Suitability

Broker Investigation: Laidlaw & Company Advisor Joseph Fedorko

November 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Joseph Fedorko (Fedorko) has been the subject of an astonishing 16 customer complaints. The customer complaints against Fedorko allege securities law violations that claim churning and excessive trading, unsuitable investments, unauthorized trading, fraud, misrepresentations, and breach of fiduciary duty among other claims. The most recent complaint was filed in March 2014, and alleged $292,771 in losses due to an unsuitable investment strategy from 2011 until 2013. The case settled for $120,000. Another complaint filed in November 2012, alleged $400,000 in damages stemming from trading that began in 2011. Other complaints against Fedorko when combined allege millions in investor losses.

Fedorko entered the securities industry in 1989. From January 2002, until May 2009, Fedorko was associated with with Oppenheimer & Co. Inc. Presently, Fedorko is associated with Laidlaw & Company (UK) Ltd. out of the firm’s Stamford, Connecticut 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.

Gana LLP Investigates Investor Losses In Oil-Linked Structured Notes

November 18, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP are announcing their investigation into potential securities claims against brokerage firms over sales practices related to the recommendation of structured notes linked to oil & gas. These structured products are issued by Barclays (NYSE:BCS), Morgan Stanley (NYSE:MS), Deutsche Bank (NYSE:DB), UBS (NYSE:UBS), Citigroup (NYSE:C), Bank of America Merrill Lynch (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Credit Suisse (NYSE:CS), and BNP Paribas among others firms. The structured notes are issued under the names Principal Protected Notes, Principal Protected Booster Notes, Buffered Bullish Notes, Accelerated Return Notes, Strategic Return Notes, Capped Leverage Return Notes, Target Term Securities, Market Linked Notes, E-Tracs, Return Optimization Notes, Auto-Callable Securities, Performance Leveraged Upside Securities (PLUS), and Equity Linked Securities (ELKs).

Brokers often pitch structured products as providing “downside protection” against losses to a related index while allowing modest up side gain potential. However, today investors are waking up to the fact that structured products linked to the oil market are offering no protection. According to Bloomberg, retail structured notes meant to protect against a drop in crude failed to do so. Of the $437.1 million in oil related structured products that have matured this year, 44 percent, or $194.3 million of principal has been lost. The largest deal in the oil space is a $104.6 million Barclays issuance in April 2014 that has lost 42 percent of its value.

Indeed, Bloomberg found that all but three of the 39 notes examined protected against a certain percentage of losses, typically in the range of 10 percent to 20 percent. These notes quickly breached these loss limits as crude oil prices have declined more than 60 percent. Once the securities breached the “soft barriers” investors became exposed to the full loss at maturity and the value of the notes became wholly dependent on the change in oil prices.

Spruce Alpha Hedge Fund Investors Suffer Massive Losses

November 17, 2015 | by Staff Attorney

According to the New York Times, the Spruce Alpha hedge fund was pitched to investors as providing large returns in periods of market turbulence through the implementation of a complex trading strategy. According to the Spruce Alpha fund, during the 2008 financial crisis investors should have had made gains of more than 600 percent. But what Wall Street pitches in theory almost always goes wrong in practice. Thus when markets turned volatile in August 2015, Spruce Alpha, which had only just started up in April 2014, did not turn the volatility into gains for investors. Instead, the fund turned in one of the worst performances losing 48 percent of their money.

The fund’s holdings at the time were under $100 million and was managed by the $1.5 billion Spruce Investment Advisors. Spruce Investment specializes in managing money for the wealthy and institutional investors. According to the New York Times, half of Spruce Investment’s assets under management come from three family offices, a corporation, and a pension plan. The Spruce Alpha fund was the asset management firm’s first direct hedge fund trading fund that was intended to raise a $500 million portfolio.

After the collapse the Spruce Alpha moved its positions into cash and told investors that they can redeem what remains of their money. The Spruce Alpha tale is only the latest example of how managers market hedge funds and complex investment products to investors that often turn out to be too good to be true. Using back-tested results in hedge fund marketing materials are fantasy recreations with all the benefits of hindsight knowledge that are then advertised as likely future performance. However, back-tested results are derived assuming optimum trading conditions, not what the fund will encounter in real life.

