selling away” violation. Selling away occurs when a securities broker solicits securities that were not approved by the broker’s affiliated firm. Selling away is a violation of FINRA Rule 3040. The most common securities sold away from brokerage firms involve private placements and promissory notes. Investors are often completed unaware that the broker’s sales activity is improper. In addition, the investor does not learn that the broker’s activities were wrongful until the investment scheme is publicized, the broker is sanctioned, or the broker stops returning client calls.

FINRA’s order states that between approximately February 2006 and June 2007, Blake recommended to customers to invest $3,200,000 in real estate properties being developed by entity “GC”, which is believed to stand for Grace Communities. The invested funds were provided by 28 investors. According to FINRA, 6 persons invested $250,000 in Development 1 between August and November 2006, 3 persons invested $200,000 in Development 2 in October and November 2006, and 23 persons invested approximately $2,755,000 in Development 3 between February 2006 and June 2008. According to FINRA, as of September 9, 2013, investors in Blake’s real estate investments have not received a return of their principal or any interest or other payments.

Have You Been a Victim of Securities Fraud?

November 15, 2013 | by Staff Attorney

How do you know if you have been the victim of securities fraud? The answer to this question usually begins with the feeling that something is not right with your investments. Maybe your broker is all of a sudden dodging your calls or having their subordinate answer their calls. Perhaps your broker told you that an investment would become payable to you at a certain point and despite the fact that the time for payment has long come and past, nothing seems to have happened. Its often hard to believe that the person you trusted with your savings or retirement has lied and let you down.

Securities fraud describes a whole genera of inappropriate investment activity. In some instances the broker may sell a customer a security by falsely representing the properties of the security including its terms by either written or oral statements. The broker may also provide misleading marketing materials in connection with the sales pitch. Under the securities laws misrepresentations or omissions of fact are material if a reasonable investor might have considered the fact important in the making of the investment decision. Thus, brokers have a duty to truthfully disclose all material information to an investor in order to evaluate the recommendation being made.

Other types of securities frauds involve some form of broker theft such as in cases of churning (excessive trading) or Ponzi schemes. In the case of churning, the broker engages in investment trading activity that is excessive and serves little useful purpose and is conducted solely to generate commissions for the broker. While Ponzi schemes involve the diverting of securities funds meant to be used for a certain investment purpose. Instead the funds are diverted from the purpose represented to the investor to another purpose such as a different investment vehicle or straight into the Ponzi schemer’s pocket.

SEC Charges A Subsidiary of Royal Bank of Scotland with Misleading Investors in Subprime RMBS Offering

November 14, 2013 | by Staff Attorney

On November 7, 2013, the Securities and Exchange Commission (SEC) today charged RBS Securities Inc., a subsidiary of the Royal Bank of Scotland plc, with misleading investors in a 2007 subprime residential mortgage-backed security (RMBS) offering. RBS agreed to settle the matter and pay more than $150 million, which the SEC will use to compensate investors for harm suffered as a result of RBS’s conduct.

According to the SEC, RBS told investors that the loans backing the offering “generally” met the lender’s underwriting guidelines even though more than 25% did not comport with the stated guidelines and should have been entirely excluded form the offering. RBS, then known as Greenwich Capital Markets, quickly reviewed a very small portion of the loans and was paid approximately $4.4 million for its work as the lead underwriter on the transaction, the SEC said in a complaint filed in federal court in Connecticut.

“In its rush to meet a deadline set by the seller of these loans, RBS cut corners and failed to complete adequate due diligence, with predictable results,” said George S. Canellos, co-director of the SEC’s Division of Enforcement. “Today’s action punishes that misconduct and secures more than $150 million in relief for those harmed by this shoddy securitization.”