Securities Lawyers Blog

FINRA Sanctions E1 Asset Management, Ron Itin, and Ahsan Shaikh Over Churning Customer Accounts

August 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned (Case No. 2010025835701) broker E1 Asset Management, Inc. (E1 Asset) Ron Itin (Itin), and Ahsan Shaikh (Shaikh) concerning numerous irregularities and misconduct including allegations that between July 2008, and April 2012, including the failure to conduct reasonable supervisory reviews designed to detect and prevent excessive trading, otherwise known as churning, in customer accounts.

Itin’s BrokerCheck records reveal at least 9 customer disputes. These disputes involve claims of unsuitable investments, churning (excessive trading), unauthorized trading, breach of fiduciary duty, misrepresentations and false statements, among other claims. The claims state that among the products traded in client accounts were penny stocks, options, and other equities. In January 2015, Itin declared chapter 7 bankruptcy in New Jersey. Itin has been associated with E1 Asset Management, Inc. since 1999 and is a supervisory principal at the firm.

Shaikh’s BrokerCheck records show at least at least nine customer disputes. The disputes involve claims similar in nature to Itin’s records. Shaikh has been associated with E1 Asset Management, Inc. since 1999 and is a supervisory principal at the firm.

Gana LLP Investigation: Complaints Against Coastal Equities Broker Douglas Bevers

August 20, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Douglas Bevers (Bevers) has been the subject of at least five customer complaints, two regulatory actions, and one employment separation. The customer complaints against Bevers allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, and churning (excessive trading), among other claims. The employment separation resulted from allegations that Bevers violated firm policies by allowing a third party to direct orders without obtaining permission from the client in writing.

Bevers entered the securities industry in 1973. From July 2003, until February 2014, Bevers was associated with Boenning & Scattergood, Inc. Thereafter, from February 2014, till present Bevers has been registered as a broker with Coastal Equities, Inc.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. Many of the claims against Bevers involving claims of unauthorized trading, churning, and excessive trading.

Voya Financial Advisors to Stop Selling L Share Annuities Over Suitability Concerns

August 19, 2015 | by Staff Attorney

InvestmentNews has reported that brokerage firm Voya Financial Advisors (Voya) changed its variable annuity selling policies by restricting the sale of contracts known as “L share” annuity contracts if the contract include riders. The change comes due to increasing pressure from regulators concerned about the products’ suitability for investors. The firm has 2,200 brokers that would be effected by the new policy.

Voya stated in the article that “We feel strongly that it is in the best interests of our advisers and their clients to make this change to Voya Financial Advisors’ suitability policy.” The firm stated that the product has been scraped “in order to best serve the retirement readiness and long-term planning needs of our customers.”

L-shares charged higher ongoing fees in exchange for a shorter time frame for withdraw penalties, known as surrender charges. However, the L-shares when combined with riders that come with even extra costs that make the product even more expensive. The riders are added for a variety of reasons including to reduce market risk or modify death benefits.

Broker Investigation: Churning Claims Against Mark Kaplan

August 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Mark Kaplan (Kaplan) has been the subject of at least four customer complaints and one termination. The customer complaints against Kaplan allege a number of securities law violations including that the broker made unsuitable investments, churning (excessive trading), unauthorized trading, breach of fiduciary duty, misrepresentations and false statements, among other claims

Kaplan entered the securities industry in 1989. From September 2005, until June 2009, Kaplan was registered with Citigroup Global Markets Inc. (Citigroup). From June 2009, until April 2011, Kaplan was associated with Morgan Stanley Smith Barney (Morgan Stanley). In March 2011, Morgan Stanley filed a notice of Termination Form U-5 stating that Kaplan was discharged because of a customer complaint that was made against Kaplan. The firm also stated that it had other concerns regarding activity in client accounts. In response, Kaplan stated that the allegations by Morgan Stanley were unfounded and that the firm had approved all of the activity in client accounts. Since March 2011, Kaplan has been associated with Vanderbilt Securities, LLC.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. Many of the claims against Kaplan involving claims of churning and excessive trading. When brokers engage in churning the investment trading activity in the client’s account serves no reasonable purpose for the investor and is transacted to profit the broker through the generation of commission payments. The elements to establish a churning claim, which is considered a species of securities fraud, are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over plus whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably profit from the activity.

FINRA Bars Former H.D. Vest Broker Richard Whitley

August 18, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Richard Whitley (Whitley) has been the subject of at least 13 customer complaints and one regulatory action that has resulted in Whitley being barred. FINRA launched an investigation into claims that Whitley recommended unsuitable investments to customers. In addition, to the regulatory bar from the agency, customer complaints against Whitley allege a number of securities law violations including that the broker made unsuitable investments, breach of fiduciary duty, misrepresentations and false statements, among other claims

Whitley entered the securities industry in 1982. From 1992, until August 2014, Whitley was registered with H.D. Vest Investment Services (HD Vest). In June 2015, Whitley was barred by FINRA from the financial services industry after failing to respond to the agencies investigation into claims

Advisers have an obligation to deal fairly with investors and that obligation includes 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 costs, 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: Citigroup Broker David Honingstock

