Churning

Gana LLP Files Customer Complaint Against JHS Capital Concerning Broker Joe Alijaj

August 11, 2014 | by Staff Attorney

The law office of Gana Weinstein LLP recently filed a securities arbitration on behalf of an investor against JHS Capital Advisors, LLC f/k/a Pointe Capital, Inc. (JHS Capital) concerning allegations that the broker recommended unsuitable investments, churned the account, and ultimately depleted the claimant’s assets.

The claimant is sixty-one years old and spent the majority of his career running seed companies. The claimant alleged that he had little understanding of the stock and bond markets. The complaint alleged that Enver Rahman “Joe” Alijaj (Alijaj), a broker with JHS Capital, cold called claimant and aggressively pursued the opportunity to manage claimant’s money. The complaint alleged that prior to opening his account with JHS, claimant never maintained a brokerage account. The claimant alleged that he explained to Alijaj that he wanted to focus on preservation of his capital.

In reliance on Alijaj’s assurances, the claimant alleged that he provided the broker with a substantial portion of his net worth. Rather than comply with the claimant’s investment needs, the complaint alleged that Alijaj took advantage of the claimant’s inexperience by investing the funds in unreasonably volatile stocks and excessively traded (churned, a type of securities fraud) his account to generate excessive commissions. According to the complaint, within days of opening the account, Alijaj leveraged the account and actively traded speculative small cap stocks in unsuitable investments including A-Power Energy Generation Systems Ltd. (APWR), Silicon Motion Technology Corp (SIMO), and Yingli Green Energy Holdings Co. (YGE).

Dawson James Securities Sanctioned Over Alleged Supervisory Failures

June 30, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned brokerage firm Dawson James Securities, Inc., (Dawson James) concerning allegations that the firm did not provide for supervision reasonably designed to comply with certain applicable securities laws and regulations.

FINRA has stated that at a minimum, written supervisory procedures should describe: (a) identification of the individual responsible for supervision; (b) supervisory steps and review procedurals to be taken by the supervisor; (c) the frequency of reviews; and (d) the documentation of reviews. FINRA found that the Dawson James’ written supervisory procedures failed to provide for one or more of the four above-cited minimum requirements for adequate written supervisory procedures for conduct concerning: (1) disclosure of potential conflicts of interests to clients; (2) trading in the opposite direction of solicited customer transactions; (3) certain broker sales practice concerns such as unauthorized trading, suitability, excessive trading, and free-riding; (4) concentration of securities in clients’ accounts; (5) the sharing of profits and losses in clients’ accounts; (6) wash transactions; (7) coordinated trading; and, (8) the review of representatives’ electronic communications, among other violations.

FINRA alleged that the firm failed to investigate numerous ”red flags” relating to the activities of one registered representative referred to by the initials “DM”, including: (1) numerous exceptions generated on the firm’ s supervisory reports which included commissions charged to DM’s clients; (2) high concentrations of one security in DM’s clients’ accounts; and, (3) numerous cancel rebill requests for DM’s clients’ accounts. FINRA also found that James Dawson failed to enforce its written supervisory procedures that required electronic correspondence be reviewed on a daily basis. FINRA also found that from January 2007 through February 2008, the firm failed to ensure that the firm’s Head Trader, referred to as the initials “AE” carried out his delegated supervisory responsibilities relating to proprietary trading; trade reporting; clock synchronization; short sale compliance; compliance with the manning rule; mark ups and mark downs; and, compliance with inventory guidelines.

JP Turner Sanctioned Again By Financial Regulator

June 27, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker-dealer J.P. Turner & Company, L.L.C. (JP Turner) concerning allegations JP Turner failed to establish and enforce reasonable supervisory procedures to monitor the outside brokerage accounts of its registered representatives. In addition, FINRA alleged that JP Turner failed to establish an escrow account on one contingency offering and broke the escrow without raising the required minimum in bona fide investments.

This isn’t the first time that FINRA has come down on JP Turner’s practices and that our firm has written about the conduct of JP Turner brokers. Those articles can be accessed here (JP Turner Sanctioned By FINRA Over Non-Traditional ETF Sales and Mutual Fund Switches), here (JP Turner Supervisor Sanctioned Over Failure to Supervise Mutual Fund Switches), and here (SEC Finds that Former JP Turner Broker Ralph Calabro Churned A Client’s Account).

JP Turner has been FINRA firm since 1997. JP Turner engages in a wide range of securities transactions including the sale of municipal and corporate debt securities, equities, mutual funds, options, oil and gas interests, private placements, variable annuities, and other direct participation programs. JP Turner employs approximately 422 financial advisors and operates out of 185 branch offices with principal offices in Atlanta, Georgia.

