Unauthorized Trading

FINRA Sanctions E1 Asset Management, Ron Itin, and Ahsan Shaikh Over Churning Customer Accounts

August 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned (Case No. 2010025835701) broker E1 Asset Management, Inc. (E1 Asset) Ron Itin (Itin), and Ahsan Shaikh (Shaikh) concerning numerous irregularities and misconduct including allegations that between July 2008, and April 2012, including the failure to conduct reasonable supervisory reviews designed to detect and prevent excessive trading, otherwise known as churning, in customer accounts.

Itin’s BrokerCheck records reveal at least 9 customer disputes. These disputes involve claims of unsuitable investments, churning (excessive trading), unauthorized trading, breach of fiduciary duty, misrepresentations and false statements, among other claims. The claims state that among the products traded in client accounts were penny stocks, options, and other equities. In January 2015, Itin declared chapter 7 bankruptcy in New Jersey. Itin has been associated with E1 Asset Management, Inc. since 1999 and is a supervisory principal at the firm.

Shaikh’s BrokerCheck records show at least at least nine customer disputes. The disputes involve claims similar in nature to Itin’s records. Shaikh has been associated with E1 Asset Management, Inc. since 1999 and is a supervisory principal at the firm.

Gana LLP Investigation: Complaints Against Coastal Equities Broker Douglas Bevers

August 20, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Douglas Bevers (Bevers) has been the subject of at least five customer complaints, two regulatory actions, and one employment separation. The customer complaints against Bevers allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, and churning (excessive trading), among other claims. The employment separation resulted from allegations that Bevers violated firm policies by allowing a third party to direct orders without obtaining permission from the client in writing.

Bevers entered the securities industry in 1973. From July 2003, until February 2014, Bevers was associated with Boenning & Scattergood, Inc. Thereafter, from February 2014, till present Bevers has been registered as a broker with Coastal Equities, Inc.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. Many of the claims against Bevers involving claims of unauthorized trading, churning, and excessive trading.

Broker Investigation: Churning Claims Against Mark Kaplan

August 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Mark Kaplan (Kaplan) has been the subject of at least four customer complaints and one termination. The customer complaints against Kaplan allege a number of securities law violations including that the broker made unsuitable investments, churning (excessive trading), unauthorized trading, breach of fiduciary duty, misrepresentations and false statements, among other claims

Kaplan entered the securities industry in 1989. From September 2005, until June 2009, Kaplan was registered with Citigroup Global Markets Inc. (Citigroup). From June 2009, until April 2011, Kaplan was associated with Morgan Stanley Smith Barney (Morgan Stanley). In March 2011, Morgan Stanley filed a notice of Termination Form U-5 stating that Kaplan was discharged because of a customer complaint that was made against Kaplan. The firm also stated that it had other concerns regarding activity in client accounts. In response, Kaplan stated that the allegations by Morgan Stanley were unfounded and that the firm had approved all of the activity in client accounts. Since March 2011, Kaplan has been associated with Vanderbilt Securities, LLC.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. Many of the claims against Kaplan involving claims of churning and excessive trading. When brokers engage in churning the investment trading activity in the client’s account serves no reasonable purpose for the investor and is transacted to profit the broker through the generation of commission payments. The elements to establish a churning claim, which is considered a species of securities fraud, 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 Spotlight: Broker Clarence Patton Jr

July 27, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Clarence Patton Jr (Patton) has been the subject of at least four customer complaints. Customers have filed complaints against Patton alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, fraud, breach of fiduciary duty, unauthorized trading, churning (excessive trading), and failure to execute among other claims.

Patton entered the securities industry in 1991. From 1999 to present Patton has been registered with J.P. Turner & Company, L.L.C. (JP Turner).

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.

