Broker Fraud

FINRA Actions: Former UBS Broker Is Barred for Overvaluing Customer’s Account by Up to $3M, Ex-Broker Allegedly Stole $400K From Parents, Wells Fargo Adviser is Suspended After Client is Victimized in Phishing Scam, and Former Stifel Broker is Accused of Unauthorized Payments

Published on: October 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-UBS Broker is Accused of Inflating Customer’s Account

The Financial Industry Regulatory Authority has barred Jeffrey Hamilton Howell from the broker-dealer industry. The former broker is accused of giving a customer bogus weekly account statements that overvalued an account by up to $3M. The alleged misconduct is said to have occurred between 9/2008 and 11/2014.

According to FINRA, Howell sent the customer over 300 Stock Tracking Reports that misstated the client’s portfolio in amounts ranging from $289K to approximately $3M. He purportedly used his personal e-mail to send the customer some of the fake reports. This left UBS with records and books that were not accurate.

Texas Securities Cases: IMS Securities to Pay $100K Over Variable Annuity Exchanges, State Regulator Bans Broker from Making Nontraded REIT Recommendations, and Former Dallas Billionaire Sam Wyly to Pay $198M To Settle Fraud Case

Published on: October 10, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Texas-Based Brokerage Firm Accused of Inadequate Supervision Involving VA Exchanges

The Financial Industry Regulatory Authority is ordering IMS Securities Inc. to pay a $100K fine. The Texas-based brokerage firm is accused of failures related to its monitoring of variable annuity exchanges. By settling, however, it is not denying or admitting to the allegations.

According to the self-regulatory authority, the firm exhibited inadequate supervisory procedures for “problematic rates of exchange” in transactions involving variable annuities. FINRA claims that from 7/ 15/13 through 7/8/14, IMS Securities depended on its CFO to review annuity exchanges but did not provide tools or guidance to help look for “problematic rates of exchange.” The broker-dealer is accused of not probing possibly “problematic patterns” of VA exchanges and not enforcing written supervisory procedures related to consolidated reports.

Securities Cases: Hawaii-Based Investment Adviser is Accused of Cherry-Picking Trades, Broker Ordered to Pay $600K for Elder Financial Fraud, and FINRA Bars Ex-Axa Advisors Broker

Published on: October 6, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges Hawaii-Based Investment Adviser for Misleading Clients and Cherry Picking

The U.S. Securities and Exchange Commission has filed civil charges against Oracle Investment Research, which is based in Hawaii, and its owner Laurence I. Balter. The regulator claims that the investment adviser cherry picked trades that were profitable for his own accounts. He is also accused is misleading clients, including senior citizens, about the risks involved in the investments he recommended, as well as about the fees they would be charged.

According to the SEC Enforcement Division, Balter and Oracle Investment Research bought options and equities in an omnibus account but waited to distribute the trades until their execution. Then, he would allegedly move the profitable trades into his accounts and the unprofitable ones to the accounts of clients.

Morgan Stanley Charged by Massachusetts for Running Allegedly Unethical Sales Contests

Published on: October 3, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts claims that Morgan Stanley Smith Barney (MS) ran a high-pressure sales contest to give its financial advisers incentive to get clients to borrow funds against their brokerage accounts. Massachusetts Secretary of the Commonwealth William Galvin filed the complaint against the firm.

According to the state, from 1/14 through 4/15, Morgan Stanley conducted two contests in Rhode Island and Massachusetts that involved 30 advisers. The object of the contests were to convince customers to take out loans that were securities-based. It involved them borrowing against the value of securities found in their portfolio. The securities were to be collateral.

Galvin’s office said that the contests urged Morgan Stanley advisers to cross-sell loans that were backed by investment accounts in order to enhance lending business, as well as banking, and stay competitive with other firms. Galvin claims that advisers were told to get clients to establish credit lines even if they had no plans of using them. The state’s complaint said that clients would be targeted after they’d mention certain key “catalysts” including graduations, weddings, and tax liabilities.

SEC Accuses Pennsylvania Broker of $3.2M Securities Fraud Involving 120 Investors

Published on: September 29, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has put out an emergency asset freeze against Peter Kohli, a former broker. According to the regulator, the Pennsylvania resident bilked at least 120 investors when he fraudulently raised over $3.2M from them between 2012 and 2015. The regulator attributes the funds collapse to the ex-broker’s “extreme recklessness.”

At the time, Kohli was CEO and president of DMS Advisors, a dually-registered investment adviser and brokerage firm. He began the DMS Funds series, comprised of four emerging market mutual funds, in 2012. The SEC claims that he overstated the funds’ level of sophistication while disregarding the risk that he and DMS Advisors might not be able to cover certain expenses.

The Commission claims that Kohli stole money from investors as the funds became beleaguered and he committed three other frauds to keep his scam going. He also purportedly misappropriated money he solicited to invest in one of the funds and his accused of drawing in two kinds of investments in Marshad Capital Group, which was DMS advisors’ holding company.

Securities Regulator News: NASAA Offers Guide to Protecting Senior Investors and other Vulnerable Adults, States Disclose 2015 Enforcement Statistics, and SEC to Scrutinize Firms With Rogue Brokers

Published on: September 12, 2016 | by Shepherd Smith Edwards & Kantas, LLP

NASAA Puts Out Practices and Procedures Guide to Protect Vulnerable Adults

The North American Securities Administrators Association has issued a guide to help investment advisory firms and broker-dealers create procedures and practices to help them identify and tackle suspected incidents of financial exploitation involving vulnerable adult clients, including senior investors and adults with diminished capacity. The guide provides steps that revolve around five key concepts:

Identifying who is a vulnerable individual
Governmental reporting
Third-party reporting
Delaying disbursement from the account of a client who is a vulnerable adult
Ongoing regulator cooperation when a disbursement is delayed or a report of suspected financial exploitation is made.

