Merrill Lynch

UBS Preparing to Face Investor Claims Over Puerto Rico Bond Funds

September 23, 2014 | by Staff Attorney

According to UBS’ second quarter earnings report, the bank is now looking at over $600 million in claims brought by Puerto Rico investors, who have suffered significant losses related to their investments in closed-end bond funds. The Financial Industry Regulatory Authority (FINRA) has been inundated with a plethora of claims in connection with the closed-end UBS Puerto Rico Bond Funds. Investors are looking to be made whole after they purportedly received misleading information regarding these investments. While the majority of the claims were filed against UBS Financial Services of Puerto, other firms, including Merrill Lynch, Banco Popular, Santander Securities, and Oriental Financial Services have also been named as Respondents in many of the claims.

UBS recognizes the perilous situation that it now faces with respect to these claims, explaining, “declines in the market prices of Puerto Rico municipal bonds and of UBS Puerto Rico sole-managed and co-managed closed-end funds since August 2013 have led to multiple regulatory inquiries, as well as customer complaints and arbitrations with aggregate claimed damages exceeding [$]600 million filed by clients in Puerto Rico who own those securities.”

Some of the claims that UBS face, including clients represented by our firm, include allegations of unsuitability, over-concentration, fraud, and breach of contract among others. FINRA and the Municipal Securities Rulemaking Board require broker dealers to have a reasonable basis to support the suitability of their recommendations to customers. Legal representatives for many claimants have said that the UBS employees prioritized commissions when they sold the closed-end bond funds to Puerto Rican investors, who were not economically equipped to make those investments.

Former Merrill Lynch Broker George Zaki Sanctioned Over Unauthorized Trading Allegations

September 9, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker George Zaki (Zaki) concerning allegations that between June 2010, and August 2012, Zaki implemented and/or executed approximately 3,600 discretionary trades in the accounts of approximately 80 Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch) customers without the customers’ prior written authorization.

Zaki entered the securities industry in October 2007 joining Neuberger Berman LLC. In June 2010, Zaki became registered with Merrill Lynch. Zaki remained registered with Merrill Lynch until he was terminated on October 8, 2012 when Merrill Lynch filed a Form U-5 stating that Zaki was terminated for “conduct involving exercising discretion in non-discretionary client accounts.” In November 2012, Zaki became registered with Barclays Capital Inc. until March 2014. Thereafter, Zaki became registered with Janney Montgomery Scott LLC where he is presently employed.

Under the FINRA rules, unauthorized discretionary trading is not allowed. NASD Rule 2510(b) provides that registered representative may exercise discretionary power in a customer’s account unless such customer has given prior written authorization and the account has been accepted by the firm. FINRA has stated that subsequent ratification of the transaction by the customer does not excuse this violation. In addition, FINRA Rule 2010 requires members and associated persons to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.

FINRA Fines Merrill Lynch For Overcharging Mutual Fund Customers

July 17, 2014 | by Staff Attorney

On June 16, 2014, the Financial Industry Regulatory Authority (FINRA) announced that it fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million for charging excessive fees relating to the sales of mutual funds in retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to those customers who had been wrongfully overcharged. The mandated restitution was in addition to the $64 million Merrill Lynch has already paid to compensate disadvantaged investors.

Mutual funds offer several different classes of shares. Each class has separate and distinct sales charges and fees. Generally, Class A shares have the lowest fees as compared to Class B and Class C. Class A shares, however, charge customers an upfront sales charge. This initial sales charge, however, is usually waived for retirement accounts, with some funds also waiving these fees for charities.

Merrill Lynch’s retail platform offers a variety of different mutual funds. Most of those funds explicitly offered to waive the upfront sales charges and disclosed those waivers in their respective prospectuses. According to FINRA, despite these disclosures, Merrill Lynch did not actually waive the sales charges many times since at least January 2006. On various occasions, Merrill Lynch charged the full sales charges to certain customers who qualified for the waiver. In doing so, Merrill Lynch allegedly caused nearly 41,000 small business retirement plan accounts and 6,800 charities and 403(b) retirement accounts for ministers and public school employees to pay sales charges when purchasing Class A shares. Those that did not want to pay the fee for the Class A shares were forced to purchase other share classes that needlessly exposed them to greater ongoing costs and fees. According to FINRA, Merrill Lynch became aware of the fact that its small business retirement plan customers were being overcharged, but yet they continued to sell the costly mutual fund shares and never reported the issue to FINRA for over five years.

Unsuitable IRA Investments On the Rise – Part III

June 25, 2014 | by Staff Attorney

This article continues our prior posts concerning a recent report by Bloomberg that noted the rise in rollovers from 401(k) plans into IRA accounts. The article pointed to concerns by regulatory agencies and investors concerning the suitability of the investment choices being recommended by brokers soliciting rollovers.

In another example, a mechanical engineer for Hewlett-Packard in Puerto Rico, rolled over $150,000 from a 401(k) to an IRA with UBS. His broker Luis Roberto Fernandez Diaz, recommended Puerto Rico municipal bond funds that contained a 3 percent upfront sales fee and 1 percent annual expenses. Fernandez’s brokercheck lists 17 customer disputes from 2009 through 2014. As we have reported on multiple occasions, our firm represents investors in claims against UBS concerning the firm’s practices in overconcentrating many of their client’s assets in these speculative highly leveraged bond funds. Those articles can be found here, here, and here.

In the case of an IRA, it makes little sense for a financial adviser to recommend investing in municipal bonds because the bonds main advantage is tax avoidance which already is a benefit of investing in an IRA. The investor interviewed by Bloomberg, says that the bonds plunged in value because of the deteriorating finances of Puerto Rico and are only worth $90,000.

Broker Jeffrey Schrader Barred Over Selling Away Allegations

May 27, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Jeffrey Schrader (Schrader) concerning allegations that the broker engaged in private securities transactions and failed to cooperate with FINRA’s investigation.

Schrader entered the industry in June 1998. From November 2005, until March 2009, Schrader was associated with Merrill Lynch, Pierce, Fenner & Smith Inc. In March 2009, Schrader became associated with Western International Securities, Inc. (Western). Schrader conducts securities transactions on through his own business, Schrader Wealth Management.

FINRA found that between 2009 and 2010 Schrader, while associated with Western, engaged in over $145,000 worth of private securities transactions with three investors without providing written notice or receiving approval from Western. FINRA alleged that two of the nine investors were customers of Western at the time that their investment was made away from the firm.

Marylin Meyers Formerly of Allstate Financial Services Suspended Over Selling Away Activities

April 11, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Marylin T. Meyers (Myers) $20,000 and barred her for two years concerning allegations between September 2009, and February 2011, she participated in a series of private securities transactions totaling approximately $1,000,000 without notifying her firm, Allstate Financial Services, LLC (Allstate) or obtaining the firm’s written approval. FINRA alleged that Meyers recommended that five investors invest in On The Edge and she helped facilitate their purchases of On the Edge Notes. On The Edge is a California based company formed to be a supplier of consumer goods such as tents, folding chairs, wagons, and promotional items related to retailers. To date, On The Edge has failed to repay the principal and interest due to the investors.

Meyers first became registered with FINRA in 1986 with Merrill Lynch, Pierce, Fenncr & Smith Incorporated. In 2001, Meyers became associated with Metlife Securities Inc. Thereafter, in July 2004, Meyers joined Allstate until her termination on May 17, 2012.

The allegations against Meyers are typical of a “selling away” violation. A broker sells away from their brokerage firm when they solicit securities that were not approved by the broker’s affiliated firm or recorded on the firm’s books and records. NASD Rule 3040 requires an associated person to provide written notice to the firm prior to participating in any private securities transaction. An associated person is prohibited from participating in any manner in the private securities transaction without the Firm’s approval. Under FINRA Rule 3010, brokerage firms are required to supervise their brokers and implement supervisory procedures reasonably designed to detect and prevent violations of NASD Rule 3040.

Ronald Anglin Investigated by the SEC Over Charges of Securities Fraud

January 15, 2014 | by Staff Attorney

The Securities and Exchange Commission (SEC) instituted administrative proceedings against broker Ronald Gene Anglin (Anglin), formerly of Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), on allegations that Anglin engaged in securities fraud by forging letters of authorization from a Merrill Lynch customer to be sent by mail to addresses designated by Anglin.

