securities attorney

FINRA Bars Former H.D. Vest Broker Richard Whitley

August 18, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Richard Whitley (Whitley) has been the subject of at least 13 customer complaints and one regulatory action that has resulted in Whitley being barred. FINRA launched an investigation into claims that Whitley recommended unsuitable investments to customers. In addition, to the regulatory bar from the agency, customer complaints against Whitley allege a number of securities law violations including that the broker made unsuitable investments, breach of fiduciary duty, misrepresentations and false statements, among other claims

Whitley entered the securities industry in 1982. From 1992, until August 2014, Whitley was registered with H.D. Vest Investment Services (HD Vest). In June 2015, Whitley was barred by FINRA from the financial services industry after failing to respond to the agencies investigation into claims

Advisers have an obligation to deal fairly with investors and that obligation includes making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its costs, benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

FINRA Bars Former Morgan Stanley Advisor Justin Amaral

August 13, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Justin Amaral (Amaral) has been barred for failing to respond to requests for information by the agency. The requests may have related to the reasons Morgan Stanley gave for terminating Amaral’s employment. Upon termination from Morgan Stanley the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Amaral was due to allegations by the firm that Amaral became an executor and beneficiary in a client’s estate and that he used discretionary authority in several client accounts.

In addition, to the most recent FINRA action and bar, Amaral has been the subject of at least two customer complaints involving unsuitable closed-end funds and misrepresentations of investments involving mutual funds. According to FINRA, the agency made attempts to have Amaral appear for testimony concerning an unstated matter. Amaral failed to appear and was consequently barred from the securities industry.

It is important for investors to know that all advisers have an obligation and responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

Julius Kenney Formerly of LPL Financial Barred Over Outside Business Activities Investigation

August 11, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Julius Kenney (Kenney) concerning allegations Kenney refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities. Such activities may, under certain circumstances also involve investment transactions referred to as “selling away” in the industry. According to FINRA BrokerCheck records Kenney has disclosed that he operates as a LPL Financial LLC (LPL Financial) broker under the DBA Frank Kenney Wealth Management in Calhoun, Georgia. There is one customer complaint against Kenney alleging that the broker solicited an investment in a business referred to as Mellow Mushroom in or around October 2013.

Kenney entered the securities industry in 2008, when he became associated with Edward Jones. Thereafter, Kenney became associated with LPL Financial in 2011 before leaving for Dempsey Lord Smith, LLC in July 2012 through September 2013. Finally, in September 2013, Kenney came back to LPL Financial until his termination in June 2015. On May 22, 2015, LPL Financial filed a termination notice (known as a Form U5) with FINRA disclosing that Kenney was discharged from the firm for participating in an undisclosed outside business activity.

The conduct alleged against Kenney may lead to “selling away” securities violations. 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 the brokerage firm claim ignorance of their advisor’s activities, under the FINRA rules, a brokerage firm owes a duty 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 often occurs in brokerage firm that 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.

Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part II

August 11, 2015 | by Staff Attorney

This post continues our investigation into whether or not brokerage firms have a basis to continue to sell non-traded real estate investment trusts (Non-Traded REITs). Non-Traded REIT sales have exploded becoming the latest it product of Wall Street. However, experts and regulators have begun to question the basis for selling these products. And if Non-Traded REITs are to be sold, should there be a limit on the amount a broker can recommend.

As reported in the Wall Street Journal, Craig McCann, president of Securities Litigation & Consulting Group, a research and consulting company, “Nontraded REITs are costing investors, especially elderly, retired, unsophisticated investors, billions. They’re suffering illiquidity and ignorance, and earning much less than what they ought to be earning.” In conclusion, “No brokerage should be allowed to sell these things.”

According to his analysis, shareholders have lost about $50 billion for having put money into Non-Traded REITs rather than publicly exchange-traded funds. The data comes from a study of the difference between the performance of more than 80 Non-Traded REITs and the performance of a diversified portfolio of traded REITs over two decades. The study found that the average annual rate of return of Non-Traded REITs was 5.2%, compared with 11.9% for the Vanguard REIT Index Fund.

FINRA Bars Former Securities America Broker Judith Woodhouse

August 10, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Judith Woodhouse (Woodhouse) has been barred for failing to respond to requests for information by the agency. The requests may have related to the reasons Securities America, Inc. (Securities America) gave for terminating Woodhouse’s employment. Upon termination from Securities America the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Woodhouse was due to allegations by the firm that Woodhouse violated the firm’s policies relating to the borrowing of funds and responding to supervisory requests.

In addition, to the most recent FINRA action and bar, Woodhouse has been the subject of at least one customer complaint involving a private placement. In addition, Woodhouse has several financial disclosures and two regulatory actions. Another FINRA action in 2013, concerned Woodhouse’s involvement in private securities transactions totally over $500,000 that were made without Securities America’s consent. This action resulted in a $10,000 fine and three month suspension.

It is important for investors to know that all advisers have an obligation and responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part I

August 10, 2015 | by Staff Attorney

As longtime readers of our blog know we have reported numerous instances of sales and other practice violations regarding how brokers and brokerage firms sell non-traded real estate investment trusts (Non-Traded REITs). See list of articles below. As Non-Traded REITs have become the latest darling product of the financial industry experts and regulators have begun to question the basis for selling these products. And if Non-Traded REITs are to be sold, should there be a limit on the amount a broker can recommend.

