Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) broker Sam Schoner (Schoner), currently associated with J.P. Morgan Securities LLC (JP Morgan), has been subject to at least four customer complaints during his career. The most recent complaints against Schoner alleged that Schoner recommended unsuitable investments in stocks and preferred stocks, including in First Republic Bank, among other allegations of misconduct relating to the handling of their accounts.
In December 2023 a customer complained that Schoner, from January 2012 to September 2023, engaged in unsuitable investment advice. The claim alleges $2.5 million in damages and is currently pending.
In September 2023 a customer complained that Schoner, from 2017 through 2023, engaged in unsuitable investment advice. The claim alleged almost $7.5 million in damages and settled for $950,000.
In May 2023 a customer complained that Schoner, from January 2021 to November 2021, engaged in unsuitable investment advice. The claim alleged $6.5 million in damages and settled for $950,000.
Preferred stocks are a hybrid of debt and equity and have attributes of both securities. Preferred stocks pay a stream of fixed or floating-rate payments similar to debt coupon payments but provide no participation in the issuer’s residual (equity) gains or any voting rights. Preferred stocks are far less stable than bonds and can even be more volatile than stocks based on market conditions. When a company is under stress, its equity and preferred stock can trade nearly in tandem with little difference in performance. The in tandem trading demonstrates that the market believes that there is little additional security protection provided by preferred stocks being higher up in the capital structure than common equity.
First Republic’s troubles started in January of 2023 when it released information that its interest expenses surged 2,040% year-over-year and 153% from the prior quarter. Unrealized losses in held-to-maturity investment portfolio, mainly treasuries, reached $4.8 billion at the end of December from just $53 million a year earlier. As time went on a number of regional banks came under stress due to their poor management of long-term treasury debt and inability to meet depositor demands. Analysts and investors reviewing First Republic for weakness pegged its paper losses at between $9.4 billion and $13.5 billion. First Republic’s annual report also warned that more than half its loan book was comprised of single-family residential mortgage loans that would be difficult to offload to raise capital placing the bank on precarious footing. On March 13 regional bank stocks continued to plunge. First Republic dropped an astonishing 60 percent in value and was now the central focus of concerned depositors. On March 16, in order to prevent an inevitable bank run, First Republic Bank received $30 billion in deposits from nearly a dozen of the United States’ biggest banks including JPMorgan Chase, Wells Fargo and Morgan Stanley. However, investors were unimpressed with the bank lead bailout and on March 17, First Republic lost a third of its already depressed value. First Republic stock would continue to tank through March 20. First Republic continued to trade at distressed levels through April 24, a fairly quiet month for First Republic. However, on April 24, First Republic delivered a horrible earnings report that disclosed it suffered a 41% outflow in deposits during the first quarter of 2023 as its stock lost nearly 95% of early March share price. On May 1 the FDIC closed First Republic selling most of its deposits and assets to JPMorgan Chase.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a “best interest” standard for broker-dealers and associated persons. This standard applies when brokers make recommendations to retail customer for any securities transaction or investment strategy involving securities, including recommendations of types of accounts. Reg BI is drawn from fiduciary principles that include an obligation to act in the retail investor’s best interest and the broker is prohibited from placing their own interests ahead of the investor’s interest.
There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which requires brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations includes three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions. Next, the advisor must have a reasonable understanding of the specific retail investor’s investment profile. The customer’s profile information generally includes an investor’s financial situation and needs; investments; assets and debts; marital status; tax status; age; investment time horizon; liquidity needs; risk tolerance; investment experience; investment objectives and financial goals; and any other information the retail investor may disclose in connection with the recommendation or advice. Finally, the advisor must use their knowledge of the first two elements to consider reasonably available investment option alternatives and come to the conclusion that there is a reasonable basis to believe that the recommendation or advice being provided is in the retail investor’s best interest.
An advisor must understand the type of account, securities, and their client in order to meet their care obligations. The type of securities account has the potential to greatly affect retail customers’ costs and investment returns. Different types of securities accounts can offer different features, products, or services, and not all types of accounts or services would be in every investor’s best interest.
Schoner entered the securities industry in 1989. From 2001 through September 2023, Schoner was registered with First Republic Securities Company, LLC. Since September 2023 Schoner has been registered with JP Morgan out of the firm’s San Francisco, California office location.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.