Articles Posted in Consumer Protection

shutterstock_135103109-300x200The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that broker Ronald G. Richer (Richer), most recently associated with Garden State Securities, Inc. (Garden State Securities) has been subject to at least four customer complaints and three regulatory actions during the course of his career.  According to records kept by The Financial Industry Regulatory Authority (FINRA), Richer’s customer complaints alleges that Richer recommended unsuitable investments in various investments among other allegations of misconduct relating to the handling of their accounts, including failure to supervise and unauthorized trading.

In July 2020, Richer was named a respondent in a FINRA arbitration complaint alleging that he borrowed $15,000 from a senior customer without providing prior notice to, and receiving written approval from, his member firm.  This event led to his subsequent bar from the industry.

In December 2019, a customer complained that Richer violated the securities laws by alleging that Richer engaged in unauthorized trading.  The damage amount requested was $21,000. The claim was denied.

In March 2018, a customer complained that Richer violated the securities laws by alleging that Richer engaged in unsuitable investment advice, and breach of fiduciary responsibility. The damage amount requested was $26,473. The claim settled in the amount of $16,300.

In June 2016, a customer complained that Richer violated the securities laws by alleging that Richer engaged in unauthorized trading, negligence, and failure to supervise. The damage amount requested was $150,000. The claim settled in the amount of $30,000.

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shutterstock_32215765-300x200Recently, Steven Orr’s (Orr) attorney reached out to our firm to inform us our posts on Orr was inaccurate.  The post detailed that Orr had been subject to five customer complaints concerning allegations of securities law violations including unsuitable investments and misrepresentations among other claims.   Many of the complaints involve direct participation products (DPPs) and private placements including oil and gas partnerships, non-traded real estate investment trusts (REITs), and other alternative investments.

Orr’s attorney has brought it to our attention that Orr has succeeded in using The Financial Industry Regulatory Authority (FINRA) flawed expungement process system to remove all five complaints from his BrokerCheck record.  As shown in Orr’s expungement “award”, Orr sued his own employer, H. Beck, Inc. (H. Beck) for damages of $1.00 due to the placement on his record of five customer complaints.  The “hearing” that took place appears to have been perfunctory at best.  The hearing concerning five customer complaints took only one hearing session to complete.  Usually there are two hearing sessions a day – meaning in this case five cases were probably decided in time for the arbitrator to catch lunch.  The total cost to Mr. Orr by FINRA to expunge five customer complaints from his record was $100 – excluding any fees he privately paid his counsel.

During this less than four hour hearing to decide five cases, H. Beck did not contest the request for expungement.  In FINRA expungement cases, brokerage firms like H. Beck profit from being sued by their own brokers to clean their records.  Of the five investors that complained concerning Orr’s investment recommendations – four of which resulted in documented settlements and compensation for the victims – none of the investors participated in the short hearing.  Only one investor submitted a letter to the arbitrator opposing expungement.  In sum, there was no meaningful opposition to Orr’s expungement request.

Without any significant opposition, the arbitrator found that there was “credible evidence presented demonstrated that Claimant made suitable recommendations to each of the Customers, fully and accurately representing the recommended investments including, but not limited to, any associated risks.”  Further, “public disclosure of the false and clearly erroneous allegations made by the Customers does not offer any public protection and has no regulatory value.”   In other words, the arbitrator found that Orr was the subject of lies by five of his clients – all of which astonishingly appear to have told the same or similar lie concerning Orr’s investment advice.  From the record, it appears the arbitrator made this determination without ever speaking to a single client.

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shutterstock_189302954-300x203The law offices of Gana Weinstein LLP are following the investigation by the Massachusetts Secretary of the Commonwealth’s office where the Secretary of the Commonwealth opened an investigation into Wells Fargo’s brokerage and advisory sales practices.  Specifically, the state announced that the investigation seeks information related to inappropriate referrals of brokerage customers to managed and advisory accounts, unsuitable recommendations of alternative investments, as well as unsuitable referrals and recommendations in connection with 401(k) rollovers.

