FINRA

Raymond James and RBC Capital Markets Fined $1.4 Million in Total Over Improper Stock Lending Activities

Published on: June 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that RBC Capital Markets Corp., Raymond James & Associates, Inc., and an RBCCMC head trader have settled charges over alleged broker misconduct connected to stock loan improprieties. RJF is to pay a $1 million fine, while RBC Capital Markets will pay $400,000.

Meantime, RBCCMC Stock Loan Department head trader Benedict Patrick Tommasino has agreed to a $30,000 fine, a 20-month suspension from working for a securities firm, and another two-month suspension from acting in a principal role.

According to FINRA, RJF allegedly executed payments that were improper and unjustified to finder firms even though the companies didn’t provide services to locate the securities and they weren’t involved in the stock loan transactions for which they were receiving payments. For example, in March and 2004, Raymond James paid two finder firms for 11 transactions even though they didn’t perform a service. A Raymond James loan trader’s son was employed at one of the finder firms.

FINRA is also accusing the two broker-dealers of allegedly letting Dennis Palmeri, Sr. perform stock loan functions. Only registered individuals are allowed to perform this role.

Palmeri is a non-registered person that had been barred from the securities industry. He was previously convicted of federal securities law violations in 1994. Following his conviction, the SEC barred him from working for an investment advisor, a broker dealer, or an investment company. While Palmeri can act as a non-registered finder, he cannot perform roles requiring that the individual be registered.

Susan Merrill, the FINRA enforcement chief, says the two firms exposed the market to an individual that was non-registered, unqualified, unsupervised, and was not allowed to work in the securities industry. FINRA also claims that the two broker-dealers failed to reasonably supervise their Stock Loan Departments. By agreeing to settle, Tommasino and the two broker-dealers are not denying or admitting misconduct.

Related Web Resources:
FINRA Fines Raymond James, RBC Capital Markets Corporation, Stock Loan Trader for Improper Stock Loan Practices, FINRA, June 17, 2009
FINRA fines Raymond James, RBC Capital Markets, Forbes, June 17, 2009 Continue Reading ›

VSR Financial Services Settles FINRA Claim Over Improper Securities Sales Made to Senior Investors

Published on: May 25, 2009 | by Shepherd Smith Edwards & Kantas, LLP

VSR Financial Services, an investment firm, has agreed to pay $10.3 million to settle a FINRA claim that it failed to properly supervise two ex-brokers accused of improperly selling risky investments to 249 customers. The agreement ends the litigation brought by the investors, many of them retirees, against VSR and its two ex-brokers, Rebecca Engle and Brian Schuster.

Although a number of securities fraud lawsuits have been filed against Schuster, Engle, and VSR, most of the investment fraud victims opted to pursue their cases through arbitration because the terms of their investment agreements prevented them from filing lawsuits. The claimants have accused the former VSR brokers of selling them investments that were inappropriate and high-risk.

The majority of investors who were defrauded say that because they were already either retired or about to retire, they had wanted to place their money in investments that were conservative and low risk. Instead, they claim that Schuster and Engle made high-risk investments for them, selling them securities in Royal Palm Capital Group and American Capital Corp while failing to explain the risks involved. Schuster and Engle allegedly promoted these investments as “mini Berkshire Hathaways” and “can’t miss” opportunities when the companies were actually startups that had limited operating histories. According to criminal complaints and court documents, the investment fraud victims lost at least $20 million.

Engle and Schuster have been charged with eight felony counts of securities fraud. They worked together a number of times between 2000 and 2007 and have also been affiliated with Wachovia Securities LLC and Capital Growth Financial LLC. More arbitration claims against the other companies they’ve been associated with are pending.

