Arbitration Rulings

AXA Financial Ordered to Pay $3.2M to Farming Family

Published on: May 10, 2019 | by Shepherd Smith Edwards & Kantas, LLP

An egg-farming family based in New York has been awarded $3.2M in its Financial Industry Regulatory Authority (FINRA) arbitration claim against AXA Financial. The claimants are an older couple, Sandra and James Fitzpatrick, who own Fitzpatrick Poultry Farm. They contend that Franceso Puccio, an ex-AXA Financial broker, placed their money into variable annuities (VA), which were unsuitable for them. Puccio has already been convicted for senior investor fraud involving another elderly client that was also with the firm.

The couple are claiming that they lost millions of dollars because of the way AXA and Puccio handled their funds. They contend that their money had been invested in mutual funds until Puccio moved their funds, as well as four life insurance policies, into VAs.

Puccio worked in the securities industry for 16 years. He was barred by FINRA in 2015 after he failed to turn over information and documents that the regulator had requested related to an investigation into whether he had converted monies from a non-customer. Puccio’s BrokerCheck record notes several customer disputes, with allegations including unsuitable investments sold to claimants, negligence, breach of fiduciary duty, misrepresentations, and omissions.

Investor Fraud: Quest Capital Strategies Must Pay Investor $276K in Woodbridge Ponzi Fraud, FINRA Warns Firms About Recommending Unsuitable 529 Plan Share Classes, and Ex-Ameritas Broker is Barred from the Securities Industry

Published on: January 31, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Investor Awarded $276K in Woodbridge Ponzi Fraud

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded more than $276K to an investor that lost money in the $1.2B Woodbridge Ponzi scam. The panel found that Quest Capital Strategies did not properly supervise former broker Frank Dietrich, who sold $400K of Woodbridge-sponsored mortgage notes to the investor.

According to InvestmentNews, Dietrich sold $10.8M of Woodbridge mortgage funds to 58 investors, making nearly $261K in commissions. He retired in March. In November, FINRA barred him after finding that the former broker did not obtain Quest’s approval to sell the notes.

Investor Fraud: FINRA Awards Over $1M in Churning Case Against Legend Securities and Morgan Stanley Financial Adviser is Sentenced After Spending Over $950K of Clients’ Money

Published on: November 30, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Legend Securities Ordered to Pay Client For Churning His Funds

A Financial Industry Regulatory Authority (FINRA) panel has awarded Herbert W. Voss $1.075M in his securities fraud case against Legend Securities Inc., its ex-chief compliance officer Frank Philip Fusco, and former Legend broker Danard Warthen Brown. Legend is no longer in operation and was expelled by the self-regulatory authority (SRO) in 2012.

Voss reportedly lost $375,000 while Legend was his brokerage firm. Of the more than $1M award granted to Voss, $700K is for punitive damages. His securities fraud lawyer contends that punitive damages were warranted because of how much turnover took place in Voss’s account.

Financial Firm News: Raymond James Fined $2M Over Email Supervision, FinMa Finds JPMorgan Chase Responsible for Anti-Money Laundering Violations, and Bank of America, Wells Fargo, Citigroup, and Other Big Banks Get Federal Approval for Their Living Wills

Published on: December 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Raymond James Financial to Pay Fine to FINRA Over Email Communications

The Financial Industry Regulatory Authority has fined Raymond James Financial Services (RJF) $2M for not maintaining supervisory systems and procedures that were “reasonably designed” enough to oversee emails. The firm settled the case but without denying or admitting to the charges. It also agreed to a risk-based retrospective review of past emails for potential violations.

FINRA examined Raymond James’ email system “during a nine-year review period.” According to the self-regulatory organization, the system had significant flaws that allowed email communications to not undergo “meaningful review.” As a result, “unreasonable risk” was created that could have allowed for “certain misconduct” to go undetected. Also, the firm did not assign enough resources or staff to the team tasked with evaluating emails that had been flagged by the system, even as the number of flagged correspondence grew in volume.

FINRA said that Raymond James “unreasonably excluded” certain personnel who worked on customer brokerage accounts from “email surveillance.” The SRO claims that the emails of 300 registered representatives who were employed in branches with their own email servers were not subject to the “lexicon” of phrases and words for detecting emails that might merit review for potentially suspect conduct.

FINRA Cases: Ex-LPL Broker is Barred for Not Disclosing Role in Private Securities Transactions, Merrill Lynch is Fined $1.4M For Extended Settlement Transactions, and Noble Capital Markets Agrees to Pay $225K for Failing to Disclose Conflicts to Investors

Published on: December 19, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former LPL Broker is Barred For Not Disclosing Private Securities Sales

The Financial Industry Regulatory Authority announced a bar against Leslie Koonce, an ex-LPL(LPLA) broker. According to the self-regulatory organization, Koonce lied when he failed to disclose that he had engaged in private securities sales. Koonce allegedly pitched a private company’s convertible promissory notes to at least 30 potential investors.

The FINRA case contends that not only did Koonce help facilitate the transfer of $175K to at least three LPL customers so they could invest in the private securities, but also, he invested $50K of his own funds. All the while, said the SRO, Koonce failed to notify LPL in writing of his involvement in these transactions. When he filed out compliance questionnaires twice in 2012, Koonce denied any involvement in these types of transactions.

LPL fired Koonce in 2015. He later went to work with Cetera and then EK Riley Investments. The ex-broker no longer works in the securities industry.

