securities fraud

Securities Watchdog is Actually Asleep At the Wheel

May 8, 2014 | by Staff Attorney

People have joked that securities regulators are asleep at the wheel due to the number of frauds that go unpunished for so long. However, a recent Bloomberg BusinessWeek article exposed that the phrase is literally true in some cases.

Every dispute an investor has with their brokerage firm must be arbitrated through the Financial Industry Regulatory Authority (FINRA). FINRA hires and purportedly screens arbitrators who hear customer disputes with the industry. Due to the private nature of arbitration, the general public is often unaware how poorly equipped this system is at times to handle matters entrusted to it. While I have been satisfied with the quality of arbitrators in many cases, I have also had the unfortunate and all too common experiences complained of in the Bloomberg article.

According to the article, FINRA’s arbitration panels has a pool of 6,375 people who are often retired brokers, lawyers, or accountants. Arbitrators are paid about $400 a day when serving on a panel. FINRA provides arbitrators with 14 hours of instruction that can be completed online. Awards rendered by FINRA arbitrators are typically brief, and the decision often provides no reasoning and only a bare outline of the claim and no explanation of how the amount of the award was determined.

How Elderly Investors Can Protect Their Retirement Savings

May 6, 2014 | by Staff Attorney

Saving enough money for retirement is challenging enough. Unfortunately, senior investors now need to worry about trusting financial advisors and investment promoters in order to avoid losing their hard earned savings. There are steps and precautions seniors can take to help guard their investments.

First, fraudsters tend to target people who they can easily build a relationship of trust with. Thus, common frauds include affinity fraud through community groups, clubs, associations, and religious places of worship. Older people are also generally more trusting than the average person. The elderly are also more available to answer phone calls during the day.

Investors should always proceed with caution. Be wary of limited time offers or investments that you need to make a quick decision on. Also ask about the cost or commission for investing. If the commission is 10% that means that only 90% of your money will go to work for you and there may be considerable risks that need to be taken in order for the investment to earn a profit. Common frauds and scams also purport to offer a high rate of return or income rate.

William Coolidge of Stifel Nicolaus Barred by FINRA Over Unauthorized Trading Activity

April 30, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has barred financial advisor William B. Coolidge (Coolidge) of Stifel, Nicolaus & Company, Incorporated (Stifel Nicolaus) concerning allegations that Coolidge effected trades in the accounts of three customers without obtaining prior written authorization from the customers and without the accounts being discretionary accounts. In addition, FINRA alleged that Coolidge implemented a trading strategy and made unsuitable recommendations to five customers to switch from mutual funds and Unit Investment Trusts (UIT) to other mutual funds or UITs after holding the investments for a short time period.

Discretionary trading without written authorization is a form of unauthorized trading. Unless an investor has given the broker discretion to make trades in the account, a broker is obligated to first discuss all trades with the investor before executing them. FINRA Rules prohibit a broker from making discretionary trades in a customer’s non-discretionary account. The SEC has found that unauthorized trading is a type of securities fraud due to its fraudulent nature.

FINRA alleged that from April 2008, through April 2012, Coolidge effected approximately 233 trades in the accounts of three customers without obtaining prior written authorization from the customers. One of the customers was 86 years old. FINRA alleged that the customer’s investment objectives were growth and income, her estimated net worth was approximately $240,000, and her annual income was under $25,000. FINRA found that from April 2008 through June 2012, Coolidge implemented a trading strategy in the customer’s IRA account on forty-six occasions and in her individual account on fifty-two occasions where he switched from mutual funds and UITs to other mutual funds or UITs after holding the investments for a short time period. FINRA determined that Coolidge’s recommendations were not suitable and that the customer incurred a total loss of $43,692 and paid $52,316 in commissions.

The Supreme Court May Limit Securities Fraud Suits

April 5, 2014 | by Staff Attorney

The Supreme Court on Wednesday, MArch 5, 2014, seemed poised to impose new limits on securities fraud suits – making it harder for investors to group together to bring claims that they were misled when they bought or sold securities.

Organizations facing fraud class actions prefer to have the case certified as late in the litigation as possible because once a class is certified, the damages can be so enormous that most companies settle. “Once you get the class certified, the case is over,” Justice Antonin Scalia said on Wednesday.

Several justices, including Justice Anthony Kennedy, suggested that this phenomenon could be partly addressed through a proposal by two law professors that argued plaintiffs should be required to show at an early stage “whether the alleged fraud affected market price.”

Gana LLP Files Complaint on Behalf of Former NFL Player

March 26, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP recently filed a complaint with the Financial Industry Regulatory Authority (FINRA) on behalf of a former NFL athlete alleging that the brokerage firm Resource Horizons Group LLC (Resource Horizons) failed to supervise Robert Gist (Gist), one of the firm’s associated persons.