These three areas have been incredibly problematic in the securities industry in recent years.  First, brokerage firms have been accused of referring clients from brokerage accounts into advisory accounts even though the client does not need the advisory account.  The issue is that the fee structure in the advisory account is much greater and the client receives no additional investment service that the customer needs for the increased cost.  The second issue concerns complex securities products often referred to as alternative investments.  These investments can be problematic because they advisors are often paid high commissions in order to sell alternative investments that are rarely appropriate for investors.  Finally, in recent years there have been issues with advisors recommending a 401(k) rollover into a brokerage account.  The issue is that most 401(k) plans are very cost effective for investors and keep fees very low.  By contrast, brokers want to amass client’s 401(k) assets where the firm and broker can charge much higher fees for services that the client does not need.  Many times the client would have been better off not transferring their accounts to an advisor due to the higher cost and the potential for unsuitable investment advice.

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shutterstock_181783781-200x300According to newsources, tens of thousands of universal life policyholders have experienced double-digit premium increases from their life insurance companies such as AXA, Voya, and Transamerica.  Unfortunately, more premium hikes may be coming.  Universal Life is a permanent life insurance policy that combines term insurance like affordability with a savings element similar to whole life.  Universal life insurance offers a cash value savings account that earns tax-exempt interest. The investment account accumulates cash based upon interest rates or a promised fixed rate appreciation plus premium payments.

Similarly, Variable Universal Life (VUL) policies allocates a portion of premium payments to a separate sub-account that can be used to grow in value through investments.  These types of policies terminate or lapses, if at any time the net cash surrender value is insufficient to pay the monthly cost deductions.  Upon termination of the policy, the remaining cash value becomes worthless.

Investor and policy holders are often given projections of premium payments over time that are stable allowing the holder to know what the cost and terms of the policies are.  Now thousands of universal life policyholders have been informed that their insurers are using the fine print of their contracts to significantly increase what was supposed to be level premiums.  These increases may be multiple times more than what the insured had bargained for.

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shutterstock_184429547-300x200According to BrokerCheck records financial advisor Sam Aziz (Aziz), formerly employed by David A. Noyes & Co. (David Noyes) has been subject to at least three customer complaints, one regulatory investigation, and two terminations for cause.  According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Aziz’s customer complaints allege that Aziz made unsuitable recommendations in a variety of investments.

In October 2018 FINRA opened an investigation into Aziz’s activities.  On October 24, 2018, FINRA made a preliminary determination to recommend that disciplinary action be brought against Aziz alleging that he made potential violations, specifically excessive trading and unsuitable recommendations of the use of margin), attempting to settle away a customer’s complaint), and use of an undisclosed personal email account and text messages to conduct securities business.

In October 2018 Aziz’s firm, David Noyes, terminated him citing the FINRA investigation as a reason.

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shutterstock_160304408-300x199The law offices of Gana Weinstein LLP are investigating investor recovery options due to the alleged pay advance fraud scheme orchestrated by Future Income Payments, LLC (Future Income Payments) also known as Pensions, Annuities, and Settlements, LLC, and its owner Scott Kohn (Kohn). Future Income Payments has been subject to regulatory action in numerous states including at least Washington, California, Colorado, Iowa, Indiana, North Carolina, New York   Massachusetts, Pennsylvania, and Virginia.  In addition, on November 23, 2016 The Consumer Financial Protection Bureau (CFPB) served Future Income Payments with a Civil Investigative Demand.  In response Future Income Payments requested the order to be dismissed and also filed its own lawsuit challenging the bureau’s constitutionality and demanding that the firm’s name be kept confidential.  Future Income Payments lost that bid.

At the heart of the alleged scheme is the misrepresentation that Future Income Payments engages in agreements that are sales of pensions and not loans. However, regulators have claimed that the company misstates the effect of the contract and that in fact pensioners are entering into a consumer loan and not a sale.  The purpose of the misrepresentations are to try to exempt Future Income Payments’ loans from consumer lending laws and regulations and to collect interest on loans at illegal rates.

According to regulators the “sales” misrepresentation is clear from Future Income Payments’ agreement because the consumer receives a sum of money that he is then obligated to repay.  The Future Income Payments contract specifies the consumer’s future pension payments which actually constitute a repayment schedule for a loan.  According to regulators, interest rates for the loan in some examples reached 130% a year.

shutterstock_94127350The Financial Industry Regulatory Authority (FINRA) announced that it has fined eight brokerage a total of $6.2 million for failing to supervise sales of variable annuities (VAs).  Five of the firms were required to pay more than $6 million to customers who purchased L-share variable annuities that came with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.

FINRA’s enforcement actions were against the following firms.

