Broker Fraud

FINRA Bars Wells Fargo Broker to NFL, NBA Players Over Failure to Disclose Nightclub Involvement

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

The Financial Industry Regulatory Authority Inc. has barred broker Aaron Parthemer, a Wells Fargo (WFC) adviser, for taking part in a number of outside businesses and failing to disclose his involvement. FINRA has tight regulations that don’t allow brokers to take part in private securities transactions without notifying their firm and getting authorization. Parthemer, who used to be at Morgan Stanley Wealth Management (MS) until four years ago, has advised numerous NBA and NFL athletes.

According to the SRO, he falsely represented, in compliance questionnaires he filled out while with both firms, that he was not taking part in external business activities that warranted disclosure. He also gave FINRA false data when the regulator started to ask for more information about external business activities in 2012.

Parthemer allegedly did not disclose the part he played in running Club Play, which used to be a South Beach, Florida nightclub, as well as his involvement in a tequila marketing operation and an Internet branding startup. FINRA also contends that the broker made unapproved loans to clients in connection with the club and referred clients to invest in the start up.

Trader Blamed in 2010 Flash Crash is Arrested in London

Published on: April 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Almost five years after the 20-minute Flash Crash when the Dow Jones Industrial Average plunged nearly 600 points and then quickly rebounded, the U.S. Department of Justice has arrested trader Navinder Singh Sarao. He is accused of allegedly playing a major part in the brief turmoil because of his involvement in a number of market manipulating trades.

The crash, on May 6, 2010, caused certain stocks to trade at a penny before thousands of trades were cancelled and placed substantial downward pressure on shares of big companies. The Flash Crash generated a lot of worries about just how stable the U.S. stock markets were and triggered scrutiny into high frequency trading firms and electronic trading venues.

Now, following a joint probe with the Commodity Futures Trading Commission, the DOJ is putting a lot of blame for the crash on Sarao. He is accused of multiple counts of commodities manipulation, one count of wire fraud, and one count of spoofing. Sarao’s alleged manipulation took place over a number of years up, including up through this month.

Consumer Groups Accuse SEC of Not Protecting Retail Investors and Poorly Regulating Investment Advisers

Published on: March 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A letter to the SEC from consumer groups claims that the agency is not meeting its obligation to make sure that retail investors are getting the protections they need. The Consumer Federation of America, Americans for Financial Reform, Fund Democracy, Consumer Action, Public Citizen, and AFL-CIO gave an outline of how they want the regulator to enhance financial adviser regulation, which they believe could be more robust.

They are calling on the Commission to execute “concrete steps” to up the standards bar for brokers when it comes to giving investment advice. For right now, brokers only have to recommend investments that in general are a fit for the clients’ investment goals and risk tolerance level, even as investment advisers must abide by a fiduciary obligation.

The letter from the groups also talks about improving financial adviser disclosure in regards to compensation and conflicts, reforming the sharing of revenue, placing limits to mandatory arbitration for disputes between investors and their financial representatives, strengthening regulations for high-risk financial products, and enhancing required disclosures from financial advisers to investors about financial products.

Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations

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

The Securities and Exchange Commission is charging H.D. Vest Investment Securities with violating customer protection rules. The regulator contends that the Texas-based broker-dealer did not adequately supervise registered representatives that are accused of misappropriating customer monies.

H.D. Vest will pay a penalty to settle the charges. It has consented to get an independent compliance consultant that will help the firm enhance its supervisory controls.

The SEC’s order, which institutes a settled administrative proceeding, said that the firm did not have proper procedures and policies to oversee the external business activities of representatives. This allowed some of them to use outside businesses to bilk the brokerage firm’s customers. Some even deposited or moved customer brokerage funds into these external business accounts.

PFS Investments, Ex-Broker Under Investigation for Securities Fraud that Bilked At Least Twenty Customers

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

The Financial Industry Regulatory Authority is accusing former broker Barkley Lundy, who worked with PFS Investments, of defrauding at least 20 customers. The self-regulatory organization claims that from at least 1/11 through 3/14, Lundy took these clients’ funds and placed the money in his own bank accounts. He also purportedly generated fake investments, issuing monthly payments to customers to conceal the securities fraud. FINRA says that Lundy violated FINRA Rule 2010 when he comingled customer monies.

The SRO said that Lundy kept a list of customers, setting up a payment schedule for them to receive monthly payments. PFS Investments was unaware of the payment schedule and the list. Lundy moved the money of a few of his customers from his account into their bank accounts and then moved the funds into their PFS accounts. He also worked it out so that these customers bought mutual fund shares that were customer-held. Lundy explained the fund movements as “dividend reinvestments.”

He gave one customer, per that client’s request, tax forms to track the monthly payments. FINRA, however, says that the documents were fabricated and contained falsified information. Meantime, Lundy made it appear as if PFS Investments not only provided the documents but also created them.

