Securities Lawyers Blog

Wells Fargo Must Pay $3.4 million for Selling Investments It Didn’t Understand

October 24, 2017 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has ordered Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC to pay more than $3.4 million in restitution to customers for alleged unsuitable recommendations of volatility-linked exchange-traded products (ETPs) and supervisory failures, according to InvestmentNews.

FINRA found that between July 1, 2010, and May 1. 2012, “certain Wells Fargo reps recommended volatility-linked ETFs and ETNs without fully understanding their risks and features.”

According to FINRA, “certain Wells Fargo representatives mistakenly believed that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn. In fact, volatility-linked ETPs are generally short-term trading products that degrade significantly over time and should not be used as part of a long-term buy-and-hold investment strategy.”

Advisor Scott Newsholme Accused of Stealing More than $1 Million From Clients

October 16, 2017 | by Staff Attorney

According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor Scott Newsholme (Newsholme), in September 2017, was accused by the Securities and Exchange Commission (SEC) of stealing more than $1 million from his clients. Newsholme’s problems began back in July 2014 when he was terminated by his then employer SII Investments, Inc. (SII). SII stated that Newsholme was terminated due to allegations that Newsholme stole her IRA assets and engaged in private securities transactions.

In addition to being an investment advisor, Newsholme is a tax preparer, accountant, and the proprietor of MVP Financial LLC in Howell, New Jersey. Between 2002 and 2010 Newsholme was president of two predecessor tax, accounting, and financial planning firms in Matawan, New Jersey – Newley Financial Group, Inc. and Newsholme Financial Center LLC.

In September 2014, FINRA brought an action against Newsholme and ultimately barred him from the industry when Newsholme failed to respond to information requests concerning the issues raised in his SII termination. In June 2015, the State of New Jersey revoked Newsholme’s securities license and imposed an $85,000 fine stating that Newsholme egage in unethical business practices.

Advisor David Zier Investigated Over ZAM Fund Investment Scheme

October 16, 2017 | by Staff Attorney

According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor David Zier (Zier), in October 2014, was terminated by his then employer City National Securities, Inc. (City National) and was under investigation by the Securities and Exchange Commission (SEC) and FINRA. Zier was the CEO of Convergent Wealth Advisors (Convergent) through which he allegedly solicited clients for a private fund he managed called ZAM LLC (ZAM). According to regulators, from 2007 to 2014 Zier falsely told clients ZAM was profitable and gave them fabricated account statements that concealed the fund’s losses.

In October 2014, Zier was found dead in an apparent suicide. Zier’s death occurred just weeks after Convergent’s compliance officers became suspicious of the ZAM fund and began to question Zier about irregularities in ZAM’s records. It is currently unknown the total fund losses but at one time the fund had $20 million. According to the U.S. Commodity Futures Trading Commission (CFTC) Zier fraudulently solicited $2.9 million in investments in ZAM.

The allegations appear to be a value manipulation scheme that often turn into Ponzi schemes. In value manipulation frauds investment advisors provide clients with misstatement of the values of securities for the purposes of either inducing investors to continue to purchase the investment or to retain their investment position in the security. The value of a security is material information to every investor. Value manipulation schemes are most common where the securities are thinly traded or not traded at all on regular securities exchanges and the broker is the only source of information. In these cases where the asset is not regularly traded, advisors and firms may be given authority to set the value of the securities and otherwise have control over what is communicated to clients.

Advisor William Glaser Under FBI Investigation in Connection With Paul Creager Real Estate Securities

October 15, 2017 | by Staff Attorney

According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor William Glaser (Glaser), in September 2017, was accused by FINRA of failing to cooperate in an investigation into the circumstances surrounding Glaser’s termination by National Panning Corporation (National Planning). National Planning terminated Glaser in June 2017 after alleging it had received an arbitration claim alleging that Glaser had solicited a private investment away from the firm. Glaser operated his securities business through a dba called Legacy Wealth Advisors, Inc.

The private investments Glaser was participating appear to be connected to the arrest of Paul Creager (Creager) in August 2017. Creager has been indicted on two felony counts of wire fraud. According to the indictment Creager financed his development company through promissory notes and by selling interests in his companies to investors. The indictment claims that Creager misled investors by failing to disclose that Financial & Marketing Solutions LLC had lent him more than $3.2 million and had a priority secured position in his real estate developments. It appears that some of the investors were brought to Creager through Glaser.

The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.

Advisor Bruce Barber Barred By FINRA After Engaging in Private Securities Transactions

October 15, 2017 | by Staff Attorney

According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor Bruce Barber (Barber), in September 2017, was accused by FINRA of engaging in an undisclosed outside business activity by serving as an advisor to the Board of Directors for ABC, LLC (ABC) and being compensated by the company with warrants. According to FINRA, Barber solicited 15 clients to invest in ABC’s private securities offering. At this time it unknown the full extent and scope of Barber’s outside business activities.

In February 2017, Barber’s then employer Securities America, Inc. (Securities America) terminated him stating Barber solicited customers to purchase an unapproved securities product and participated in an unapproved outside business activity.

The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.

Financial Advisor Jay Jordan Barred Over Risky EFT Trading Leading to $8.4 Million in Losses

October 14, 2017 | by Staff Attorney

According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor Jay Jordan (Jordan), in August 2017, was sanctioned by FINRA and had a permanent bar imposed in connections with allegations of unsuitable investments in leveraged exchanged traded funds (Non-Traditional ETFs) based on the investor’s investment objectives, financial situation, risk tolerance, experience, and investment needs. Jordan was previously terminated by his employer WFG Investments, Inc. (WFG). WFG stated that Jordan was terminated due to his failure to follow certain policies of the firm including reporting a customer complaint, unauthorized use of personal email, and mischaracterization of an outside business activity.

In addition, Jordan has been subject to 14 customer complaints concerning his securities activity. These investors have alleged millions in losses most likely stemming from FINRA’s allegations of unsuitable Non-Tradition ETF trading.

According to FINRA, Jordan become convinced that an economic crisis or stock market collapse was imminent and recommended concentrated Non-Traditional ETFs so that they clients could benefit from rising oil prices, rising interest rates, and declining equity values. FINRA alleged that in June 2012, Jordan made widespread recommendations to his customers that they purchase Non-Traditional ETFs including: (1) UWTI (three times the daily performance of the S&P GSCI Crude Oil Index ER); (2) BOIL (two times the daily performance of the Bloomberg Natural Gas Subindex); and UGAZ (three times the daily performance of the S&P GSCI Natural Gas Index); (3) TBT and TMV (two and three times, respectively, the daily performance of the inverse of the ICE U.S. Treasury 20+ Year Bond Index); (4) SDS (two times the inverse of the daily performance of the S&P 500); (5) QID (two times the inverse of the daily performance of the NASDAQ-100 index); and (6) VIXY (matches the performance of the S&P 500 Short-Term Futures Index, which seeks to measure short-term volatility).

Former RBC Advisor Patrick Hudson Sanctioned Over Real Estate Sales

October 13, 2017 | by Staff Attorney

According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor Patrick Hudson (Hudson), in June 2015, was terminated by his then employer RBC Capital Markets (RBC). RBC stated that Hudson was terminated due to undisclosed outside business activities and the sale of unapproved products.

Thereafter, in August 2017, FINRA brought action against Hudson finding that Hudson participated in private securities transactions in the form of promissory notes, without providing written notice or seeking written from RBC. FINRA found that Hudson’s outside real estate business entered into a series of promissory notes away from the firm totaling $490,000. In addition, Hudson participated in multiple outside businesses without providing prior written notice to the firm. FINRA determined that on at least 21 occasions Hudson sent letters on firm letterhead to various third-parties for the purpose of verifying the assets of firm customers but that Hudson failed to submit these letters to the firm’s operations support department for supervisory review.

The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.

Advisor Peter Doyle Sanctioned by FINRA Over Unauthorized Trading

October 13, 2017 | by Staff Attorney

According to BrokerCheck records financial advisor Peter Doyle (Doyle), formerly associated with Morgan Stanley, has been subject to three customer complaints, one employment termination for cause, and one regulatory action. According to records kept by The Financial Industry Regulatory Authority (FINRA) Doyle has been accused by customers of unsuitable investment advice and unauthorized trading among other claims.

Doyle was barred by FINRA in July 2017 when he refused to appear for FINRA testimony in connection with its investigation into the conduct that led to his termination from Morgan Stanley. Morgan Stanley had terminated Doyle in June 2016 after it made allegations involving adherence to industry rules and use of trading discretion. The most recent complaint filed in February 2017 alleged unsuitable recommendations from June 2008 through June 2016. The claim settled for $600,000.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

Strategic Realty Trust Investment Loss Options

October 12, 2017 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating investor losses in Strategic Realty Trust (SRT), a non-traded real estate investment trust (Non-Traded REIT). SRT is a non-traded REIT focused on owning high quality west coast urban and street retail properties. The company states that its strategy is to build a portfolio of retail properties with solid growth prospects, strong cash flows, and visible value appreciation characteristics.

According to a secondary market providers which allow investors to bid and sell illiquid products such as Non-Traded REITs, SRT sells for just under $5.00 per share – a significant loss on the original purchase price of $10.00.

Our firm often handles cases involving direct participation products (DPPs), private placements, Non-Traded REITs, and other alternative investments. These products are almost always unsuitable for middle class investors. In addition, the brokers who sell them are paid additional commission in order to hype inferior quality investments providing perverse incentives for brokers to sell high risk and low reward investments.

Susan Welo Sanctioned By the State of North Dakota Over Securities Advice

October 12, 2017 | by Staff Attorney

Former Cetera Advisor Networks LLC (Cetera) broker Susan Welo (Welo) has been subject to nine customer complaints, one employment separation for cause, and one regulatory action. According to a BrokerCheck report Welo was terminated by Cetera after the firm alleged that Welo failed to disclose to firm that Welo provided a loan to a client while at a prior broker-dealer. In addition, Cetera claimed that Welo violated firm policies by accepting blank signed forms from clients and permitting assistant to sign representative’s name to various documents.

In addition, the State of North Dakota alleged that Welo acted as an unregistered securities agent by handling client funds and make investment recommendations.

Many of the complaints concern alternative investments, private placements, and direct participation products (DPPs) such as non-traded real estate investment trusts (REITs). Our firm has experience handling investor losses caused by these products.