Articles Posted in Suitability

shutterstock_133831631-198x300Our firm’s investment attorneys are investigating a complaint filed by the Commonwealth of Massachusetts Securities Division (Massachusetts) against LPL Financial LLC (LPL) and the firm’s broker Roger Zullo (Zullo) Zullo alleging that Zullo fabricated the financial suitability profiles of numerous LPL clients, selling them scores of large, illiquid, unsuitable, high-commission variable annuities, at substantial upfront profits to himself and LPL.

The State of Massachusetts alleged that over the course of three years Zullo and LPL received more than $1,825,000 in variable annuity commissions alone and 98% of that amount represented commissions from the sale of the same annuity product – the Polaris Platinum III (B Shares) variable annuity.  The State found that Zullo bypassed LPL’s paper-thin compliance review process for these sales by fabricating client financial suitability information, such as age and liquid net worth.  Further, LPL apparently rewarded Zullo’s fraudulent practices with the honor of being included in LPL’s “Chairman’s Club” for top annuity production.

According to the State LPL was aware that Zullo repeatedly and openly sold only one product, with the same features and the same justifications, to almost every annuity client, and did nothing to stop it.  LPL was also alleged to have been aware that Zullo’s clients repeatedly incurring surrender charges and being charged high commission. According to one email from Zullo’s supervisor “It did very much seem to me that he had a pattern of switching everybody out of their annuities every 6 or 7 years and that he was getting commissions over and over again from the same clients.”  Massachusetts found that any concerns concerning Zullo’s practices were ignored.

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shutterstock_128655458-300x200Our law firm, Gana LLP, is investigating claims made by Financial Industry Regulatory Authority (FINRA) against broker James Vernon Regier (Regier), formerly associated with Summit Brokerage Services, Inc. The customer complaints allege that Regier engaged in securities law violations, including making unsuitable investments in clients’ accounts. The most recent complaint filed in July 2016 alleges that between 2010 and 2015, Regier engaged in unsuitable trading in a customer’s account by recommending purchases of publicly traded shares of United Development Funding IV (UDF). The complaint is currently pending. In April 2016, another investor filed a complaint and alleged unsuitable activity occurring in the investor’s account from April 2015 – March 2016, causing damages of greater than $5,000.00. That complaint is also currently pending. In January 2012, a customer filed a complaint alleging unsuitable trading activity in 2008. The claim was settled for $104,191.00.

Regier first became associated with FINRA in 2002. Below are the firms that Regier has been employed by and registered with throughout his career:

  • Washington Square Securities, Inc. (January 2002 – August 2002)

shutterstock_177082523Our investment attorneys are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against financial advisor Joshua Arnold (Arnold) currently registered with TradingBlock, alleging negligence, unsuitable recommendations, negligent supervision, breach of fiduciary duty, and breach of contract among other claims.  According to brokercheck records Arnold has been subject to ten customer complaints and three regulatory actions.

In September 2016 a customer filed a complaint alleging negligence and unsuitable recommendations that caused $250,000 in damages.  The broker denied all claims.  The claim is current pending.

In November 2015 another customer filed a complaint that Arnold failed to handle the account properly causing a tax penalty.  The claim was resolved for $37,500.

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shutterstock_59949436The securities lawyers of Gana LLP are investigating the regulatory complaint filed by The Financial Industry Regulatory Authority (FINRA) against broker Thomas Schober (Schober).  The FINRA regulatory action alleges that Schober recommended unsuitable variable annuity exchanges in the accounts of two senior customers ages 84 and 83.  According to FINRA, one of the customers held power of attorney for the other who suffered from dementia and both customers were conservative investors with limited financial means who relied on the income from their investments.  FINRA found that Schober effected the annuity exchanges to benefit himself at the customers’ expense. The exchanges caused the customers to pay total surrender charges of approximately $154,642 to sell their annuities and then to pay sales charges of approximately $69,000, of which Schober received approximately $65,000 in commissions, and incurred new surrender periods.

FINRA found that Schober never disclosed to them the amount of the surrender charges they would incur to sell their annuities and didn’t explain the sales charges associated with the purchase of the new annuities or that they would be subject to new surrender periods.  FINRA found that Schober attempted to conceal the unsuitable annuity exchanges by providing false information concerning the source of funds on the annuity transaction documents.

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shutterstock_178801067The securities lawyers of Gana LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Robert Hardcastle (Hardcastle). According to BrokerCheck records Hardcastle is subject to 11 customer complaints. The customer complaints against Hardcastle allege securities law violations that including unsuitable investments, misrepresentations, and breach of fiduciary duty among other claims.   The claims appear to largely relate to allegations regarding the inappropriate sale of direct participation products such as limited partnerships, equipment leasing, and non-traded real estate investment trusts (Non-Traded REITs) and also variable annuities.

Our firm has represented many clients in these types of products. All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds. For example, products like variable annuities are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products. However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them. Further, investor often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

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shutterstock_103079882The investment attorneys of Gana LLP are investigating investor claims of unsuitable investments in oil and gas related products.  Our firm is currently representing a number of investors who lost substantial savings due to poor advice to concentrate holdings in speculative commodities investments like master limited partnerships (MLPs).  According to Brokercheck records, Andrew Yocum (Yocum) formerly with Morgan Stanley operating from their offices in The Villages, Florida has recently received at least 12 customer complaints with similar allegations that the broker overconcentrated them in oil and gas equities.  Eight complaints have been filed against Yocum in 2016 alone.

One of the most popular energy related investments that have become increasingly popular in the brokerage industry in recent years are MLPs.  MLPs are publicly traded partnerships. About 86% of the total MLP securities market, a $490 billion sector, can be attributed to energy and natural resource companies. There are about 130 MLPs trading on major exchanges that focus on energy related industries and natural resources.

Wall Street loves MLPs because they provide high yields to investors and require companies to pay Wall Street in order to continue to grow.  In 2013 banks earned fees of $890.3 million from MLP issuance.   Bloomberg quoted an analyst stating that “MLPs are Wall Street’s dream,” because “[t]hey’re fee machines.”  Naturally, in order to entice investors to continue to invest in MLPs Wall Street pumps up MLPs every chance they get.  According to Bloomberg, in May 2014 “[a]nalysts predict that 93 of the 114 MLPs in existence will rise in value in the next year…”  Astonishingly, “all but five MLPs are recommended by the majority of the analysts who cover them.”  At that time professionals without conflicts called MLPs “the next great investment debacle” and warned that “many MLP shareholders…may not understand what they’ve gotten into.”

Financial advisors must ensure that the oil and gas and commodities related investments being recommended to their client is appropriate for the investor and conduct due diligence on the company before making the recommendation.  Unfortunately, sometimes adivsors fail to conduct sufficient research or understand the risks and prospects of the company.  Oil and gas and commodities related investments have been recommended by brokers under the assumption that commodities prices would continue to go up.  However, brokers who sell oil and gas and commodities products are obligated to understand the risks of these investments and convey them to clients.

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shutterstock_115971289The investment attorneys of Gana LLP are investigating investor claims of unsuitable investments in oil and gas related products. Our firm is currently representing a number of investors who lost substantial savings due to poor advice to concentrate holdings in speculative commodities investments like master limited partnerships (MLPs). According to Brokercheck records, George Merhoff (Merhoff) with Cetera Advisors LLC (Cetera) has recently received at least one customer complaint alleging overconcentrated positions in oil and gas equities.

One of the most popular energy related investments that have become increasingly popular in the brokerage industry in recent years are MLPs. MLPs are publicly traded partnerships. About 86% of the total MLP securities market, a $490 billion sector, can be attributed to energy and natural resource companies. There are about 130 MLPs trading on major exchanges that focus on energy related industries and natural resources.

Wall Street loves MLPs because they provide high yields to investors and require companies to pay Wall Street in order to continue to grow. In 2013 banks earned fees of $890.3 million from MLP issuance.   Bloomberg quoted an analyst stating that “MLPs are Wall Street’s dream,” because “[t]hey’re fee machines.” Naturally, in order to entice investors to continue to invest in MLPs Wall Street pumps up MLPs every chance they get. According to Bloomberg, in May 2014 “[a]nalysts predict that 93 of the 114 MLPs in existence will rise in value in the next year…” Astonishingly, “all but five MLPs are recommended by the majority of the analysts who cover them.” At that time professionals without conflicts called MLPs “the next great investment debacle” and warned that “many MLP shareholders…may not understand what they’ve gotten into.”

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shutterstock_25054879The investment attorneys of Gana LLP are investigating potential recovery options for investors in the Third Avenue Focused Credit Fund (TFCIX) managed by Third Avenue Management LLC. According to the Wall Street Journal, the mutual fund halted redemptions and announced plans to liquidate effectively freezing investor’s $789 million in investment assets that was supposed to provide mom and pop investors with easy access to their cash. Now investors in the Third Avenue Focused Credit Fund may not receive all their money back for months, if not longer while the fund liquidates.

According to Third Avenue’s Chief Executive David Barse the fund took the unprecedented step of halting redemptions because it needed to act quickly to preserve remaining assets. Third Avenue blamed poor bond-market trading conditions that made it almost impossible to raise sufficient cash to meet redemption demands from investors without a fire sale of remaining assets. As the Third Avenue fund began to collapse traders at hedge funds shorted and bet against the mutual fund’s holdings adding pressure to Third Avenue’s investor withdrawals and forcing the sale its holdings.  The fund was down 27% this year through mid-December.

As regulators and industry analysts conduct the postmortem on the fund, it appears that a large part of the reason the Third Avenue fund ran into deep problems is because it purchased illiquid and difficult to trade investments that have been steadily losing value as investors fled energy and other kinds of riskier debt. According to Reuters, the fund, when compared with other junk bond funds, carried an elevated amount of risk. For instance the fund disclosed that 20 percent of the assets it carried were hard to value and trade. This amount was higher than any other U.S. junk bond fund with at least $500 million in assets.

Even more eye popping is the fact that the fund had 76% of its portfolio exposed to very low rated CCC+ rated securities and below when compared with a median level of 22% among similar junk funds. Among the Focused Credit Fund’s most troublesome holdings is iHeartCommunications Inc., formerly known as Clear Channel Communications Inc. That bond traded recently at about 30 cents on the dollar. Other extremely distressed debt includes energy company Magnum Hunter Resources Corp. and troubled Spanish gambling company Codere SA.

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shutterstock_183554579The securities and investment attorneys of Gana LLP are interested in speaking with clients of Kirk Gill (Gill). According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) Gill has been the subject of at least 7 customer complaints. The customer complaints against Gill allege securities law violations that claim unsuitable investments, misrepresentations, unauthorized investments, and breach of fiduciary duty among other claims.

The most recent complaint was filed in July 2015, and alleged $300,000 in damages due to claims that the broker, from 2007 to November 2014 made unsuitable investments and recommendations to the client. In April 2015, another customer filed a complaint alleging that Gill, from October 2011, until November 2014, made unsuitable investment recommendations causing alleged damages of $450,000. Gill denied the claims made by this investor and seeks an expungement of this case from his record. In December 2013, a customer filed a complaint against Gill alleging that the client was not properly advised concerning high risk and volatile stocks causing losses of $100,000.

Gill entered the securities industry in 1992. From July 2007 onward Gill has been associated with Morgan Stanley out of the firm’s Tucson, Arizona branch office location.

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.

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shutterstock_182053859The investment attorneys of Gana LLP are interested in speaking with clients of Noel Vincent (Vincent). According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) Vincent has been the subject of at least 9 customer complaints, one regulatory event, and three judgment or liens. The customer complaints against Vincent allege securities law violations that claim unsuitable investments, misrepresentations, and fraud among other claims.

The most recent complaint was filed in August 2015, and alleged $50,000 in damages due to claims pertaining to investments purchased from 2005 through 2007 that were unsuitable based on the client’s risk tolerance, investment objectives, investment knowledge, time horizon, and liquidity needs.

In March 2015, a customer filed a complaint alleging an unsuitable series of investments between 2006 through 2009 resulting in damages of $413,000. In another case filed in October 2013, the client alleged unsuitable investments were made in 2007 resulting in $190,000 in damages. The case settled for $26,331. Also in April 2013, another customer complained that Vincent sold unregistered securities and committed fraud causing $638,000 in damages.

In addition, there are three liens filed against Vincent. In May 2012, a $4,385 tax lien was imposed. In May 2011, Vincent received a $104,688 tax lien. In February 2009, a $76,279 tax lien was imposed against Vincent. A broker with large liens are an important consideration for investors to consider when dealing with a financial advisor. An advisor may be conflicted to offer high commission investments to customers in order to satisfy liens and debts that may not be in the client’s best interests.

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