As a background, a Non-Traded REIT is a security that invests 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. There are publicly traded REITs that are bought and sold on an exchange with similar liquidity to traditional assets like stocks and bonds. However, 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.

Investors are also often ignorant to several other facts that would warn against investing in Non-Traded REITs. First, only 85% to 90% of investor funds actually go towards investment purposes. In other words, investors have lost up to 15% of their investment to fees and costs on day one in a Non-Traded REIT. Second, often times part or almost all of the distributions that investors receive from Non-Traded REITs include a return of capital and not actual revenue generated from the properties owned by the REIT. The return of capital distributions reduces the ability of the REIT to generate income and/or increases the investment’s debt or leverage.

FINRA Sanctions Morgan Stanley and Scottrade for Failing to Supervise Customer Transfers to Third-Party Accounts

August 9, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) issued a press release concerning two settlements fining Morgan Stanley Smith Barney, LLC (Morgan Stanley) $650,000 and Scottrade, Inc. $300,000 for failing to implement reasonable supervisory systems to monitor the transmittal of customer funds to third-party accounts. The settlements included allegations that both firms had weak supervisory systems after FINRA examination teams reviewed the firms in 2011, but neither took necessary steps to correct the supervisory gaps.

Brad Bennett, Executive Vice President and Chief of Enforcement, was quoted in the press release as stating that, “Firms must have robust supervisory systems to monitor and protect the movement of customer funds. Morgan Stanley and Scottrade had been alerted to significant gaps in their systems by FINRA staff, yet years went by before either firm implemented sufficient corrective measures.”

In the Morgan Stanley settlement, FINRA alleged that from October 2008, to June 2013, three Morgan Stanley brokers in two different branch offices converted a total of $494,400 from thirteen customers by creating fraudulent wire transfer orders and checks to third-party accounts. In one example, the brokers moved funds from multiple customer accounts to their own personal bank accounts. FINRA found that in these instances Morgan Stanley’s supervisory systems and procedures to review and monitor transmittals of customer funds through wire transfers were not reasonable and could not detect multiple customer account transfers to the same third-party accounts and outside entities. In sum, FINRA found that the supervisory failures allowed the conversions to go undetected.

Gana LLP Investigation: Claims Against Broker George Lincoln

July 30, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker George Lincoln (Lincoln) has been the subject of at least three customer complaints, one regulatory action, and one employment separation. The customer complaints against Lincoln allege a number of securities law violations including that the broker made unsuitable investments among other claims.

Lincoln entered the securities industry in 1991. From November 2005, until January 2014, Lincoln was registered with CCO Investment Services Corp. (CCO Investment). In December 2013, CCO Investment filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Lincoln was due to a regulatory action by the state of Vermont alleging violations of the securities laws.

The state of Vermont’s action against Lincoln alleged that the broker altered material information of the books and records of his brokerage firm in order to suggest that his clients were more aggressive and risky investors than their actual circumstances and stated risk tolerances. According to the allegations, Lincoln made these alterations in order to concentrate his client’s investments in certain funds that were unsuitable.

Former Morgan Stanley Broker Debra Lyman Sanctioned Over Unauthorized Trading

July 23, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined and suspended broker Debra Lyman (Lyman) concerning allegations that between January 2013 through November 2013 Lyman engaged in unauthorized or discretionary trading in six client accounts without proper written permission.

Lyman was associated with Morgan Stanley from 1998 , through January 17, 2014. Respondent was terminated by the firm for exercising discretion in client accounts without obtaining written authorization. In addition to the FINRA complaint, Lyman has been the subject of at least five customer complaints, the majority of which complain of high commissions and fees associated with unauthorized and excessive trading activity, commonly known and referred to as churning.

NASD Conduct Rule 2510(b) prohibits brokers from exercising discretionary power in a customer’s account unless such customer has given prior written authorization to the broker and the brokerage firm has accepted the account as discretionary. FINRA alleged that from January through November 2013, Lyman effected discretionary transactions in at least six customer accounts without obtaining prior written authorization from the customers and without the accounts being accepted as discretionary by Morgan Stanley.

David Chu Formerly of NYLife Securities Barred Over Private Transactions Investigation

July 21, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred David Chu (Chu) concerning allegations Chu refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities and private securities transactions. Such activities are often referred to as “selling away” in the industry. According to FINRA BrokerCheck records Chu has no outside business activities listed. It is unclear what businesses or investments FINRA’s investigation concerns.

Chu entered the securities industry in 2004, when he became associated with NYLife Securities LLC (NYLife). Chu held a Series 6 license which is a license that only allows the broker to sell investment companies (i.e. mutual funds) and variable contracts products. On March 16, 2015, NYLife filed a termination notice (known as a Form U5) with FINRA disclosing that Chu was discharged from the firm under circumstances that included a notification from the SEC that the agency was reviewing Chu’s books and records including his outside business activities and private securities transactions. NYLife conducted its own review and believed that Chu’s activities exceeded the scope of his approved activities with the brokerage firm.

According to FINRA, in April 2015, the agency began investigating whether Chu had engaged in outside business activities by soliciting investments or promissory notes. As part of its investigation FINRA sent a request to Chu for certain documents and information. According to FINRA, Chu provided a partial response to FINRA but thereafter through subsequent communications stated on a call with FINRA staff that he will not cooperate with the investigation. Consequently, Chu was barred by FINRA.