securities attorney

Broker Dealer Financial Services Corp. Sanctioned Over Non-Traditional ETF Practices

July 9, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) entered into an agreement whereby the regulatory fined Broker Dealer Financial Services Corp. (BDFS) concerning allegations that between March 2009 and April 2012, BDFS failed to establish and maintain a supervisory system, including written procedures, that was reasonably designed to ensure that the firm’s sales of leveraged or inverse exchange-traded funds (Non-Traditional ETFs) complied with the securities laws.

BDFS is a FINRA member firm since 1979 and headquartered in West Des Moines, Iowa. The firm employs about 270 registered representatives located in more than 130 branch offices throughout the country.

According to FINRA, from March 2009 to April 2012, BDFS failed to implement a supervisory system, including written procedures, reasonably designed to ensure the suitability of Non-Traditional ETF sales. For instance, FINRA issued guidance that specifically dealt with issues related to the sales and supervision of Non-Traditional ETFs. FINRA’s guidance requires a firm to have a reasonable basis for believing that a product is suitable for any customer before recommending any purchase of that product. Part of having a reasonable basis for making the recommendation includes understanding the terms and features of the Non-Traditional ETFs being offered including how they are designed to perform, how they achieve that objective, and the impact that market volatility, the ETF’s use of leverage, and the customer’s intended holding period.

Broker Lawrence LaBine Accused of Selling Unsuitable Alternative Investments

July 6, 2015 | by Staff Attorney

Gana Weinstein LLP, a securities law firm, is investigating customer complaints against Lawrence Labine, a broker located in Scottsdale, Arizona. Gana Weinstein LLP’s investigation is on the heels of regulatory investigations into LaBine’s conduct.

On April 28, 2015, the Department of Enforcement of Financial Industry Regulatory Authority filed a complaint against Mr. Lawrence LaBine. According to the Complaint, from April 2009 through August 2009, LaBine sold senior debentures (Series D) issued by Domin-8, a company that developed software for real estate management companies. During that period, LaBine was registered with DeWaay Financial Network, a FINRA regulated broker-dealer. The Complaint alleges the LaBine made fraudulent misrepresentations and omissions of material fact to five customers in connection with the sale of the Series D senior debentures.

At the time of those sales, LaBine was receiving regular updates about Domin-8’s poor financial condition from senior management at Domin-8 and the company’s lead investment banker, and had arranged to receive compensation and other valuable consideration from the company – such as a seat on Domin-8’s board of directors – for meeting Series D fundraising targets he had arranged with the company. The information about Domin-8’s financial condition and LaBine’s personal incentive to sell Series D was material to the investors, yet LaBine failed to disclose that information to his customers according to the Complaint.

Broker Investigation: Advisor Mark Gardner

July 1, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Mark Gardner (Gardner) has been the subject of at least nine customer complaints, one firm termination, and one regulatory action. Customers have filed complaints against Bell alleging a number of securities law violations including that the broker made unsuitable investments among other claims. Most of these claims involve recommendations in equities.

Gardner entered the securities industry in 1977. Since 2008, Gardner has been associated with Oppenheimer & Co. Inc. until November 2008. From December 2010 until July 2012, Gardner was associated with Lake Forest Securities LLC. Currently, Gardner is associated with J.H. Darbie & Co., Inc.

In the regulatory action that was brought against Gardner, FINRA alleged that on or about November 5, 2008, Gardner executed three equity securities purchase transactions to open an investment account on behalf of a corporation without that corporation’s knowledge. FINRA found that Gardner accepted the purchase orders from a person who did not have authorization to act on behalf of the corporation. In addition, FINRA found that Gardner failed to verify whether the individual who placed the purchase orders had been granted authorization by the corporation. The transactions in question totaled $2,203,020.

Broker Spotlight: Ellwood Jones’ Investment Recommendations

June 26, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Ellwood Jones (Jones) has been the subject of at least four customer complaints. Customers have filed complaints against Bell alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations and false statements, among other claims. Some of these claims involve recommendations in private placements such as hedge funds, insurance products, and direct participation programs (DPPs).

Since 1997 Jones was associated with NFP Advisor Services (NFP) until March 2011. According to Jones’ BrokerCheck records, Jones has a number of other disclosed outside businesses including Capital Region International, LLC, A.B.R.C., and Synergex International Corporation.

One customer complaint against Jones alleged damages of $10,000,000 resulting from negligence and misrepresentations concerning hedge funds. In another action, the customer alleged misrepresentations in relation to the customer’s participation in a welfare benefit plan. Finally, in a third customer complaint the customer alleged misrepresentations in connection with the sale of insurance and other financial transactions involving alternative investments and limited partnership interests.

Former Wells Fargo Broker Douglas Melzer Barred Over Private Securities Transactions

June 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Douglas Melzer (Melzer) concerning allegations that between November 2011, and May 2012, while registered with Wells Fargo Advisors, LLC (Wells Fargo), Melzer solicited four customers to invest $2,000,000 in an outside investment without providing his firm notice. According to FINRA Melzer was compensated at least $26,500. Unapproved sales activities and transactions are referred to as “selling away” in the industry.