Employer to pay $10M, CayCompass.com, May 24, 2009
VSR Financial Services settles securities claims, Kansas City, May 20, 2009 Continue Reading ›

Centaurus Financial Slapped with $175,000 FINRA Fine for Failing to Protect Confidential Client Info

Published on: May 10, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says it is fining Centaurus Financial Inc. because the firm failed to protect customers’ confidential information. The California-based company must notify brokers and affected customers of the breach and give clients a year of free credit monitoring. Also as part of its settlement with FINRA, Centaurus has agreed to entry of the SRO’s findings. It will also certify with the SRO that its systems and procedures comply with privacy requirements. Centaurus, however, is not denying or admitting to the FINRA charges.

FINRA says that from April 2006 to July 2007, Centaurus neglected to make sure that the computer firewall, password system, and username for its computer fax server were providing the necessary protections. As a result, FINRA contends that persons that lacked the proper authorization were able to gain access to images stored on the faxes that included account numbers, social security data, personal information, and other sensitive, confidential client information.

An unauthorized party was even able to use Centaurus’s fax server to run a “phishing” scheme in July 2007. The scam was intended to fool computer users into giving out their personal information, including credit card information, banking data, passwords, and usernames. Over a 3-day period, 894 unauthorized logins by 459 unique IP addresses occurred after a file simulating a known Internet auction site was loaded to CFI’s fax server.

Phishing Scams
These schemes are designed to persuade recipients to reveal personal account data. For example, a target might be sent a Web site link or an attachment via email that asks for confidential personal and financial data. The sender or the Web site involved may appear to be legitimate but is actually illegal.

FINRA says that following the “phishing” incidents, Centaurus sent to some 1,400 clients and their brokers letters about the incident but that what they told them was misleading. The SRO contends that rather than admit that the breach of confidentiality occurred because the firm’s protections were inadequate and, as a result, unauthorized logins occurred, Centaurus reported that only one person had unauthorized access to the client information found on the server and that that data was not openly accessible.

Related Web Resources:
FINRA Fines Centaurus Financial $175,000 for Failure to Protect Confidential Customer Information, FINRA, April 28, 2009
Recognize phishing scams and fraudulent e-mail, Microsoft, September 14, 2006 Continue Reading ›

Morgan Keegan Ordered by FINRA to Pay Investors $267,711 Plus Interest for Losses in RMK Bond Funds

Published on: April 7, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Separate Financial Industry Regulatory Authority arbitration panels have issued awards to investors who suffered financial losses in Regions Morgan Keegan mutual funds. Last week, a FINRA panel awarded two California residents $267,711 plus interest for their losses-the largest bund fund arbitration award that Morgan Keegan has been ordered to pay to date.

In two arbitration cases last month, investors were also awarded six-figure sums, with one award amount larger than the damages claimed by investors. To date, FINRA panels have awarded over $871,000 to investors for their Morgan Keegan-related claims.

All of the arbitration claims accuse Morgan Keegan of concealing the actual risks associated with their bond funds. The investors have accused Morgan Keegan of selling certain funds as relatively conservative investments when they were actually exposed to a number of high risk debt instruments, including collateral debt obligations and subprime mortgage securities. They say Morgan Keegan engaged in a scheme to defraud investors of certain bond funds and misrepresented the extent of their holdings in riskier investments.

First New York Securities LLC and Four Ex-Traders to Pay $435,000 in FINRA Sanctions Over Short Selling

Published on: March 26, 2009 | by Shepherd Smith Edwards & Kantas, LLP

First New York Securities LLC and four of its ex-traders have reached a settlement with the Financial Industry Regulatory Authority over allegations that they improperly covered short positions involving secondary offering shares, as well as engaged in associated oversight failures.

Per the FINRA settlement, First New York Securities LLC will pay $170,000 and disgorge $171,000. The former First Securities New York traders are to pay: $7,500 from Kevin Williams, $50,000 from Joseph Edelman, $30,000 from Michael Cho, and $30,000 from Larry Chachkes. By agreeing to settle with FINRA, the firm and its former brokers are not admitting to or denying the allegations.

FINRA says the trading addressed by the short selling case took place during a specific restricted period (usually five business days) when the Securities and Exchange Commission doesn’t allow for short sales to be covered with securities from secondary offerings and before the secondary offering is priced. This matter is addressed in Rule 105 of Regulation M.

