Broker-Dealers

Centaurus Financial Slapped with $175,000 FINRA Fine for Failing to Protect Confidential Client Info

Published on: May 10, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says it is fining Centaurus Financial Inc. because the firm failed to protect customers’ confidential information. The California-based company must notify brokers and affected customers of the breach and give clients a year of free credit monitoring. Also as part of its settlement with FINRA, Centaurus has agreed to entry of the SRO’s findings. It will also certify with the SRO that its systems and procedures comply with privacy requirements. Centaurus, however, is not denying or admitting to the FINRA charges.

FINRA says that from April 2006 to July 2007, Centaurus neglected to make sure that the computer firewall, password system, and username for its computer fax server were providing the necessary protections. As a result, FINRA contends that persons that lacked the proper authorization were able to gain access to images stored on the faxes that included account numbers, social security data, personal information, and other sensitive, confidential client information.

An unauthorized party was even able to use Centaurus’s fax server to run a “phishing” scheme in July 2007. The scam was intended to fool computer users into giving out their personal information, including credit card information, banking data, passwords, and usernames. Over a 3-day period, 894 unauthorized logins by 459 unique IP addresses occurred after a file simulating a known Internet auction site was loaded to CFI’s fax server.

Phishing Scams
These schemes are designed to persuade recipients to reveal personal account data. For example, a target might be sent a Web site link or an attachment via email that asks for confidential personal and financial data. The sender or the Web site involved may appear to be legitimate but is actually illegal.

FINRA says that following the “phishing” incidents, Centaurus sent to some 1,400 clients and their brokers letters about the incident but that what they told them was misleading. The SRO contends that rather than admit that the breach of confidentiality occurred because the firm’s protections were inadequate and, as a result, unauthorized logins occurred, Centaurus reported that only one person had unauthorized access to the client information found on the server and that that data was not openly accessible.

Related Web Resources:
FINRA Fines Centaurus Financial $175,000 for Failure to Protect Confidential Customer Information, FINRA, April 28, 2009
Recognize phishing scams and fraudulent e-mail, Microsoft, September 14, 2006 Continue Reading ›

SEC Sues Broker-Dealer Morgan Peabody Inc Owner For Investment Fraud

Published on: April 30, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is suing Morgan Peabody Inc. owner and chief executive officer Davis Williams for allegedly misappropriating investor funds that were raised in three public offerings. Also named in the complaint were Williams Financial Group, Sherwood, and WFG Holdings. The defendants are accused of violating federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934, Section 17(a) of the Securities Act of 1933, and Rule 10b-5 thereunder.

The SEC says that from January 2007 – September 2008, Williams notified Morgan Peabody registered representatives that they should sell and offer LLC promissory notes and debentures from WFG Holdings Inc. and Sherwood Secured Income Fund. He then allegedly used millions of dollars (he’d raised $9 million from investors) for personal purposes, including rent at his residence that cost almost $50,000 a month, at least $175,000 in personal travel, and over $200,000 in entertainment and food.

The SEC claims that WFG Holdings investors thought that their money was being invested in Morgan Peabody. Meantime, Sherwood investors were notified that most of their money would go into real estate. Instead, the SEC contends that Williams moved the investors’ money into bank accounts that he oversaw and used the money for personal purposes.

More than 100 investors in nine states purchased the securities. The SEC is seeking disgorgement, injunctive relief, and civil penalties.

Obtaining Financial Recovery from Securities Fraud
Investors that are the victims of securities fraud may be entitled to financial recovery. An experienced stockbroker fraud law firmcan help you successfully get through arbitration or court proceedings so that you recover your lost funds.

Related Web Resources:
SEC sues L.A. broker for fraud, Dailybreeze.com, April 21, 2009
SEC Charges Owner of California Broker-Dealer with Misappropriating Millions in Investor Funds, TradingMarkets.com, April 21, 2009 Continue Reading ›

Merrill Settles SEC Charges Over ‘Squawk Box’ Misuse for $7 Million

Published on: March 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch will pay $7 million to settle Securities and Exchange Commission administrative charges that the investment bank neglected to protect customers whose orders were transmitted over “squawk boxes.” The penalty is the second highest fine that the SEC has imposed for cases involving Section 15(f) of the 1934 Securities Exchange Act and Section 204A of the 1940 Investment Advisers Act violations. These statutes mandate that investment advisers and broker dealers implement procedures and policies that would keep employees from misusing nonpublic, material data.

