LPL Financial

Broker Richard Lewis Formerly of LPL Financial Sanctioned Over Alleged Improper Use of Discretion

September 8, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Richard Lewis (Lewis) concerning allegations that Lewis exercised discretion in a customer’s account without obtaining prior written authorization from the customer. FINRA found that his conduct violated NASD Conduct Rule 2510(b) and FINRA Rule 2010.

Lewis first became registered with FINRA firm in 1989. Since then, he has been associated with several firms and from December 2010, to March 2013, Lewis was associated with LPL Financial LLC (LPL). Currently, Lewis is associated with J.W. Cole Financial, Inc.

FINRA alleged that from April 2012, to February 2013, while Lewis was associated with LPL, he effected approximately 81 discretionary transactions in the securities account of a customer without obtaining prior written authorization and without LP accepting the account in writing as discretionary.

Business Development Companies (BDC) – Investment Risks to Be Aware of – Part II

August 20, 2014 | by Staff Attorney

In our prior post we recently highlighted, the rising popularity of non-traded business development companies (BDCs). BDCs may be one of the latest and greatest products that Wall Street is promoting that will provide outsized yield with less risk. As usual, these “new ideas” end with brokerage firms making lots of money and investors suffering the consequences.

BDCs make loans to and invest in small to mid-size, developing, or financially troubled companies. BDCs now fill the role that many commercial banks left during the financial crisis to lend to those companies with questionable credit. While BDCs are not new products, until very recently investors had only publicly traded closed-end funds that acted like private equity firms to invest in. These funds are risky enough. During the last downturn some of the publicly traded funds fell by 60%, 70% or more.

Like their non-traded REIT cousins, non-traded BDCs utilize a non-traded REIT-like structure and promote very high yields of 10% or more. There are some differences between BDCs and REITs, BDCs are regulated under the 1940 Act that governs mutual funds. There is also a big difference in valuation. BDCs are valued quarterly while non-traded REITs publish their valuations no later than 18 months after the offering period.

James Bracey Barred Over Allegations of Taking Loans from Customers

July 29, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred from the financial industry broker James Bracey (Bracey) concerning allegations that in or about February 2008, Bracey, received a $175,000 loan from a customer without notifying Multi-Financial, now known as Cetera Advisor Network LLC. FINRA alleged that on multiple occasions between 2009 and 2011, Bracey renegotiated the interest payments on the customer’s loan. FINRA also found that in December 2009, while associated with Multi-Financial, Bracey falsified a customer’s written wire transfer instructions in order to execute an unauthorized fund transfer from a customer’s brokerage account to that customer’s personal bank account outside of Multi-Financial. FINRA determined that Bracey caused the creation and maintenance of inaccurate books and records through the falsifying the customer’s wire transfer.

FINRA also alleged that between October 31, 2001 and April 30, 2012, Bracey failed to timely notify Multi-Financial, and later LPL Financial LLC, of two separate outside business activities. FINRA also found that in October 2004, after soliciting 17 investors to purchase securities away from Multi-Financial, Bracey failed to provide written notice to or firm approval to engage in private securities transactions in violation of NASD Rules 3040 and 2110. FINRA’s allegations are consistent with a “selling away” violation in which a broker solicits investors to invest in unapproved investments. Finally, FINRA found that between 2004 and 2012, Bracey willfully failed to timely disclose material information to Multi-Financial and LPL Financial in order to update his Form U4 concerning two liens and two creditor compromises.

In addition to the slew of violations alleged by FINRA, Bracey has been the subject of at least three customer complaints and terminated by three brokerage firms. The customer complaints against Bracey concern private placements (direct participation programs), equipment leasing investments, unsuitable investments, non-traded real estate investment trusts (REITs), and misrepresentations in the sale of securities.

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 Sanctions Larry Steven Werbel for Selling Away and Other FINRA Violations

June 4, 2014 | by Staff Attorney

On March 10, 2014, Larry Steven Werbel submitted a Letter of Acceptance, agreeing to accept the sanctions handed down by the Financial Industry Regulatory Authority (FINRA) for alleged violations relating to the sale of penny stocks during his tenure at LPL Financial, LLC.

Larry Werbel entered the securities industry in 1976 as a Series 1, Registered Representative at Cigna Financial Advisors, Inc., where he was employed for twenty years. Thereafter, in February 2009, after a thirteen-year stint at FSC Securities Corporation, Werbel began working for LPL Financial, until his termination in February 2011.

During a three-week period, spanning from on or about October 26, 2010 through on or about November 17, 2010, while registered with LPL Financial, Werbel allegedly solicited eight customers to invest in QLotus Holdings Inc. (“QLTS”), a low-priced security that Werbel himself had previously purchased. According to FINRA, Werbel’s firm, LPL Financial, prohibited the solicitation of low-priced securities, such as QLTS, and so Werbel coded the QLTS sales as unsolicited despite the fact that they were all solicited. Werbel’s improper coding caused LPL’s books and records to be inaccurate in violation of NASD Rule 3110(a).

