The law offices of Gana LLP recently filed a complaint against RBC Capital Markets, LLC (RBC) and Morgan Stanley Smith Barney, LLC (Morgan Stanley) accusing their registered representative Bruce Weinstein (Weinstein) of churning (excessive trading) and making unsuitable recommendations. In addition, the complaint alleged that the brokerage firms failed to properly supervise Weinstein’s activities.
The claimant alleged that he is the owner of a small business who had very little investment experience with stocks, bonds, or any other investment products. In addition, the claimant has no other financial or investment training and is generally unsophisticated in financial matters. The complaint also alleged that Weinstein knew that the claimant was providing the broker with approximately 100% of his liquid assets. The claimant alleged that even though he did not tell the broker that he desired to speculate with 100% of his liquid assets, Weinstein incorrectly marked claimant’s investment objective as speculation. Claimant alleged that the broker also incorrectly selected his investment experience in options, stocks, and bonds as being 20 years. In fact, the claimant had no options trading experience.
According to the complaint, Weinstein immediately began executing a highly leveraged and excessive trading investment strategy in claimant’s account. The claimant alleged that Weinstein’s trading was made without authorization or prior notice to the client. The claimant alleged that the broker’s trading generated exorbitant commissions for himself while providing no material benefit to his client. For example, in the May 2011, the claimant alleged that his account lost 44.8% of its value in a single month. During this month, it was alleged that the broker excessively day traded options such as Apple causing losses of $23,228 in Apple options or nearly 21% of the claimant’s entire liquid net worth.
In addition, claimant alleged that Weinstein executed in or about a hundred thousand dollars in leveraged and inverse non-traditional ETFs (Non-Traditional ETFs). Non-Traditional ETFs contain significant risks that make the products inappropriate for nearly all investors. In fact, according to a complaint filed in 2011 by Securities Division of Massachusetts against RBC, the firm’s s own ETF specialist was quoted in January 2009 stating to “think twice or thrice before purchasing leveraged ETFs.” According to Massachusetts RBC even published a study stating that “we [RBC] would argue that these products are not suitable for any investors, if we define ‘investors’ as prospective purchasers with longer-term holding periods (e.g., one week or one month).” RBC later settled with Massachusetts agreeing to pay a $2.9 million fine for losses on the Non-Traditional ETFs and selling the products without an understanding how they functioned or how long they should be held.
Finally, the claimant alleged that Weinstein’s trading while at RBC turned over his account over 28 times annually and cost the account 25.1% of its average net equity. In a relatively short time, during a booming stock market environment, the claimant lost his entire retirement savings due to the alleged misconduct.