The self-regulatory organization says that a 2005 probe found that the investment bank violated the rule related to five public offerings. The SRO says First New York Securities and its traders engaged in short selling during the period when they weren’t allowed to and covered short positions using shares from the offering. FINRA says that as a result, the firm and its four traders earned $171,504 and effectively got rid of their market risk.

FINRA also accuses the investment firm of neglecting to properly supervise its traders, as well as neglecting to establish proper supervisory procedures or to enforce such a system. The SRO also accuses First New York Securities of failing to maintain the proper books and records connected to the transactions that are being addressed.
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Securities and Exchange Commission Now Calling for Comments on FINRA Proposal Regarding New Financial Responsibility Rules

Published on: February 4, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission wants feedback about the Financial Industry Regulatory Authority’s proposal on new financial responsibility rules. Critics have expressed concern that the rules give FINRA wide discretion but without certain safeguards.

The Financial responsibility rules let FINRA make sure that some 5,000 brokerage firms have enough liquidity available so that they can take care of customer claims in a timely manner. FINRA recently submitted a filing with the SEC explaining how the proposed rules would give the self-regulatory organization the authority it needs to act quickly during an emergency or another unforeseen event. FINRA says the necessary safeguards already are in place and vowed to be judicious when exercising this authority.

The proposed rules are based on existing requirements in NYSE and NASD rules. FINRA says that a large number of provisions will only apply to firms that carry or clear customer accounts and would prevent such members from withdrawing equity capital for up to one year without the SRO’s consent. Members would also have to let FINRA know no later than 24 hours after when certain financial triggers are hit.

FINRA has been trying to develop a consolidated rulebook since its formation in July 2007 when the New York Stock Exchange and NASD were merged together. Last May, FINRA requested comments about the rule proposals.

The SRO says a few commenters were worried about how much authority FINRA had under rule 4110(a). Other commenters asked for more specific about the kinds of actions the SRO would have the authority to implement. Another commenter expressed concern that FINRA’s authority to ask for an audit might be too broad. Still others expressed concern over how one proposed rule that prevented members from withdrawing capital for 12 months was even stricter than the SEC’s own requirements.

Related Web Resources:
Financial Industry Regulatory Authority (FINRA) Rulemaking, SEC.gov Continue Reading ›

FINRA Says Securities Arbitration Claims Increased by 85% in 2008

Published on: January 28, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that between 2007 and 2008, the number of securities arbitration claims increased by 85%. While Investors filed 1,985 claims against brokerage firms in 2007, last year, 3,667 cases were filed.

Between November 30 and December 31, 2008, 462 securities arbitration claims were filed with FINRA. Through November 30, FINRA received 3,215 claims.

Some of the reasons why there were so many more claims last year than the year before are that the market has been so volatile and certain investment products have experienced losses. Among these are the frozen auction-rate securities market and losses from the Regions Morgan Keegan bond funds and a number of Charles Schwab YieldPlus funds.

Investors, frustrated that brokerage firms placed them in a position to experience such losses, are seeking to recover through arbitration and in court. Unfortunately, it is a challenging time for many investors to recover their losses, especially those involving defaults and bankruptcy. This is one reason why investors are filing their cases now instead of waiting to do so years later.

FINRA’s Arbitration Process
Arbitration provides parties with a way to resolve their securities industry-related disputes. This alternative to filing a securities fraud lawsuit is considered a less costly and more rapid way for investors to resolve their claims with broker-dealers.

The resolution of an arbitration case is considered final and binding. Parties who choose to resolve their case through arbitration have generally given up their right to bring the case to court.

Related Web Resources:
Charles Schwab YieldPlus funds
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ARS Investors Can Seek Consequential Damages Recovery Through Special Arbitration Procedure Introduced by FINRA

Published on: December 23, 2008 | by Shepherd Smith Edwards & Kantas, LLP

This month, the Financial Industry Regulatory Authority introduced a special arbitration procedure that auction-rate securities investors can avail of to recover consequential damages. This procedure can be used by customers who are allowed to file for such damages under the ARS-related settlements that have been concluded with the Securities and Exchange Commission or with FINRA.