The claimant came to know Gist in the 1980s while playing in the NFL. The claimant knew that his NFL earnings would provide him with enough money to save for his retirement and support his lifestyle after retiring from the NFL and wanted Mr. Gist to prudently manage the funds. The claimant trusted Gist through many years of friendship and Gist was invited to the claimant’s family events and functions.

In 1991, Gist solicited the claimant to continue to invest with him at his new firm, Gist, Kennedy & Associates, Inc, (Gist, Kennedy) which also operated as a law firm. According to the complaint, Gist told the claimant that he could invest the couple’s retirement assets and an educational trust the claimant established for the benefit of their children and produce an income of between 7 to 10%.

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 Alleges that Cambridge Investment Research Failed to Supervise Broker Emails

February 20, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Cambridge Investment Research, Inc. concerning allegations that from January 2009, to July 2010, Cambridge failed to ensure that the firm preserved, maintained, and reviewed the business emails of two of its registered representatives. FINRA found that during this time Cambridge was relying upon its representatives to forward copies of their emails but did not have effective procedures reasonably designed to ensure that the representatives actually forwarded emails in violation of FINRA supervision rules.

Cambridge has been a FINRA member since December 1995 and has 3,044 registered individuals in 1,530 branch offices.

The duty to supervise has been held to be a critical component of the securities regulatory scheme. Supervisors have an obligation to employ systems and processes designed to ferret out wrongful behavior. In addition, firms must respond vigorously to indications of irregularity, commonly referred to as “red flags” of misconduct.

FINRA Debates Rule Allowing Matters to Be Referred to Enforcement During Arbitration Cases

February 17, 2014 | by Staff Attorney

A recent InvestmentNews article highlighted a proposed rule change that the Financial Industry Regulatory Authority (FINRA) has proposed to the Securities and Exchange Commission (SEC) that would allow arbitrators to direct cases to FINRA enforcement during the pendency of the case. FINRA enforcement is responsible disciplining brokers and brokerage firms for securities misconduct and fraud. FINRA has the authority to suspend, sanction, fine, or bar individuals and companies from involvement in the securities industry based upon the findings of its investigation.

Under the current rules, arbitrators must wait until the case concludes before submitting a report of concerns to FINRA. But FINRA believes that making arbitrators wait until the end of the arbitration could delay the regulator’s ability to take action against a parties and to collect evidence.

I believe there are pluses and minuses to allowing mid-litigation referral of customer claims to FINRA. On the benefit side, FINRA would receive information faster and be able to protect more investors. Although arbitrations are routinely completed within one year to a year and half after filing, a delay in submitting evidence of misconduct allows wrongful actors to continue to hurt investors. In addition, sometimes counsel representing brokerage firms, on rare occasions, abuse the FINRA process in order to satisfy a demanding client. However, brokerage firms, even in litigation, must conduct themselves fairly under the FINRA rules. The power of an arbitrator to refer instances of repeated or significant abuse of the FINRA process will make firms think twice before simply ignoring panel orders.

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.

Do I Have a Securities or Investment Claim?

October 29, 2013 | by Staff Attorney

This is the most common question a potential client asks during an initial interview. This article is directed to those investors who are wondering if they have a claim but have not yet sought a consultation. Hopefully, this article will provide some insight into what a securities fraud attorney looks at when reviewing a potential client’s claim. However, I would stress that all evaluations are individual in nature and while this article is meant to provide generally instructive insight, only a full one-on-one consultation with an attorney can provide a full review of your claim and provide individual guidance.

In my analysis of a potential client’s securities claim I look at two primary factors: 1) the strength of the liability case; and 2) the ability to collect from the defendant. The answer to these two factors weigh heavily in moving forward with the potential client’s claim. The strength of the liability of the claim is the initial assessment of how likely a judge or arbitration panel would likely find the defendant liable for misconduct. The ability to collect factor looks at what potential defendants could be liable for the misconduct the client is alleging and the ability of those defendants to compensate the client’s losses. In many cases, the second factor will not need to be seriously investigated.

What factors influence the strength of the liability of the case? This is a hard question to answer because each case is different and liability is premised on different factors given the type of claims being made. In cases of fraud or misrepresentation the strength of the case often lies in the ability to prove the false statements made to the client. Written communications, emails, advertisements, and other documents that can be proven false or misleading tend to make stronger cases. If a securities regulator has also found the defendant’s conduct to be fraudulent or misleading or has disciplined the same or another brokerage firm for similar conduct such evidence helps to strengthen the case.