Securities Lawyers Blog

FINRA Bars Thomas Stamborski Over Outside Business Activity Disclosures

September 5, 2016 | by Staff Attorney

The investment lawyers of Gana Weinstein LLP are investigating the regulatory action brought by the Financial Industry Regulatory Authority (FINRA) against Thomas Stamborski (Stamborski) working out of Palatine, Illinois alleging that the broker failed to disclose certain changes to an outside business activity. According to the FINRA regulatory action (FINRA No. 2015044783401) Stamborski consented sanctions in the form of a permanent bar because he failed to provide documents and information requested by FINRA during the course their investigation into allegations concerning his resignation from his member firm, LaSalle St Securities, LLC (LaSalle St). LaSalle St allowed Stamborski to resign after it was alleged that he failed to update an Outside Business Activity with his firm when a material change occurred.

As a background, the providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible outside business activities and private securities transactions – a practice known in the industry as “selling away”. At this time it unclear the nature and scope of Stamborski outside business activities. However, according to Stamborski’s public records his outside business activities includes Axis Financial Corporation. Often times, brokers sell promissory notes and other investments through side businesses as accountants, lawyers, or insurance agents to clients of those side practices.

Stamborski entered the securities industry in 1984. From September 2005 until December 2015, Stamborski was associated with LaSalle St.

FINRA Bars Lizabeth Yy Over Investigation Into Promissory Note Sales to Customers

September 4, 2016 | by Staff Attorney

The investment fraud lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Lizabeth Ty (Ty). According to BrokerCheck records Ty is subject to three pending customer complaints, while registered with Park Avenue Securities LLC (Park Avenue) in Houston, Texas. The regulatory also filed a complaint against Ty attempting to investigate the circumstances of the sale of claimed unregistered securities. (FINRA No. 20160493150-01). When Ty refused to cooperate with the investigation, FINRA automatically barred Ty from the industry.

According to BrokerCheck records Ty has three customer complaints pending concerning the sales of promissory notes. 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”. At this time it unclear the nature and scope of Ty’s outside business activities and private securities transactions. However, according to Ty’s public records her outside business activities include a real estate license in Texas. Often times, brokers sell promissory notes and other investments through side businesses as accountants, lawyers, or insurance to clients of those side practices.

Ty was associated with brokerage firm Park Avenue from January 2006 until July 2015.

Department of Justice Alleges that Corrupt Brokers Richard Brown, Gerry Cocuzzo, Nick Khan, Maroof Miyana, and Pranav Patel Were Involved in A $131 Million Stock Promotion Scheme Involving ForceField Energy

September 4, 2016 | by Staff Attorney

In May 2016 the Department of Justice (DOJ) filed a five-count indictment in New York against nine defendants including Jared Mitchell, the Managing Partner of Mitchell & Sullivan Capital LLC; Richard Brown, a registered broker with Chelsea Financial Services; Christopher Castaldo, the Chief Executive Officer of Stock Traders Press Inc. and the President of Wall Street Buy Sell Hold Inc.; Gerald Cocuzzo, also known as “Gerry,” a registered broker formerly with Newbridge Securities Corporation; Naveed Khan, also known as “Nick,” a registered broker formerly with Meyers Associates, L.P.; Herschel Knippa III, also known as “Tres,” the owner and Head Trader at Kenai Capital Management LLC; Maroof Miyana, a registered broker formerly with Legend Securities; Pranav Patel, a registered broker formerly with Dawson James Securities; and Louis Petrossi, the founder and Chief Executive Officer of the Wealth Research Institute.

The DOJ’s charges involve the unlawful sale and activity related to stock ForceField Energy Inc. (ForceField), a publicly-traded company under the ticker symbol “FNRG.” The charges include securities fraud, conspiracy to commit securities fraud, wire fraud, money laundering and making a false statement to law enforcement officials in connection with the fraudulent market manipulation of the stock.

The DOJ alleged that the defendants employed of scheme together with dishonest registered brokers to perpetrate an elaborate but fraudulent scheme built on lies, kickbacks and manipulated trading activity. The defendants essentially used a company with no business operations and little revenue and deceived the market and their clients into believing it was worth hundreds of millions of dollars through unauthorized trades and deceptive promotions.

