Calton & Associates

Cary Olson Sanctioned by FINRA Over Non-Traditional ETF Sales

March 3, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Cary Olson (Olson) concerning allegations that Olson made recommendations in non-traditional exchange-traded funds (ETFs) to several customers without having reasonable grounds to believe his recommendations were suitable in relation to the holding periods for the ETFs. FINRA also alleged that Olson permitted the execution of options transactions in the account of a customer who was not approved for options activity.

Olson entered the securities industry in 1993. In June 2006, Olson became registered at FlNRA firm Great Circle Financial until July 2013. From June 2013 until November 2013, Olson was registered with GBS Financial Corp. Finally, Olson is currently associated with Calton & Associates. This disciplinary matter is not the first time FINRA has sanctioned Olson. In January 2006, Olson consented to the entry of findings by NASD that he exercised discretion in customer accounts without obtaining written authorization. Olson was suspended for one month and fined $5,000.

FINRA alleged that from October 2010 through October 2012, Olson recommended transactions of various leveraged and inverse-leveraged ETFs in the accounts of five customers. As a background, these types of ETFs are designed to achieve their objectives over the course of a single day only and are generally not appropriate for long term holdings. By holding these ETFs over longer periods of time the value of the investment differs dramatically from the index it tracks because the investment is reset daily.

Broker Spotlight: Calton & Associates Broker Kenneth Popek

January 11, 2015 | by Staff Attorney

Broker Kenneth Popek (Popek) has had four customer complaints filed against him over his career as a financial advisor. That many claims are rare. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. These disclosures do not necessarily have to include customer complaints but can include IRS tax liens, judgments, and even criminal matters. In Popek’s case the broker has four customer complaints and one bankruptcy.

Popek was registered with Ameriprise Financial Services, Inc. from December 2006 until May 2008. Thereafter, Popek was registered and still is registered with Calton & Associates, Inc.

One of Popek’s complaints went to hearing where a panel awarded the customers $342,956 concerning allegations of suitability, misrepresentations, churning, and breach of fiduciary duty. According to the award the causes of action involved, in part, investments in General Motors, Lehman Brothers, and Washington Mutual stocks that all went bust.

Atlas Energy Oil and Gas Investments: Risks Investors Should Know Part II

December 17, 2014 | by Staff Attorney

This article follows up on a recent article reported in Reuters concerning Atlas Energy LP’s private placement partnerships in oil and gas. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal allows investors to participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of oil into viable prospects. In addition, Atlas promises to invest up to $145 million of its own capital alongside investors.

In the last article we explored how the house seems more likely to win on these deals over investors. But beyond the inherent risks with speculating on oil and gas and unknown oil deposits most investors don’t realize the deals are often unfair to investors. In a normal speculative investment as the investment risk goes up the investor demands greater rewards to compensate for the additional risk. However, with oil and gas private placements the risks are sky high and the rewards simply don’t match up.

In order to counter this criticism, issuers say that the tax benefits of their deals where the investor can write off more than 90 percent of their initial outlay the year they make it helps defray the risk and increase the value proposition. First, the same tax advantage claims are often nominal compared to the principal risk of loss of the investment as seen by Puerto Rican investors in the UBS Bond Funds who have now seen their investments decline by 50% or more in some cases. Second, often times brokers sell oil and gas investments indiscriminately to the young and old who have lower incomes and cannot take advantage of the tax benefits.

Atlas Energy Oil and Gas Investments: A Risky Proposition Part I

December 16, 2014 | by Staff Attorney

As recently reported in Reuters, Atlas Energy LP has marketed itself to investors as a way to get into the U.S. energy boom. By contributing at least $25,000 in a private placement partnership that will drill for oil and gas in states such as Texas, Ohio, Oklahoma and Pennsylvania and share in revenues generated from the wells. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal sounds good when pitched: participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of fossil fuels into potentially viable prospects and to boot Atlas will invest up to $145 million of its own capital alongside investors. Through this method and similar deals, oil and gas projects have issued nearly 4,000 private placements since 2008 seeking to raise as much as $122 billion.

But before you take the plunge a review of the Atlas’s offering memorandum reveals some red flags and given Atlas’ past failure rate investors should think twice. First, up to $45 million of the money raised will be paid to Atlas affiliate Anthem Securities that will then be turned over to as commissions to broker-dealers who pitch the deal to investors. Up to $39 million more will be used to buy drilling leases from another affiliate. Think investors will get a fair price on the leases when Atlas controls both sides of the deal? More conflicts ahead as Atlas affiliated suppliers may also get up to $53 million for buying drilling and transport equipment. Next, an additional $8 million of Atlas’s investment is a 15 percent markup on estimated equipment costs. Finally, Atlas will pay itself nearly $52 million in various other fees and markups.

In sum, at least 40% of Atlas’s $145 million investment alongside mom and pop goes right back to the company. In addition, Atlas’ profits don’t stop there, when the venture starts generating revenue Atlas is entitled to 33% before accounting for those payments and markups. In the end, not much of a risk at all for Atlas.