Commonwealth Financial Network

Gana LLP Investigates Broker Angelo Talebi’s Investment Activities: Attention Iranian Investors in California

July 23, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating claims that broker Angelo Talebi (Talebi) made misrepresentations regarding investments in alternative investments such as Real Estate Investment Trusts (REITs) and oil and gas limited partnerships. Upon information and belief, Talebi is targeting Iranian investors in California. According to Talebi’s BrokerCheck, at least 13 customer complaints have been filed regarding Talebi’s sales practices in FINRA arbitration. Some of the complaints also allege that Talebi unsuitably invested clients in various investments including variable annuities and private placements including KBS 1 REIT, Leaf Equipment finance, Inland American Real Estate Trust, Atlas Resources. Another complaint alleges unsuitable equity investments and excessive use of margin.

From 1999 through December 2012, Talebi was associated with LPL Financial LLC (LPL Financial). Thereafter, until April 2014, Talebi was a registered representative of Royal Alliance Associates, Inc. Currently, Talebi is associated with Independent Financial Group, LLC.

The investment products that Talebi is alleged to have inappropriately recommended to clients are part of a growing industry trend of placing investors heavily in alternative investments and illiquid products. Many times brokers tell investors that these products are more stable and predictable than the stock market. After the financial crisis many investors were receptive to these sales pitches. However, brokers sometimes fail to disclose that the stability of these investments is artificially generated by the lack of disclosure and trading market for these products. In the cases of REITs and oil and gas private placements investors may only learn years after investing that the value of these assets has fallen substantially and some investors do not know of their losses until the investment goes completely bust.

FINRA Fines Commonwealth Financial Network Concerning Email Supervisory Failures

June 11, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently fined brokerage firm Commonwealth Financial Network (CFN) $250,000 on allegations that from December 7, 2009 to January 28, 2012, CFN’s supervisory system: (a) failed to subject about 12.6 million outgoing e-mails to daily e-mail surveillance protocol, constituting 90% of the e-mails that the firm’s registered representatives sent through doing business as (DBA) e-mail accounts; and (b) failed to survey approximately 474,380 registered representatives e-mails. FINRA also found that the firm failed to establish and maintain procedures to test its e-mail supervisory system to timely identify systemic failures.

CFN has been a member of FINRA since 1979 and the firm has approximately 4,550 associated persons operating from 1,154 branch offices. CFN’s primary office is located in Waltham, Massachusetts. CFN’s registered representatives are independent contractors and many of them operate from branch offices under one or more DBA names. Most of CFN’s brokers use non-CFN e-mail domains names.

During the period from December 2009, to January 2012, CFN used a system to archive, preserve, and supervise business related e-mails of its associated persons. FINRA found that e-mails sent through DBA email domains were automatically transmitted to CFN’s system for retention and review. CFN’s supervisory procedures required the firm’s emails to be transmitted through CFN’s server so that the firm could capture and review its brokers’ emails. CFN’s supervisory system required a daily review of its registered representatives’ e-mails including lexicon searches and a random sampling of emails.

Sales of Non-Traded REITs Contributes to Increased Broker Dealer Revenues

May 21, 2014 | by Staff Attorney

Despite the broad market’s recent volatility, 2013 brought the twenty-five largest independent broker dealers double-digit revenue growth on average, according to an Investment News report. After a weak 2012, these independent broker dealers roared to a 13.2% year over year increase in revenue, recording $18.46 billion in 2013 according to this year’s Investment News survey.

The overall strength of the S&P 500, gaining 29.6% in 2013 was one contributing factor to the 2013 success of independent broker dealers. The other factor however, was a flood of commissions generated from record sales of alternative investment products, namely non-traded real estate investment trusts (REITs). As Eric Schwartz, chief executive of Cambridge Investment Research explained, “There were two reasons for last year’s results. The stock market was up 30%, and there was an unusually high percentage of dollars in alternatives and REITs being sold. Remember, a number of REITs had public listings, and clients reinvested back into other REITs.”

According to the Investment News survey, the top ten independent broker-dealers with the most growth from alternative investments include: (1) Independent Financial Group; (2) Triad Advisors; (3) Royal Alliance Associates; (4) National Planning Corp.; (5) First Allied Securities; (6) Lincoln Financial Network; (7) Cambridge Investment Research; (8) Commonwealth Financial Network; (9) Ameriprise Financial Services; 10) LPL Financial.

LPL Financial Fined by FINRA for Failing to Supervise Sales of Alternative Investments

April 25, 2014 | by Staff Attorney

On March 24, 2014, LPL Financial LLC, the fourth largest broker dealer, measured by number of salespersons, was fined $950,000 by the Financial Industry Regulatory Authority (FINRA) for failing to supervise the way that its brokers marketed and sold nontraditional investments. The fine is one of many that have recently been imposed on LPL and other “independent broker-dealers,” firms that provide products, marketing, and regulatory services to independent brokers who are not their full-time employees.

LPL Financial was alleged to have deficient supervision as it related to the sales of alternative investment products, including non-traded real estate investment trusts (REITs), oil and gas partnerships, business development companies (BDC’s), hedge funds, managed futures, and other illiquid pass through investments. FINRA found that from January 1, 2008, to July 1, 2012, LPL failed to adequately supervise the sales of theses alternative investments that violated concentration limits.

Investors often rely on professional advisors like LPL Financial, which help them to diversify their portfolio while minimizing risk. LPL, like many states, has limits in place, on the portion of a client’s portfolio that can be concentrated in these riskier, alternative investments. According to FINRA, however, LPL failed to ensure adherence to these limits. FINRA explained that between 2008 and 2012, LPL utilized a manual process that relied on outdated data to conduct suitability reviews. FINRA further stated that once LPL transitioned to a new automated review system, its database was built with faulty programming.

Broker-Dealers Settle with Massachusetts Securities Division Over the Alleged Improper Sales of Non-traded REITs

August 25, 2013 | by Staff Attorney

The Massachusetts Securities Division reached a settlement of $9.6 million with five independent broker dealers concerning allegations that the firms improperly sold non-traded real estate investments trusts (REITs) to hundreds of investors within the state. The firm’s fined include Ameriprise Financial Services Inc., Commonwealth Financial Network, Royal Alliance Associates, Inc. Securities America, Inc., and Lincoln Financial Advisors Corp. The Secretary of the Commonwealth of Massachusetts William Galvin announced that a part of the settlement would be used to distribute $6.1 million to investors as restitution.

A REIT is a security that invests in real estate directly either through properties or mortgages. REITs can be publicly traded on a national exchange or privately held. Private REITs are often referred to as non-traded REITs. Non-traded REITs have become increasingly popular as increased volatility in the stock market has led many investors to look for investment products that offer more stable returns. However, non-traded REITs may not be as safe and stable as advertised. Because non-traded REITs do not trade publicly the REIT itself determines its own asset values and only publishes updated valuations sporadically. Thus, a REITs volatility includes not only real estate market volatility but also management decisions and potentially leverage positions that investors may simply not be informed about.

Massachusetts alleged that the firms engaged in a “pattern of impropriety” selling these “popular but risky investments.” Massachusetts alleged significant and widespread problems with the firms’ compliance policies, practices, and procedures in the sale of non-traded REITs. In addition, Massachusetts alleged that the firms failed to only sell non-traded REITs to qualifying investors. Massachusetts allegations concerning each firm are as follows: