Securities Lawyers Blog

Broker Investigation: Churning Complaints Against Cory Bataan

June 15, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints against broker Cory Bataan (Bataan). There are at least four customer complaints against Bataan and one employment termination for cause. The customer complaints against Bataan allege a number of securities law violations including that the broker engaged in churning, unauthorized trading, unsuitable trades, breach of fiduciary duty, and misrepresentations among other claims. In addition, in August 2012, Empire Asset Management terminated Bataan alleging that their were violations of the firms policies and procedures.

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.

Bataan is currently registered with, Aegis Capital Corp. (Aegis), a brokerage firm that has been identified as employing troublesome brokers. According to a recent study conducted by the Securities Litigation and Consulting Group entitled “How Widespread and Predictable is Stock Broker Misconduct?” the incidents of investor harm at Aegis is extraordinarily high. The study ranked Aegis as the worst brokerage firm finding that brokers at the firm had over a 35% misconduct rate. The study stated that investors should stay away from Aegis “Given their coworkers’ disclosure record as of 2014, 83.7% of the brokers at these six firms would be in the highest risk quintile as defined in the FINRA study and should be avoided by investors. The BrokerCheck reports for most of the brokers at these six firms should prominently display a skull and crossbones warning.”

Customers File Complaints Against Mitchell Foote Involving REITs and Annuities

June 13, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating a customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Mitchell Foote (Foote). According to BrokerCheck records Foote has been subject to at least four customer complaints. The customer complaints against Foote alleges securities law violations that including unsuitable investments and misrepresentations among other claims. Many of the complaints involve direct participation products (DPPs) and private placements including non-traded real estate investment trusts (REITs), variable annuities, and other potentially other alternative investments.

Our firm has represented many clients in these types of products. All of these investments come with high costs and historically have 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. However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them. Further, investor often fail to understand that they have lost money until many years after agreeing to the investment. 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.

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.

FINRA Bars Brian Smit Over Private Securities Transactions

June 13, 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 Brian Smit (Smit) formerly working out of the Sioux Falls, South Dakota office of LPL Financial LLC (LPL). LPL terminated Smit in August 2015 stating that the broker engaged in unapproved investments. Thereafter, in March 2016, FINRA barred Smit stating that Smit consented to the sanction and to the entry of findings that he refused to appear for on-the-record testimony requested by FINRA related to the alleged participation in unapproved private securities transaction.

The providing of loans or selling of promissory 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 Smit’s outside business activities and private securities transactions. However, according to Smit’s public records his outside business activities include Pinnacle Wealth Management and Smit Holdings, LLC – a rental real estate business. Often times, brokers sell promissory notes and other investments through side businesses as accountants, lawyers, real estate agents, or insurance agents to clients of those side practices.

Smit entered the securities industry in 2010. From Aprill 2010 until August 2015, Smit was associated with LPL.

Gana LLP Wins Arbitration Award On Behalf of Client Against Centaurus Financial

June 11, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are pleased to announce an award on behalf of their client against Centaurus Financial, Inc. (Centaurus) in the amount of $150,000 plus costs. The complaint was filed The Financial Industry Regulatory Authority (FINRA) and involved multiple brokerage firms that hired advisor Ahmad Hashemian.

The Claimant alleged that Hashemian 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 non-traded real estate investment trusts (REITs). The other 50% was invested in variable and equity-indexed annuities. All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds. Brokers, enticed by the high commissions, often times misled their clients into investing in these products.

In this case the panel found that “the investments Hashemian recommended while at Centaurus were not suitable and in Margaret Polito’s best interests. Margaret Polito also provided sufficient evidence to meet her burden of proof to support her allegations in her Statement of Claim that the actions by Hashemian, for which Centaurus is responsible, constitute fraudulent and negligently made material misrepresentations and omitted material information in the sale of the investments to Margaret Polito.” Award Can Be Found Here.

Invest in High Risk Contingent Convertible (CoCo) Bonds?

June 1, 2016 | by Staff Attorney

In a recent Wall Street Journal Article, it was reported that UBS Group AG sold $1.5 billion of contingent convertible (CoCo) bonds. According to the article, UBS received about $8 billion of orders for the sale. These bonds will pay an interest rate of 6.875% and last summer UBS sold $1.6 billion of CoCos at the same rate. The UBS deal was the first CoCo sale since mid-January due to price drops in February due to worries that Deutsche Bank AG might have missed an interest payment on one of its CoCo bonds.

What exactly are CoCo’s and why should investors be concerned. CoCos have been a growing type of debt issued by mostly European issuers. European lenders have sold around 100 billion in CoCos since 2012.

CoCos bear many of the same traits as hybrid preferred securities that were popular right up to the financial crisis. Like hybrid preferred stock, CoCo’s act as hybrid debt/equity investments. When times are good they behave like debt providing no growth to investors and only interest payments. When times get rough these investments behave like equity because investors are unlikely to see returns in the event of bankruptcy. As a result these investments tend to crash in lock step with a company’s equity.

FINRA Bars Christopher Tolmacs Over Borrowing Client Funds

May 31, 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 Christopher Tolmacs (Tolmacs) working out of Portage, Michigan alleging that the broker borrowed client funds. The providing of loans or selling of promissory notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”. According to the FINRA regulatory action (FINRA No. 20160489663-01) Tolmacs 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 that he borrowed funds from multiple customers.