The Difference Between Arbitration and Mediation in a Divorce

August 2, 2016 | by Staff Attorney

GUEST POST By Steven Madel

As you already know, it can get ugly fast during a divorce. Or, on occasion, the married couple holds no animosity toward one another and is ready to split amicably.

Depending on your particular situation, you may consider arbitration, mediation, or hiring divorce attorneys for a typical divorce.

Customers File Complaints Against Meyers Associates Broker Matthew Silato

July 30, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Matthew Silato (Silato). According to BrokerCheck records there are at least six customer complaints, two financial disclosures, and one criminal matter involving Silato. The most recent customer complaints against Silato allege a number of securities law violations including breach of fiduciary duty and suitability among other claims. The most recent claim alleging $250,627 filed in June 2016 is currently pending. In December 2015, a customer filed a complaint alleging unsuitable investments and claiming $522,941 in damages. That case is currently pending.

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.

The number of customer complaints against Silato is high relative to his peers. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must publicly disclose certain types of reportable events on their CRD including but not limited to customer complaints. In addition to disclosing client disputes brokers must divulge IRS tax liens, judgments, and criminal matters. However, FINRA’s records are not always complete according to a Wall Street Journal story that checked with 26 state regulators and found that at least 38,400 brokers had regulatory or financial red flags such as a personal bankruptcy that showed up in state records but not on BrokerCheck. More disturbing is the fact that 19,000 out of those 38,400 brokers had spotless BrokerCheck records.

Broker Investigation: Meyers Associates Advisor Craig Langweiler

July 26, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Craig Langweiler (Langweiler). According to BrokerCheck records there are at least 36 disclosures on Langweiler’s record including customer complaints, multiple regulatory actions, multiple judgments or liens, and a criminal matter. The most recent customer complaints against Langweiler alleges a number of securities law violations including excessive commissions, churning, unauthorized trading, and suitability among other claims.

The most recent regulatory action against Langweiler by FINRA alleges that he willfully failed to amend his Form U4 to timely disclose federal tax liens, totaling approximately $143,000, and civil judgments, totaling approximately $56,700. FINRA alleged that Langweiler also provided inaccurate and incomplete responses regarding liens and judgments to his employer and he provided inaccurate responses to FINRA.

When brokers engage in excessive trading, sometimes referred to as churning, the broker will typical trade in and out of securities, sometimes even the same stock, many times over a short period of time. Often times the account will completely “turnover” every month with different securities. This type of investment trading activity in the client’s account serves no reasonable purpose for the investor and is engaged in only to profit the broker through the generation of commissions created by the trades. Churning is considered a species of securities fraud. The elements of the claim are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over plus whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably profit from the activity.

Broker Investigation: Meyers Associates Advisor Neal Scott

July 26, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Neal Scott (Scott). According to BrokerCheck records there are at least four customer complaint, one regulatory, and seven judgments or liens that have been filed against Scott. The most recent customer complaint against Scott alleges a number of securities law violations including breach of fiduciary duty and suitability among other claims. The claim is currently pending.

The most recent judgement or lien disclosure was filed in January 2009 and concerns a tax lien for $47,103. Tax liens and judgements are often a sign that the broker cannot manage their own personal finances and may be tempted to recommend high commission products or strategies to clients in order to satisfy debts.

In addition, the Virginia Securities Department alleged that Scott failed to complete his registration process in time and denied his registration in the state.

Investor Recovery Options for Merrill Lynch Strategic Return Notes

July 24, 2016 | by Staff Attorney

According to the Wall Street Journal, The Securities and Exchange Commission (SEC) is preparing an enforcement action against brokerage firm Merrill Lynch over an investment that collapsed losing investors as much as 95% of their initial investment. According to the financial advisors at the firm, the advertising and marketing for the product was called “borderline crooked.”