It was just recently that NASAA put into effect its Model Act to Protect Vulnerable Adults from Financial Exploitation and this guide is a companion to the act.

If you are an elderly investor or a vulnerable adult who has suffered losses due to fraud, call our senior financial fraud law firm today.

FINRA Files Securities Fraud Charges Against NY Broker For Churning Accounts of Blind, 77-Year-Old Widow

Published on: August 1, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has filed a securities fraud case against Hank Mark Werner. The self-regulatory organization is accusing the New York broker of churning the account of a 77-year old widow who is blind, and engaging in unsuitable and excessive trading involving her account. FINRA claims that Werner charged the elderly customer over 243K in commissions while he churned her accounts for over three years and caused her to sustain about $184K in losses.

According to FINRA, Werner, who had been the broker of the elderly widow’s husband since 1995, until he passed away four years ago, started aggressively trading her accounts after he died. The SRO claims that Werner did this to earn excessive commissions.

From 10/12 to 10/15, Werner placed more than 700 trades in over 200 securities while charging the elderly customer commission or a markup on every sale and purchase. Because she was seriously debilitated, blind, and needed in-home care, the woman was totally dependent on Werner to let her know how her account was doing.

Ex-Prudential Financial and MetLife Broker is Barred over Deceptive MetLife Variable Anuuity Sales

Published on: July 13, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA has banned Winston Wade Turner from the securities industry. The former Prudential (PRU) and MetLife (MET) broker is accused of engaging in deceptive variable annuities sales. Turner was fired from Pruco Securities, a Prudential subsidiary, in 2015. The cause of his firing was deceptive sales practices.

Now, FINRA has barred him for a number of causes, including giving false information to clients about variable annuity sales, the fraudulent misrepresentation and omission of key facts to customers about the sales, providing false information in VA-related documents, and not giving testimony to the self-regulatory organization during its probe into this matter.

According to the SRO, Turner fraudulently misrepresented and omitted material facts about VA sales and concealed that he had persuaded a lot of customers to give up existing variable annuities or other investments so that they would buy the newer VAs that he was selling. He is accused of persuading at least 12 clients to trade their existing investments for this purpose, costing them over $150K in surrender charges.

FINRA Accuses Broker of Encouraging Clients to Invest in High-Risk Exchange-Traded Funds Because He Anticipated Financial Turmoil

Published on: June 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has filed a case against Richard William Lunn Martin, a former broker. According to the self-regulatory organization, from at least 3/11 through 7/15, and while he was a GF Investment services broker, Martin encouraged clients to invest in high-risk non-traditional exchange-traded funds so he could hedge against what he anticipated would be a pending financial crisis. Martin purportedly believed that the financial and monetary system was going to fail. FINRA said that he lost customers $8M as a result of the bad investment advice he gave them.

Because of his fears, said FINRA, Martin recommend that clients put their money in inverse and leveraged funds, which are typically not suitable for retail investors. This is especially true when the market is volatile and the investor intends to hold the funds for longer than one trading session. Examples of recommendations that he made:

· Direxion Daily Gold Miners Bear 2x Shares (DUST)

· Proshares UltraPro Short Russe112000 (SRTY)

· Proshares UltraPro Short QQQ (SQQQ)

Securities Headlines: FINRA Enforcement Officials Say They Are Keeping Their Eyes on Variable Annuities, Massachusetts Goes Looking for Rogue Brokers, and Man is Accused of Scamming Women He Met Online

Published on: June 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Takes a Closer Look at Variable Annuities
At a recent Insured Retirement Institute Conference, Financial Industry Regulatory Authority Inc. enforcement officials said that even though variable annuities are not on the regulator’s list of examination priorities for 2016 this doesn’t mean it isn’t scrutinizing them. FINRA Sr. VP/deputy enforcement chief Russ Ryan said that variable annuities often are involved in its cases.

It was just recently that FINRA charged MetLife (MET) $25M for making misrepresentations and omissions related to variable annuity sales. New products were marketed as less costly and better than the variable annuities that clients already owned when, in truth, said the regulator, the clients should have stayed with these older investments. The alleged misrepresentations and omissions were found in 72% of 35,500 applications for variable annuity replacements that were approved by MetLife.

FINRA said that training and supervision were a key factor in the case, which is what they are also seeing in other variable annuity cases. The regulator is also looking at L-share variable annuities, which offer greater liquidity and a shorter surrender-penalty period.

With a variable annuity contract, an insurer consents to pay the investor periodic payments either right away or in the future. The investor buys the contract with a single payment or a series of payments. The VA’s value will depend on performance and the investment options selected by the investor.

Massachusetts Targets Rogue Brokers
The Massachusetts Securities Division is going after rogue brokers. The regulator sent a letter to more than 240 firms that have a higher than average number of reps who have been reported for misconduct. The state says it wants the firms’ hiring information and is interested in learning about brokerage firms’ hiring procedures and policies. The letter was issued to financial firms where over 15% of their current representatives have at least one current disclosure incident documented.