Melzer entered the securities industry in 2008 when he became registered with Wells Fargo. Wells Fargo terminated Melzer’s registration in January 2013 in connection with his unapproved sales activity. Melzer was registered with Park Avenue Securities LLC from March 2013, through January 2015.

The conduct alleged against Melzer is a “selling away” securities violations. 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 the brokerage firm claim ignorance of their advisor’s activities, under the FINRA rules, a brokerage firm owes a duty 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.

JHS Capital Advisors Broker Mark Weindling Barred Over Forging Signatures in Deceased Customer’s Account

June 19, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Mark Weindling (Weindling) concerning allegations that Weindling failed to respond to the regulator’s requests to provide information and documents concerning the an investigation into claims that Weindling effected transactions within the account of a deceased customer.

Weindling entered the securities industry in 1982. From October 2007 until April 2012, Weindling was associated with Paulson Investment Company, Inc. Thereafter, in April 2012, Weindling became registered with JHS Capital Advisors, LLC (JHS). On May 16, 2014, JHS filed a Form U5 that terminated Weindling’s registration with JHS.

On the form, JHS reported that Weindling effected transactions within the account of a deceased customer and that he was aware of journal requests containing the forged signature of the deceased customer. Thereafter, FINRA sought to investigate JHS’s statements by sending Weindling requests for information. On January 27, 2015, FINRA sent a letter to Weindling’s counsel requesting that Weindling provide documents and information. Despite, multiple requests for information, Weindling acknowledged receipt of FINRA’s requests but confirmed that he did not intend to provide the requested documents and information.

FINRA Alleges National Securities Corporation Misled Customers On Fees

June 18, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) entered into an agreement whereby the regulatory fined National Securities Corporation (NSC) while alleging that in 2013, NSC acted as the exclusive placement agent for two private placements of its parent company, National Holdings Corporation (National Holdings). The FINRA rules require that offerings of unregistered securities issued by a control entity of a member firm disclose to investors the selling compensation to be paid to the member in connection with the offering. FINRA found that while NSC generally disclosed to investors that it would receive compensation in connection with the sale of both private placements the firm failed to disclose in writing to investors the amount of selling compensation it would receive.

NSC has been registered with FINRA as a since 1947 and engages in a number of businesses, including retail brokerage, investment banking, and investment advisory. NSC has 760 registered representatives in 140 branch offices. Our law offices have been tracking a number of regulatory and customer complaints involving NSC and its brokers including:

National Securities Broker Vito Balsamo Under FINRA Investigation Over V.W. Industries Sales

First Allied Securities Broker Daniel Grieco Sanctioned Over Non-Traditional ETF Sales

June 15, 2015 | by Staff Attorney

The 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.

Broker Adamson Wright Alleged to Mismarked Options Trades

June 10, 2015 | by Staff Attorney

According to broker Adamson Wright’s (Wright) Financial Industry Regulatory Authority (FINRA) BrokerCheck records the representative was recently sanctioned concerning allegations that from May 2010 through February 2011, he effected approximately 249 mismarked order tickets as being “unsolicited” orders when the trades were “solicited” causing the firm to maintain inaccurate books and records.

Respondent Wright entered the securities industry in 1995 with UBS Financial Services Inc. until January 2010. In January 2010, Wright became registered with Ameriprise Financial Services, Inc. (Ameriprise) and then was terminated from Ameriprise in June 2011. In July 2011, Wright became registered with InterCarolina Financial Services Inc.

In addition, at least five customer complaints have been filed against Wright alleging unsuitable investments and unauthorized discretionary trading. These complaints include allegations involving unsuitable options trading. Two clients alleged an unsuitable purchase of China Agritech (CAGC). The number of complaints made by investors against Wright is relatively large by industry standards. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Far fewer brokers have multiple customer complaints approaching the number of complaints made against Wright. Brokers must disclose different types of events, not necessarily all of which are customer complaints. These disclosures can include IRS tax liens, judgments, and even criminal matters.

Global Arena Capital Broker Nick Morrisey Suspended By FINRA

June 9, 2015 | by Staff Attorney

According the BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) the agency suspended former Global Arena Capital Corp (Global Arena) broker Niaz Elmazi a/k/a Nick Morrisey (Morrisey) concerning allegations that Morrisey failed to respond to FINRA’s requests for information.

Morrisey has a history of regulatory complaints and also has one customer complaint on his record. In 2013, the state of Arkansas brought action against Morrisey alleging that in July 2012, Morrisey contacted an Arkansas resident via a cold call in order to recommend the purchase of a corporate bond issued by Verso Paper Corp (Verso). However, Morrisey was unaware that the Arkansas resident was actually employed as a senior securities examiner with the Arkansas securities department and that he had contacted the examiner on an office phone during business hours. During the conversation it was alleged by Arkansas that Morrisey made untrue and false statements when recommending the Verso bond. In addition, Arkansas alleged that Morrisey had no reasonable grounds for believing that the recommendation was suitable for the investor prior to making the recommendation.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.