Articles Tagged with First Allied Securities

shutterstock_184433255-300x228The investment lawyers of Gana Weinstein LLP are investigating the regulatory action brought by the Financial Industry Regulatory Authority (FINRA) against Charles Lundell (Lundell).   According to BrokerCheck records, Lundell was suspended by FINRA in November 2017 for executing unauthorized trades in customers’ non-discretionary accounts. In addition, Lundell has been subject to two customer disputes, a regulatory action sanctioned by the New York Stock Exchange (NYSE), and two discharges from member firms.

In November 2017, FINRA found that Lundell violated the NASD Conduct Rule 2510(b) and FINRA Rule 2010 by executing unauthorized transactions in five of his customers’ non-discretionary accounts. From January to February 2017, Lundell exercised discretion of $252,912 of four equity securities in his customers’ accounts and sold $65,788 of one of the equity securities without customer or firm approval. FINRA fined Lundell $5,000 and suspended him for 30 days.

In addition, in March 2017, Lundell was discharged from First Allied Securities, Inc. for violating the firm policy regarding the execution of unauthorized transactions without the firm’s required approval.

shutterstock_159036452-257x300Former First Allied Securities, Inc. (First Allied) broker Sean Brady (Brady) has been subject to at least six customer complaints, one employment termination for cause, and one regulatory action resulting in a bar from the industry.  According to a BrokerCheck report many of the customer complaints concern alternative investments and direct participation products (DPPs) such as non-traded real estate investment trusts (REITs).  The attorneys at Gana Weinstein LLP have extensive experience handling investor losses caused by these types of products.

In October 2017 First Allied terminated Brady on allegations that he violated the firm’s policies pertaining to client falsification of signature on documents, text messaging, and consolidated account reports.  Thereafter, Brady was subject to a FINRA investigation concerning his sales practices.  FINRA found that Brady failed to provide the regulator with information and documents requested resulting in a automatic industry bar.

The most recent customer complaint alleges Brady misrepresented her net worth, made an unsuitable recommendation, and made misrepresentations and omissions with respect to her investment from 2017 causing $265,000.  The claim is currently pending.

shutterstock_189006551-207x300According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor Masood Azad (Azad), in May 2017, was terminated by his employer First Allied Securities, Inc. (Frist Allied) after the firm alleged that Azad violated firm policy relating to borrowing money from clients, engaging in an unapproved private securities transaction and outside business activity.  Thereafter, FINRA opened an investigation and ultimately barred Azad from the industry.  FINRA found that Azad failed to provide FINRA requested documents and information in connection with its investigation into allegations of misconduct by Azad. FINRA stated that the allegations included that Azad participated in an unapproved private securities transaction by soliciting investments and/or directly investing in an electronic data security company and engaged in outside business activities involving the company without obtaining authorization from the firm.

At this time it is unclear the extent and scope of Azad’s securities violations and outside business activites.  Azad’s CRD lists that he is also an attorney and operates the Law Offices of M.H. Azad.  Azad also lists an insurance business called Consolidated Working Group and operates a d/b/a for his securities business called Robertson Wealth Management.  Finally, Azad lists American Retirement Solutions as another securities related d/b/a outside business activity.  While at this time it is unknown the exact products and services sold away any selling of notes or other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.

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.  However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion.  In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public.  Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system.  Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

shutterstock_139932985-300x200The investment lawyers of Gana Weinstein LLP are investigating allegations made by The Financial Industry Regulatory Authority (FINRA) against former First Allied broker John Kai (Kai), working out of Hilo, Hawaii. According to Kai’s file on FINRA’s BrokerCheck, he was suspended in June 2017 for failing “to respond to FINRA requests for information” and was barred from the securities industry on September 12, 2017.

Kai entered the industry in 1991 and worked for Merrill Lynch, Pierce, Fenner & Smith Incorporated until 1995. He then moved to Painewebber Incorporated from 1995 until 1999. From 1999 until 2006, he was with Linsco/Private Ledger Corp. From 2006 until 2010, Kai was with Commonwealth Financial Network. And finally, he was with First Allied Securities, Inc. from 2010 until 2017 when he was terminated.

First Allied terminated John Kai in April for violating “numerous firm policies including communication with the public, undisclosed private securities transactions and outside business activity, borrowing funds from a client, and exercising discretion in clients’ brokerage accounts without the firm’s approval.”

shutterstock_114128113-300x238According to BrokerCheck records The Financial Industry Regulatory Authority (FINRA) has filed a complaint against Dennis Mehringer (Mehringer) over allegations that Mehringer made unsuitable recommendations that caused a customer to engage in excessively expensive short-term trading of mutual fund Class A shares. According to FINRA, Mehringer repeatedly recommended, and caused the customer to engage in, short-term purchases and sales of 84 mutual fund Class A positions in five of the customer’s accounts. FINRA alleged that in 47 of the 84 purchase transactions, the customer paid front-end sales loads ranging from four to five percent and that all but 17 of these 84 mutual fund positions were held for less than six months while 35 of them were held for less than three months. FINRA found that Mehringer received $169,735 in commissions from the transactions and that the trades were without reasonable grounds to believe that the recommendations were suitable for the customer in light of the frequency and nature of the transactions based on the customer’s investment objectives.