The SEC action involves a product called Strategic Return Notes that Merrill began selling in 2010 and raised about $150 million for. Market-Linked Notes to generate are structured product investments that create returns through the use of embedded derivatives designed to track the performance of a security, index, commodity or currency. Brokerage firms like Merrill Lynch have perverse incentives to market these proprietary products over safer and cheaper alternative investments. Structured Products like Market-Linked Notes often have substantial fees and/or commissions paid to affiliated companies for banking, underwriting, asset management, and ultimately broker commission.

The Strategic Return Notes in question are linked to a Merrill Lynch index tracking the volatility of the S&P 500 stock index. According to the Wall Street Journal, the five-year notes lost value rapidly as market volatility fell and the cost of buying the options that allow the note to track the index rose sharply. Because of the substantial costs of the options, volatility based investments tend to lose money over the long term no matter what the performance of the underlining index is. According to the article, roll costs for the options averaged an astounding 12% of the principal per quarter in the first half of 2011, before falling to less than 4% per quarter in the second half of the year. However, clients and brokers alike claim they were never told the costs could grow so large.

Gana LLP Files Complaint Against Newbridge Securities Concerning Broker Dennis Hayes’ USA Gold Sales

July 23, 2016 | by Staff Attorney

The law offices of Gana Weinstein LLP recently filed a statement of claim with FINRA on behalf of their 60 year old client concerning inappropriate investments in private placements, non-traded real estate investment trusts (Non-Traded REITs), low priced securities, and private securities transactions. The complaint was filed against Newbridge Securities Corporation (Newbridge) and alleges that the firm’s broker Dennis Hayes (Hayes) recommended these unsuitable transactions. In total the Claimant alleges approximately $750,000 in damages.

According to the Statement of Claim, the Claimant divorced her husband in 2012 leaving her with approximately $1,500,000 in assets of which $500,000 was non-qualified money and about $1 million was qualified IRA funds. Claimant explained to Hayes that her goals were to protect her assets while providing her with returns to meet her immediate income needs. Shortly after transferring the funds, Hayes solicited the Claimant to invest in a gold fund called USA Gold. According to the complaint, Hayes recommended $300,000 in USA Gold through a self-directed IRA account.

The complaint alleges that after a diligent search there appears to be no Regulation D filing for a private placement for USA Gold and no evidence of any registration of the offering. USA Gold appears to be an unregistered securities offering and most likely an investment scam. Even more shocking is that Newbridge has failed to properly investigate and terminate Hayes for his involvement in the unregistered offering thereby continuing to place investors at risk. According to the Statement of Claim, Claimant complained to Gene Robert Abrams (Abrams), Newbridge’s General Counsel and Co-Chief Compliance Officer that Hayes was involved in private securities transactions.

FINRA Bars Broker Thomas Schober Over Variable Annuity Practices

July 23, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating the regulatory complaint filed by The Financial Industry Regulatory Authority (FINRA) against broker Thomas Schober (Schober). The FINRA regulatory action alleges that Schober recommended unsuitable variable annuity exchanges in the accounts of two senior customers ages 84 and 83. According to FINRA, one of the customers held power of attorney for the other who suffered from dementia and both customers were conservative investors with limited financial means who relied on the income from their investments. FINRA found that Schober effected the annuity exchanges to benefit himself at the customers’ expense. The exchanges caused the customers to pay total surrender charges of approximately $154,642 to sell their annuities and then to pay sales charges of approximately $69,000, of which Schober received approximately $65,000 in commissions, and incurred new surrender periods.

FINRA found that Schober never disclosed to them the amount of the surrender charges they would incur to sell their annuities and didn’t explain the sales charges associated with the purchase of the new annuities or that they would be subject to new surrender periods. FINRA found that Schober attempted to conceal the unsuitable annuity exchanges by providing false information concerning the source of funds on the annuity transaction documents.

Variable annuities are complex financial and insurance products. In fact, recently the Securities and Exchange Commission (SEC) released a publication entitled: Variable Annuities: What You Should Know encouraging investors to ask questions about the variable annuity before investing. Essentially, a variable annuity is a contract with an insurance company under which the insurer agrees to make periodic payments to you. The investor chooses the investments made in the annuity and value of your variable annuity will vary depending on the performance of the investment options chosen. The primary benefits of variable annuities are the death benefit and tax deferment of investment gains.