Financial Firms

LPL Financial to Pay $11.7M Fine for Supervisory Failures

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

The Financial Industry Regulatory Authority Inc. said that LPL Financial (LPLA) must pay $11.7M in fines and restitution for widespread supervisory failures involving complex products sales. The self-regulatory organization said that from 2007 up to last month, the firm did not properly supervise certain exchange-traded funds, nontraded real estate investment trusts, and variable annuities. It also did not properly deliver over 14 million trade confirmations to customers and failed to properly supervise communications, including advertising, as well as the consolidated reports used by brokers.

According to the Letter of Acceptance, Waiver, and Consent, To grow LPL, its wholly-owned brokerage firm subsidiary, LPL Financial Holdings Inc. employed a strategy that included acquiring financial services firms, consolidating them with the broker-dealer, and bringing in more registered representatives. Unfortunately, said the SRO, the firm failed to dedicate enough resources to allow LPL to fulfill its supervisory duties.

As just one example, LPL did not have a system for either monitoring the duration of time customers held securities in accounts or enforcing concentration limits on complex products. Its system for reviewing trading activities in accounts had numerous deficiencies. Also, LPL did not submit trade confirmations in over 67,000 customer accounts.

City of Los Angeles, CA Sues Wells Fargo for Fraud

Published on: May 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The city of Los Angeles has filed a civil complaint against Wells Fargo Bank (WFC). The lawsuit accuses the bank of encouraging employees to take part in conduct that was illegal and fraudulent, including setting up unauthorized accounts for customers, charging them unwarranted fees, and ruining their credit.

The city is looking to get a court order stopping the alleged wrongdoing. It wants penalties for every violation, as well as restitution for customers that were hurt. The case is applicable to residents of Los Angeles County and perhaps even customers outside that area.

According to the complaint, employees purportedly misused the confidential data of customers and neglected to close unauthorized accounts when the latter complained. Certain employees even allegedly raided customer accounts for money to set up additional accounts. When unwarranted fees went unpaid, the bank purportedly put customers into collections because of unauthorized withdrawals and damaging data on their credit cards because of these unwarranted fees.

RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales

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

The Financial Industry Regulatory Authority is ordering RBC Capital Markets to pay restitution to customers for supervisory failures that allowed for the sale of reverse convertibles that were unsuitable for them. The firm must pay them about $434,000 plus a $1 million fine.

According to the self-regulatory organization, RBC Capital Markets lacked supervisory systems that were reasonably designed to identify transactions that warranted review when the reverse convertibles were sold to customers. This purported inadequacy is s a violation of FINRA’s rules and suitability guidelines.

Although RBC had guidelines for selling reverse convertibles, specific criteria were established regarding annual income, investment goals, liquid net worth, and investment experience. Because of this, the firm was unable to detect the sale of 364 reverse convertible transactions by 99 of its registered representatives. The transactions involved 218 accounts and they were not suitable for the account holders. The customers lost at least $1.1 million.

SEC Investigates Bank of America Merrill Lynch

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

According to The Wall Street Journal, the U.S. Securities and Exchange Commission is investigating Bank of America Corp. (BAC) and its Merrill Lynch unit to find out if the lender broke rules established to protect customers accounts. According to sources in the know, over a three-year period, Merrill Lynch used different kinds of big, complex trades and loans to save on funding expenses and free up billions of dollars in money and securities for trading that it otherwise would have needed to keep off-limits.

Bank of America put a halt to the trades in 2012 in the wake of internal dialogue over possible risks involved. The trades involved strategies that existed when the bank purchased Merrill Lynch in 2009.

Now, the SEC wants to know if the strategies violated the protection rules and if regulators were misled about the bank’s actions. It also is trying to determine if retail brokerage funds were placed at risk for the purpose of making more money.

Morgan Stanley Sued by Home Shopping Founder’s Widow for $170M

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

Lynnda L. Speer, the widow of Home Shopping Network co-founder Roy M. Speer, is suing Morgan Stanley Wealth Management (MS), a branch manager, and an adviser for over $170 million. Mrs. Speer contends that the firm and adviser Ami Forte took part in excessive trading, abused their fiduciary duty, and were involved in unauthorized use of discretion.

Now, she is seeking $78 million for Florida Statute violations, up to $66 million in portfolio damages, and up to $44 million for disgorgement and excess commission damages. Also named in the complaint submitted to the Financial Industry Regulatory Authority is Morgan Stanley branch manager Terry McCoy.

Reuters reports that Speer’s case accuses Morgan Stanley of not properly supervising its brokers and failing to act in the best interests of Mr. Speer. When Speer died in 2012 at the age of 80 his estimated worth was approximately $775 million.