The SEC says that from 2002 to 2004, a number of Merrill Lynch brokers at three branch offices let day traders, who did not work for the company, hear customers’ unexecuted orders as they were being broadcast over the internal intercom systems. The traders used the information to trade before Merrill’s institutional clients’ orders were placed.

The SEC says Merrill did not have the procedures or polices to prevent employees from accessing the squawk boxes or to supervise them to make sure that they did not misuse customer order data. In addition to paying the penalty, Merrill Lynch says it will implement a number of measures to ensure that customer order data is protected any time it is sent over squawk boxes or other technologies used for their transmission.

U.S. Attorney for the Eastern District of New York had filed criminal charges related to the squawk box front-running activities against a number of Merrill employees, A.B. Watley Group Inc., and several individuals. While seven defendants were acquitted of nearly all the charges, they must go back to trial for a single count of conspiracy to commit securities fraud. Former Merrill stockbroker Timothy O’Connell was found guilty of witness tampering and issuing false statements.

Despite Financial Market Volatility, Most Investment Advisors Are Telling Clients To Stick With Their Investment Plans

Published on: March 17, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to a TD Ameritrade Institutional survey, most investment advisers continue to tell their clients that now is a great time to invest in the financial market rather than encouraging them to cash out their investments in the wake of the financial crisis:

• 93% of investment advisers are not telling clients to cash out investments.

• Over 50% of these registered advisers believe now is the time to invest in equities.

• 43% of them are telling clients to increase their fixed income allocations.

• 53% are having clients increase cash allocations.

• 41% have dramatically increased their communications with clients so they can offer them reassurance.s

506 registered investment advisers participated in the survey. TD Ameritrade Institutional managing director of advisor advocacy and industry affairs Brian Stimpfl says that the results demonstrate how most advisors are staying committed to sticking with their clients’ investment strategies despite volatility in the financial market.

Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd, however, had this to say: “When markets fell 20% or so by early September, brokers and financial advisors should have been listening to their clients carefully to learn the true nature of their risk-tolerances. When any investor expresses strong feelings about losses in an account the investment advisor must act to revise the client’s objectives. Several of our clients told their advisors they were losing sleep over their investments. Yet, instead of revising the clients’ investment objectives – and their investments – as required, the advisors adamantly told their clients not to sell. Now that these investors’ nightmares have come true, the advisors want to hide behind objectives marked on the old forms without taking responsibility for their reckless inaction.”

Related Web Resource:
FA Magazine
TD Ameritrade Institutional
Continue Reading ›

Outcome of SEC Actions Appear to Favor Larger Broker-Dealers than Smaller Ones, Says Harvard Law School Study

Published on: March 7, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission may be “too close” to larger investment firms that they give them preferential treatment in SEC Actions, says a Harvard Law School study. One “tentative” explanation cited by the study is that SEC officials look to the larger broker-dealers-especially those located in New York-for future employment opportunities. The study also noted that the SEC was more likely to order smaller broker-dealers (than larger firms) to court, rather than merely slapping the firm with an administrative proceedings.

The Harvard study took a look at patterns the SEC exhibited when it enforced actions against investment firms in 1998, 2005, 2006, and Jan – April in 2007. Findings included:

• When large investment firms and smaller firms faced the same SEC violations for similar levels of harm, there was a 75% smaller chance that a big broker-dealer would have to go to court than one of its smaller counterparts.
• There was a 44% chance that employees from large broker-dealers would have to go to court to fight an SEC action, compared to a 73% possibility for employees of smaller broker-dealers.
• When facing SEC administrative proceedings, bigger firms were less likely to be banned from the industry. 25% of small firms defendants in such actions received permanent industry bans, compared to just 5% of large firm defendants.
• There did not appear to be a justifiable reason for why there was a disparity between the outcomes of SEC actions involving larger broker-dealers and smaller ones.
• However, both large and small firms were slapped with equivalent fines.

The study did not look at SEC enforcement actions in 1999 and 1920 because of worries the findings might be affected by the burst of the “dot.com bubble,” as well as the outcomes of SEC actions from 2008 that may have been impacted by the financial crisis.

