FINRA

Investors are Not Raymond James Financial Customers for FINRA Arbitration Purposes, Rules 4th Circuit

Published on: March 28, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the Fourth Circuit affirmed that, for purposes of Financial Industry Regulatory Authority arbitration, investors who lost the investment they made on stock they purchased from a lawyer connected to a Raymond James Financial Services (RJF) Inc. broker are not the brokerage firm’s client. The appeals court said that the investors dealings with the broker-dealer were “too remote.”

Tax lawyer David Affeldt had been recruited by an Inofin Inc. executive to recommend to investors that they buy securities from the company. That employee happened to be the college roommate of then-Morgan Stanley (MS) representative Kevin Keough, who also informally acted in a sales capacity for Inofin.

Because of his employment with the financial firm at the time, Keough had Inofin pay his compensation for the referrals to his wife instead of to him. He and Affeldt, however, agreed to equally share these referral fees-an agreement that continued even after Keough went to work with Raymond James.

FINRA CEO Says Now is Time to Make Investment Advisers and Brokers Adhere to a Fiduciary Standard

Published on: March 22, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to Financial Industry Regulatory Authority Chairman and Chief Executive Officer Richard Ketchum, now is the right time to make brokerage firms and investment advisers that provide personalized retail financial advice adhere to a uniform fiduciary standard. However, he warned that such a standard, whether by itself or combined with other regulatory harmonization, does not guarantee misconduct will not happen.

Establishing a uniform fiduciary duty for investment advisers and setting up new oversight for them were both recommended in Securities and Exchange Commission studies that were conducted over two years ago under the order of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Earlier this month, the SEC requested quantitative and economic information to help it decide what that standard of care should be. It also engaged in the conversation of whether investors would benefit more if rules were harmonized in other sectors of investment adviser and broker-dealer regulation, including supervision, firm licensing, advertising, individual qualification, books and records, and others.

Addressing the Consumer Federation of America earlier this month,

Financial Industry Representatives Settle FINRA Cases Over Securities Fraud

Published on: March 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

These financial representatives have settled the Financial Industry Regulatory turned in their Letter of Acceptance, Waiver, and Consent in the securities cases made against them by the Financial Industry Regulatory Authority. By consenting to the sanctions described and the entry of findings, this does not mean they are denying or admitting to the allegations.

New York Registered Principal Accused of Making Misrepresentations and Missions

Neftali Mercedes must pay $97,000, in addition to interest as restitution to customers. He is accused of intentionally making material omissions and misrepresentations about the risks related to speculative securities and an issuer’s financial state.

Financial Firms Settle with FINRA: ES Financial Services Resolves Solicitation of Non-US Investors Allegations and Lincoln Financial Securities Consents to Entry of Findings Alleging Inadequate Supervision

Published on: March 11, 2013 | by Shepherd Smith Edwards & Kantas, LLP

ES Financial Services Resolves Solicitation of Non-US Investors Allegations

E.S. Financial Services, Inc. has turned in a Letter of Acceptance, Waiver, Consent to the Financial Industry Regulatory Authority over allegations that it acted as a placement agent and solicited specific non-US investors to get involved in a commercial paper program that a foreign-based affiliate was offering. The firm is accused of providing misrepresentations in certain materials, including that like other commercial products, the program was a cash component of the customer’s portfolio, and also, that the investment was a low-risk, conservative proposition.

ES Financial is also accused of not sufficiently describing the risks involved and for close to four years failing to conduct the proper due diligence for the commercial paper program sales. FINRA’s findings note that the financial firm did not adopt, implement, or enforce written due diligence procedures customized for these instruments. Fortunately, investments were paid back in a timely manner and no investor lost funds. However, this does not mean that ES Financial succeeded in conducting a proper investigation into various issues.

Financial Representatives Settle with FINRA Over Allegations Related to Excessive Commissions, Elder Financial Fraud, and Funneling Client Funds for Personal Gain

Published on: March 8, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Without denying or admitting to the allegations, the following financial representatives have turned in their Letter of Acceptance, Waiver, and Consent in the securities cases made against them by the Financial Industry Regulatory Authority:

New York Registered Rep. Fined $7,500 for Charging Excessive Commissions

Enver Rahman Alijaj has been suspended for two months from associating with any member of FINRA. He is accused of charging excessive commissions in equity security trades that took place in a member firm’s client account. The trades involved the buying of common stocks. The commissions for them ranged from 4.3% to 4.9% per trade.

Texas Securities Fraud: IMS Securities Settles FINRA Case Alleging Inadequate Supervision of Wholesale Representatives

Published on: March 7, 2013 | by Shepherd Smith Edwards & Kantas, LLP

IMS Securities Inc. has settled a Financial Industry Regulatory Authority case accusing the Houston-based brokerage firm of inadequately overseeing its wholesale representatives. Per the SRO’s claims, IMS Securities allegedly failed to customize its supervisory system to its business in a manner that could allow it to be in compliance with securities laws and FINRA rules. However, despite agreeing to the $100,000 fine and censure, the financial firm is not admitting to or denying the findings.

