Articles Tagged with unsuitable

shutterstock_155271245The investment attorneys of Gana Weinstein LLP are investigating a regulatory complaint filed (Disciplinary Proceedings No. 2014039091903) by The Financial Industry Regulatory Authority’s (FINRA) against brokerage firm Caldwell International Securities Corp. [CRD No. 104323], and its employees Greg Caldwell [CRD No. 2816295], Lennie Freiman [CRD No. 1007506], Paul Jacobs [CRD No. 4658235], Alain Florestan [CRD No. 2818942], Alex Etter [CRD No. 2981742], Lucas Lichtman [CRD No. 5542092], Richard Lim [CRD No. 4949289], and Richard Lee [CRD No. 2768039]. FINRA’s allegations are that For more than three and a half years, Respondent Caldwell International Securities Corp. (Caldwell) “put profits before customers, growth before compliance, and subterfuge before transparency.” FINRA alleged Caldwell has a “culture of non-compliance” causing there to be serious sales practice, supervisory, and reporting violations.

Our firm has written several articles on brokers associated with or previously employed by Caldwell concerning similar allegations by customers and regulators. See FINRA Bars Broker Ricardo Fancois During Investigation Into Sales Practices; FINRA Bars Broker Honetta Kao During Investigation Into Sales Practices; FINRA Bars Broker James Starks During Investigation Into Sales Practices; FINRA Bars Broker Marat (a/k/a Matt) Zeltser; FINRA Bars Richard Adams Over Churning Customer Accounts; FINRA Files Complaint Against Chris Fulco Over US Coal Corporation Transactions

FINRA alleged that from December 2010 through July 2014 Caldwell through Greg Caldwell, Lennie Freiman, and Paul Jacobs, failed to enforce a supervisory system reasonably tailored to its business model that allowed many of its brokers to recommend an unsuitable active trading investment strategy that the representatives did not understand and which caused significant financial losses to customers while generating substantial profits for the firm. FINRA also alleged that other brokers at Caldwell were allowed to engage in trading with discretion without authorization, and trading which exceeded the benchmarks for excessive trading and churning without any meaningful supervision of this activity. FINRA found that Caldwell and its principals were aware of virtually all of this misconduct but took no meaningful steps to stop the activity or supervise it because doing so would reduce the commissions and fees being generated from their customers.

shutterstock_94066819The Financial Industry Regulatory Authority (FINRA) barred (Case No. 201303930510) broker Kai Cheng (Cheng) concerning the broker’s failure to respond to requests for information concerning the regulators investigation into claims that Cheng engaged in conduct including entering into personal financial transactions with a customer, using a personal email address to communicate with a customer, and unauthorized trading in a customer account. In addition, to the FINRA bar Cheng has one employment separation and one customer dispute disclosed on his BrokerCheck record. The customer complaint contains allegations of unsuitable investments, failure to follow instructions, unauthorized trading, and omissions of material facts.

Cheng first entered the securities industry in 2005 as a broker with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) with the title of “First Vice President” and worked there until he was discharged in 2015. On March 2, 2015, Merrill Lynch filed a Uniform Termination Notice (Form U5) that reflected that Cheng was discharged on February 4, 2015. According to FINRA the Form U5 stated that Cheng was terminated for conduct including entering into personal financial transactions with a customer, using a personal email address to communicate with a customer and unauthorized trading in a customer account.

FINRA then sought to investigate these allegations and during the course of FINRA’s examination, the agency sent a letter to Cheng’s counsel pursuant to FINRA Rule 8210 requesting Respondent to provide on the record testimony. According to FINRA Cheng failed to provide testimony. Cheng’s failure to appear resulted in a bar from the industry.

shutterstock_20354398According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Justin Amaral (Amaral) has been barred for failing to respond to requests for information by the agency. The requests may have related to the reasons Morgan Stanley gave for terminating Amaral’s employment. Upon termination from Morgan Stanley the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Amaral was due to allegations by the firm that Amaral became an executor and beneficiary in a client’s estate and that he used discretionary authority in several client accounts.

In addition, to the most recent FINRA action and bar, Amaral has been the subject of at least two customer complaints involving unsuitable closed-end funds and misrepresentations of investments involving mutual funds. According to FINRA, the agency made attempts to have Amaral appear for testimony concerning an unstated matter. Amaral failed to appear and was consequently barred from the securities industry.

