Securities Lawyers Blog

FINRA Fines Sigma Financial Over Supervisory Failures Part II

January 27, 2015 | by Staff Attorney

This post continues our prior report on the Financial Industry Regulatory Authority’s (FINRA) recently sanctions against Sigma Financial Corporation (Sigma Financial) alleging from April 25, 2011, through June 24, 2012, supervisory deficiencies existed at Sigma including the firm’s supervision of registered representatives, the firm’s suitability processes and procedures, some of the firm’s implemented procedures relating to customer information, and also branch office registration for trade execution.

FINRA found that Sigma Financial permitted its representatives to create and use consolidated statements with their customers that reflected the customers’ holdings of investments away from the firm. However, FINRA found that Sigma Financial did not adequately supervise its representatives’ creation and use of such statements in that the firm neither centrally tracked the number or identity of representatives who were using consolidated statements nor the customers who received such statements. Instead, FINRA found that Sigma Financial relied upon the representatives themselves to submit only the initial template of the consolidated statements they created and intended to use with their customers and the firm did not actually receive or review the statements shared with the customers.

Another supervisory deficiency noted by FINRA was that Sigma Financial had four preferred vendors through which brokers could establish and maintain websites. But use of these vendors, was not required and FINRA found that 134 representatives maintained non-preferred vendor websites, or approximately 20% of all websites. FINRA found that non- preferred vendors failed to notify Sigma Financial if registered representatives made any changes to their websites. In this way FINRA found that Sigma Financial did not conduct adequate supervision of those non-preferred vendor websites.

FINRA Fines Sigma Financial Over Supervisory Failures Part I

January 26, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Sigma Financial Corporation (Sigma Financial) alleging from April 25, 2011, through June 24, 2012, supervisory deficiencies existed at Sigma in specific areas of Sigma’s supervisory systems and procedures including the firm’s supervision of registered representatives, the firm’s suitability processes and procedures, some of the firm’s implemented procedures relating to customer information, and also concerning branch office registration for trade execution.

Sigma Financial has been a FINRA member since 1983, and currently has a total of 685 registered representatives operating from 436 branch office locations. Sigma conducts a general securities business.

FINRA found that Sigma Financial’s supervisory and compliance functions were conducted by B/D OPS, LLC (BD OPS) from a central location in Ann Arbor, Michigan. FINRA found that BD OPS also provided supervisory and compliance services for Sigma Financial’s affiliated investment advisor and another broker-dealer. As a result, FINRA determined that a mere 35 supervisory personnel working for BD OPS were responsible for supervising a total of 1,274 registered representatives and 854 branch offices. FINRA found that Sigma Financial’s reliance upon BD OPS to remotely conduct all of the supervisory and compliance functions for Sigma Financial’s independent contractors and branch offices was not reasonable.

FINRA Bars Broker Chase Casson For Failing to Respond to Inquiries Over Private Transactions

January 23, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Chase Casson (Casson) alleging that Casson failed to provide documents and information to FINRA in response to demands made to investigate the broker’s activities. On various dates in August and September 2014, FINRA sent Casson a request for documents concerning allegations that he participated in a private securities transactions. The details concerning the exact nature of the alleged transaction and Casson’s role are not yet fully known.

The allegations against Casson are consistent with a potential “selling away” securities violation. In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. Under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees in order to detect and prevent brokers from offering such products. In order to properly supervise their brokers each firm is required to establish and maintain written supervisory procedures and implement such policies in order to monitor the activities of each registered representative. Selling away often occurs in environments where the brokerage firms either fails to put in place a reasonable supervisory system or fails to actually implement that system and meet supervisory requirements.

In selling away cases, investors are unaware that the advisor’s investments are either not registered or not real. Typically investors will not learn that the broker’s activities were wrongful until after the investment scheme is publicized or the broker simply shuts down shop and stops returning client calls.

Overconcentrated in Oil and Gas Investments?

January 22, 2015 | by Staff Attorney

A strengthening dollar and increased global supply of oil has sent crude oil prices tumbling in the second half of 2014. Recently, crude futures for delivery in February 2015 fell to $52.69 a barrel, the lowest finish since April 2009. Some experts are saying that if production volume continues to be as high as it currently is and demand growth weak that the return to $100 a barrel is years away.

As a result, in recent months investors have contacted our firm about being concentrated in various oil and gas exposed investments including private placements, stocks, and ETFs. On the private placement side alone the Securities Exchange Commission (SEC), has stated that since 2008, approximately 4,000 oil and gas private placements have sought to raise nearly $122 billion in investor capital. However, these oil and gas private placements suffer from enormous risks that often outweigh any potential benefits including securities fraud, conflicts of interests, high transaction / sales costs, and investment risk.

In addition, investor accounts may be overconcentrated in oil and gas stocks or ETFs. Some of these ETFs may be leveraged or non-traditional ETFs. These leveraged ETFs seek to increase the return on the oil and gas index by using leverage to amplify returns exposing the investor to greater volatility during an already volatile period in the oil market. Below are some of oil and gas related ETFs.

Wedbush Securities Regulatory Actions Explored Part III

January 21, 2015 | by Staff Attorney

This post continues our examination of the numerous regulatory actions against Wedbush Securities, Inc. (Wedbush) for its failure to supervise the activities of its employees and the recent National Adjudicatory Council (NAC) decision affirming the FINRA hearing decision.

What were the failures to report that were claimed by FINRA? In one instance, a client faxed a letter to Wedbush alleging that his broker had committed unauthorized trades but Wedbush did not report the complaint until January 2010, 275 days later. At hearing Wedbush conceded that the complaint was not timely reported but disputed their responsibility for the late reporting because a firm office manager failed to forward the letter to the business conduct department after concluding that the letter wasn’t a customer complaint. FINRA found though that the office manager’s failure does not excuse the late filing or the firm’s responsibility for the late filing.

In addition, the firm had argued that Mr. Wedbush was not liable for failure to supervise because he was more of a manager than a supervisory. Again, FINRA disagreed stating that as president he was ultimately responsible for the misconduct.

Wedbush Securities Plagued by Numerous Regulatory Actions Part II

January 20, 2015 | by Staff Attorney

This post continues our examination of the numerous regulatory actions against Wedbush Securities, Inc. (Wedbush) for its failure to supervise the activities of its employees in various respects.

In November 2014, the SEC’s case was settled with Wedbush and two of its top officials have for market access violations. Wedbush settled by admitting wrongdoing in its actions, paying a $2.44 million penalty, and retaining an independent consultant. Wedbush’s former executive vice president Jeffrey Bell (Bell) and senior vice president Christina Fillhart (Fillhart) settled without admitting or denying the SEC’s findings. Bell and Fillhart agreed to pay a combined total of more than $85,000 in disgorgement and penalties. The SEC order found that Wedbush had inadequate risk controls in place before providing customers with access to the market including some anonymous overseas traders.

In a statement, Andrew Ceresney, director of the SEC Enforcement Division stated that “Wedbush acknowledges that it granted access to thousands of overseas traders without having appropriate safeguards in place.”

Wedbush Securities Supervisory Failures Exposed in Numerous Regulatory Actions Part I

January 20, 2015 | by Staff Attorney

In a slew of regulatory actions, Wedbush Securities, Inc. (Wedbush) has the firm under fire for its failure to supervise the activities of its employees in various respects. These complaints were recently capped off with an affirmation by the Financial Industry Regulatory Authority’s (FINRA) appeals body, the National Adjudicatory Council (NAC), decision imposing more than $300,000 in fines and a month-long suspension of top executives for failures in their reporting duties. Decision Here.

Wedbush is a brokerage and investment banking firm founded by Edward Wedbush (Mr. Wedbush) and another individual in 1955. Wedbush registered with the NASD in 1955 and NYSE in the early 1970s. At present the firm employs approximately 900 employees. Mr. Wedbush joined the securities industry in 1955 when he formed the firm and has been registered as a general securities principal and representative since the firm’s inception.

A company’s culture is set at by those at the top running the company. And judging by the recent decision, Wedbush’s supervisory culture calls into question the handling of its client’s assets. The recent regulatory woes and saga first started on October 4, 2010, when FINRA’s Department of Enforcement filed a five-cause complaint alleging that during various periods between January 2005, and July 2010, Wedbush failed to properly report 81 disclosable events resulting in 38 Form RE-3 reporting violations, 113 Form U4 and U5 violations, and nine statistical reporting violations concerning customer complaints. FINRA also alleged that the firm and Mr. Wedbush failed to supervise the firm’s regulatory reporting.

FINRA Fines 10 Brokerage Firms $43.5 Million For Conflicts of Interests in Toys “R” Us IPO

January 16, 2015 | by Staff Attorney

The merry go-round of Wall Street fraud continues. After the housing crisis where Wall Street sold terrible home loans to investors we’ve arrived back to dot.com era frauds of selling favorable research. Enter the recent fine imposed by The Financial Industry Regulatory Authority (FINRA) that 10 of the largest brokerage firms were fined a total of $43.5 million for allowing their equity research analysts to solicit investment banking business by offering favorable research coverage in connection with the 2010 planned initial public offering of Toys “R” Us.

FINRA fines are as follows:

Barclays Capital Inc. – $5 million

FINRA Fines Popular Securities Over Concentrated Customer Accounts in Puerto Rico Municipal Bonds and Bond Funds

January 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Popular Securities, Inc. (Popular Securities) alleging between July 1, 2011, and June 30, 2013, Popular failed to establish and enforce a supervisory system and procedures designed to identify and review concentrated securities purchases in Puerto Rico municipal bonds and Puerto Rico closed-end funds.

Popular has been a FINRA member since 1980, is headquartered in San Juan, Puerto Rico and engages in a general securities business, including customer purchases and sales of Puerto Rico municipal securities and open and closed-end mutual funds. The Firm has approximately 120 registered representatives located in its 9 branch offices.

Puerto Rico Bond Funds were sold as providing Puerto Rico residents with various tax benefits including exemption from US. estate and gift taxes. In addition, the Puerto Rico Bond Funds offered a triple tax benefit to investors. However, in December 2012, Puerto Rico general obligation and related bonds ratings were downgraded. Then, six months later in June 2013, the Puerto Rico Power Authority (PREPA) revenue bonds ratings were also downgraded.

FINRA Bars Former Pruco Securities and MetLife Securities Broker Derek Weaver

January 14, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Derek Weaver (Weaver) alleging that Weaver failed to provide documents and information to FINRA in response to demands made to investigate the broker’s activities. On December 1, 2014, FINRA sent Weaver a request for documents concerning allegations that he participated in a Ponzi scheme. The details concerning the exact nature of the alleged Ponzi scheme and Weaver’s role are not yet fully known.

The allegations against Weaver are consistent with a potential “selling away” securities violation. In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. Under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees in order to detect and prevent brokers from offering such products. In order to properly supervise their brokers each firm is required to establish and maintain written supervisory procedures and implement such policies in order to monitor the activities of each registered representative. Selling away often occurs in environments where the brokerage firms either fails to put in place a reasonable supervisory system or fails to actually implement that system and meet supervisory requirements.

In selling away cases, investors are unaware that the advisor’s investments are either not registered or not real. Typically investors will not learn that the broker’s activities were wrongful until after the investment scheme is publicized or the broker simply shuts down shop and stops returning client calls.