August 18, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker David Honingstock (Honingstock) has been the subject of at least two customer complaints, two financial disclosures, and three judgments and/or liens. The customer complaints against Honingstock allege a number of securities law violations including that the broker made unsuitable investments, breach of fiduciary duty, misrepresentations and false statements, among other claims

In addition to these claims, Honingstock declared bankruptcy in October 2014 in New York. In addition, Honingstock former brokerage firm, Morgan Stanley, initiated an action against the broker alleging a debt of $1,635,123 owed to the firm that in a compromise settlement was reduced to $218,000. Honingstock has several other debts listed on his disclosures including a hospital bill from 2013, and a New York State Tax lien for over $17,000. A broker’s inability to manage his own finances or having trouble making ends meet may suffer from potential conflicts of interests in making recommendations to his clients.

Honingstock entered the securities industry in 1986. From January 2003, until May 2007, Honingstock was registered with UBS Financial Services, Inc. (UBS). Upon leaving from UBS, from May 2007, through June 2009, Honingstock was associated with Citigroup Global Markets Inc. (Citigroup). From there, Honingstock was associated with Morgan Stanley Smith Barney form June 2009, until December 2009. Finally, Honingstock has been registered with Citigroup since 2013.

Numerous Customer Complaints Against Former Berthel Fisher Broker Jerry McCutchen

August 13, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Jerry McCutchen (McCutchen) has been the subject of at least 15 customer complaints and one judgment or lien. The customer complaints against McCutchen allege a number of securities law violations including that the broker made unsuitable investments, negligence, and misrepresentations among other claims.

The claims against McCutchen involve various investments including equipment leasing, non-traded real estate investment trusts (Non-Traded REITs), and variable annuities. We have written many times about the investing dangers of these products. One quality all of these investments have in common is the fact that they come with high commissions for the broker and low probability of success for the client. Our firm has written numerous times about investor losses in these programs such as equipment leasing programs like LEAF Equipment Leasing Income Funds I-IV and ICON Leasing Funds Eleven and Twelve. The costs and fees associated with all of these investments cause the security to be so costly that significant returns are virtual impossibility. Yet, investors are in no way compensated for the additional risks of these products.

In a typical equipment leasing program upfront fees are around 20-25% of investor’s capital. As for Non-Traded REITs, it was reported in the Wall Street Journal, that a study on “Nontraded REITs are costing investors, especially elderly, retired, unsophisticated investors, billions. They’re suffering illiquidity and ignorance, and earning much less than what they ought to be earning.” In conclusion, “No brokerage should be allowed to sell these things.”

FINRA Bars Former Morgan Stanley Advisor Justin Amaral

August 13, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Justin Amaral (Amaral) has been barred for failing to respond to requests for information by the agency. The requests may have related to the reasons Morgan Stanley gave for terminating Amaral’s employment. Upon termination from Morgan Stanley the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Amaral was due to allegations by the firm that Amaral became an executor and beneficiary in a client’s estate and that he used discretionary authority in several client accounts.

In addition, to the most recent FINRA action and bar, Amaral has been the subject of at least two customer complaints involving unsuitable closed-end funds and misrepresentations of investments involving mutual funds. According to FINRA, the agency made attempts to have Amaral appear for testimony concerning an unstated matter. Amaral failed to appear and was consequently barred from the securities industry.

It is important for investors to know that all advisers have an obligation and 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.

SEC Charged 36 Brokerage Firms Over Municipal Bond Offerings

August 12, 2015 | by Staff Attorney

The Securities and Exchange Commission (SEC) announced enforcement actions against 36 municipal bond underwriting brokerage firms for material misstatements and omissions in municipal bond offering documents. The SEC offered favorable settlement terms to municipal bond underwriters and issuers who self-reported securities law violations leading to the settlements.

The SEC alleged that between 2010 and 2014, 36 brokerage and financial firms violated federal securities laws by selling municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with their obligation to disclosure. The firms were also alleged by the SEC to have failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers.

The municipal bond market is a $3.7 trillion market. Continuing disclosure provides municipal bond investors with information about the solvency and financial fitness of issuers on an ongoing basis. The SEC had previously identified issuers’ failure to comply with their continuing disclosure obligations as being a major challenge for investors seeking up to date information about their municipal bond holdings.

FINRA Suspends Broker David Ledoux Over Failure to Disclose Certain Liens

August 12, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker David Ledoux (Ledoux) was recently fined and suspended by the regulator for failing to disclose certain liens on his registration. FINRA alleged that between May 1, 2006 and June 20, 2014, LeDoux failed to timely update his Form U4 to reflect the following six liens totaling $184,795.

In addition, to the recent regulatory action and judgement and liens, Ledoux has been the subject of one criminal event and six customer complaints. The customer complaint against Ledoux allege a number of securities law violations including that the broker made unsuitable investments, fraud, misrepresentation, and engaged in churning (excessive trading) among other claims.

LeDoux entered the securities industry in June 1994. From June 2001, to July 2014, LeDoux was associated with National Securities Corporation. At that time National Securities permitted LeDoux to resign due to his late reporting of liens. Since August 2014, LeDoux has been associated with Westpark Capital, Inc.