It is important for investors to know that all advisers have an obligation and 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.

shutterstock_102217105According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker George Lincoln (Lincoln) has been the subject of at least three customer complaints, one regulatory action, and one employment separation. The customer complaints against Lincoln allege a number of securities law violations including that the broker made unsuitable investments among other claims.

Lincoln entered the securities industry in 1991. From November 2005, until January 2014, Lincoln was registered with CCO Investment Services Corp. (CCO Investment). In December 2013, CCO Investment filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Lincoln was due to a regulatory action by the state of Vermont alleging violations of the securities laws.

The state of Vermont’s action against Lincoln alleged that the broker altered material information of the books and records of his brokerage firm in order to suggest that his clients were more aggressive and risky investors than their actual circumstances and stated risk tolerances. According to the allegations, Lincoln made these alterations in order to concentrate his client’s investments in certain funds that were unsuitable.

shutterstock_102242143As we previously reported, The Financial Industry Regulatory Authority (FINRA) sanctioned and barred financial advisor Matthew Davis (Davis) concerning allegations of misconduct in several customer accounts. Davis was associated with Beneficial Investment Services, Inc. from November 2008, through April 2010. Thereafter, Davis was associated with OneAmerica Securities, Inc. (OneAmerica) from April 2010, through July 2013. The allegations of misconduct included claims of conversion, misrepresentation of customer holdings and account value, forgery, discretionary unauthorized trading, attempts to settle a customer complaint without the firm’s knowledge, and unsuitable investment recommendations.

In a new regulatory action, FINRA alleged that OneAmerica failed to supervise Davis and ignored numerous red flags of misconduct concerning his activities. For instance, FINRA alleged that two customers opened a OneAmerica account with Davis identifying the husband as a 65 years-old and earning between $50,001-75,000 per year. His wife was a “Homemaker” and the couple’s stated Net Worth, excluding their residence, was “$250,001-500,000″ and they had only two years of investment experience limited to stocks, bonds, and mutual funds.

Only three weeks later the couple signed an Option Agreement and were approved to trade options. FINRA found that Davis rapidly traded the options account executing 55 options transactions in May 2012; 52 options transactions in June 2012; and 53 options transactions in July 2012. This activity, according to FINRA, caused a rapid loss of account equity. FINRA found that there were multiple red flags that should have alerted the OneAmerica’s compliance department that Davis’ recommendations were unsuitable. For example, FINRA found that the couple’s account agreement reported minimal investing experience but their options agreement identified purported options (and commodities) trading experience. Also the couple’s new account agreement reported their Investment Objective as Long Term Growth but whereas their options agreement stated their objectives included speculation and hedging. Finally, FINRA alleged that the couple’s new account agreement reported their net worth was $250,000-500,000, whereas the options agreement stated their Net Worth was $640,000.

shutterstock_157018310The Financial Industry Regulatory Authority (FINRA) in an acceptance, waiver, and consent action (AWC) Wells Fargo Advisors, LLC (Wells Fargo) broker Joseph DiRago Jr. (DiRago) concerning allegations that between June 2011, and October 2012, while registered with Morgan Stanley & Co. LLC (Morgan Stanley), DiRago effected transactions exercising discretion without written authorization in one customer’s account in violation of NASD Conduct Rule 2510(b) and FINRA Rule 2010.

In addition, DiRago has been the subject of at least five customer complaints over the course of his career. These claims primarily involve claims of unsuitable investment recommendations and misrepresentations. All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. The number of complaints made by investors against DiRago is relatively large by industry standards. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. 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.

According to FINRA, NASD Conduct Rule 2510(b) provides that brokers cannot exercise any discretionary power in a customer’s account unless such customer has given prior written authorization and the account has been accepted by the firm as evidenced in writing by the member.

shutterstock_102757574According to the records kept by the Financial Industry Regulatory Authority (FINRA) broker Wade Lawrence (Lawrence) has been suspended following the broker’s failure to comply with an arbitration award or settlement and by failing to comply with the regulator’s request for information concerning compliance. In addition, FINRA permanently barred Lawrence for failing to respond to requests for information concerning allegations that he misappropriated funds from customers.

Lawrence first became registered with FINRA in 2002 with MML Investors Services, LLC. Thereafter, from June 2008 through July 2011, Lawrence was registered with Oppenheimer & Co. Inc. (Oppenheimer) Finally from August 4, 2011, until December 2013, Lawrence was registered with Southwest Securities, Inc. (Southwest). On December 12, 2013, Southwest filed a Form U5 that terminated Lawrence’s registration.

