Ameriprise Financial

FINRA Bars Former Ameriprise Broker Ted Cadwallader Concerning Private Securities

March 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Ted Cadwallader (Cadwallader) concerning allegations that Cadwallader engage in outside business activities including the sales of private securities. When outside business activities also include the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes FINRA to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In August 2014, FINRA alleged that it pursued an investigation into allegations that Cadwallader engaged in undisclosed outside business activities. On November 21, 2014, FINRA requested that Cadwallader appear and provide testimony. FINRA stated that Cadwallader told the regulator that he would not provide information or cooperate in the investigation. Consequently, he was barred from the industry

According to Cadwallader’s brokercheck he has disclosed outside business activities including ownership of The Faith Based Coach. Cadwallader is also on the board of directors of Pacer BioScience and a board member of EarthEnergy Technologies LLC. It is unclear at this time what organization or product Cadwallader was involved with or selling that FINRA was investigating.

FINRA Sanctions Former Ameriprise Broker Radcliffe Daly Over Sloud Recommendations

February 18, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned former Ameriprise Financial Services, Inc. (Ameriprise) broker Radcliffe Daly (Daly) concerning allegations that between May 2013 and November 2013, while Daly was registered with Ameriprise, Daly mismarked more than 250 order tickets for solicited transactions as unsolicited. In addition, FINRA alleged that during the same period Daly engaged in private securities transactions (also known as “selling away”) without providing written notice to Ameriprise. FINRA also alleged that Daly exercised unauthorized discretion in customer accounts.

Daly entered the securities industry in 2003 and left the industry in June 2014. During the majority of this time Daly was associated with Ameriprise until January 2014.

FINRA alleged that Daly recommended a penny stock, Sloud, Inc. (SLOU), to numerous customers during 2013. According to FINRA Daly placed 292 buy transactions for 43 different customers in the Sloud stock between May 3 and November 7, 2013. However, instead of properly marking the transactions as solicited, Daly allegedly falsely marked 253 of these purchases as unsolicited. FINRA also found that Daly continued to solicit purchases of Sloud and to inappropriately mark the trades as unsolicited even after being told by his firm in June 2013 that he could not solicit purchases of the stock because it was a penny stock and not supported by firm research. From the allegations made by FINRA it appears that Daly attempted to circumvent Ameriprise’s instructions by mismarking the tickets as unsolicited.

FINRA Sanctions Ameriprise Over Arbitration Discovery Abuse Part II

December 2, 2014 | by Staff Attorney

In the prior post we discussed the extremely difficult journey an investor may have to go through in order to obtain relevant discovery documents from the brokerage industry in FINRA arbitration. We also discussed how the system is stacked against the investor’s rights and provides incentives to firms to withhold documents. However, a recent FINRA enforcement order provides some hope that the regulatory watchdog will start taking these issues seriously.

In October 2014, FINRA sanctioned Ameriprise Financial Services, Inc. (Ameriprise) and its broker for altering documents and refusing to produce documents until the eve of hearing. FINRA’s action resulted from the discovery tactics employed by Ameriprise and its broker David Tysk (Tysk) in a FINRA arbitration.

In the Ameriprise case, the FINRA arbitrators found the firm’s conduct so egregious that it referred the matter to FINRA’s Member Regulation Department. The arbitration panel found that Ameriprise and Tysk produced documents in an arbitration proceeding without disclosing that Tysk had altered the documents after receiving a complaint letter from a customer. The altered documents were printouts of notes of Tysk’s contacts with the customer having the initials “GR.” Tysk was responsible for detailing his contact with customers in a computer system maintained by Ameriprise.

Is FINRA Ready to Get Serious About Arbitration Discovery Abuse? Part I

December 1, 2014 | by Staff Attorney

Many securities arbitration attorneys would agree that discovery abuse in FINRA arbitration is a problem under certain circumstances. A client has a seemingly great and compelling case. Then the brokerage firm produces its “discovery” but something doesn’t seem right. Documents recording decisions on key dates are missing, there are unexpected gaps in the email record, and in the worst cases your client has produced documents that the firm should have a copy of but for some reason does not. How often discovery abuse happens in FINRA arbitration is unknowable.

However, what is known is that system likely fosters discovery abuse. A recent Reuters article highlighted that arbitrators do indeed go easy on brokerage firm discovery abuse. Why does this happen? The first line of defense against discovery abuse is the arbitrators themselves. But most arbitrators simply expect the parties to comply with their discovery obligations without their input. Moreover, arbitrators loath ordering parties to produce documents against their will and prefer the parties to resolve their own disputes. While these goals are noble they also invite abuse.

