securities attorney

Barclays Capital Fined $3.75 Million Regarding Record Retention Failures

April 8, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined Barclays Capital Inc. (Barclays) $3.75 million for systemic failures relating to the failure to preserve electronic records, emails, and instant messages in the manner required for a period of at least 10 years. The retention of electronic correspondence and records is critical for the proper supervision of brokerage activities. Without a proper record retention system, brokerage firms are essentially blind to certain types of securities misconduct.

Federal securities laws and FINRA rules require that business electronic records must be kept in non-rewritable, non-erasable format — also referred to as “Write-Once, Read-Many” or “WORM” format — to prevent alteration. The Securities and Exchange Commission (SEC) has stated that a firm’s books and records are the primary means of monitoring compliance with the securities laws.

FINRA found that from at least 2002 to 2012, Barclays failed to preserve many of its required electronic books and records—including order and trade ticket data, trade confirmations, blotters, and account records in WORM format. FINRA found that Barclays retention failures were widespread and included all of the firm’s business areas. Thus, FINRA alleged that Barclays was unable to determine whether all of its electronic books and records were maintained in an unaltered condition.

Are Your Investments Appropriate for You?

March 17, 2014 | by Staff Attorney

Most investors know that their financial advisor cannot misrepresent the risks and rewards of investments. However, many investors do not realize that all brokers have an obligation to deal fairly with investors by only recommending suitable investments or investment strategies. All sales efforts are judged by the ethical standards of Financial Industry Regulatory Authority (FINRA) that sets industry wide investment standards. The “suitability rule” contains three primary obligations: reasonable-basis, customer-specific, and quantitative suitability.

Reasonable-basis suitability means that the broker must believe, based on appropriate research and due diligence, that the product or strategy being recommended is suitable for at least some investors. Thus, FINRA recognizes that there are some investment products and strategies that are so risky and likely to fail that they would be inappropriate for all investors. Other investments may contain risks characteristics that are only appropriate for a very small group of investors or for specialized purposes.

Customer-specific suitability requires the broker to believe that the recommended investment strategy is suitable for that particular customer. The advisor must take into consideration the customer’s risk tolerance, investment objectives, age, financial circumstances, other investment holdings, experience, and other information provided to the broker.

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.

FINRA Bars Gary Chackman Over Allegations of Unsuitable Non-Traded REIT Sales

March 11, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) imposed a permanent bar against Gary J. Chackman (Chackman) concerning allegations that he recommended unsuitable transactions in the accounts of at least eight LPL Financial, Inc. (LPL) customers by over-concentrating the customers’ assets in real estate investment trusts (REITs). Additionally, FINRA found that Chackman falsified LPL documents to evade the firm’s supervision by submitting dozens of “alternative investment purchase” forms that misrepresented customers’ liquid net worth. FINRA found that by submitting falsified documents Chackman increased his customers’ accounts’ concentration in REITs and other alternative investments beyond the firm’s maximum allocation limits.

From December 2001, through March 2012, Chackman was registered through LPL. On March 2012, LPL filed a Uniform Termination Notice for (Form U5) stating that Chackman was terminated for violating firm policies and procedures regarding the sale of alternative investments. From March 2, 2012 through April 3, 2013, Chackman was registered through Summit Brokerage Services, Inc. (Summit). In April 2013, Summit filed a Form U5 terminating Chackman stating that the broker was operating a business out of an unregistered location. According to Chackman’s BrokerCheck there have been at least five customer complaints filed against the broker. Many of the complaints involve allegations of unsuitable REITs

According to FINRA, from July 2009 to February 2012, Chackman recommended REITs and other alternative investments to at least eight of his LPL customers. FINRA found that Chackman purchased the REITs at periodic intervals in each of their accounts. For example, in one customer’s account Chackman made seven purchases of a particular REIT, each for $75,000 over six months. After twelve months, FINRA found that 35% of the customer’s assets and more than 25% of her liquid net worth were invested in REITs and other alternative investments. In order to evade LPL’s limitation on the concentration of alternative investments in customers’ accounts, FINRA found that Chackman misidentified his customers’ purported liquid net worth on LPL forms. FINRA found that over sixteen months and on seventeen alternative investment purchase forms Chackman tripled the customer’s purported liquid net worth.