Madoff Investors Who Were Victims of “Ponzi” Scam Contact Securities Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP to Explore Recovery Options

Published on: December 17, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Wall Street Icon Bernard Madoff’s $50 billion “Ponzi” scam may very well have bilked hundreds, even thousands, of investors of their money. Now, many of Madoff’s victims are contacting the securities fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP to find out how they can recover their investments.

According to SSEK Founder and Stockbroker Fraud Attorney William Shepherd, “a number of recovery options” exist, including pursuit of:

• Securities Industry Protection Corp: SIPC has a $500,000 maximum guarantee limit per account. Its reserves are also limited and it needs government infusion to be able to cover losses in the billions of dollars. To be able to recover claims, legal action against SIPC is usually necessary. On Monday, a judge ruled that investors who were Madoff’s direct clients are covered under SIPC.

Do Broker-Dealers Hire Brokers Already Suspected of Securities Fraud?

Published on: December 11, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Even though regulators are calling on broker-dealers to employ stricter hiring standards when it comes to screening brokers who have already gotten in trouble for alleged broker misconduct, many firms continue to hire these suspect workers. It doesn’t help that broker-dealers have a tendency to not reveal key details when a registered representative leaves the company under suspect circumstances in order limit the firm’s liability from potential investor lawsuits and arbitration claims.

For example, in 2003, Jeffrey Southard was working for American Express Financial Advisers (now Ameriprise Financial Inc.) when he was accused of selling unregistered securities and combining client funds with his own money. At the time, Southard accused American Express Financial Advisors of falsely accusing him of misdeeds and acting unprofessionally by violating his personal confidentiality. He left the firm to join Gunn-Allen Financial Inc. In July 2008, GunnAllen fired him.

Last month, the New Jersey Bureau of Securities accused the former GunnAllen broker of stealing $1.3 million from 16 senior investors. The state regulators also barred Southard from the securities business and ordered him to pay $50,000 in restitution.

The New Jersey regulators say American Express Financial Advisors failed to properly disclose to clients the problems that could have arisen from working with Southard. The regulators’ order also accuses Southard of misleading his clients. Many of them switched to GunAllen when he left American Express Financial Advisors after he told them that he was leaving was to pursue better opportunities. The New Jersey regulators say that while working with GunnAllen, Southard continued to engage in broker misconduct by selling fake bonds as tax-free investments.

Opinions among industry members are mixed about whether broker-dealers are doing enough to weed out broker candidates with already questionable performance records.

Related Web Resources:

Busted brokers continue bilking clients at new firms, Investment News, December 7, 2008
Ex-GunnAllen broker bilked $1.3M from seniors, Investment News,
Continue Reading ›

Protestors in Asia Decrying Lehman Brothers “Mini-Bond” Collapse Could Be A Sign of More Lawsuits and Claims Against US Broker-Dealers

Published on: November 10, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Angry investors in Hong Kong and Singapore began protesting last month over losses they suffered due to the collapse of Lehman Brothers credit-linked notes. Also known as mini-bonds, their value is now at pennies on the dollar, and investors want banks to buy the credit-linked notes back from them.

Investors of Lehman mini-bonds have experienced devastating losses. Reports indicate that financial service firms told Asian investors that Lehman Brothers mini-bonds were a safe alternative to fixed deposits.

Over 30,000 Hong Kong investors suffered losses in Lehman Brothers mini-bonds. Close to 10,000 investors in Singapore could lose more than $338 million dollars as a result of the mini-bond collapse. Last month, 600 Singaporean investors attended a public meeting to ask banks why they sold them Lehman Brothers credit-linked notes. Now, investors in the US that also were influenced by similar marketing messages about Lehman Brothers bonds and other “safe” investments are contacting investment fraud attorneys about filing arbitration claims and lawsuits.

Some lawyers are asking how such an overconcentration of mini-bonds, as well as Freddie Mac and Fannie Mae shares, managed to end up in the portfolios of senior investor who cannot afford to take the kind of financial hits that have come with the market collapse. For example, since July, some Fannie Mae shares have dropped in price from $19.50 to $1.40.