From 2004 through October 2008, Anglin was a registered representative of Citigroup Global Markets, Inc. Thereafter, Anglin was a registered representative of dually registered broker-dealer and investment adviser Merrill Lynch until May 2011. Anglin also was an investment adviser representative for Merrill Lynch. Anglin is 38 years old and is a resident of Canyon Country, California.

On October 4, 2012, Anglin pleaded guilty to one count of mail fraud before the United States District Court for the Central District of California in U.S. v. Ronald Gene Anglin, 2:12-CR-00232-SJO. On March 25, 2013, Anglin was sentenced to three years of probation including 27 months in home detention, and ordered to make restitution in the amount of $73,000.

Former Merrill Lynch Broker David Zeng Barred From the Financial Industry

November 21, 2013 | by Staff Attorney

David G. Zeng (Zeng) was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that the broker failed to respond to the regulator’s inquiries concerning at least a dozen customer disputes initiated against the broker. The customer complaints against Zeng include claims of misrepresentations, fraud, unsuitable investments, and unauthorized trading concerning stock investments.

It is also possible that Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), Zeng’s employing firm during the majority of the customer complaints, failed to properly supervise Zeng’s securities activities. Under FINRA Rule 3010, a brokerage firm is obligated to properly monitor and supervise its employees. The rule states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…” Thus, brokerage firms are responsible for monitoring a broker’s investment recommendations to clients, outside business activities, and representations to investors.

Zeng became registered with FINRA in 2001 at Morgan Stanley Dean Witter Inc until June 2005. From June 2005 until May 2009, Zeng was associated with UBS Financial Services, Inc. Thereafter, from April 17, 2009, until December 20, 2011, Zeng was employed by Merrill Lynch and worked out of the firm’s Santa Fe, New Mexico office.

Former Waddell & Reed and Merrill Lynch Stockbroker Fined and Suspended for Misconduct

October 6, 2013 | by Staff Attorney

FINRA has fined Maryland financial adviser and investment counselor Jill Meredith Carr $10,000 and suspended her for two years from the securities industry. According to the letter of acceptance, waiver and consent (“AWC”) submitted by Ms. Carr, she entered the securities industry in 2007 with Merrill Lynch until her termination for “failure to meet performance standards” in 2008. She then worked for Waddell & Reed, Inc until her termination in July 2012 when she was terminated for forging customer signatures. Brokers and investment advisers the forge customer signatures constitute a form of securities fraud.

According to the AWC, from December 2011 through June 2012, Carr forged signatures of at least 15 Waddell & Reed customers on at least 24 forms. Carr also altered information on other account forms after the forms were signed by the customers. Specifically, in connection with firm-required suitability updates, Carr forged the signatures of at least six customers on at least 12 update forms without their knowledge, consent, or authorization. In addition, she forged at least five additional signatures, allegedly as an accommodation to those customers. By forging the signatures, FINRA found that Carr violated FINRA Rule 2010. Finra Rule 2010 states that “A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.”

Pursuant to FINRA Rules, brokerage firms rely on customers’ stated objectives and profiles to determine whether the investment objectives and the broker recommendations are consistent. It is important that investors and their brokers fully understand these objectives. It is imperative that these objectives be properly stated. Here, FINRA’s fine and suspension reflects the importance of these documents.

Turker Ergun Barred From Financial Industry for Alleged Misappropriation of Customer Funds

September 5, 2013 | by Staff Attorney

Turker Ergun (Ergun) settled charges brought by the Financial Industry Regulatory Authority (FINRA) concerning the sale of private securities and misappropriating customer funds by accepting a bar from the securities industry.

From January 2004 until December 2008, Ergun was associated with WaMu Investments, Inc. From December 2008 through October 2009, Ergun was associated with Banc of America Investment Services, Inc. After Banc of America, Ergun was associated with Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) until September 2012.

Ergun’s public records do not disclose any businesses, other than his previous brokerage employers, that he was involved with. However, in August 2012, Merrill Lynch filed a U-5 termination form reporting that Ergun was discharged following an internal review concerning conduct involving recommending a customer’s purchase of securities not offered by the Merrill Lynch and accepting personal loans from a customer without firm approval.