Articles Posted in Fiduciary Duties

shutterstock_183525509-300x200The law offices of Gana Weinstein LLP are currently representing investors who were surprised to find out that the “bonds” that were recommended by their advisors have almost completely stopped paying interest while plummeting in value.  What many investors in this situation did not realize was that they were not sold bonds at all but instead complex structured products that go by a variety of names including steepener notes, adjustable rate market notes, spread linked notes, or structured notes.  Regulators have already stated that it is improper to sell these investments as a fixed income substitute or to compare them to bonds in terms of producing a revenue stream.  However, in our firm’s experience it appears that many brokers have been selling structured products as bond alternatives.

Structured products range in risk from benign to extreme.  However, most structured products produce inferior risk/return profiles than ordinary debt or equity instruments because the brokerage firms that issue these products seek to profit from the spread between the payment to investors and the amount of money the brokerage firm can make from the issuance.  When dealing with complex structured products most investors will lack the ability to understand the merits of investments nor are they appropriate for investors seeking a fixed or reliable income and have a desire for preservation of capital.

Some of the more complex structured products that our firm is seeing reference two different bond yield curves and sometimes one stock market index in order to compute if interest will be paid and how much.  A math degree is needed to even begin to comprehend the probabilities of payment on these kinds of instruments.  The biggest driving factor on payment – assuming the S&P 500 Index performs well – is the spread between interest rates on various treasuries.  The structured products often reference the spread between either the 2 year and the 5, 10, and 30 year treasury bonds for the most part.  The wider the spread the greater the profit and payment from the structured product.

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shutterstock_183549914-300x200The attorneys at Gana Weinstein LLP are investigating BrokerCheck records reports that financial advisor John Holland (Holland), currently employed by Cetera Advisor Networks LLC (Cetera Advisor) has been subject to at least three customer complaints and two employment termination for cause during the course of his career.  According to records kept by The Financial Industry Regulatory Authority (FINRA), Holland’s customer complaints alleges that Holland recommended unsuitable investments, negligence, and breach of fiduciary duty among other allegations of misconduct relating to the handling of their accounts.

In May 2019 a customer complained that Holland violated the securities laws by alleging breach of fiduciary duty and negligence. The claim alleges $1,000,000 in damages and is currently pending.

In August 2014 Securities Management & Research, Inc. (Securities Management) and BFC Planning Inc. (BFC Planning) discharged Holland alleging that he altered client documents.

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shutterstock_189302963-300x194According to BrokerCheck records financial advisor Christopher McClure (McClure), currently employed by Westport Capital Markets, LLC (Westport Capital) has been subject to at least two customer complaints and a regulatory action brought by the SEC during the course of his career.  According to records kept by The Financial Industry Regulatory Authority (FINRA), McClure’s customer complaints allege that McClure breached his fiduciary duty among other allegations.

In December 2017 The Securities and Exchange Commission (SEC) Connecticut-based investment advisory firm and its principal, McClure, with breaching their fiduciary duties and defrauding advisory clients by repeatedly purchasing securities that generated significant amounts of undisclosed compensation.

The SEC’s complaint filed in the U.S. District Court for the District of Connecticut alleged that Westport Capital and McClure invested advisory clients’ funds in risky securities that generated hundreds of thousands of dollars in undisclosed mark-ups for Westport and resulted in more than $1 million in losses for clients.  The SEC found that Westport purchased securities from underwriters at a discount to the public offering price and then, acting as a principal for its own account, re-sold those same securities to its advisory clients at higher prices without disclosing the mark-up.  The SEC further alleged that Westport and McClure defrauded a client by acting contrary to the client’s express objectives and instead repeatedly investing the client in risky offerings that generated hidden mark-ups.  Moreover, the SEC also found that Westport and McClure made false and misleading representations to clients regarding the compensation that Westport would receive from their accounts.

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shutterstock_179465345-300x200According to BrokerCheck records financial advisor Gary Meier (Meier), formerly employed by Boz & Company LLC (Boz) and Cambridge Investment Research, Inc. (Cambridge Investment) has been subject to at least eight customer complaints and two regulatory actions.  According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Meier’s customer complaints allege that Meier made was negligent, breached his fiduciary duty, and made unsuitable investments in penny stocks and low priced securities.

In February 2017 the State of Washington Securities Division found that from approximately 2008 to 2017 Meier made unsuitable investment recommendations to his client and engaged in other unethical business practices.  The state found that Meier executed transactions in client accounts without obtaining prior client authority to do so and purchased speculative penny stocks for client accounts.  It was found that Meier purchased the same three penny stocks for nearly all of his clients – Rentech, Cytodyn, or Provectus Biopharmaceutical stock – regardless of their investment profile.  It was found that Meier added to client holdings of these three penny stocks and most of his client accounts were heavily concentrated in these three penny stocks.  These purchases resulted in large losses in client accounts.

Washington State also alleged that Meier mislead clients in order to assuage investor concerns about the penny stocks.  Meier purportedly provided clients with grossly exaggerated future values of the three stocks indicating that large returns in the near future would occur.  Further, it was found that Meier was forced to resign from Cambridge Investment when the firm objected to Meier’s investment practices.  Thereafter, it was found that Meier did not register with another firm until July 14, 2015, with Boz, an investment adviser owned by his son.

