securities attorney

FINRA Bars Former Ameriprise Broker Ted Cadwallader Concerning Private Securities

March 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Ted Cadwallader (Cadwallader) concerning allegations that Cadwallader engage in outside business activities including the sales of private securities. When outside business activities also include the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes FINRA to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In August 2014, FINRA alleged that it pursued an investigation into allegations that Cadwallader engaged in undisclosed outside business activities. On November 21, 2014, FINRA requested that Cadwallader appear and provide testimony. FINRA stated that Cadwallader told the regulator that he would not provide information or cooperate in the investigation. Consequently, he was barred from the industry

According to Cadwallader’s brokercheck he has disclosed outside business activities including ownership of The Faith Based Coach. Cadwallader is also on the board of directors of Pacer BioScience and a board member of EarthEnergy Technologies LLC. It is unclear at this time what organization or product Cadwallader was involved with or selling that FINRA was investigating.

World Equity Group Alleged to Have Sold Private Placements Without Proper Due Diligence Part III

March 20, 2015 | by Staff Attorney

This post continues our firm’s investigation concerning the recent allegations brought by The Financial Industry Regulatory Authority (FINRA) sanctioning brokerage firm World Equity Group, Inc. (World Equity) concerning at least seven different allegations of supervisory failures that occurred between 2009 through 2012. FINRA’s allegations include failures to implement an adequate supervisory system and concerned both internal processes at the firm and procedures and in the handling of customer accounts in the areas of suitability of transactions in non-traditional ETFs, private placements, and non-traded REITs.

FINRA requires firms preserve for at least 6 years all communications relating to its business and to provide for ways to store electronic media. FINRA found that in May 2011, the World Equity opened a new branch office at 311 W. Monroe Street, Chicago, Illinois. FINRA alleged that errors in the process of transferring several representatives at that branch to World Equity emails of the representatives were not maintained and preserved before April 13, 2012. In addition, FINRA found that the firm failed to maintain business related emails for ten representatives who used their personal emails for business purposes.

FINRA also alleged that World Equity failed to conduct due diligence in connection with private placements offering from July 2009, through January 2012. During that time FINRA alleged that the firm conducted at least eight private placements including a product called Newport Digital Technologies, Inc. (NDT) and sold more than $6 million in these offerings. In addition, FINRA found that from August 23, 2010 to July 17, 2012 the firm conducted at least five Non-Traded REIT offerings and sold more than $3 million in these offerings.

World Equity Group Supervisory Failures Explored Part II

March 18, 2015 | by Staff Attorney

As we previously reported, The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm World Equity Group, Inc. (World Equity) concerning at least seven different allegations of supervisory failures that occurred between 2009 through 2012. These failures included failures to implement an adequate supervisory system reasonably designed to detect and prevent potential rule violations concerning both internal processes and procedures and in the handling of customer accounts in the areas of suitability of transactions in non-traditional ETFs, private placements, and non-traded REITs.

FINRA alleged that World Equity failed to implement an adequate system to ensure the suitability of Non-Traditional ETFs. As a background, Non-Traditional ETFs are registered unit investment trusts or open-end investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark, index, commodity, or other instrument. Shares of ETFs are typically listed on national exchanges and trade at established market prices. Non-Traditional ETFs are different from traditional ETFs in that they return a multiple of the performance of the underlying index or benchmark or the inverse performance.

Non-Traditional ETFs may use swaps, futures contracts, and other derivative instruments in order to create leverage to achieve these objectives. In addition, most Non-Traditional ETFs are designed to achieve their stated objectives in one trading session. Between trading sessions the fund manager generally rebalances the fund’s holdings in order to meet the fund’s objectives. For most Non-Traditional ETFs the rebalancing happens on a daily basis. Further, because the correlation between a Non-Traditional ETF and its linked index or benchmark is inexact there is typically tracking error between a fund and its benchmark becomes compounded over longer periods of time. In addition, the tracking error effect becomes more pronounced during periods of volatility in the underlying index or benchmark. FINRA advised brokerage firms in June 2009 due to the effect of compounding the performance of Non-Traditional ETFs over longer periods of time can differ significantly from the performance of their underlying index or benchmark during the same period of time and because of these risks and the inherent complexity of the products, FINRA advised broker-dealers and their representatives that the products are typically not suitable for retail investors who plan to hold them for more than one trading session.