Coal Investment Risk: Is this Industry Going Out of Business?

November 16, 2015 | by Staff Attorney

Coal related companies around the world are being pushed to the brink of bankruptcy due to the falling prices of commodities. For instance, the world’s third largest publicly traded coal company, Peabody Energy Corporation (Peabody) (Stock Symbol: BTU), has seen its stock price plummet from over $1,000 per share in 2011 to under $14 today. In addition, the largest U.S. coal producer, Alpha Natural Resources (Stock Symbol: ANRZ), filed Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond. Commenters are speculating that unless there are restructurings for Arch Coal (Stock Symbol: ACI) and Peabody they could be the next two coal producers to file for bankruptcy protection.

Other bankruptcy filings this year include Walter Energy (Stock Symbol: WLTGQ), JW Resources, Patriot Coal’s second bankruptcy filing, Xinergy, and James River Coal Co. Berau Capital Resources submitted a Chapter 15 petition on July 10, and Glencore (Stock Symbol: GLEN) has undergone major restructuring amidst the collapse of its stock price.

According to Bloomberg, more than three dozen coal operations have filed bankruptcy in just over three years. Due to a combination of factors the combined market value of U.S. coal company shares shrank to $12 billion in late July 2015 from $78 billion in 2011.

Broker Investigation: Ausdal Financial Broker Randy Birkinbine

November 5, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Randy Birkinbine (Birkinbine) has been the subject of at least 2 customer complaints, 4 judgements or liens, and 1 employment separation for cause. Customers have filed complaints against Birkinbine alleging securities law violations including claims of unsuitable investments among other claims. In addition, Birkinbine has six tax liens. The most recent tax lien dated December 23, 2013, is for $43,725. Previous tax liens in 2009, 2010, and May 2013 are for $51,670, $85,246, and $131,595 respectively. Judgements are often a sign that the broker cannot manage their own personal finances and may be tempted to recommend high commission products or strategies to clients in order to satisfy debts. Birkinbine was also terminated by Invest Financial Corporation (Invest) for cause stating that the firm alleged that Birkinbine violated firm policy by having multiple new account documents incomplete.

Birkinbine entered the securities industry in 1990. From June 2007, until June 2011, Birkinbine was registered with Workman Securities Corporation. From June 2011 onward Birkinbine has been associated with Ausdal Financial Partners, Inc. out of the firm’s Woodbury, Minnesota 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.

Oil and Gas Investors In Halcon Resources Suffer Major Losses

November 5, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP are currently investigating brokerage firms that placed investors in oil and gas related investments and who have suffered losses as a result. One company under investigation is oil and gas producer Halcón Resources Corporation (Halcón) (Stock Symbol: HK). According to news sources, Halcón received a de-listing warning from the New York Stock Exchange amid company moves to reduce its debt.

Halcón is a Houston based exploration and production company that recently worked out a deal to reduce its long-term debt by $548 million through private negotiations. Earlier this year, Halcón had its borrowing base cut by more than 50 percent as the company teeters on the edge during the ongoing oil downturn. The stock’s price has fallen under $1 after trading at about $3 just one year ago.

Our offices continue to report on investment losses suffered by investors in energy and oil and gas related investments that brokerage firms have increasingly recommended to retail investors in recent years. According to Bloomberg, U.S. high-yield debt issued to junk-rated energy companies grew four-fold to $208 billion. Most of these companies are now struggling to stay afloat with oil prices at $45. Investors have been exposed to energy investments through a variety of investment vehicles including private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks.

Magnum Hunter Resources Investors Lose 90% in Last Year

November 4, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP are currently investigating brokerage firms that placed investors in oil and gas related investments and who have suffered losses as a result. One company under investigation is Oil and gas producer Magnum Hunter Resources Corp, (Magnum Hunter) (Stock Symbol: MHR). Magnum Hunter is mainly a natural gas producer that operates in the Marcellus and Utica shale fields located in Ohio and West Virginia. According to news sources the company is laden with debt and has been forced to cancel its dividends as well as hire a financial adviser to explore strategic alternatives to keep the company afloat amid the oil downturn.

