Investment Attorney

FINRA Sanctions Broker Kevin Murphy Over Selling Away Allegations

March 9, 2016 | by Staff Attorney

The securities fraud lawyers of Gana Weinstein LLP are investigating a regulatory complaint (Disciplinary No. 2015043159501) filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Kevin Murphy (Murphy). FINRA alleged that in or about November 2013, Murphy sold $1.2 million of shares and warrants in a private placement to four individuals and one limited partnership without his firm’s knowledge.

According to FINRA, in August and September, 2013, Murphy made a $1.2 million investment in a private placement for which TGP Securities, Inc. (TGP), Murphy’s brokerage firm, was providing brokerage services. In return for his investment, FINRA found that Murphy received two stock certificates totaling 600,000 Series F shares and two warrants exercisable for 300,000 common shares. On November 29, 2013, FINRA alleged that Murphy resold the Series F shares and the warrants to four individuals and one limited partnership for $1.2 million without the permission of TGP.

In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

FINRA Sanctions Broker James Nixon Over Promissory Note Sales

March 7, 2016 | by Staff Attorney

The securities fraud lawyers of Gana Weinstein LLP are investigating a regulatory complaint (Disciplinary No. 1013038289101) filed with The Financial Industry Regulatory Authority’s (FINRA) against broker James Nixon (Nixon). FINRA alleged that Nixon failed to provide prior written notice to Bridge Capital Associates, Inc. (Bridge Capital), his then employing brokerage firm, before selling $600,000 of convertible promissory notes – practice referred to as “selling away” in the industry. FINRA found that Nixon provided detailed written notice to Bridge Capital only after he had already disseminated investor presentations to approximately 40 potential investors and completed sales to three accredited investor. In addition, FINRA alleged that Nixon provided investor presentations that contained exaggerated and misleading statements about the issuer of the promissory notes, by the initials BRT, and failed to include a meaningful risk disclosure.

Nixon entered the securities industry in 1987. Nixon was registered with Bridge Capital Associates since December 2007 until September 2013, when Bridge Capital discharged Nixon in connection with the conduct concerning FINRA’s allegations. Shortly after Bridge Capital terminated his registrations Nixon became registered with a different firm, Source Capital Group, Inc. out of the firm’s Westport, Connecticut office location.

FINRA found that the promissory notes were offered without a PPM and that instead the notes were offered through an investor PowerPoint presentation that Nixon prepared in conjunction with the issuer. FINRA found that the investor presentation was devoid of any cautionary language specific to the promissory notes and that the prospects for notes were presented in very optimistic terms and stated financial projections at aggressive multiples without sources or support for such representations. FINRA found these representations to violate its communications rules.

FINRA Sanctions Broker Carlos Benavidez Jr Over Unauthorized Trades in 80 Customer Accounts

March 7, 2016 | by Staff Attorney

The securities fraud lawyers of Gana Weinstein LLP are investigating the regulatory action filed (Disciplinary Action No. 2014043025701) by The Financial Industry Regulatory Authority’s (FINRA) against broker Carlos Benavidez Jr (Benavidez). According to the allegations, between January 2013 and January 2015, Benavidez exercised discretion in 80 customer accounts without obtaining prior written authorization from the customers while with brokerage firm Waddell & Reed.

FINRA found that beginning in or about December 2009, Benavidez and two other representatives registered with Waddell & Reed, formed RBR Group and shared a customer base for their securities business. Between January 2013 and January 2015, FINRA found that Benavidez exercised discretion in effecting hundreds of securities transactions in approximately 80 customer accounts without obtaining written authorization from his customers or Waddell & Reed’s approval.

Also according to FINRA, Benavidez tried to hide the evidence of unauthorized trading by falsifying documents. FINRA found that on or about September 9, 2014, Benavidez and another individual with the firm backdated approximately 26 customer notes that had been created in the firm’s computer program in order to falsely reflect that Benavidez or another member of the RBR Group had conversed with those customers on before the trades were effected when, in fact, it was not until six days later when Benavidez or another individual talked with the 26 customers about the trades that had been effected in their accounts.

Broker Investigation: Customer Complaints Against Advisor Paul Blum

March 7, 2016 | by Staff Attorney

The securities fraud lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Paul Blum (Blum). According to BrokerCheck records Blum has been the subject of at least eight customer complaints three of which have been filed since 2015. The customer complaints against Blum allege a number of securities law violations including that the broker made unsuitable investments, and excessive trading among other claims.

The most recent customer complaint filed in December 2015 and alleged negligence in recommending the purchase of bonds that defaulted from February 2009 until April 2014 claiming $450,000 in damages. The claim is still pending. In November 2015, another client filed a complaint alleging Blum invested in high yield bonds without consultation between May 2013 and May 2014 resulting in $133,000 in damages. The dispute is currently pending. In a third complaint filed in November 2015, an investor claimed that Blum invested in appropriate bonds from 2005 through 2015 causing $140,000 in damages. The claim was settled.

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 Sanctions Finance 500 Over Penny Stock Sales Practices

February 27, 2016 | by Staff Attorney

The investment attorneys of Gana Weinstein LLP are investigating regulatory complaints filed by The Financial Industry Regulatory Authority’s (FINRA) against brokerage firm Finance 500, Inc. (Finance 500) and its employees including William Watson, Robert Hicks, Geoffrey Schiffrin, Paul Savage (Disciplinary Proceedings Nos. 2013038091902, 2013036837802). The complaints largely focus on allegations that the firm failed to supervise the issuance, sales, and trading of various low-priced securities or penny stocks.