White House Looking At Whether Brokers Are Costing Workers Billions in Retirement Funds

Published on: January 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Bloomberg News is reporting that according to a memo drafted by President Obama’s Council of Economic Advisers Chair Jason Furman, the White House may be pushing for tighter oversight over brokers who deal with retirement accounts. Furman noted that research shows that excessive trading, increased commissions, and other broker practices may be costing investors up to $17 billion a year-and that even this estimate may be conservative. His memo said that investors might be losing up to 10% of their long-term savings because they receive conflicted investment advice.

This could lead to a Labor Department regulation that would establish a fiduciary obligation requiring these brokers to act in the best interests of their clients. Right now, brokers are merely obligated to make sure that they reasonably believe they are making the right recommendation to a client.

Such a fiduciary duty rule is one that Bank of America Corp (BAC), Morgan Stanley (MS), and other firms have lobbied against. They contend that this type of regulation would not only be more expensive but also it would leave smaller investors with fewer investment choices.

SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales

Published on: December 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Vinay Kumar Nevatia with making fraudulent stock sales. According to the regulator, Kumar sold about $900,000 of stock in CSS Corp. Technologies Limited. The stock in the privately held data technology company supposedly belonged to him even though these were shares that he had already bought for other people a few years back.

The SEC claims Kumar conducted the sales via secret wire transfers, got the stock transfer agent to record the bogus transactions, and stole investors’ money to use as his own. He also purportedly gave the earlier share owners bogus updates about their investments even after he sold their stock off to others so that they would think that the shares still belonged to them.

Kumar is not registered with the Commission and he does not have a license to trade securities. He also is accused of using numerous aliases while residing in Palo Alto, Ca. The SEC is charging him with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. It wants Kumar to pay a financial penalty and give back ill-gotten gains. The regulator is also looking to get permanent injunctions.

Unregistered Florida-Based Broker Charged with Securities Fraud

Published on: November 26, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has charged Albert Scipione with securities fraud allegedly involving stealing investor money in a day trading scam. Scipione, who is an unregistered broker, has already pleaded guilty to criminal charges in a parallel case.

According to the SEC, Scipione and Matthew P. Ionno pursued investors to set up accounts at their Traders Café for day trading. This involved the swift selling and buying of stocks during the day to see if stock values will rise or fall while the stock is owned so a quick profit can be made. Traders Café, which belonged to two men, was never registered with the Commission as a brokerage firm.

Scipione purportedly pushed the company’s trading platform while making bogus misrepresentations to investors about high trading leverage, fees, commissions, and their assets’ safety. The regulator says that Scipione and Ionno raised over $500,000. Investors were told that their money would be only used for day trading or certain other specified uses. Instead, a lot of customers found that they couldn’t trade at all.

Survey by FINRA Shows Investors Want More Regulatory Protections

Published on: November 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a Financial Industry Regulatory Authority-released survey of investors, 92% of participants believe that there needs to be a regulatory “cop” to protect investors. 94% said that regulators should use the latest technology and tools on the job. The survey is intended to evaluate how investors feel about regulatory protections.

1,000 investors participated in the survey. Overall, said the self-regulatory organization, investors were in strong agreement that regulation and investor protections are key. The majority of investors also said that it is important that regulators detect when customers are sold unsuitable securities, if brokers are making trades to their benefit rather than that of investors, and when firms are taking risks that could hurt customers. 74% of those surveyed said they are in support of additional regulatory protections against broker misconduct.

The Survey was conducted over several days last month. Respondents came from a nationally distributed online panel. They had to meet certain criteria: U.S. citizen, at least 21 years of age, with primary or shared responsibility in their home for investment choices, and at least $10,000 in securities investments.

Two Former Merrill Lynch Brokers Contend with Unauthorized Trading Claims

Published on: November 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to the Financial Industry Regulatory Authority (FINRA), Ameriprise Financial (AMP) broker Lorene Fairbanks, formerly with Merrill Lynch. Pierce, Fenner & Smith Incorporated, was recently sanctioned over allegations that she effected over 57 discretionary transactions for several customers without getting the required written authorization from the clients or the approval of the firm. Fairbanks also allegedly mismarked over 50 order tickets, noting them as “unsolicited” when they were “solicited” orders. Brokers are not allowed to exercise discretionary authority in a client account without written authorization.

The Ohio broker was registered with Merrill Lynch from 8/06 to 3/12. The firm fired Fairbanks in February 2012 for purportedly taking discretion in client accounts and mismarking customer orders. She has been associated with Ameriprise since June 2012. There also have reportedly been other customer complaints accusing Fairbanks of excessive trading and unsuitable trading.

Also sanctioned by FINRA for allegations of unauthorized trading is George Zaki, another ex-Merrill Lynch broker. The self-regulatory organization contends that Zaki implemented or executed about 3,600 trades in some 80 accounts without written customer authorization between 6/10 and 8/12.