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shutterstock_112866430-300x199According to BrokerCheck records financial advisor Jesse Krapf (Krapf), currently employed by Benchmark Investments, Inc. (Benchmark Investments) has been subject to at least one customer complaint and two debt related judgements or tax liens.  According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Krapf’s customer complaints allege that Krapf made was negligent and breached his fiduciary duty to the customer.

In October 2018 a customer filed a complaint alleging that Krapf violated the securities laws including negligence and breach of fiduciary duty causing $500,000 in damages.  The claim is currently pending.

Krapf also has two unsatisfied debts including a $3,247 tax lien from May 2015.  The fact that a broker cannot manage his own personal finances is material information for a client to consider.  In addition, the types of products clients have alleged were unsuitable are high commission products that may be recommended to generate high profits for the advisor at the expense of the client.

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shutterstock_128655458-300x200According to BrokerCheck records financial advisor John Spach (Spach), formerly employed by Kestra Investment Services, LLC (Kestra) has been subject to at least one customer complaint, one regulatory action, and one employment termination for cause.  According to records kept by The Financial Industry Regulatory Authority (FINRA), Spach’s customer complaint alleges that Spach introduced a client of his independent advisory firm to an outside investor. The client allegedly invested $475,000 and received a promissory note that defaulted.

Thereafter, in July 2018 NFP Retirement Inc. (NFP) discharged Spach claiming violations of the Investment Advisers Act of 1940 including co-mingling client assets with his own personal assets, breach of fiduciary duty, unsuitable investment advice, material misstatements, failure to disclose material conflicts of interest, circumvention of compliance policies and procedures, and affirmative misrepresentations to the firm.

Finally, in February 2019 FINRA sanctioned Spach alleging Spach consented to the sanction and findings that he refused to produce documents and information requested by FINRA in connection with its investigation into potential violations relating to a customer complaint.  FINRA found that his former firm disclosed that he had been permitted to resign while under internal review relating to the potential violation of various firm policies while attempting to settle a customer complaint with a client of his registered investment advisor.

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shutterstock_112866430-300x199According to BrokerCheck records financial advisor Steven Reznik (Reznik), formerly employed by Raymond James Financial Services, Inc. (Raymond James) has been subject to at least 15 customer complaints.  According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Reznik’s customer complaints allege that Reznik made unsuitable recommendations by concentrating investors in a particular sector, possibly energy.

In January 2019 a customer brought a complaint against Reznik alleging the broker violated the securities laws by recommending an unsuitable overconcentration in investments, unauthorized trading, and constructive fraud from March 2012 until August 2018.  The claim is currently pending.

In November 2018 a customer brought a complaint against Reznik alleging the broker violated the securities laws by recommending an unsuitable overconcentration in investments, unauthorized trading, and breach of fiduciary duty from September 2016 until October 2018.  The claim alleged $125,000 in damages and is currently pending.

In October 2018 a customer brought a complaint against Reznik alleging the broker violated the securities laws by recommending an unsuitable investments, fraud, and breach of fiduciary duty from February 1996 until September 2018.  The claim is currently pending.

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shutterstock_76197331-300x200According to BrokerCheck records financial advisor Wesley Clinton (Clinton), currently employed by Network 1 Financial Securities Inc. (Network 1 Financial) has been subject to eight customer complaints during his career.  According to records kept by The Financial Industry Regulatory Authority (FINRA), the complaints against Clinton concern allegations of unsuitable investments among other allegations.

In August 2018 a customer complained that Clinton recommended investments that violated the securities laws including unsuitable investments and failure to supervise.  The customer alleged $145,000 in damages.  The claim is currently pending.

In January 2017 a customer complained that Clinton recommended unsuitable investments leading to $50,000 in damages.  The claim is currently pending.

In June 2015 a customer complained that Clinton recommended unsuitable investments and engaged in fraud and churning leading to $250,000 in damages.  The claim settled for $30,000.

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shutterstock_156972491-300x198According to BrokerCheck records financial advisor Peter Bittermann (Bittermann), currently employed by Westminster Financial Securities, Inc. (Westminster Financial) has been subject to three customer complaints, one employment termination for cause, and one regulatory action.  According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Bittermann’s customer complaints allege that Bittermann made unsuitable recommendations.

In July 2018 the Wisconsin Division of Securities alleged that Bittermann was delinquent on certain taxes causing his registration to be revoked.

In February 2011 RBC Capital Markets Corporation, LLC (RBC) terminated Bittermann over allegations that he sold a security without prior verbal knowledge and consent by the client.

In August 2009 a client complained that Bittermann misrepresented the risks of an investment and it was unsuitable causing $1,619,634 in damages.  The claim was settled for $750,000.

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shutterstock_103079882-300x239According to BrokerCheck records financial advisor Marc Steinberg (Steinberg), currently employed by Westpark Capital, Inc. (Westpark Capital) has been subject to five customer complaints in his career.  According to records kept by The Financial Industry Regulatory Authority (FINRA), many of the complaints against Steinberg concern allegations of unsuitable investments.

In April 2018, a customer complained that Steinberg engaged in unsuitable investments causing $39,796 in damages.  The claim was denied by the firm.

In November 2016, a customer complained that Steinberg engaged in unsuitable investments from December 2012 until February 2015 causing $16,833 in damages.  The claim was denied by the firm.

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