According to one of the complaints, FINRA alleged that Finance 500 raised millions for four different penny stock issuers. FINRA alleged that from June 2012 to June 2014 Finance 500 failed to enforce a reasonable supervisory system to review and monitor sales of private placements by its investment banking department in the areas of due diligence, suitability, and marketing materials provided to customers. In addition, FINRA alleged that from March 2013 through June 2014, the firm used or permitted issuers to use, private placement marketing materials that were not fair and balanced and made misleading unsupported statements.

While FINRA’s investigation focused on many areas of securities issuance, one area focused on was the firm’s suitability procedures for private placements which were found to be not reasonable. FINRA stated that Finance 500 did not have an adequate procedures regarding how it would collect the suitability documents from each customer and in some cases the documents that it did collect were incomplete and did not include all requested information. In addition, FINRA found that the firm lacked procedures regarding how and when supervisory approval would be given for a particular customer and at times allowed its supervisory system to be evaded by permitting customers solicited by the firm’s registered representatives to make investments directly with the issuer.

Broker Spotlight: Centaurus Financial Advisor Marcious Dickerson

February 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 Marcious Dickerson (Dickerson). According to BrokerCheck records Dickerson has been the subject of 3 customer complaints. The customer complaints against Dickerson allege securities law violations that including unsuitable investments, misrepresentations, and breach of fiduciary duty among other claims. Many of the most recent claims involve allegations concerning non traded real estate investment trusts (Non-Traded REITs).

As a background since the mid-2000s Non-Traded REITs became one of Wall Street’s hottest products. However, the failure of Non-Traded REITs to perform as well as their publicly traded counterparts has called into question if Non-Traded REITs should be sold at all and if so should there be a limit on the amount a broker can recommend. See Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part I

Non-Traded REITs are securities that invest in different types of real estate assets such as commercial, residential, or other specialty niche real estate markets such as strip malls, hotels, storage, and other industries. Non-traded REITs are sold only through broker-dealers, are illiquid, have no or limited secondary market and redemption options, and can only be liquidated on terms dictated by the issuer, which may be changed at any time and without prior warning.

Broker Investigation: Excessive Trading Claims Against Broker John Fenimore

February 20, 2016 | by Staff Attorney

The securities fraud lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker John Fenimore (Fenimore). According to BrokerCheck records Fenimore has been the subject of at least two customer complaints. The customer complaints against Fenimore allege a number of securities law violations including that the broker made unsuitable investments and churning (excessive trading) among other claims.

The most recent customer complaint filed in June 2014 and alleged unsuitable recommendations and excessive trading from January 2010 through April 2014 claiming $250,000 in damages. The claim is still pending. In April 2013, another client filed a complaint alleging Fenimore engaged in a reckless trading. The claim settled for $210,000.

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: National Securities Advisor Kyle Harrington

February 16, 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 Kyle Harrington (Harrington). According to BrokerCheck records Harrington has been subject to 6 customer complaints, one regulatory action, one employment separation, and one financial disclosure. The customer complaints against Harrington allege securities law violations that including misrepresentations, breach of fiduciary duty, and negligence among other claims. The regulatory finding was made by FINRA which alleged that Harrington failed to disclose certain information that had to be disclosed on Harrington’s Form U4. The employment separation by Matrix Capital Group, Inc. (Matrix) also concerns allegations of failure to disclose reportable information.

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 events listed on Harrington brokercheck 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.

Investors File Non-Traded REIT Complaints Against Broker Nancy Daoud

February 11, 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 Nancy Daoud (Daoud). According to BrokerCheck records Daoud is subject to 6 customer complaints. The customer complaints against Daoud allege securities law violations that including unsuitable investments and misrepresentations among other claims. Many of the most recent claims involve allegations concerning non traded real estate investment trusts (Non-Traded REITs) and business development companies (BDCs).

As a background since the mid-2000s Non-Traded REITs became one of Wall Street’s hottest products. However, the failure of Non-Traded REITs to perform as well as their publicly traded counterparts has called into question if Non-Traded REITs should be sold at all and if so should there be a limit on the amount a broker can recommend. See Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part I

Non-Traded REITs are securities that invest in different types of real estate assets such as commercial, residential, or other specialty niche real estate markets such as strip malls, hotels, storage, and other industries. Non-traded REITs are sold only through broker-dealers, are illiquid, have no or limited secondary market and redemption options, and can only be liquidated on terms dictated by the issuer, which may be changed at any time and without prior warning.

Broker Investigation: Customer Complaints Against McNally Financial Broker Marshall Cassedy

February 6, 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 Marshall Cassedy (Cassedy). According to BrokerCheck records Cassedy is subject to 17 customer complaints, 3 regulatory actions, and one employment separation. The customer complaints against Cassedy allege securities law violations that including unsuitable investments, churning (excessive trading), unauthorized trading, misrepresentations, and breach of fiduciary duty among other claims.

The most recent regulatory action was filed by the State of Florida in 2010 and alleged unauthorized trading and unregistered activity. Prior to that, Capitol Securities Management, Inc. terminated Cassedy alleging that the broker had customer complaints concerning violations of the firm’s policies with respect to the handling of their accounts. In 2006, the State of Georgia filed a regulatory action against Cassedy alleging that the broker failed to disclose another regulatory investigation by the State of Florida. That investigation was filed in 2005 and alleged unsuitable securities.

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.