Deutsche Bank to Pay $2.5B for Rate Rigging

Published on: April 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Financial firm Deutsche Bank (DB) will pay a $2.5 billion fine to regulators in the United States and Britain for its involvement in rate rigging. The German lender also will fire seven of its employees.

This is the largest penalty to date against a financial institution over allegations of benchmark manipulation. As part of the deal, Deutsche Bank’s subsidiary in London has pleaded guilty to criminal wire fraud charges. Meantime, the parent group has arrived at a deferred prosecution deal to resolve U.S. wire fraud and antitrust charges.

The large fine is reflective of the banks’ big market share for financial instruments tied to interest rates on mortgages, credit cards, student loans, and credit cards that the benchmarks help set.

Former JPMorgan Chase Investment Adviser Faces Criminal and Civil Charges for Allegedly Stealing $20M from Clients

Published on: April 16, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Michael Oppenheim, an ex-JPMorgan Chase (JPM) investment adviser, was arrested this week and charged with bilking clients of at least $20 million. Oppenheim worked for the firm from 2002 until March of this year.

Authorities claim that starting as early as 2011, Oppenheim convinced clients to allow him to take money out of their accounts to invest in low-risk municipal bonds. Instead, he allegedly used the funds to get cashier’s checks that he put into brokerage accounts that he controlled. He also used the money to trade options and stocks in different companies.

Because his options trading activities were generally unprofitable, most of his investments lead to losses. By last year he’d lost some $13.5 million. Oppenheim was also purportedly using client money to pay for a home loan and cover bills. He is accused of concealing his embezzelment by using fraudulent client statements and transferring funds among his clients.

Former UBS Puerto Rico Executives File a $10M FINRA Arbitration Claim Against the Firm

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

Siblings Teresa and George Bravo, who formerly worked as financial advisors at UBS Financial Services Inc. of Puerto Rico (UBS-PR), have filed a $10 million Financial Industry Regulatory Authority (FINRA) arbitration claim against the firm. The Bravos, both were senior vice presidents at the broker-dealer, claim that management deceived not just customers but also employees about proprietary closed mutual funds.

The Bravos said that they thought working with UBS would help them be of better service to their clients, which is why they left their old firm. However, the allegedly fraudulent conduct taking place at UBS created material conflicts of interest for them and other employees. The Bravos are contending that during the three years they worked at UBS, they were repeatedly deceived, mistreated, threatened, and coerced before being forced out.

They collectively managed over $120 million in client assets while working for UBS. According to their complaint, the Bravos said that UBS created a high-pressure atmosphere to get brokers to find and sell more of UBS’s proprietary closed-end mutual funds or risk termination otherwise. Teresa Bravo says that she was even duped into buying $100,000 in mutual funds herself. She and her brother are accusing UBS of deceiving customers for its own protection and trying to artificially preserve the Puerto Rican closed-end funds market.

Plaintiffs Appeal Federal Court’s Ruling Dismissing Their 401(K) Lawsuit Against Fidelity

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

A notice of appeal was submitted with the 1st U.S. Circuit Court of Appeals by plaintiffs seeking to overturn a ruling by a federal district court dismissing their 401(K) case against Fidelity Investments. The case is In Re Fidelity ERISA Float Litigation.

According to the plaintiffs, who are participants in a number of defined contribution plans, as record keeper for several of the plan, the financial firm breached its fiduciary duty when managing the plans’ float income. This is the money made from interest-bearing accounts that 401k) plans use temporarily before plan assets are disbursed and participants move their funds among different investment choices.

The plan participants believe that Fidelity used the float income to cover administrative and record-keeping costs, which was not part of their agreement with the firm in terms of the fees they were supposed to pay it. However, U.S. District Judge Denise Casper dismissed their complaint last month, finding that the plaintiffs did not plausibly allege that “float income is a plan asset.” Casper noted that she did not consider Fidelity an ERISA fiduciary in relation to float. Now, however, the plaintiffs’ lawyers are disagreeing with Casper’s ruling.

Deutsche Bank Settlement Over Libor Rigging Likely to Exceed $1.5B

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

According to media reports, Deutsche Bank AG (DB) could settle allegations over Libor manipulation with U.S. and British regulators as early as this month. A source reports that the settlement is likely to be larger than $1.5 billion and unit Deutsche Bank Group Services may even plead guilty.

Regulators expected to be involved in any settlement are the U.S. Department of Justice, the Department of Financial Services in New York, the Commodity Futures Trading Commission, and U.K.’s Financial Conduct Authority. Deutsche Bank is one of several banks probed over accusations of London interbank offered rate manipulation.

Libor is the key interest rate linked to mortgages, credit cards, student loans, and other instruments. The bank is accused of giving false data to a British Banker’s Association daily survey, which impacted Libor’s daily rate in numerous currencies, such as the U.S. dollar, the Euro, and the yen.