  • VOYA Financial Advisors Inc. – fined $2.75 million.

shutterstock_52426963The securities fraud lawyers of Gana Weinstein LLP are investigating customer complaints against brokerage firms and advisors for selling them structured CDs – a class of structured products.  Brokerage firms and banks are selling record numbers of the so called “CDs” that are extraordinarily complex products that are nothing like CDs and contain substantial risks.

These CDs are usually market-linked or structured so that their performance depends on a basket of stocks or other assets instead of a flat interest rate like traditional CDs.  When they mature CD holders get their original money back plus a return based on the performance of certain assets or benchmarks.

Banks love these CDs because they are an inexpensive sources of funding that generate huge fees all the way down the chain. The issuer gets fees and the financial adviser gets paid more for selling a market-linked CD than a conventional CD or a mutual fund.  Typically, an adviser who sells the CD can get commissions of up to 3% of the CD’s value.

shutterstock_64025263As one of the largest non-traded real estate investment trust (Non-Traded REIT) company, AR Capital, closes shop on new offerings, a growing non-traded product lines up to take retail investor’s money. Enter the non-traded business development company (BDCs). BDCs have been a growing asset class that markets itself to investors as a non-stock market, non-real estate, high yield alternative investment. However, BDCs appear to be just as speculative, suffer from high commissions and fees, and are inappropriate for most investors just like Non-Traded REITs. Indeed, according to a Wealth Management Article front-end load fees on Non-Traded BDCs are typically around 11.5 to 12 percent. In addition, BDCs also usually have an incentive compensation following the “two and twenty” rule where the fund charges two percent of assets in management fees and 20% of capital gains based upon performance.

As we have reported in the past, BDCs make loans to and invest in small to mid-size, developing, or financially troubled companies either broadly or in a particular sector, such as oil and gas. BDCs have stepped into a role that many commercial banks left during the financial crisis due to capital raising requirements. In sum, BDCs lend to companies that may not otherwise get financing from traditional sources. Non-Traded BDCs offer investors similar risks as Non-Traded REITs including higher fees, less liquidity, and less corporate transparency. The major difference is that Non-Traded BDCs are regulated under the 1940 Act that governs mutual funds and that a BDC is valued quarterly.

The largest player in this space is Franklin Square Capital Partners which manages multiple Non-Traded BDC funds including the FS Investment Corporation (FSIC) FS Investment Corporation II (FSIC II), FS Investment Corporation III (FSIC III), FS Investment Corporation IV (FSIC IV), FS Energy and Power Fund (FSEP), and FS Global Credit Opportunities. Franklin Square’s BDC assets were approximately $14.5 billion under management as of March 31, 2015. Other firms seeking to capitalize on the BDC wave including CNL Securities’ Corporate Capital Trust, ICON Investment’s CĪON Investment Corporation fund (CĪON); and American Realty Capital’s Business Development Corporation of America II.

shutterstock_153667856The Financial Industry Regulatory Authority (FINRA) announced its approval of a rule in a press release to help brokerage firms protect seniors citizens and other vulnerable adults from financial exploitation. The heart of the proposal allows a firm to place a temporary hold on a disbursement of funds or securities and notify a customer’s trusted contact when the firm has a reasonable belief that the customer may be the subject of financial exploitation. According to FINRA, an average of 10,000 Americans will turn 65 every day for the next 15 years.

In our practice, often time accountants, attorneys, or children of elderly investors contact our firm when they suspect that there has been elder abuse or unfair trade practices in the handling of an elderly persons’ accounts. As long time readers of our blogs know senior abuse is an ongoing concern in the securities industry. See Massachusetts Fines LPL Financial Over Variable Annuity Sales Practices to Seniors; The NASAA Announces New Initiative to Focus on Senior Investor Abuse; The Problem of Senior Investor Abuse – A Securities Attorney’s Perspective; Senior Abuse in the Securities Industry A Major Ongoing Concern

In the past, regulators have expressed worry that brokers may be placing seniors in risky investments that chase yield such as inappropriate nontraditional investments like variable annuities, non-traded real estate investment trusts (Non-Traded REITs), structured products, and other alternative products. Regulators have warned brokers that the dangers of seniors’ chasing yield through alternative investments comes from the fact that they don’t have as much time as other clients for them to pay off. In addition, if these investments fail the result is a major loss of irreplaceable life savings.

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