Securities Lawyers Blog

Wunderlich Securities Broker Howard Brous Has 14 Regulatory Sanctions

January 26, 2017 | by Staff Attorney

Our securities fraud attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Howard Brous (Brous) currently associated with Wunderlich Securities, Inc. (Wunderlich) alleging unsuitable investments, common law fraud, and breach of fiduciary duty among other claims. According to brokercheck records Brous has been subject to six customer complaints, 14 regulatory sanctions, and one employment separation for cause. The majority of Brous’ regulatory sanctions involve multiple state regulators seeking heightened supervision plans and otherwise restricting Brous’ activities.

In August 2016 a customer filed a complaint stating that they had maintained an account with Brous for over 10 years and that his accounts were over concentrated in unsuitable securities. The customer alleged damages of $2,500,000. The claim is currently pending.

Brokers in the financial industry have the fundamental responsibility to treat investors fairly. This obligation includes making only suitable investments for their client. The suitable analysis has certain requirements that must be met before the recommendation is made. First, there must be reasonable basis for the recommendation for the investment based upon the broker’s and the firm’s investigation and due diligence. Common due diligence looks into the investment’s properties including its benefits, risks, tax consequences, the issuer, the likelihood of success or failure of the investment, and other relevant factors. Second, if there is a reasonable basis to recommend the product to investors the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives. These factors include the client’s age, investment experience, retirement status, long or short term goals, tax status, or any other relevant factor.

Brian Egan Barred By FINRA for Trading in Accounts Away From His Firm

January 25, 2017 | by Staff Attorney

Our securities fraud attorneys are investigating a complaint filed by The Financial Industry Regulatory Authority (FINRA) against Brian Egan (Egan) formerly associated with Independent Financial Group LLC (Independent Financial) alleging that the broker failed to disclose his trading activity in client accounts away from the firm. According to brokercheck records Egan has been subject to one employment termination for cause by Independent Financial in July 2015 for failing disclose personal trading in accounts away from the firm.

In August 2016 FINRA sanctioned Egan alleging that he consented to the entry of findings that Egan maintained and/or held trading authority in a total of 87 brokerage accounts for himself and over 60 customers at another brokerage firm. The customer accounts over which he held trading authority included both Egan’s family members and customers of his CPA business. FINRA found that Egan did not notify Independent Financial of his involvement in these accounts when he became associated with the firm, or at any other time. FINRA found that Egan exercised his trading authority in the accounts at the other firm to execute trades and to transfer funds and securities from certain of the customer accounts to his own accounts.

In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

Douglas Studer Barred By FINRA Over His Business Practices

January 25, 2017 | by Staff Attorney

Our securities fraud attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Douglas Studer (Studer) formerly associated with Kovack Securities Inc. (Kovack) alleging unauthorized trading among other claims. According to brokercheck records Studer has been subject to two customer complaints, one bankruptcy in 2010, and one regulatory sanction resulting in a permanent bar from the securities industry.

In September 2016 FINRA sanctioned Studer alleging that he consented to the entry of findings that he refused to appear for testimony concerning an investigation into whether he had violated his employing member firm’s policy by being named in an elderly customer’s estate documents to inherit the customer’s waterfront condominium.

Brokers in the financial industry have the fundamental responsibility to treat investors fairly. This obligation includes making only suitable investments for their client. The suitable analysis has certain requirements that must be met before the recommendation is made. First, there must be reasonable basis for the recommendation for the investment based upon the broker’s and the firm’s investigation and due diligence. Common due diligence looks into the investment’s properties including its benefits, risks, tax consequences, the issuer, the likelihood of success or failure of the investment, and other relevant factors. Second, if there is a reasonable basis to recommend the product to investors the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives. These factors include the client’s age, investment experience, retirement status, long or short term goals, tax status, or any other relevant factor.

FINRA Bars Perry De Leeuw Over Private Securities Sales

January 21, 2017 | by Staff Attorney

Our firm is investigating claims made by The Financial Industry Regulatory Authority (FINRA) against broker Perry De Leeuw (De Leeuw) – a/k/a Perry De Leeun, Perry Deleeuw. According to brokercheck, in June 2016 De Leeuw failed to respond to FINRA’s requests for information resulting in a bar.

The FINRA investigation followed De Leeuw’s termination from his previous employer, PFS Investments Inc. (PFS Investments) in April 2016. At that time, PFS Investments terminated De Leeuw alleging that he engaged in unapproved outside business activities and failed to adequately cooperate with the firm in investigating a customer complaint.

That customer complaint filed in April 2016 alleged that in 2015 the customer invested $163,350 with De Leeuw to become a distributor for a company called Waterbos. In total De Leeuw has been subject to at least four customer complaints concerning outside business activities and private securities transactions.

FINRA Sanctions Adam Estes Over Private Securities Sales in Various Companies

January 21, 2017 | by Staff Attorney

Our firm is investigating claims made by The Financial Industry Regulatory Authority (FINRA) against broker Adam Estes (Estes). According to the FINRA action, Estes consented to the sanctions and findings that he participated in private securities transactions totaling over $1.2 million without providing prior written notice his brokerage firm – J.J.B. Hilliard – nor sought the firm’s permission to participate in several businesses. According to FINRA, Estes also engaged in outside businesses which were formed by him and others without providing prior written notice to the firm. FINRA also alleged that Estes made misrepresentations and omissions concerning the private securities transactions and outside business activities in firm annual questionnaires and other compliance documents.

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”. Often times brokers who engage in this practice use outside businesses in order to market their securities.

Estes entered the securities industry in 2000. Since February 2000 Estes was registered with J.J.B. Hilliard out of the firm’s Bloomington, Indiana office location.

