mutual fund switches

Gana LLP Represents Seven Former Clients of Sean Sheridan Against JP Turner (Part II)

August 18, 2014 | by Staff Attorney

Continuing our prior post, the law office of Gana Weinstein LLP recently filed securities arbitration case on behalf of a group of seven investors against J.P. Turner Company, L.L.C. (JP Turner), Ridgeway & Conger, Inc. (Ridgeway), and Newbridge Securities, Corp. (Newbridge) concerning allegations that Sean Sheridan (Sheridan) churned claimants’ accounts through the use of excessive and unreasonable mutual fund switches, among other claims.

In addition to specifically finding that Sheridan committed fraud and made unsuitable recommendations in Claimants accounts, FINRA also found that JP Turner general sales practice with regard to non-traditional ETFs and mutual funds was inappropriate. On December 4, 2013, FINRA released a Letter of Acceptance, Waiver, and Consent (AWC) concerning JP Turner’s non-traditional ETFs sales practices and excessive mutual fund switches and fined the firm $707,559.53. FINRA v. J.P. Turner & Company, L.L.C., AWC No. 2011026098501 (FINRA, January 2013). According to FINRA’s investigation, JP Turner failed to establish and maintain supervisory systems related to leveraged and inverse ETF sales and mutual fund purchases.

In another churning related action, on November 8, 2013, the SEC issued a similar order against JP Turner finding that Michael Bresner (Bresner), as head of supervision, failed to properly supervise firm employees. The SEC Order found that JP Turner employed an Account Activity Review System (AARS) to monitor customer accounts for signs of churning. The SEC found that the average number of accounts flagged by the AARS system for churning was shockingly high for each quarter in 2008-2009 and was between 300 and 325 accounts and included more than 100 JP Turner registered representatives. In sum, the SEC discovered that no one at JP Turner was willing to take responsibility in determining whether churning took place in a client’s account – a problem that directly affected the claimants in this case.

Gana LLP Files Complaint on Behalf of Seven Former Clients of Sean Sheridan Against JP Turner

August 15, 2014 | by Staff Attorney

The law office of Gana Weinstein LLP has recently filed securities arbitration case on behalf of a group of seven investors against J.P. Turner Company, L.L.C. (JP Turner), Ridgeway & Conger, Inc. (Ridgeway), and Newbridge Securities, Corp. (Newbridge) concerning allegations that the firms failed to supervise and prevent Sean Francis Sheridan (Sheridan) from churning claimants’ accounts through the use of excessive and unreasonable mutual fund switches and generally making unsuitable recommendations to the clients. Both FINRA and the SEC have brought actions against JP Turner and the firm’s brokers on numerous and repeated occasions concerning the firm’s failure to protect its clients from the type of unscrupulous sales practices alleged in the complaint

As discovered by FINRA, from at least January 2007, through December 2009, Sheridan recommended approximately 205 unsuitable mutual fund switch transactions in the accounts of eight customers, including some of the Claimants in the filed case. See Department of Enforcement v. Sean Francis Sheridan, Disciplinary Proceeding No. 2009019209204, (FINRA, Feb. 12, 2013) (Sheridan Action). FINRA found that Sheridan recommended the unsuitable mutual fund switches in customers’ accounts and as a result of Sheridan’s activities in claimants’ and other customers’ accounts, FINRA barred Sheridan from the financial industry.

FINRA found that Sheridan only recommended Class A mutual fund shares that require customers to pay sales charges with each new purchase when Sheridan intended to effect the switches on a short-term basis. FINRA found that the average holding period for the mutual funds Sheridan sold was just four to five months. FINRA found that Sheridan exclusively recommended Class A mutual fund shares that charged front-end sales loads of 4-5% with each new purchase, an enormous cost. FINRA also found that Sheridan would randomly switch customers between fund categories such as Growth, Natural Resources, Gold, Emerging Markets, Science and Technology without a reasonable basis for doing so.

JP Turner Sanctioned By FINRA Over Non-Traditional ETF Sales and Mutual Fund Switches

March 20, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) ordered J.P. Turner & Company, L.L.C. (JP Turner) to pay $707,559 in restitution to 84 customers for sales of unsuitable leveraged and inverse exchange-traded funds (Non-Traditional ETFs) and for excessive mutual fund switches. The current fine and is just one of several sanctions that regulators have brought against JP Turner brokers concerning the firms sales and supervisory practices.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, was quoted in the settlement stating that “Securities firms and their registered reps must understand the complex products they are selling and the risks inherent to the products, and be able to determine if they are suitable for investors before recommending them to retail customers.”

As a background, Non-Traditional ETFs are novel products that have grown significantly in popularity since 2006. By 2009, over 100 Non-Traditional ETFs existed in the market place with total assets of approximately $22 billion. A leveraged ETF seeks to deliver two or three times an index or benchmark return the ETF tracks. Non-Traditional ETFs can also be “inverse” or “short” meaning that the investment returns the opposite of the performance the index or benchmark. While both ETFs and Non-Traditional ETFs track indexes, Non-Traditional ETFs contain significant risks that are not associated with traditional ETFs. Non-Traditional ETFs have additional risks of daily reset, use of leverage, and compounding.

JP Turner Supervisor Sanctioned Over Failure to Supervise Mutual Fund Switches

March 13, 2014 | by Staff Attorney

As we have reported, claims of churning, excessive trading, and failure to supervise have plagued J.P. Turner & Company, L.L.C. (JP Turner) brokers, among other misconduct. Recently, the Financial Industry Regulatory Authority (FINRA) imposed sanctions against Herman Mannings (Mannings), a JP Turner supervisor, concerning allegations that from February 2009, through October 2011, Mannings failed to reasonably supervise the activities of a registered representative to prevent unsuitable mutual fund switching.

On August 20, 2002, Mannings became registered with JP Turner. On February 10, 2003, Mannings was registered as a General Securities Principal at JP Turner. FINRA’s supervisory rule provides that each brokerage firm must establish, maintain, and enforce written procedures to supervise the types of business it engages in. Supervision of registered representatives, registered principals, and other associated persons must be reasonably designed to achieve compliance with applicable securities laws and regulations.

FINRA found that from February 2009, through October 2011, Mannings was an Area Vice President for JP Turner and his responsibilities included the supervision of at least 30 branch offices and as many as 60 representatives. According to FINRA, a registered representative referred to as only by the initials “LG” was one of the representatives that Mannings supervised. FINRA found that LG effected approximately 335 unsuitable mutual fund switches in the accounts of 54 customers without having reasonable grounds for believing that such transactions were suitable for those customers.