Former MML Investors and AXA Advisors Broker Monte Miron Barred From Brokerage Industry

May 28, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned MML Investors Services, LLC (MML Investors a/k/a MassMutual Life Insurance Company) broker Monte Miron (Miron) concerning allegations that Miron made unauthorized trades in client accounts and that the broker failed to disclose certain tax liens on his Form U4 in a timely manner.

Miron first became registered with member firm Dean Witter Reynolds Inc. in September 1982. Miron has been registered with 11 firms between October 1998 and August 2012. From 2005 to January 2008, Miron was associated with MetLife Securities Inc. From December 2007 through September 2012, Miron was a representative with AXA Advisors, LLC.

According to Miron’s brokerage disclosures the broker has had three customer complaints filed against him. The complaints involve allegations of account manipulation, excessive trading, and a misrepresentation concerning a variable annuity.

Two MetLife Advisors Alleged to Have Wrongfully Exchanged Variable Annuities

May 14, 2014 | by Staff Attorney

On March 27, 2014, the Financial Industry Regulatory Authority (FINRA) filed a regulatory complaint against two former brokers from MetLife Securities, Inc., a unit of MetLife Inc. According to the complaint, Christopher Birli (Birli) and Patrick Chapin (Chapin), who both worked for MetLife in Williamsville, New York, until 2012, participated in a seven-year scheme to inflate commissions. According to the allegations, the advisors preyed on the employees of the State University of New York, having these retirement-plan participants switch $21 million in annuities. The specific allegations claim that from a period spanning from 2004 to 2011, Birli and Chapin encouraged forty-five of their customers to switch the MetLife variable annuities that they held in their respective accounts in exchange for new variable annuities held in individual retirements accounts, which were outside of the university plan that the State University of New York employees should have adhered to.

MetLife has certain policies in place. One such policy prohibits exchanging certain types of variable annuities. It has been alleged that the two MetLife advisors deceptively designed the deals for their customers in a manner explicitly intended to circumvent this policy. Birli and Chapin allegedly evaded detection by utilizing a three-step process. First, they advised their clients to sell their retirement plan annuities and take the cash. Next, the two advisors had their clients purchase a different security within the retirement plan, which they were required to hold for ninety days. Finally, Birli and Chapin instructed their clients to sell that security in order to buy a variable annuity through an individual retirement account.

Over the seven-year period, a total of $21 million was craftily shifted from the MetLife retirement plan product into the TIAA-CREF plan product, then subsequently placed into the MetLife retail annuities. All the while, Birli and Chapin allegedly reaped commissions of 7.15% for transferring the money into the retail annuities. If the two brokers had followed protocol and sought an exception with MetLife to allow the internal exchange of the retirement plan annuity product for a retail variable annuity, they would have only earned the standard 2% gross dealer concessions. The advisors’ alledged improprieties essentially netted them nearly four times the commissions that they were rightfully entitled to, generating hundreds of thousands of dollars for their own pockets. According to the filings, MetLife terminated Birli and Chapin in 2012. Neither individual presently works in the securities industry, according to filings.

Gana LLP Files Churning Case Against RBC and Morgan Stanley on Behalf of Client

April 7, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP recently filed a complaint against RBC Capital Markets, LLC (RBC) and Morgan Stanley Smith Barney, LLC (Morgan Stanley) accusing their registered representative Bruce Weinstein (Weinstein) of churning (excessive trading) and making unsuitable recommendations. In addition, the complaint alleged that the brokerage firms failed to properly supervise Weinstein’s activities.

The claimant alleged that he is the owner of a small business who had very little investment experience with stocks, bonds, or any other investment products. In addition, the claimant has no other financial or investment training and is generally unsophisticated in financial matters. The complaint also alleged that Weinstein knew that the claimant was providing the broker with approximately 100% of his liquid assets. The claimant alleged that even though he did not tell the broker that he desired to speculate with 100% of his liquid assets, Weinstein incorrectly marked claimant’s investment objective as speculation. Claimant alleged that the broker also incorrectly selected his investment experience in options, stocks, and bonds as being 20 years. In fact, the claimant had no options trading experience.

According to the complaint, Weinstein immediately began executing a highly leveraged and excessive trading investment strategy in claimant’s account. The claimant alleged that Weinstein’s trading was made without authorization or prior notice to the client. The claimant alleged that the broker’s trading generated exorbitant commissions for himself while providing no material benefit to his client. For example, in the May 2011, the claimant alleged that his account lost 44.8% of its value in a single month. During this month, it was alleged that the broker excessively day traded options such as Apple causing losses of $23,228 in Apple options or nearly 21% of the claimant’s entire liquid net worth.