The company has stated that it is actively working to repair its balance sheet by exploring assets sales among other measures. Magnum Hunter posted a net loss in the second quarter of $30.5 million on revenue of $39.9 million. The companies total liabilities were $1.1 billion.

Our offices continue to report on investment losses suffered by investors in energy and oil and gas related investments that brokerage firms have increasingly recommended to retail investors in recent years. Investors have been exposed to energy investments through a variety of investment vehicles including private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks.

Broker Investigation: Claims Against Broker John Stapleton

November 2, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker John Stapleton (Stapleton) has been the subject of at least 2 customer complaints, 1 regulatory action, and 6 judgements or liens. Customers have filed complaints against Stapleton alleging securities law violations including misrepresentations of investments among other claims.

In 2005 the NASD brought action against Stapleton alleging that the broker committed securities fraud and made unsuitable investments while exercising control over the purchases and sales in a client’s account. The NASD found that Stapleton did not have a reasonable basis to believe that the purchases and sales in the account were suitable for the customer given the size and frequency of the transactions and the customer’s circumstances.

In addition, Stapleton has had difficulty managing his own finances and on April 16, 2014, disclosed a tax lien of $105,7191, on December 6, 2013, disclosed a tax lien of $12,478, on April 23, 2012, disclosed a tax lien of $1,592, on January 25, 2012, disclosed a tax lien of $9,642, on August 10, 2010, disclosed a tax lien of $121,506, and on March 27, 2009, disclosed a tax lien of $11,180. Judgements are often a sign that the broker cannot manage their own personal finances and may be tempted to recommend high commission products or strategies to clients in order to satisfy debts.

Broker Investigation: St. Bernard Financial Broker Joseph Miles

October 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Joseph Miles (Miles) has been the subject of at least 3 customer complaints, 3 judgements or liens, and one bankruptcy discharge. Customers have filed complaints against Miles alleging securities law violations including poor investment performance, unsuitable investments, securities fraud, and breach of fiduciary duty among other claims. Most of the claims against Miles relate to bonds or other debt obligations that caused losses. For instance, the latest complaint alleged damages of $169,865 as a result of bonds that lost value in 2013. In addition, Miles has had difficulty managing his own finances having been through a bankruptcy in 2005. Thereafter, Miles has had three judgments filed against him for taxes in the amounts of $5,499, $27,241, and $7,900.

Miles entered the securities industry in 1983. Since May 2004, Miles has been associated with St. Bernard Financial Services, Inc. out of the Russellville, Arizona 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.

Broker Spotlight: Financial Advisor Stephen Kipp

October 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Stephen Kipp (Kipp) has been the subject of at least 6 customer complaints, 1 regulatory action, and 1 employment termination. Customers have filed complaints against Kipp alleging securities law violations including, unsuitable investments, securities fraud, and breach of fiduciary duty among other claims. The employment termination was from National Planning Corporation (NPC) in August 2010 where the firm terminated Kipp alleging that the representative was permitted to resign under allegations that the he authorized his assistant to sign his name on firm related documents.

The regulatory actions brought against Kipp by FINRA alleged that when Kipp was employed by NPC permitted Julie Pritchard (Pritchard), who was also registered with NPC, to affix his signature to approximately 160 documents that were business records of NPC. FINRA found that NPC was not informed that Pritchard had placed Kipp’s signature on the records and therefore maintained these falsified documents. FINRA also found that from January 30, 2003 through June 10, 2010 Pritchard falsified the signatures of two brokers of NPC on approximately 293 total documents without disclosing that she had signed the documents instead of the brokers.

Kipp entered the securities industry in 1984. From January 2000, till August 2010, Kipp was associated with NPC. Thereafter since August 2010, Kipp has been associated with NFB Financial Group, LLC out of the firm’s Ventura, California office location.