Class A mutual fund share investments are long-term trades that come with significant sales loads.  Frequent trading and switching between the mutual funds and mutual fund families is unsuitable for any customer.

Mehringer is currently associated with Western International Securities, Inc. (Western International) and has been subject to nine customer complaints alleging unsuitable investments, overconcentration, excessive commission charges among other claims.  The securities lawyers of Gana Weinstein LLP continue to investigate the customer complaints against Mehringer.

shutterstock_94127350The Financial Industry Regulatory Authority (FINRA) announced that it has fined eight brokerage a total of $6.2 million for failing to supervise sales of variable annuities (VAs).  Five of the firms were required to pay more than $6 million to customers who purchased L-share variable annuities that came with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.

FINRA’s enforcement actions were against the following firms.

  • VOYA Financial Advisors Inc. – fined $2.75 million.

shutterstock_34872913The securities fraud lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker James Hayne (Hayne).  According to BrokerCheck records Hayne has been the subject of at least six customer complaints and one Judgement or lien.  The customer complaints against Hayne allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, fraud, misrepresentations, and churning (excessive trading) among other claims.

The most recent complaint was filed in February 2016 and alleged that from September 2013 until June 2014 the customer’s account was traded negligently causing $200,000.  The complaint is currently pending.  In October 2015 another customer alleged that between 2008 and 2013, excessive trading occurred in in the customer’s family trust account. The customer also alleged that the investments were unsuitable and caused $750,000.  The claim is currently pending.

When brokers engage in excessive trading, sometimes referred to as churning, the broker will typical trade in and out of securities, sometimes even the same stock, many times over a short period of time.  Often times the account will completely “turnover” every month with different securities.  This type of investment trading activity in the client’s account serves no reasonable purpose for the investor and is engaged in only to profit the broker through the generation of commissions created by the trades.  Churning is considered a species of securities fraud.  The elements of the claim 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.

shutterstock_88744093The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Kyle Harrington (Harrington). According to BrokerCheck records Harrington has been subject to 6 customer complaints, one regulatory action, one employment separation, and one financial disclosure. The customer complaints against Harrington allege securities law violations that including misrepresentations, breach of fiduciary duty, and negligence among other claims.   The regulatory finding was made by FINRA which alleged that Harrington failed to disclose certain information that had to be disclosed on Harrington’s Form U4. The employment separation by Matrix Capital Group, Inc. (Matrix) also concerns allegations of failure to disclose reportable information.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

The number of events listed on Harrington brokercheck is high relative to his peers. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must publicly disclose certain types of reportable events on their CRD including but not limited to customer complaints. In addition to disclosing client disputes brokers must divulge IRS tax liens, judgments, and criminal matters. However, FINRA’s records are not always complete according to a Wall Street Journal story that checked with 26 state regulators and found that at least 38,400 brokers had regulatory or financial red flags such as a personal bankruptcy that showed up in state records but not on BrokerCheck. More disturbing is the fact that 19,000 out of those 38,400 brokers had spotless BrokerCheck records.

shutterstock_186471755The Financial Industry Regulatory Authority (FINRA) sanctioned broker Daniel Grieco (Grieco) concerning allegations that Grieco made recommendations of non-traditional exchange-traded funds (Non-Traditional ETFs) to various customers without having reasonable grounds to believe his recommendations were suitable.

Non-Traditional ETFs are behave drastically different and have different risk qualities from traditional ETFs. While traditional ETFs simply seek to mirror an index or benchmark, Non-Traditional ETFs use a combination of derivatives instruments and debt to multiply returns on underlining assets, often attempting to generate 2 to 3 times the return of the underlining asset class. Non-Traditional ETFs are also used to earn the inverse result of the return of the benchmark.

In addition, regular ETFs can be held for long term trading, but Non-Traditional ETFs are generally designed to be used only for short term trading. The use of leverage employed by these funds causes their long-term values to be dramatically different than the underlying benchmark over long periods of time. For example, between December 1, 2008, and April 30, 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while the ProShares Ultra Oil and Gas, a fund seeking to deliver twice the index’s daily return fell six percent. In another example, the ProShares UltraShort Oil and Gas, seeks to deliver twice the inverse of the index’s daily return fell by 26 percent over the same period.

shutterstock_146470052This 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.