In addition to the FINRA regulatory actions Lawrence has been the subject of at least nine customer disputes. These statistics are troubling because multiple customer complaints on a broker’s record are rare. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. FINRA’s disclosure records do not just cover customer complaints but also include IRS tax liens, judgments, and even criminal matters. The number of brokers with multiple customer complaints is far smaller.

The Financial Industry Regulatory Authority (FINRA) fined SAL Financial Services, Inc. dba Sterne Agee Financial Services, Inc. (Sterne Agee) concerning allegations that Sterne Agee failed to implement reasonable supervisory procedures to detect and prevent excessive trading activity, otherwise known as churning, in client accounts.

Sterne Agee has been a FINRA member since 1986 and the firm’s main office is located in Birmingham, Alabama. Sterne Agee has 137 branch office locations and employs 304 registered representatives.

FINRA alleged that from August 2009, through November 2010, Sterne Agee failed to establish and maintain a supervisory system and enforce written supervisory procedures reasonably designed to identify and prevent unsuitable excessive trading and churning in customer accounts. Specifically, FINRA found that Sterne Agee relied solely on a single exception report with inadequate parameters to identify active accounts with patterns of unsuitable and excessive trading. FINRA alleged that Sterne Agee had access to its clearing firm’s additional exception reports but that Sterne Agee failed to use those reports.  Consequently, FINRA concluded that Sterne Agee failed to identify at least thirty-nine accounts where thirty of the instances came from the Ft. Lauderdale, Florida office.

Broker Jeffrey M. Isaacs (Issacs) of Investors Capital Corporation (ICC) was recently suspended and sanctioned by The Financial Industry Regulatory Authority (FINRA) over allegations that Isaacs made negligent material misrepresentations of fact in connection with the unsuitable sale of two private placements to ICC customers.  In addition, after the customers complained to Isaacs, he settled their claims without notifying ICC.

From January 12, 2005, through December 12, 2011, Issacs was associated with Investors Capital Corporation.  On December 12, 2011, ICC filed a Form U5 stating that Isaacs “submitted a voluntary request to terminate association with the firm while under investigation for failing to follow firm policies.”  Thereafter, Isaacs was registered with TFS Securities, Inc. (TFS) from November 21, 2011 through December 15, 2011.  On December 15, 2011, TFS filed a Form U5 stating that Isaacs’ termination was voluntary.  Issacs’ BrokerCheck discloses that he is also employed by JB Financial Resources.

FINRA alleged that Isaacs negligently misrepresented two customers that an investment in the Insight Real Estate LLC 2007 Secured Debenture Offering (Insight) was a safe, low-risk investment, misstated its payment terms, and omitted material facts relating to the speculative nature of the investment.  The customers invested $100,000 in Insight in reliance on Issacs’ representations.  Thereafter, FINRA alleged that Isaacs negligently misrepresented to the customers that an investment in CIP Leverage Fund Advisors, LLC (CIP) was for moderately conservative investors and would pay interest to the investors on a monthly basis.  In fact, the CIP was a speculative investment that paid interest only on an accrued basis with the final payment of principal. The customers also invested $100,000 in CIP in reliance on Issacs representations.

Maurice Joseph Chelliah (Chelliah) was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that Chelliah converted $90,000 from two World Group Securities, Inc. (WGS) clients and made unsuitable recommendations to five WGS customers.  FINRA alleged that Chelliah recommended that these customers refinance their primary residences and use the proceeds to purchase securities and insurance policies that they did not need and that were beyond the customers’ ability to afford.  FINRA found that as a result of Chelliah’s recommendations some of the customers lost their securities, their life insurance policies, and their residences when they were unable to keep their mortgages current.

FINRA alleged that Chelliah violated NASD Rule 2110 and FINRA Rule 2010 by converting customer funds.  These rules provide that a member, “in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade.”  FINRA found that two of Chelliah’s customers were 80 and 75 years-old respectively and were unsophisticated investors.  Chelliah recommended that the customers liquidate their mutual fund shares.  Following the liquidation, $90,000 in proceeds was transferred to Chelliah’s three outside businesses.  The customers had provided these funds to Chelliah in order for him to pay monthly bills and expenses on their behalf but instead Chelliah used these funds for his own personal benefit.

FINRA also alleged that Chelliah made unsuitable transactions in at least five customer accounts. NASD Rule 2310 provides that “in recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs…”

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