At this time it unclear the nature and scope of Tolmacs’ outside business activities and private securities transactions. However, according to Tolmacs’ public records his outside business activities includes Harbinger Financial Group, Inc – listed as an insurance agency, and Harbinger Asset Management, Inc which is listed as a registered investment advisory firm. Often times, brokers sell promissory notes and other investments through side businesses as accountants, lawyers, or insurance agents to clients of those side practices.

In addition, Tolmacs has been subject to significant tax liens totaling over $225,000 in late 2015. Tax liens and judgements can provide an economic incentive to brokers to violate the securities laws to garner higher commissions and income.

Customers File Complaints Against Bruce Slater Involving REITs, Oil and Gas, and Variable Annuities

May 27, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating a customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Bruce Slater (Slater). According to BrokerCheck records Slater has been subject to at least four customer complaints. The customer complaints against Slater alleges securities law violations that including unsuitable investments and misrepresentations among other claims. Many of the complaints involve direct participation products (DPPs) and private placements including oil and gas partnerships – including Ridgewood Energy-, non-traded real estate investment trusts (REITs), variable annuities, and other alternative investments.

Our firm has represented many clients in these types of products. All of these investments come with high costs and historically have 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. However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them. Further, investor often fail to understand that they have lost money until many years after agreeing to the investment. 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.

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.

Broker Investigation: Churning Complaints Against Broker Nathaniel Clay

May 27, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating a customer complaint filed with The Financial Industry Regulatory Authority (FINRA) against broker Nathaniel Clay (Clay). According to BrokerCheck records Clay has been subject to at least six customer complaint and one employment termination for cause. The customer complaints against Clay allege securities law violations that including unsuitable investments, churning, excessive trading, and unauthorized trading among other claims.

The most recent complaint was filed in December 2015 alleging $513,218 in damage stemming from unauthorized trading, negligence, breach of fiduciary duty, and misrepresentations. The complaint is still pending.

Clay’s former brokerage firm National Securities Corporation (National Securities) was recently featured in a study ranking brokerage firms by incidents of misconduct. According to a study conducted by the Securities Litigation and Consulting Group entitled “How Widespread and Predictable is Stock Broker Misconduct?” the incidents of investor harm at National Securities is extraordinarily high. The study ranked National Securities as the third worst brokerage firm finding that brokers at the firm had over a 31% misconduct rate. The study stated that investors should stay away from National Securities “Given their coworkers’ disclosure record as of 2014, 83.7% of the brokers at these six firms would be in the highest risk quintile as defined in the FINRA study and should be avoided by investors. The BrokerCheck reports for most of the brokers at these six firms should prominently display a skull and crossbones warning.”

FINRA Sanctions Broker Peyton Jackson Over Outside Business Activities

May 25, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Peyton Jackson (Jackson). According to BrokerCheck records Jackson has been subject to at least eleven customer complaints. The customer complaints against Jackson allege securities law violations that including unsuitable investments, fraud, misrepresentation, negligence, and violations of industry rules among other claims. Many of the complaints involve equities and private placements.

In addition, in April 2016, FINRA settled a regulatory action against Jackson alleging that he failed to disclose certain outside business activities and an outside brokerage account to his employing brokerage firms. According to FINRA, Jackson failed to disclose in writing to his firms that he offered investment banking, investor relations, commercial marketing, and Eastern Europe business development services through an outside entity that he controlled, received compensation for insurance services from another outside entity, and served as a successor trustee on behalf of a third party outside entity. FINRA also determined that Jackson failed to disclose to his firms the existence of a brokerage account that he opened in the name of an outside business entity owned by and controlled by him.

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.

Customers File Complaints Against Barry Jin Over Unauthorized Trades

May 25, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints against broker Barry Jin (Jin). There are at least three customer complaints against Jin. The customer complaints against Jin allege a number of securities law violations including that the broker made unauthorized trading among other claims.

Advisors are not allowed to engage in unauthorized trading. Such trading occurs when a broker sells securities without the prior authority from the investor. All brokers are under an obligation to first discuss trades with the investor before executing them under NYSE Rule 408(a) and FINRA Rules 2510(b). These rules explicitly prohibit brokers from making discretionary trades in a customers’ non-discretionary accounts. The SEC has also found that unauthorized trading to be fraudulent nature because no disclosure could be more important to an investor than to be made aware that a trade will take place.

One of the firm’s Jin was registered with, Aegis Capital Corp. (Aegis), has been identified as brokerage firm that employs troublesome brokers. According to a recent study conducted by the Securities Litigation and Consulting Group entitled “How Widespread and Predictable is Stock Broker Misconduct?” the incidents of investor harm at Aegis is extraordinarily high. The study ranked Aegis as the worst brokerage firm finding that brokers at the firm had over a 35% misconduct rate. The study stated that investors should stay away from Aegis “Given their coworkers’ disclosure record as of 2014, 83.7% of the brokers at these six firms would be in the highest risk quintile as defined in the FINRA study and should be avoided by investors. The BrokerCheck reports for most of the brokers at these six firms should prominently display a skull and crossbones warning.”