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 Broker Reniero Francisco Accused of Misappropriating Millions in Client Funds

May 19, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred LPL Financial, LLC (LPL) broker Reniero Francisco (Francisco) concerning allegations that the broker failed to cooperate with FINRA’s investigation of Francisco’s involvement with Arista LLC, a registered Commodity Pool Operator (CPO) with its principal place of business in Newport Coast, California. An order was entered on December 3, 2013, requiring Francisco and other parties to pay more than $8.25 million in restitution for the losses of defrauded investors. FINRA requested information from Francisco and also scheduled him to testify but Francisco failed to respond to FINRA’s requests for information and documents and also failed to appear for testimony.

In December 2012, the U.S. Commodity Futures Trading Commission (CFTC) brought action against Arista and Arista’s principals, Abdul Sultan Walji (a/k/a Abdul Sultan Valji) of San Juan Capistrano, California, and Francisco alleging that they carried out a fraudulent scheme to misappropriate millions of investors’ money through commodity futures and options, making false statements to the CFTC, and filing false quarterly reports with the National Futures Association (NFA).

Shortly thereafter, Judge Paul A. Engelmayer of the U.S. District Court for the Southern District of New York entered a consent judgment and permanent injunction order against Arista, Walji, and Francisco. The order requires the defendants to pay more than $8.25 million in restitution for the investor losses. In addition, the order imposed civil monetary penalties of $6.45 million on Walji, $5.925 million on Francisco, and $1.54 million on Arista. The order also permanently bans defendants from trading activity and prohibits them from violating provisions of the Commodity Exchange Act (CEA) and a CFTC regulation.

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.

Former LPL Financial Broker Brian Brunhaver Accused of Fraud in the Sale of Non-Traded REITs

March 18, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has brought a complaint against financial advisor Brian H. Brunhaver (Brunhaver) formerly of LPL Financial, LLC (LPL) concerning allegations Brunhaver used an unauthorized e-mail account for communications related to his securities business and committed securities fraud in making oral and written misrepresentations to customers regarding a non-traded REIT.

Brunhaver entered the securities industry in 1994. From May 1995, until June 2011, he was registered through LPL. On or about June 2, 2011, LPL filed a Uniform Termination Notice (Form U5) for Brunhaver disclosing that he had been discharged on May 3, 2011. From August 2011, until December 2011, Brunhaver was registered through Pacific West Securities, Inc. On or about February 25, 2013, LPL filed an Amended Form U5 disclosing the receipt of a Statement of Claim where certain customers of Brunhaver alleged that he had recommended unsuitable investments in REITs and had made misrepresentations to them while employed by LPL.

In addition, Brunhaver’s BrokerCheck discloses that the broker has at least nine customer complaints filed against him. The majority of the complaints involve allegations that Brunhaver made unsuitable recommendations and material misrepresentations in the sale of non-traded REITs including Inland American REIT, among others. LPL has been sanctioned by regulatory authorities for failing to supervise its broker’s sales of non-traded REITs

FINRA Bars Gary Chackman Over Allegations of Unsuitable Non-Traded REIT Sales

March 11, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) imposed a permanent bar against Gary J. Chackman (Chackman) concerning allegations that he recommended unsuitable transactions in the accounts of at least eight LPL Financial, Inc. (LPL) customers by over-concentrating the customers’ assets in real estate investment trusts (REITs). Additionally, FINRA found that Chackman falsified LPL documents to evade the firm’s supervision by submitting dozens of “alternative investment purchase” forms that misrepresented customers’ liquid net worth. FINRA found that by submitting falsified documents Chackman increased his customers’ accounts’ concentration in REITs and other alternative investments beyond the firm’s maximum allocation limits.

From December 2001, through March 2012, Chackman was registered through LPL. On March 2012, LPL filed a Uniform Termination Notice for (Form U5) stating that Chackman was terminated for violating firm policies and procedures regarding the sale of alternative investments. From March 2, 2012 through April 3, 2013, Chackman was registered through Summit Brokerage Services, Inc. (Summit). In April 2013, Summit filed a Form U5 terminating Chackman stating that the broker was operating a business out of an unregistered location. According to Chackman’s BrokerCheck there have been at least five customer complaints filed against the broker. Many of the complaints involve allegations of unsuitable REITs

According to FINRA, from July 2009 to February 2012, Chackman recommended REITs and other alternative investments to at least eight of his LPL customers. FINRA found that Chackman purchased the REITs at periodic intervals in each of their accounts. For example, in one customer’s account Chackman made seven purchases of a particular REIT, each for $75,000 over six months. After twelve months, FINRA found that 35% of the customer’s assets and more than 25% of her liquid net worth were invested in REITs and other alternative investments. In order to evade LPL’s limitation on the concentration of alternative investments in customers’ accounts, FINRA found that Chackman misidentified his customers’ purported liquid net worth on LPL forms. FINRA found that over sixteen months and on seventeen alternative investment purchase forms Chackman tripled the customer’s purported liquid net worth.