FINRA Files Complaint Against Chris Fulco Over US Coal Corporation Transactions

March 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently filed a complaint against broker Chris Fulco (Fulco) concerning allegations that Fulco facilitated the sale of stock in US Coal Corporation, Inc. (US Coal), in numerous private securities transactions away from his firm, aslo known as “selling away” in the industry. FINRA alleged that Fulco received significant compensation for facilitating these transactions in the amount of $601,159. In addition, FINRA alleged that Fulco lied to FINRA about his involvement in these transactions by providing false sworn testimony that many of the wire transfers he received were not related to sales of US Coal shares but rather were payments for his role in transactions involving gold. Further, FINRA alleged that Fulco tried to encourage the primary seller of US Coal securities in the transactions, known by the initials “LF”, not to appear for his scheduled testimony or to testify falsely about the transactions in order to corroborate Fulco’s own false testimony. Finally, FINRA alleged that Fulco failed to timely disclose to FINRA a lien and civil judgment entered against him.

Fulco entered the securities industry in 1999. From June 2007 to June 2010, Fulco was registered with vFinance Investments, Inc. (vFinance). From July 2010 to February 2011, he was registered with Charles Morgan Securities, Inc. (Charles Morgan). Thereafter, from March 2011 to December 2011, he was registered with Caldwell International Securities, Inc. (Caldwell International). Finally, Fulco was registered with Chelsea Financial Services until November 8, 2013.

According to FINRA, in or around August 2009, LF engaged vFinance and another individual referred to as “PCA”, to help sell his shares in US Coal, a non-public company that produces coal in Appalachia. LF acquired US Coal shares through various entities in or around 2006 after helping found the company. In or around September 2009, FINRA alleged that vFinance approved Fulco facilitation of the sale of 300,000 shares of LF’s US Coal stock to a customer referred to by the initials “MM”, a vFinance customer.

FINRA Bars Douglas Melzer Concerning Aquatic Synthesis Unlimited Investments

March 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Douglas Melzer (Melzer) concerning allegations that Melzer participated in four private securities transactions when four of his Wells Fargo Advisors, LLC (Wells Fargo) customers invested $2,000,000 in a company called Aquatic Synthesis Unlimited (Aquatic Synthesis) through investment contracts that were not approved by Wells Fargo. According to FINRA, Melzer received at least $27,000 plus a 2.5% member interest in the investment as compensation for the recommendations. FINRA found that Melzer failed to provide written notice to the firm or receive approval prior to participating in the private securities transactions also known as “selling away” in the industry.

Aquatic Synthesis is a gas drilling waste water treatment facility located in Indiana County. According to news sources , in or about August 2013, after several spills and at least four violation orders, state environmental regulators have shut down the company’s operations. The state Department of Environmental Protection revoked Aquatic Synthesis’ permit and started to use the company’s $1 million bond to begin cleaning up the site.

In addition, FINRA found that in May 2011, the firm became aware that Melzer had requested that the broker codes on certain accounts be altered. These codes are used by Wells Fargo to determine the appropriate split of commissions between Melzer and his partners. By changing the code, Melzer caused commissions that should have been paid to one of Melzer’s partners to be attributed to Melzer without the partner’s knowledge.

Tapes Show That UBS Executives Forced UBS Brokers to Sell High Risk Bond Funds

March 13, 2015 | by Staff Attorney

As our firm has written about on numerous occasions, our firm is currently representing investors who purchased the UBS Puerto Rico closed-end-bond funds and other Puerto Rico municipal debt. The allegations our firm has brought on behalf of clients focuses on UBS’ sales tactics and recommendations to its customers to invest in 23 proprietary closed-end funds. The UBS Puerto Rico bond funds contained substantial risks that allegedly were downplayed by the firm’s advisors in order to generate sales. The funds’ risks included excessive amount of leverage, conflicts of interests, and omission of material information concerning the risky nature of certain of the funds’ holdings.

Many of our clients tell very similar tales about how they were recommended to invest as much as 100% of their portfolios in the UBS Puerto Rico closed-end funds, some through additional margin or bank loans. Now, thanks to an article published by Reuters, Puerto Rico bond fund investors are starting to learn why.