Per FINRA, IMS Securities failed to supervise several wholesale representatives for nearly the first four years of their employment and had insufficient WSP’s detailing the steps for assessing certain securities products (even though the financial firm sold number of direct participation plans and privately-traded real estate investment trusts (REITs)). The regulator also said that there was one year when the financial firm did not conduct annual audits at two of its OSJ branches, and, for close to two years IMS Securities failed to properly maintain sales/purchase blotters, checks forwarded/received blotters, and other receipts and financial records.The SRO believes that not only did IMS Securities’ wholesale representatives send securities business-related electronic communications through outside email addresses but also, the firm did not keep the emails.

Texas Securities Fraud

Securities Roundup: Venecredit Fined $25K for Working with Foreign Finders, Ex-Merrill Lynch/LPL Financial Rep. Faces Fraud Charges, & BrokersXpress Broker is Suspended Over Private Placement-Related Misconduct

Published on: March 5, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Venecredit Fined $25K for Working with Foreign Finders to Generate Retail Investor Business

According to the Financial Industry Regulatory Authority, Venecredit Securities must pay a $25,000 fine for allegedly using foreign finders to get new retail investor business. The financial firm has now been censured for two years.

The SRO says that the foreign finders served as the primary contacts between Venecredit and the clients and had access to account information via the clearing firm’s platform. These finders worked for a foreign brokerage firm that shares directors and officers with Venecredit and its wholly owned entity. FINRA contends that not only did Venecredit fail to create and put into effect proper supervisory measures that would have allowed it to look at customer complaints about the employees at the foreign brokerage firm, but also it failed to keep electronic correspondence from both the foreign traders and the personal email accounts of its registered representatives.

ING Groep NV Broker-Dealers Fined $1.2M by FINRA Over Not Retaining Millions of E-Mails

Published on: February 21, 2013 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Directed Services LLC, ING Investment Advisors LLC, ING Financial Advisers LLC, ING America Equities Inc. and ING Financial Partners Inc. $1.2M for failing to keep or review million of email correspondence between ’04 and ’08. The five broker-dealers are affiliates of ING Groep NV (ING, INGA.AE).

According to ING Groep, the five ING units self-reported the problem to FINRA and that no customers were affected. In the wake of a thorough internal examination, the ING affiliates have taken significant steps to better its supervisory practices and email retention.

Per its findings, FINRA says the broker-dealers violated FINRA rules and federal provisions related to the retention of records when they did not properly configure the email accounts of staff to make sure correspondence was kept and reviewed. Also, because software wasn’t properly configured, close to 6 million emails that were marked for review at a supervisory level were not reviewed.

FINRA Pulls Back on Regulating Registered Investment Advisers

Published on: February 19, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to Financial Industry Regulatory Authority Chief Executive and Chairman Richard Ketchum, the SRO is pulling back from its bid to regulate Regulating Registered Investment Advisers. This move comes after FINRA spent the last couple of years lobbing to become the main regulator for RIAs.

However, according to Ketchum, in the wake of the current political climate and changes in leadership during the 2012 election, he does not expect that the House of Representative Financial Services Committee will try to revamp the way RIAs are currently regulated, which is via the Securities and Exchange Commission. For advisers that did not want FINRA overseeing them, this is good news.

However, not all of those that were against the SRO taking over RIA regulation are convinced that FINRA has completely given up. Some are worried that the regulator intends to return to the issue at a later date.

Amendments Clarify FINRA’s Right to Look at Firm Records, Books

Published on: February 9, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has approved rule amendments that provide greater clarity about the Financial Industry Regulatory Authority’s right to examine and copy the records and books of its member financial firms and associated persons. Per amended Rule 8210, staff and adjudicators are entitled to copy and inspect “data in the “possession, custody or control” of members and any others that the SRO has jurisdiction over. This amended rule becomes effective on February 25.

The amendments makes clear that the records and books are covered by rule 8210.The phrase “possession, custody or control” was added to including concept of the existing body of case law that defines these three terms they way that they are used in the Federal Rules of Civil Procedure’s Rule 34. The broker-dealer and associated persons relationship is also clarified so it is obvious that all aspects of that affiliation are subject to a Rule 8210 request.

The SEC has also approved amendments to FINRA arbitration codes. This will let arbitrators order member firms and associated persons to serve as witnesses or produce documents without being subject to the subpoena process. Additionally, the amendments added procedures for non-parties to contest subpoenas and for non-parties and parties to oppose arbitrator orders of production.