FINRA Cases: Craig Scott Capital Expelled Over Excessive Trading Claims, CFD Investments Fined $30K to Resolve Inadequate Supervision Allegations Involving ETFs, and H. Beck Broker is Accused of Making Unsuitable Investment Recommendations

Published on: November 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Craig Scott Capital, LLC Loses FINRA Membership After Its Representatives Are Accused of Excessive Trading

The Financial Industry Regulatory Authority has expelled Craig Scott Capital, LLC over finding that three of the firm’s registered representatives allegedly engaged in excessive trading in the accounts of customers. The self-regulatory organization said that the charges imposed on customers, including markdowns, markups, and commissions, were not in line with the latter’s financial states and goals.

Now, FINRA is holding Craig Scott Capital accountable for the excessive trading, which it described as churning. This type of excessive trading involves making trades in a customer’s account in order to earn a commission.

FINRA is also accusing the firm of not putting into place and enforcing a “reasonable supervisory system” to prevent excessive trading and failing to properly supervise the registered representatives involved in the alleged wrongdoing so these behaviours could have been prevented. The regulator accused Craig Scott’s owners of not taking reasonable action even though they detected the red flags indicating that excessive trading might be taking place.

Despite FINRA Securities Arbitration Victory Against Wine Mogul, Fidelity is Accused of Prioritizing Its Own Interests

Published on: August 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the securities arbitration claim brought by a wine mogul against Fidelity Brokerage Services, a Financial Industry Regulatory panel may not have ordered the financial firm to pay claimant Peter Deutsch compensation but that doesn’t mean the panelists believe that the broker-dealer placed its former client’s interests before its own.

Deutsch’s family’s company, Deutsch Family Wine & Spirits, markets Yellow Tail and Beaujolais Nouveau wines. He is accusing Fidelity of not handling his account properly when he bet on Chinese shares. He claims that this cost him up to $436M.

Deutsch contends that he believed Fidelity unit Fidelity Family Office when it told him his best interests were the firm’s priority but they then allegedly proceeded to ignore what he wanted and lent out shares belonging to him. The brokerage unit also stopped Deutsch’s trading in China Medical Technology shares when it prevented him from buying an additional 50 million stock shares. Now he claims that this foiled his attempt to gain a controlling stake in the company.

Ruling on Deutsch’s bid for damages last month, the arbitrators turned down that request “in its entirety” on the grounds that they believe he would have lost money anyway even if Fidelity had dealt with his account differently. The panel agreed with the firm in that calculating damages could not be done in a way that wasn’t based on hypotheticals. The arbitrators didn’t weigh in on his claim that the broker-dealer acted inappropriately by lending his shares to short-sellers.

FINRA Headlines: Dawn Bennett Loses $1M Gold ETF Claim, Regulator Bars NJ Broker-Dealer, and Investors Are Warned About Binary Options Follow-Up Fraud

Published on: March 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Investment Adviser Loses Arbitration Claim Over Gold Exchange-Traded Fund
Ex-financial adviser Dawn Bennett is on the losing end of a $1M securities arbitration claim brought by a former client who claims that she recommended he invest in a gold exchange-traded fund. Steven Santagati brought his ETF securities case to the Financial Industry Regulatory Authority. He alleged failure to supervise, breach of fiduciary duty, and negligence.

InvestmentNews reports that in an interview this week, Santagati accused Bennett of taking advantage of his lack of understanding about “financial details.” Santagati said that Bennett leveraged his account and invested in risky investments, including the SPDR Gold Shares exchange traded fund.

Finra awarded Santagati $746K. Western International Securities, which was Bennett’s ex-brokerage firm, and her Bennett Group Financial Services are additional respondents in this case. They were found “jointly and severally” liable for the violations. In addition to Santagati’s award, they must pay $27K in expert witness fees and $252K in legal fees.

Securities Cases: Merrill Lynch Ordered to Pay $2.8M for Supervisory And Other Violations, Ernst & Young Agrees to Pay $11.8M for Failed Audits, and Ex-Morgan Stanley Client Administrator is Suspended Over Fraudulent Wire Transfer

Published on: October 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority Fines Merrill Lynch $2.8M

FINRA has fined Merrill Lynch, Pierce, Fenner and Smith Inc. $2.8 million. By settling, the firm is not denying or admitting to the self-regulatory organization’s charges.

FINRA said because of system errors, Merrill Lynch inaccurately reported millions of trades. The regulator said that Merrill Lynch’s supervisory system as it relates to specific matters related to documenting, reporting, and records was not designed in a reasonable manner.

Ernst & Young Settles Audit Failure Charges By Agreeing to Pay Over $11.8M

Ernst & Young LLP has agreed to resolve U.S. Securities and Exchange Commission charges accusing it of audit failures. The monetary settlement, along with the $140M penalty that audit client Weatherford International agreed to pay separately, will go back to investors who were hurt in the accounting fraud.

Wells Fargo to Pay UBS $1M Over Broker Departure

Published on: May 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A FINRA arbitration panel has ordered Wells Fargo Advisors LLC (WFC) to pay UBS Financial Services Inc. $1.1M to resolve a claim involving financial adviser David Kinnear who went to work for the Wells Fargo & Co. brokerage arm after leaving the UBS Group AG (UBS) unit. UBS claims that Kinnear stole thousands of client and business records, as well as proprietary information, after resigning from the firm.

The Wall Street Journal reports that according to a source, Kinnear downloaded the data and distributed it to clients. UBS contends that the compensation Kinnear received at Wells Fargo was related to his ability to successfully bring UBS clients with him. UBS also claims that Kinnear owes it promissory notes.

Wells Fargo denies UBS’s allegations. It submitted a counterclaim accusing the firm of unfair completion, including preventing clients from moving from UBS to Wells Forgo.

Under the Protocol for Broker Recruiting, brokers are only allowed to bring the names and contact information of clients that they serviced while having worked at a firm when moving to another brokerage firm.