According to the article, a group of brokers came up with a list of 22 reasons why they wanted to stop selling the funds including the facts that the funds suffered from low liquidity, excessive leverage, oversupply and instability, and contained debt underwritten by UBS, a conflict of interests.

FINRA Bars Broker Gregg Beemer Concerning Private Securities

March 5, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Gregg Beemer (Beemer) concerning allegations that Beemer engage in outside business activities including the sales of private securities. When outside business activities also include the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes the regulator to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In December 2014, FINRA alleged that it pursued an investigation into allegations that Beemer engaged in undisclosed outside business activities. FINRA requested that Beemer appear and provide testimony. FINRA stated that Beemer emailed the regulator and stated that he would not provide information or cooperate in the investigation. Consequently, he was barred from the industry

According to Beemer’s brokercheck he has disclosed outside business activities including his insurance business called Associated Insurance Consultants, Inc. It is unclear at this time what organization or product that Beemer was involved with that FINRA was investigating.

FINRA Bars Broker David Blasik Concerning Allegations of Outside Business Activities

March 4, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker David Blasik (Blasik) concerning allegations that Blasik engage in outside business activities. When the outside business activity also includes the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes the regulator to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In December 2014, FINRA alleged that it pursued an investigation into allegations that Blasik engaged in undisclosed outside business activities. FINRA requested that Blasik provide documents and information to the agency. On December 30, 2014, FINRA stated that Blasik emailed the regulator and stated that he would not provide information or cooperate in the investigation.

According to Blasik’s brokercheck he has disclosed outside business activities including his tax preparation company. Blasik’s disclosures also reveal that he has been employed or involved with Commercial Metal Fabricators, Gateway Sports MGM, and DMH of Ohio, Inc. It is unclear at this time what organization Blasik was involved with that FINRA was investigating.

FINRA Sanctions Felt & Company Over Leveraged ETF Recommendations to Clients

February 16, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned brokerage firm Felt & Company (Felt) alleging that between January 2009, and September 2012, Felt failed to establish and supervisory system that was reasonably designed to ensure that sales leveraged or inverse exchange-traded funds (Non-Traditional ETFs) complied with all applicable securities laws.

Feltl is headquartered in Minneapolis, Minnesota, has approximately 114 registered representatives operating out of eight branch offices in Minnesota and Illinois. Felt derives revenue from securities commissions, underwriting, and investment company activity and has been a FINRA member since 1975. This most recent FINRA action is not the first time the regulatory has brought an action concerning issues of how Felt sells securities products to investors. As we previously reported, FINRA sanctioned Feltl and imposed a $1,000,000 fine concerning allegations that the firm, between January 2008, and February 2012. failed to comply with the suitability, disclosure, and record-keeping requirements engaging in a penny stock business.

In the most recent disciplinary action, FINRA alleged that the securities laws 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. In order to meet this requirement, a firm must understand the terms and features of the product including how they are designed to perform, how they achieve that objective, and the impact that market volatility on the product. In the case of Non-Traditional ETFs the use of leverage and the customer’s intended holding period are significant considerations in recommending these products.

FINRA Sanctions Former LPL Financial Broker Marc Baldinger Over Private CMO I/O Strip Sales

February 13, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned former LPL Financial LLC (LPL) broker Marc Baldinger (Baldinger) concerning allegations that between August 2010 and November 2012, Baldinger participated in private securities transactions (a/k/a “selling away”) without prior approval of LPL. In addition, FINRA alleged that in connection with these private securities transactions Baldinger failed to disclose his position as a managing partner of two limited liability companies.

Baldinger entered the securities industry on in 1989. Thereafter, from 2001 onward Baldinger was associated with LPL until Baldinger’s employment with LPL ended on November 24, 2012. On December 13, 2012, LPI, filed a Form U5 terminating Baldinger’s registration.

The FINRA rules require that all brokers report securities transactions to their employer. However, FINRA alleged that between August 19, 2010 and November 24, 2012, Baldinger introduced 20 customers to brokerage firms by the initials “RS” and “AFS” and purchased inverse strips of Government National Mortgage Association Interest Only bonds (GNMA I/Os). According to FINRA, the 20 clients invested a combined total of at least $12 million in GNMA I/Os. FINRA found that Baldinger received compensation for these investment recommendations of approximately $233,427.