FINRA Proposes Rule Addressing Valuation Issues of REITs and DPPs

February 26, 2014 | by Staff Attorney

FINRA has recently proposed a rule change that would amend the procedures for valuing Direct Participation Programs (DPPs) and Real Estate Investment Trusts (REITs). The rule change is intended to provide greater clarity to investors concerning the value of these investments, an extremely contentious issue.

A REIT is a security that invests in different types of real estate such as commercial properties, home mortgages, or other specialty niche real estate markets (e.g., golf courses, malls, hotels). REITs can be publicly traded or privately held. Publicly traded REITs can be sold on an exchange and have the liquidity traditional associated with other liquid stocks and bonds. Non-traded REITs are sold only through broker-dealers and are illiquid.

Increased volatility in the stock market in recent years led some investment advisors to increasingly recommend REITs as a purported stable investment during unstable times. However, claims of stable REITs have been shown to be false. The stability of non-traded REITs only exists because brokerage firms and issuers have control over the value of the security listed on an investor’s account statements and not because the security will actually sell at that value or is stable over time.

SEC Staff Issues Risk Alert on Alternative Investments Due Diligence

February 15, 2014 | by Staff Attorney

The Office of Compliance Inspections and Examinations (OCIE), in coordination with other Securities and Exchange Commission (SEC) staff released guidance and observations concerning investment advisers due diligence process for selecting alternative investments. The OCIE has observed that investment advisers are increasingly recommending alternative investments to their clients in lieu of other investment options. Investment advisers are fiduciaries and must act in their clients’ best interests. Since an investment adviser exercises discretion to purchase alternative investments on behalf of clients the adviser must determine whether the investments: (i) meet the clients’ investment objectives; and (ii) are consistent with the investment principles and strategies that were disclosed to the client by the manager to the adviser.

Alternative investments include a variety of non-traditional investments including hedge funds, private equity, venture capital, real estate, and funds of private funds. The commonality amongst alternative investments is that they employ unique investment strategies and assets that are not necessarily correlated to traditional stock and bond indexes.

The OCIE staff examined the due diligence process processes of advisers to pension plans and funds of private funds in order to evaluate how advisers performed due diligence, identify, disclose, and mitigate conflicts of interest, and evaluate complex investment strategies and fund structures. The OCIE noted indicators that led advisers to conduct additional due diligence analysis, request the manager to make appropriate changes, or to reject the manager or the alternative investment.

How to Find An FINRA Securities Attorney to Assist in Your Investment/Broker Case

December 10, 2013 | by Staff Attorney

You’ve gone over your account statements and start to suspect that your broker hasn’t invested your assets appropriately. What should you do? The first step is to compile all of your documents and correspondence with your broker. You should collect your monthly account statements, opening account documents, and any written communication with your brokerage firm for starters. This will make it easier to assess your case.

Next, you should consult with an attorney. While not required, when you have securities claim, brokerage firms rarely settle claims with individuals without the assistance of an attorney. Most securities claims must be brought in arbitration before the Financial Industry Regulatory Authority (FINRA), the broker-dealer regulator. A securities attorney can represent you during the arbitration or mediation proceedings and provide direction and advice on how to present your claim. Even if you do not choose to hire an attorney, brokerage firms usually hire counsel to represent them. If you cannot afford an attorney, many law firms offer contingency fee arrangements.

The SEC provides the following advice on finding an attorney who specializes in resolving securities complaints. If you need help in finding a lawyer who specializes in resolving securities complaints, you may want to try the following: