Broker Fraud

SEC Approves Change to FINRA’s BrokerCheck On When to Publish Firings

Published on: December 3, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has approved the Financial Industry Regulatory Authority’s plan to shorten the waiting period for when certain information reported on Form U5 can be released on BrokerCheck.com from 15 days to three days. This includes information about broker firings. The modification will go into effect on December 12.

Brokerage firms use Form U5 to give notice of when a broker has been let go. This notification is published on BrokerCheck, which is a public database that includes background information about registered brokers, as well whether any of them have a disciplinary history and what that may be.

The 15 days was so that brokers could have time to explain why they were fired. FINRA, however, has now decided that it is important to notify the public of such terminations sooner than that so that the investors who are thinking hiring these brokers receive this employment history right away. The self-regulatory organization says that it believes three business days still gives a broker a chance to comment on his/her firing.

BrokerCheck.com is an excellent resource for looking up information about a broker and his/her history. It’s important as an investor that you do your due diligence when considering whether to have someone handle your investments and finances. You can also get information about a broker from the Central Registration Depository, which is a computerized database. Another way to find out about a broker is to call your state securities regulator and request access to his/her registration, disciplinary, and employment information. You can get information about how to reach your state regulator through the North American Securities Administrators Association’s website.
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SEC Cases: Ex-Stockbroker Accused of Bilking Investor for Home Renovations, Marwood Group Admits to Wrongdoing Over Compliance Failures, and Ex-Goldman Sachs Employee Faces Insider Trading Charges

Published on: November 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Former Stockbroker Raises Over $1.2M from Customers to Remodel His Home
The Securities and Exchange Commission is charging ex-stockbroker Bernard M. Parker with Securities Act of 1933 and Securities Exchange Act of 1934 violations, as well as violations of Rule 10b-5. The regulator says that Parker raised over $1.2M from long-term brokerage customers and others by getting them to think they were buying real estate tax client certificates and would make up to 9% yearly interest.

Instead, says the SEC, Parker only used a small part of that money to buy the liens. He used their other funds to remodel his house, pay his father-in-law’s bills, and make car payments. The agency also claims that the ex-broker conducted the unregistered and fraudulent investment offering using his Parker Financial Services from ’08 to ’14. He also purportedly failed to notify the investment advisory firm and broker-dealer where he was dually registered about his side business.

The Attorney’s Office for the Western District of Pennsylvania has filed criminal charges against Parker in a parallel case over the alleged broker fraud.

Political Intelligence Firm Admits to Compliance Failures
Marwood Group Research LLC has admitted to compliance failures and will settle the SEC’s case against it by paying a $375,000 penalty. According to the Commission, the firm did not properly notify compliance officers about the times that analysts received potential material nonpublic data from government employees.

The firm’s own written policies and procedures are supposed to play a key part in Marwood Group’s efforts to stop nonpublic and confidential data from reaching its clients so as not to influence their decisions regarding securities trading. Yet its misconduct happened in 2013 when analysts were looking for information about pending regulatory approvals and policies at the Food and Drug Administration and the Centers for Medicare & Medicaid Services.
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SEC Approves Rule Requiring Firms, Brokers Link to BrokerCheck

Published on: October 10, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Over two years after it was initially proposed, a FINRA rule requiring that broker-dealers include a link to the self-regulatory organization’s BrokerCheck database has been approved by the Securities and Exchange Commission. The rule slated to go into effect, at the latest, at 180 days after the FINRA regulatory notice is published in the Federal Register. The deadline for publishing the notice is December 7, 2015.

Per the rule, a brokerage firm will have to include an obvious reference and hyperlink to the front page of FINRA’s BrokerCheck.com. Links to BrokerCheck would also have to be included on the profile pages of each broker.

FINRA has been trying to make retail investors more aware that BrokerCheck exists. The online database includes the work history of every registered broker, where they are registered, and other information, such as if they’ve been subject to disciplinary measures or named on previous securities cases.

A previous version of the proposed rule had called for LinkedIn and Twitter profiles of brokers to also include links back to BrokerCheck. However, rather than link directly to that home page, the hyperlink would have taken an investor to the BrokerCheck profile of a particular representative. Many in the industry, however, were strongly opposed to that mandate.
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FINRA Headlines: Regulator Seeks to Curb Broker Record Expungement, Continues to Fight Elder Abuse and Issues Liquidity Risk Management Guidance

Published on: September 19, 2015 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Takes Action to Make It Harder for Brokers to Expunge Their Disciplinary Records
The Financial Industry Regulatory Authority’s Board has given the regulator permission to ask for public comment on a plan that would establish tougher requirements for when a broker would be allowed to expunge disciplinary actions from his/her BrokerCheck record. The proposed rule would update existing arbitration rules regarding the expungement of information related to customer disputes.

One proposed requirement is that an arbitration panel would have to get a copy of the BrokerCheck report when determining whether to grant an expungement request. The panel then would have to give more details about its reason to recommend a request.

According to a 2013 study by the Public Investors Arbitration Bar Association, expungement requests have been granted in up to 90% of cases that ended in an award or settlement. However, in 2014 the SEC signed off on a rule preventing broker-dealers from conditioning a settlement so that a claimant cannot counter expungement after the case is resolved.

FINRA Board Continues to Fight Elder Financial Abuse
FINRA’s board has given the self-regulatory authority permission to put out a rule proposal that would protect older investors and other vulnerable investors.

Under the rule, firms would be obligated to get the name and contact data of a trusted individual when opening an account for a customer. The rule also would let a firm, if it suspects financial fraud, freeze the money in accounts of senior investors age 65 and over, as well as the accounts of adults with physical or mental impairments. The concern is that such impairments may make it difficult for them to protect their best interests especially when they are being bilked.
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SEC Charges Unregistered Brokers for Handling Over $79M of Investments in Immigrant Investor Program

Published on: June 24, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Ireeco LLC and Ireeco Limited with serving as unregistered brokers for over 150 foreign investors. The two firms are accused of illegally brokering over $79M of investments by those who wanted to become U.S. residents under the EB-5 Immigrant Investor Program.

The program offers a way for foreigners to invest money in a U.S. enterprise or a designated, private regional center in exchange for legal residency in this country. The SEC contends that the two brokerage firms went online to solicit foreign investors, promising to help them select a regional center. Instead, the firms allegedly directed most of them to the centers that paid commissions of approximately $35,000/investor once the U.S. Citizenship and Immigration Services (USCIS) approved a green card petition. The SEC said that participants invested $79 million in the regional centers.

The SEC said that Ireeco LLC and Ireeco Ltd. raised money for immigrant investment projects without being registered to legally operate as securities brokers. The two firms agreed to settle without denying or admitting to the findings.
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Former Stockbroker Pleads Guilty to Fraud Involving $6M Ponzi Scam

Published on: June 8, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Sunil Sharma, a former stockbroker who hasn’t been part of the securities industry for over 10 years, has pleaded guilty to fraud charges. The 68-year-old is facing 20 years behind bars for starting what prosecutors claim was a $6 million Ponzi scam that ran from 2008 to 2014.

He allegedly raised $8.36 million from over 30 investors, paying old investors with new investors’ money. According to officials, Sharma misappropriated some $2.5 million of investor funds for his own spending, including a cruise trip, leases for expensive cars, and a down payment on a house.

Investors received statements showing gains even as Sharma continued to lose their funds. He falsely claimed that investors were putting their money in safe investments when really the day trading strategy he employed was high risk.

States Take Action to More Easily Identify Barred Brokers Who Are Still Selling Insurance

Published on: June 6, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The National Association of Insurance Commissioners (NAIC) has agreed to steps that will allow for the easier identification of brokers who have been barred from the securities industry yet continue to sell other products. The association is tasked with providing states regulatory guidance, as well as drafting model laws.

It is not uncommon for securities brokers to sell insurance, as well as other products and services. Even after someone has lost the license to sell bonds and stocks, he/she is still legally allowed to sell insurance with an insurance license. This type of license also lets individuals sell products that are like securities, such as fixed annuities and equity indexed annuities. Now, regulators are worried that such leniency will enable further bad behavior from brokers who have already been barred.

It was the Wall Street Journal that first reported on how many states can’t do a lot to track these brokers. Because of inconsistent coordination between regulators and insurance watchdogs, the latter may not even know that a broker has been barred from the securities industry. An insurance license lends credibility to ex-brokers even when they have a questionable broker record.

Sage Advisory Group Must Pay Over $1M for Two Securities Fraud Cases

Published on: June 1, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The United States District Court for the District of Massachusetts has ordered Sage Advisory Group and principal Benjamin Lee Grant (“Lee Grant”) to pay over $1M for two SEC fraud cases. The ruling comes after a federal jury found both of them liable.

In the first case, the regulator is accusing Lee Grant of using allegedly false and misleading statements to fraudulently persuade brokerage customers to move their assets to Sage, which was the firm he was starting in 2005. He purportedly told clients that the 2% wrap fee they would have to pay Sage for transaction, management, and advisory services would not cost as much in the long run as the 1% fee and trading commissions that his former employer, brokerage firm Wedbush Morgan Securities, charged them.

The SEC said that Lee Grant claimed it was First Wilshire Securities Management Inc. that was recommending that clients move their assets to Sage with him. Wilshire Securities Management was the investment adviser managing the assets of these clients at Wedbush. The regulator contends, however, that First Wilshire Securities never made such a recommendation.
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FINRA on BrokerCheck and Broker Compensation

Published on: May 30, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has sent its proposed rule change regarding BrokerCheck links to the U.S. Securities and Exchange Commission. Per the new measure, a broker-dealer would have to make sure that a BrokerCheck link is made accessible on its home page. The firm would also have to make sure links to the FINRA database are visible on the profile pages of its brokers.

The Commission will have to approve the rule, which was modified after concerns were raised about the original version, which called for BrokerCheck links to also be included in posts on social media websites, including Twitter. A broker would also have had to provide direct links to his/her individual BrokerCheck profile pages.

The revised version doesn’t require providing the links on social media, and any links to BrokerCheck only must take people to the home page of the firm’s site and not an individual rep’s profile.

FINRA Gets Tough With Its Sanctions Against Brokers For Suitability Violations

Published on: May 15, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has decided to take tougher actions against brokers who violate suitability standards. The regulator is recommending that the National Adjudicatory Council, which oversees disciplinary proceedings, raise its suggested suspensions for brokers who make unsuitable recommendations from one year to two years. FINRA wants brokers who commit fraud be potentially barred and offending firms face potential expulsion.

FINRA’s revisions to its Sanctions Guidelines are to go into effect right away. They exist to protect investors from brokers who don’t comply with the suitability rule. The rule states that brokers can sell products that are to their benefit as long as these products also are in alignment with helping investors meet their investment goals.

Despite the changes, InvestmentNews reports, there are those who think that FINRA’s proposed sanctions are insufficient and, also, that there may be negative consequences for investors. For example, defendants facing two-year suspensions might opt to fight cases against them rather than settle because of the tougher penalty.