Articles Tagged with Securities

When to Call a Securities Arbitration Attorney

Securities arbitration attorneys, sometimes referred to as investment attorneys, FINRA attorneys, or securities attorneys, should be contacted whenever an investor believes he or she has been a victim of broker misconduct. An investor may have cause to retain a securities fraud attorney to file a lawsuit or arbitration claim if his or her broker failed to create a suitable investment strategy. An investor may also want to contact an attorney case if a broker  made false or misleading statements about a security or omitted negative information about the risk of a security in order to persuade the investor to invest.

An investor may also want to seek legal counsel the investor’s broker bought or sold securities without prior consent (unauthorized trading) or excessively traded securities for the purpose generating commissions (churning).

A recent InvestmentNews article highlighted a proposed rule change that the Financial Industry Regulatory Authority (FINRA) has proposed to the Securities and Exchange Commission (SEC) that would allow arbitrators to direct cases to FINRA enforcement during the pendency of the case.  FINRA enforcement is responsible disciplining brokers and brokerage firms for securities misconduct and fraud.  FINRA has the authority to suspend, sanction, fine, or bar individuals and companies from involvement in the securities industry based upon the findings of its investigation.

Under the current rules, arbitrators must wait until the case concludes before submitting a report of concerns to FINRA.  But FINRA believes that making arbitrators wait until the end of the arbitration could delay the regulator’s ability to take action against a parties and to collect evidence.

I believe there are pluses and minuses to allowing mid-litigation referral of customer claims to FINRA.  On the benefit side, FINRA would receive information faster and be able to protect more investors.  Although arbitrations are routinely completed within one year to a year and half after filing, a delay in submitting evidence of misconduct allows wrongful actors to continue to hurt investors.  In addition, sometimes counsel representing brokerage firms, on rare occasions, abuse the FINRA process in order to satisfy a demanding client.  However, brokerage firms, even in litigation, must conduct themselves fairly under the FINRA rules.  The power of an arbitrator to refer instances of repeated or significant abuse of the FINRA process will make firms think twice before simply ignoring panel orders.

Darrell G. Frazier (Frazier) was recently barred from the securities industry by the Financial Industry Regulatory Authority (FINRA) over allegations that Frazier made fraudulent statements in the sales of variable annuities.  Frazier is also alleged to have made unsuitable variable annuity sale recommendations to customers.

Frazier first became registered with a FINRA member firm in March 1988.  Frazier was registered with Park Avenue Securities LLC from July 2002 through June 2010.  From August 2010 through May 2011, Frazier was associated with MML Investors Services, LLC.

FINRA alleged that from 2004 to at least 2009, Frazier made materially false and misleading statements in connection with recommending customers purchase variable annuity products issued by Guardian Insurance & Annuity Company, Inc.  A variable annuity is a contract where an insurance company agrees to make periodic payments to an investor either immediately or at some future date.  The purchase of a variable annuity contract either involves a single purchase payment or a series of purchase payments.

In July 2013, William Galvin, the Massachusetts (MA) Secretary of the Commonwealth, began an investigation into “the marketing of complicated financial investments to older people.” In the process of the investigation, Galvin subpoenaed fifteen different brokerage firms in order to obtain information on investments that were sold to senior citizens in Massachusetts. The investigation sought to uncover the way the firms have sold “high-risk, esoteric products to seniors” as well as information on the firms’ compliance, supervision and training.

The firms that were included in the investigation were Morgan Stanley, LPL Financial, Merrill Lynch, UBS AG, Bank of America Corp., Fidelity Investments, Wells Fargo and Co., Charles Schwab Corp., and TD Ameritrade along with other firms. Galvin has stated that the investigation was not an indication of any wrongdoing on behalf of the brokerage firms. The purpose of the investigation was to get more information on brokers’ business practices in offering products to seniors and unsophisticated investors. Regulators have shown concern about “opaque products” advertised to unsophisticated investors looking for higher returns than what most interest rates have to offer.  Brokers often pitch these types of products because they will usually get a higher commission rate than by selling other lower risk products such as mutual funds.

This recent investigation is a result of past inappropriate Real Estate Investment Trust (REIT) sales to seniors.  Last year, the SEC probed the probe improper sale of REITs to seniors that led to five broker-dealers settling.  The settlement for the improper REIT sales included $975,000 in fines and $8.6 million in restitution to the customers.

August 27, 2013 – The Securities and Exchange Commission  sanctioned a former portfolio manager at a Boulder, Colo.-based investment adviser for forging documents and misleading the firm’s chief compliance officer to conceal his failure to report personal trades.

An SEC investigation found that Carl Johns of Louisville, Colo., failed to pre-clear or report several hundred securities trades in his personal accounts as required under the federal securities laws and the code of ethics at Boulder Investment Advisers (BIA).  Johns concealed the trades in quarterly and annual trading reports that he submitted to BIA by altering brokerage statements and other documents that he attached to those reports.  Johns later tried to conceal his misconduct by creating false documents that purported to be pre-trade approvals, and misled the firm’s chief compliance officer in her investigation into his improper trading.

To settle the SEC’s charges – which are the agency’s first under Rule 38a-1(c) of the Investment Company Act for misleading and obstructing a chief compliance officer (CCO) – Johns agreed to pay more than $350,000 and be barred from the securities industry for at least five years.

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