Thomas Oakes of Royal Securities Sanctioned Over Allegations of Unsuitable Investments

February 11, 2014 | by Staff Attorney

Broker Thomas C. Oakes (Oakes) has been suspended and fined by the Financial Industry Regulatory Authority (FINRA) concerning allegations from 2005 through May 2008, Oakes had engaged in unsuitable short term trading of low priced and/or speculative securities in the accounts of at least three customers causing substantial losses.

Oakes has been in the securities industry as a member of the FINRA since 1988. Since November 2003, Oakes has been a registered representative of Royal Securities Company (Royal). Oakes’ BrokerCheck disclosures reveal that at least 9 customer complaints have been filed against the broker. The customer complaints allege a variety of securities misconduct including securities fraud, unauthorized trading, unsuitable investments, churning, and breach of fiduciary duties.

According to FINRA, in 2005 or 2006, three customers opened new accounts at Royal with Oakes as their registered representative. Each of the customers New Account Form identified a primary investment objective of “Growth.” Royal defined a “Growth” investment objective as the goal of generating long-term capital growth through high quality equity investments consisting of large cap funds and a balanced portfolio of investment grade growth stocks with smaller positions in high grade corporate bonds. Growth investors should also be willing to assume more market risks than balance/conservative growth in return for yields that are expected to meet or slightly exceed the S&P 500 stock market index over the long run.

Ex- Stratton Oakmont Broker Accused of Churning

January 27, 2014 | by Staff Attorney

Christopher Veale, a broker who worked at Stratton Oakmont Inc., was accused by Massachusetts securities regulators of excessive trading in the account of an 81-year-old person from 2010 to 2012.

The regulators said today in a statement that they’re seeking to bar Veale from the securities business in Massachusetts, along with his former colleague, Ali Habib Mayar, and their firm Brookville Capital Partners LLC, the brokerage where they worked at the time.

Martin Scorsese depicted Stratton Oakmont, Inc. in the film The Wolf of Wall Street. Prosecutors said that Stratton Oakmont generated millions of dollars in illicit profits by aggressively selling penny stocks and manipulating their prices from its offices in Lake Success, New York, before being shut down by regulators in 1996.

FINRA Bars LPL Financial Broker for Falsifying Documents

January 7, 2014 | by Staff Attorney

On December 13, 2013, Financial Industry Regulatory Authority Inc. (FINRA) barred Gary Chackman after he allegedly falsified company documents to evade procedures and protocol, which caused an overconcentration of customer’s investments in alternative assets. Chackman evaded the firm’s supervision and inaccurately completed investor documents. LPL Financial Inc., Chackman’s employer at the time of the incident, denies any involvement in Chackman’s illegal activity.

Although Chackman neither admitted nor denied FINRA’s findings, he consented to the described sanction; therefore FINRA barred him as a member of the association. Although there are numerous complaints and investigations pending before FINRA, the association rarely bars brokers. Only one other broker was barred this year due to misrepresentations in the sale of an investment product.

Not only did Chackman allegedly misrepresent the financial transaction to the firm, but also failed to disclose the high-risk nature of alternative investment to his clients. The investor’s liquid net worth was misidentified on purchase forms when acquiring Real Estate Investment Trusts (REITs) and alternative investments. By misrepresenting client information on the purchase forms, the client’s purported liquid net worth remained below the firm’s limitation. Therefore, the REITs became highly concentrated in illiquid alterative investments.

Churning Zero Coupon Bond Treasuries

December 11, 2013 | by Staff Attorney

The Securities and Exchange Commission (SEC) investigates broker-dealer’s actions, including cases of misrepresentation, market manipulation, theft of customers’ funds, illegal schemes and the sale of unregistered securities. If the broker-dealer violates a securities law, the SEC enforces administrative action and civil penalties. In other circumstances, an investor may file a complaint with Financial Industry Regulatory Authority (FINRA).

Recently, a complaint was filed against Robert O. Klein (Klein) and J.P. Morgan Securities LLC (J.P. Morgan). The client asserted the following claims, the broker-dealer and the securities firm breached their fiduciary duty, broker-dealer’s investment strategy used unauthorized margin transactions, and the broker-dealer selected investments that were unsuitable for their account. Although Klein denies any misconduct, J.P. Morgan has settled two claims against Klein. In both instances, clients alleged that the investment strategy was unsuitable and overly concentrated in a short Treasury bond positions. Klein responded to these allegations by stating that the losses were the result of a rapid deterioration in market conditions and he employed the appropriate investment strategy.

Although each investor portfolio differs, Klein appears to be facing allegations of employing unsuitable investment strategies in four other cases pending before FINRA. The claimants allege that Klein misrepresented the level of risk and used margins to leverage managed accounts. Past allegations faced by Klein have dealt with Zero Coupon Treasury bond (Zero Coupon Treasuries).