FINRA Accuses Neal Moon and Natalie Fogiel Of Selling Private Securities

January 21, 2017 | by Staff Attorney

Our firm is investigating claims made by The Financial Industry Regulatory Authority (FINRA) against brokers Neal Moon (Moon) and Natalie Fogiel Moon (Fogiel). According to the FINRA complaint, from February 2012 to August 2015, Moon participated in nine private securities transactions and Fogiel, his wife, participated in six private securities transactions in which six customers invested a total of $2.64 million in three different entities. FINRA claimed that Moon and Fogiel failed to provide Waddell and Reed (Waddell), their brokerage firm, with prior written notice of their participation in the private securities transactions.

Among the businesses that Moon and Fogiel are accused of soliciting clients to invest in include BOXX Technologies, NMN BOXX, Total Operating LLC, TO Investments, Hoffbrau Steaks, and CCBRAU, Ltd

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”. Often times brokers who engage in this practice use outside businesses in order to market their securities.

Dominic Tropiano Accused of Selling Unsuitable Leveraged ETFs

January 21, 2017 | by Staff Attorney

Our securities fraud attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Dominic Tropiano (Tropiano) currently not associated with any broker-dealer. The complaints against Tropiano allege unsuitable investments, unauthorized trading, fraud, and breach of fiduciary duty among other claims. Many of the complaints involve leveraged and non-traditional exchange traded funds (ETFs) securities. According to brokercheck records Tropiano has been subject to five customer complaints.

The most recent complaint was filed in August 2016 alleging investments in leveraged ETFs, violations of the Ohio Securities Act and FINRA rules, negligence, unsuitability among other claims. The complaint alleged $800,000 in damages and is currently pending.

As a background, non-traditional ETFs are speculative securities that are rarely appropriate for retail investors. Non-traditional ETFs are usually used by institutional investors engaging in sophisticated strategies. Non-traditional ETFs use a combination of derivatives instruments and debt to multiply returns on an underlining asset basket such as a stock, commodity, currency or other index. These funds often attempt to generate 2 to 3 times the return of the underlining asset class. Non-Traditional ETFs are also used to earn the inverse – or opposite – result of the return of the benchmark. Non-Traditional ETFs are generally designed to be used only for short term trading – in many cases for only holding the security for a single day.

Centaurus Broker Donnie Ingram Has Complaints Over REIT and Alternative Investments

January 20, 2017 | by Staff Attorney

Our investment attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Donnie Ingram (Ingram) currently associated with Centaurus Financial, Inc. (Centaurus) alleging unsuitable investments among other claims. According to brokercheck records Ingram has been subject to eight customer complaints. Many of the complaints involve direct participation products (DPPs) such as non-traded real estate investment trusts (REITs) and other alternative investments.

Our firm has experience representing investment fraud victims with these investments against Centaurus as well as other brokerage firms. See Gana Weinstein LLP Wins Arbitration Award On Behalf of Client Against Centaurus Financial. In that case, the Claimant alleged that the broker involved invested over $2,000,000 in exclusively high cost products and 50% of those investments were in alternative investments such as private placements, oil and gas partnerships, and REITs. The other 50% was invested in variable and equity-indexed annuities. Award Can Be Found Here.

All of these investments come with high costs and have historically underperformed even safe benchmarks, like U.S. treasury bonds. For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all. However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them and have created a large market for a failed product. Further, investor often fail to understand that they have lost money in these illiquid investments until many years after investing. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.

Jon Schmidhammer Barred by FINRA Over Allegations of Misappropriation of Funds

January 20, 2017 | by Staff Attorney

Our firm is investigating claims made by Stifel, Nicolaus & Company, Incorporated (Stifel Nicolaus) when the firm terminated broker Jon Schmidhammer (Schmidhammer). According to the firm, Schmidhammer was discharged in July 2016 after allegation were made that Schmidhammer resigned after his arrest for allegedly stealing money from a client.

According to Schmidhammer’s brokercheck records Schmidhammer has no disclosed outside business activities. 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”. Often times brokers who engage in this practice use outside businesses in order to market their securities.

In October 2016 a customer filed a complaint alleging that Schmidhammer engaged in unsuitable management of their accounts, unauthorized trading, breach of fiduciary duty, and conversion. The complaint alleges damages of $500,000. The claim is currently pending.

Centaurus Broker Bryon Martinsen Subject to Multiple Complaints Over Alternative Investments

January 20, 2017 | by Staff Attorney

Our investment attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against Bryon Martinsen (Martinsen) currently associated with Centaurus Financial, Inc. (Centaurus) alleging unsuitable investments, breach of fiduciary duty, misrepresentations, and fraud among other claims. According to brokercheck records Martinsen has been subject to five customer complaints, one judgment or lien, and one employment termination for cause. Many of the complaints involve direct participation products (DPPs) such as non-traded real estate investment trusts (REITs) and other alternative investments.

Our firm has experience representing investment fraud victims with these investments against Centaurus. See Gana Weinstein LLP Wins Arbitration Award On Behalf of Client Against Centaurus Financial. In that case, the Claimant alleged that the broker involved invested over $2,000,000 in exclusively high cost products and 50% of those investments were in alternative investments such as private placements, oil and gas partnerships, and REITs. The other 50% was invested in variable and equity-indexed annuities. Award Can Be Found Here.

All of these investments come with high costs and have historically underperformed even safe benchmarks, like U.S. treasury bonds. For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all. However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them and have created a large market for a failed product. Further, investor often fail to understand that they have lost money in these illiquid investments until many years after investing. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.