While investor claims against broker-dealers had dropped steadily since 2003 (the lowest number of claims ever, at 3,228, was in 2007), FINRA has already received at at least 3,469 claims this year.

Related Web Resources:

Hong Kong Investors Grapple with Effects of Lehman Collapse

Financial Crisis Politically Awakens Singapore Investors, Reuters, November 7, 2008 Continue Reading ›

Lazard Capital Markets Pays $2.8 Million to Settle SEC Charges Over Allegedly Improper Expenditures Made to Fidelity Investment Traders

Published on: November 7, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Lazard Capital Markets, LLC and a number of associated individuals have agreed to pay fines to settle Securities and Exchange Commission charges that over $600,000 was allegedly spent on entertaining Fidelity Investment traders to garner their business. While the SEC says the privately-held broker dealer failed to supervise the three employees that collectively spent money on the improper gifts, four of the company’s former employees were charged for their involvement in the securities laws violations made by the Fidelity traders.

The SEC has charged Fidelity and a number of current and past executives and employees, including ex-Fidelity equity trader Thomas Bruderman, with improperly accepting lavish gifts from brokers. The SEC accuses the former Lazard Capital Markets employees of supplying Bruderman with expensive entertainment and flying him internationally on private planes.

The commission says that David Tashjian, the Lazard Capital Markets’s former US sales and trading department head, and W. Daniel Williams and Robert Ward, two ex-Lazarus trading representatives, “facilitated” violations made by Bruderman. The SEC is also accusing Tashjian and Louis Gregory Rice, the former head of Lazard Capital Markets’s U.S. equity sales and trading desk, of failing to supervise Williams and Ward while they engaged in the alleged misconduct.

By agreeing to settle, Lazard Capital Markets and its four former employees are not admitting to or denying the SEC’s charges. Lazard Capital Markets has agreed to pay $1,817,629 in disgorgement plus $429,379.04 in prejudgment interest, as well as a $600,000 penalty. The broker-dealer has also agreed to be censured.

Tashjian, Williams, Ward, and Rice have agreed to separate suspensions and penalties.

Related Web Resources:

Lazard Capital Markets to Pay $2.8M for Gifts to Fidelity Traders, Financial-Planning.com, November 4, 2008
SEC Charges Lazard Capital Markets, Former Employees for Improper Gifts and Entertainment to Fidelity Employees, SEC, October 30, 2008
Continue Reading ›

J.P. Turner & Co. Will Pay $250,000 to Settle FINRA Charges Related to Inadequate Supervision of Stock Trade Commissions

Published on: November 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority and J.P. Turner & Co. have reached a settlement agreement over charges that the broker-dealer failed to put in place a proper supervisory system for making sure that its registered representatives charged clients reasonable and fair commissions on stock trades. By agreeing to settle, JP Turner is not admitting to or denying the charges involving inadequate supervision.

FINRA says that between January 2002 and March 2005, JP Turner failed to take certain relevant factors into consideration when determining how much commission they should charge clients for equity securities transactions. Instead, FINRA says that the broker-dealer let its brokers charge commissions of up to 4.5% on nearly every stock trade, with discretion on what commission to charge solely limited by whether the security’s price was higher or lower than $25/share. If the security’s price was under $25/share, FINRA says that JP Turner representatives could charge commission of up to 4.5%. They could charge commissions of up to 3.5% if the security price was higher than $25.

FINRA requires brokerage firms to put in place systems and “reasonable procedures” for determining what commission fee a customer should be charged for such transactions, while taking into consideration certain relevant factors. The SRO’s mark-up policy provides a list of these relevant factors, including: the kind of security, the price of the security, the transaction size, the order execution cost, and the availability of the security.

During the review period, FINRA says that 91% of JP Turner’s transactions involved securities priced under $25/share. While the broker dealer’s trading manager was in charge of reviewing and approving trades to make sure charges were reasonable and fair, the SRO says the reviews actually consisted of checking transactions to make sure that commissions did not go above the company’s 4.5% and 3.5% guidelines.

As part of its settlement with FINRA, JP Turner will pay $250,000. The broker-dealer has also agreed to retain an independent consultant who will evaluate for adequacy the company’s systems, policies, procedures, and training related to FINRA’s fair price ruling.
Continue Reading ›