So how does an investor ultimately get awarded discovery abuse sanctions if a brokerage firm fails to produce documents? First, the client must move to compel the documents and win the motion over the brokerage firm’s objections. Second, the firm must refuse to comply with the order. Usually the firm will interpret the scope of the order as not encompassing the discovery that was actually ordered or will otherwise declaw the order through claims of “privilege” or “confidentiality.” This leads to a second motion to compel and request for sanctions. Again the investor will have to argue the relevance of the initial request as if the panel never ruled that these documents had been ordered to be produced and the brokerage firm gets a second bite of the apple to throw out the discovery.

Non-Traded REITs Sales Grow As Shown in Second Quarter 2014 Rankings

October 21, 2014 | by Staff Attorney

Since the financial crisis the non-traded real estate investment trust (REIT) market has been a financial boon for the brokerage industry. A REIT is a security that invests typically in real estate related assets. Generally, REITs can be publicly or privately held. While publicly held REITs can be sold on an exchange, are liquid, and have lower commissions and fees, non-traded REITs are sold are private, are speculative, illiquid, and often charge fees of over 10%. Nonetheless, non-traded REITs have become a darling product of the financial industry, mostly because of the fat fees brokers earn for recommending these speculative products.

Brokers selling these products sometimes claim that non-traded REITs offer stable returns compared to the volatile stock market. As the Financial Industry Regulatory Authority (FINRA) and the Securities Exchange Commission (SEC) have recently noted, these products may not be as safe and stabile as advertised.

InvestmentNews recently ranked non listed REITs by second quarter 2014 invested assets. As shown below, investment in these funds are substantial and continues to grow each quarter

Company	2Q invested assets ($M)	Original share price	Current share value	Original distribution rate	Current distribution rate	2Q14 FFO 2 payout ratio
Inland American Real Estate Trust	$10,128.5	$10	$6.94	6.20%	5.00%	75%
Corporate Property Associates 17 Global	$4,564.7	$10	$9.50	6.50%	6.50%	81%
Apple Hospitality	$3,960.0	$11	$10.10	8.00%	7.25%	83%
Industrial Income Trust	$3,747.6	$10	$10.40	6.00%	6.00%	100%
Tier REIT	$3,455.8	$10	$4.20	7.00%	0.00%	N/A
CNL Lifestyle Properties	$3,343.4	$10	$6.85	6.25%	4.25%	108%
Griffin-American Healthcare REIT II	$3,056.2	$10	$10.22	6.50%	6.65%	143%
Monogram Residential Trust	$2,879.1	$10	$10.03	7.00%	3.50%	189%
Cole Credit Property Trust IV	$2,833.0	$10	$10.00	6.25%	6.25%	145%
KBS Real Estate Investment Trust II	$2,714.1	$10	$10.29	6.50%	6.50%	98%
Cole Corporate Income Trust	$2,606.3	$10	$10.00	6.50%	6.50%	94%
Hines Real Estate Investment Trust	$2,422.1	$10	$6.40	6.00%	2.90%	88%
American Realty Capital Trust V	$2,233.5	$25	$25.00	6.60%	6.60%	86%
KBS Real Estate Investment Trust	$2,058.0	$10	$4.45	7.00%	0.00%	N/A
Landmark Apartment Trust	$1,889.4	$10	$8.15	6.00%	3.00%	38%
Phillips Edison – ARC Shopping Center	$1,846.9	$10	$10.00	6.50%	6.70%	129%
Steadfast Income REIT	$1,592.7	$10	$10.24	7.00%	7.00%	165%
Strategic Storage Trust	$731.5	$10	$10.79	7.00%	6.50%	120%
Signature Office	$676.4	$25	$25.00	6.00%	6.00%	83%
Lightstone Value Plus REIT	$643.2	$10	$11.80	7.00%	7.00%	69%

Many brokerage firms have come under fire for their non-traded REIT sales practices. For instance LPL Financial in particular has been accused by several regulators of failing to reign in their broker’s sales practices concerning alternative investments. On March 24, 2014, LPL Financial was fined $950,000 by the Financial Industry Regulatory Authority (FINRA) for failing to supervise its brokers’ marketing of nontraditional investments. LPL Financial was alleged to have deficient supervision in the sale of certain alternative investment products, including REITs, oil and gas partnerships, business development companies (BDC’s), hedge funds, and managed futures.

LPL Financial also paid a $500,000 fine to the Massachusetts Securities Division and was ordered to pay $4.8 million in restitution for supervisory and suitability related violations concerning non-traded REITs. In total six firms paid $11 million in restitution and fines related to REIT sales. The other firms including Ameriprise Financial Inc., Lincoln National, Commonwealth Financial Network, Royal Alliance Associates, and Securities America.

The attorneys at Gana Weinstein LLP are experienced in representing investors to recover their financial losses through the misrepresentation of non-traded REITs. Our consultations are free of charge and the firm is only compensated if you recover.