Gana LLP Investigation: Legend Securities Broker Peter Girgis

July 27, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Peter Girgis (Girgis) has been the subject of at least three customer complaints, several unreported judgement or liens, one employment separation following allegations by his brokerage firm, and two regulatory actions taken by FINRA. Customers have filed complaints against Girgis alleging a number of securities law violations including that the broker made unsuitable investments, fraud, churning (excessive trading), breach of fiduciary duty, and unauthorized trading among other claims.

Bergen entered the securities industry in 2002. From August 2006 until November 2009, Girgis was registered with J.P. Turner & Company, L.L.C. (JP Turner). From there, Girgis was associated with Brookstone Securities, Inc. until June 2012. Thereafter, Girgis was a registered representative of Joseph Gunnar & Co. LLC from June 2012 until June 2013. Finally, Girgis is currently registered with Legend Securities, Inc.

In one of the FINRA actions, FINRA alleged that, while registered through Joseph Gunnar, Girgis caused a violation of Regulation S-P of the Securities Exchange Act of 1934 on the part of his employer firm by sending nonpublic personal information about a customer to an unauthorized individual. In the second FINRA action, the regulator alleged that between February 2011 and January 2013, Girgis failed to disclose and/or timely disclose on his Form U4 four unsatisfied judgments and/or liens including a January 2011 New York income tax warrant of approximately $4,488; a January 2011 New York income tax warrant of approximately $13,418; a November 2011 New York income tax wan-ant of approximately $2,524; and a March 2011 federal income tax warrant of approximately $30,635. Subsequent to these allegations Joseph Gunnar terminated Girgis alleging that the broker violated the conditions of the FINRA action.

Broker Spotlight: Nigel James Churning Claims

July 21, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Nigel James (James) has been the subject of at least five customer complaints and one financial matter. Customers have filed complaints against James alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations and false statements, churning (excessive trading), breach of fiduciary duty, breach of contract, unauthorized trading, among other claims. Most of these claims involve recommendations in equities.

James entered the securities industry in 2002. From October 2005 until October 2008, James was registered with J.P. Turner & Company, L.L.C. From there, James as associated with First Midwest Securities, Inc. until February 2013.

All advisers have a fundamental 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.

Morgan Stanley and Broker Ami Forte Subject to $400 Million Investor Complaint

June 8, 2015 | by Staff Attorney

According to InvestmentNews, the widow of Roy M. Speer, co-founder of the Home Shopping Network, has filed a complaint with The Financial Industry Regulatory Authority (FINRA) against Morgan Stanley Wealth Management along with an adviser Ami Forte (Forte) and branch manager Terry McCoy (McCoy) for $400 million. Morgan Stanley acknowledged the arbitration claim in a disclosure in the brokerage’s publicly filed annual financial report but only indicated the amount in controversy was for more than $170 million.

Mr. Speer’s widow is claiming that Morgan Stanley and their adviser engaged in excessive trading – also referred to as churning, unauthorized use of discretion, and abused their fiduciary duty. According to the complaint, Mr. Speer suffered from diminished capacity during the last five years of his life. During this time his adviser and others at the firm made approximately 12,000 unauthorized trades generating an eye popping $40 million in commissions.

Unfortunately, cases such as these are becoming increasingly common. Our firm has handled a number of cases where a wealthy investor has been taken advantage of due to diminished capacity. In other cases a spouse who inherits or assumes management over an affluent estate has very little financial experience and places their trust in their brokerage firm and financial advisor only to be charged millions in fees and high commission products. Often times these financial strategies are completely unreasonable and unjustifiable. Wealthy investors often have financial needs that do not exceed even a tiny fraction of their overall net worth. Yet, there have been cases where brokers place sizable portions of their client’s massive estates at jeopardy in order to generate millions in fees while providing absolutely no benefit for their client.

OneAmerica Securities Sanctioned By FINRA Over Failure to Supervise

May 26, 2015 | by Staff Attorney

As we previously reported, The Financial Industry Regulatory Authority (FINRA) sanctioned and barred financial advisor Matthew Davis (Davis) concerning allegations of misconduct in several customer accounts. Davis was associated with Beneficial Investment Services, Inc. from November 2008, through April 2010. Thereafter, Davis was associated with OneAmerica Securities, Inc. (OneAmerica) from April 2010, through July 2013. The allegations of misconduct included claims of conversion, misrepresentation of customer holdings and account value, forgery, discretionary unauthorized trading, attempts to settle a customer complaint without the firm’s knowledge, and unsuitable investment recommendations.

In a new regulatory action, FINRA alleged that OneAmerica failed to supervise Davis and ignored numerous red flags of misconduct concerning his activities. For instance, FINRA alleged that two customers opened a OneAmerica account with Davis identifying the husband as a 65 years-old and earning between $50,001-75,000 per year. His wife was a “Homemaker” and the couple’s stated Net Worth, excluding their residence, was “$250,001-500,000″ and they had only two years of investment experience limited to stocks, bonds, and mutual funds.

Only three weeks later the couple signed an Option Agreement and were approved to trade options. FINRA found that Davis rapidly traded the options account executing 55 options transactions in May 2012; 52 options transactions in June 2012; and 53 options transactions in July 2012. This activity, according to FINRA, caused a rapid loss of account equity. FINRA found that there were multiple red flags that should have alerted the OneAmerica’s compliance department that Davis’ recommendations were unsuitable. For example, FINRA found that the couple’s account agreement reported minimal investing experience but their options agreement identified purported options (and commodities) trading experience. Also the couple’s new account agreement reported their Investment Objective as Long Term Growth but whereas their options agreement stated their objectives included speculation and hedging. Finally, FINRA alleged that the couple’s new account agreement reported their net worth was $250,000-500,000, whereas the options agreement stated their Net Worth was $640,000.

Prospera Financial’s Douglas Dannhardt Suspended Over Excessive Trading Claims

May 7, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined and suspended broker Douglas Dannhardt (Dannhardt) concerning allegations that between January 2010, and December 2011 Dannhardt engaged in several different violations of the industry’s rules including: 1( excessive and unsuitable trading in three IRA accounts (also known as churning); 2) improperly exercising discretion in these three accounts by executing transactions days and weeks after obtaining customer approval; 3) accepting trade orders for a customer’s account from a third party without written authorization.

Dannhardt became associated with a FINRA firm in 1984. From March 1995 through December 2013, Dannhardt was employed by Prospera Financial Services. Inc, (Prospera). The firm filed a Form U5 for Dannhardt as a result of his voluntary resignation from the firm.

Under the FINRA rules excessive trading occurs when: (1) a broker exercises control over a customer’s account: and (2) the amount of trading activity in that account is inconsistent with the customer’s investment objectives, financial situation, and needs. This conduct violates FINRA’s suitability standards. When making such a determination FINRA looks to see if the trading in an account can becomes so quantitatively unsuitable by unreasonably raising the costs associated with the investment strategy to the point where the additional risk in order to generate the return is not offset by those costs.

Broker Spotlight: Wells Fargo Advisor Marcus Debaise

March 30, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Marcus Debaise (Debaise) has been the subject of at least 14 different customer complaints over the course of his career. Beginning in 2011 and continuing into 2015, customers have been filing complaints against Debaise alleging that the broker made unsuitable investments and unauthorized trading in speculative securities that were inappropriate for the customer.

Debaise has been registered with FINRA since 1993. From 2003 until present Debaise has been registered with Wells Fargo Advisors, LLC (Wells Fargo).

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. Part of the suitability requirement is that the broker must have a reasonable basis to believe, based on appropriate research and diligence, that all recommendations are suitable for at least some investors. Thus, the product or investment strategy being recommended must be appropriate for at least some investors and the advisers must convey the potential risks and rewards before bringing it to an investor’s attention. Second, all brokers must have a reasonable basis to believe that the recommended investment strategy is suitable for the particular customer. The recommendation must be reasonable for the investor based upon the investor’s risk tolerance, investment objectives, age, financial circumstances, other investment holdings, and experience.