Under the special procedure, investment firms cannot contest liability related to ARS product sales or the illiquidity of ARS holdings. The companies also cannot use as its defense an investor’s choice not to borrow money from the firm (if it offered the ARS holder a loan option) or his or her decision not to sell ARS holdings prior to the settlement date.

Investors have the option to seek their recovery through this procedure or in other applicable forums, including through standard arbitration rules. FINRA Dispute Resolution President Linda Fienenberg says the special procedure offers a quicker, more affordable resolution for clients claiming consequential damages. Any fees related to the special arbitration procedure will be paid for by the firms.

A single public arbitrator will hear consequential damage claims under $1 million. If the amount is larger, the parties have the option, by mutual consent, to have their claim heard by a three-person arbitration panel.

Consequential Damages
These damages are the financial harm that was experienced by ARS investors because the market collapsed. This may include losses incurred by investors whose ARS assets are frozen, as well as opportunity costs.

As of the end of last month, 275 ARS arbitration claims had been filed under FINRA’s standard arbitration procedure. Investors that limit claims to consequential damages can opt to have their case heard under the special arbitration procedure.

In the wake of the ARS market’s downfall last February, FINRA has been working with the SEC and state regulators to provide investors recovery options. FINRA is also investigating some two dozen firms for alleged misconduct involving their handling of ARS.

FirstSouthwest Co and WaMu Investments have reached final settlement agreements with FINRA. Agreement in principles have been reached with City National Securities, Mellon Capital Markets, SunTrust Investment Services, Comerica Securities, SunTrust Robinson Humphrey, Harris Investor Services, and NatCity Investment, Inc.

Related Web Resources:

FINRA Provides Details on Special Arbitration Procedure for ARS Consequential Damages, MarketWatch, December 16, 2008
Special Arbitration Procedures for Investors Involved in Auction Rate Securities Regulatory Settlements, FINRA
FINRA
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Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP Investigate Securities Fraud Claims Involving Former World Group Securities Representatives David Olson and Edward Allen

Published on: December 9, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority says that former World Group Securities representative David Olson was named in a customer complaint filed in October 2008. The customer claims Olson persuaded him to buy real estate, which was leased back to the representative. The customer alleges that Olson agreed to pay the customer mortgage payments plus interest.

The customer says Olson defaulted on their deal and stopped making payments. The customer is also accusing the representative of soliciting three promissory notes for purchase and earmarking proceeds to buy other real estate properties.

It is considered improper for a FINRA registered representative to issue promissory notes, borrow money from clients, or engage in undisclosed, outside business.

Shepherd Smith and Edwards is investigating securities fraud claims involving David Olson and business partner Edward Allen, as well as their business entities WFG and A&O Companies. Allen also used to work for World Group Securities.

World Group Securities
World Group Securities brokers have been in the headlines recently following news that the US Securities and Exchange Commission was suing five of them due to allegations that they persuaded investors to use subprime mortgages to refinance their homes. The brokers allegedly were compensated for securities sales and mortgage refinancings.

Related Web Resources:

Shepherd Smith Edwards & Kantas LTD LLP Investigates Claims for Clients of David Olson, Edward Allen and World Group Securities, Inc., Marketwatch.com, December 3, 2008
Securities and Exchange Commission Sues Five World Group Securities Brokers For Persuading Clients to Refinance Homes With Subprime Mortgages, Stokbroker Fraud Blog, October 16, 2008 Continue Reading ›

Citigroup Global Markets Ordered to Pay FINRA Fine for Inadequate Supervision

Published on: November 17, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. says it is fining Citigroup Global Markets Inc. $300,000 for its failure to reasonably supervise the commissions that clients were charged for stock and options trades. Citigroup Global Markets is Citigroup Inc’s brokerage and securities arm.

FINRA says that between April 2002 and January 2006, then-Citigroup representative Juan Carlos Hernandez charged 27 clients unreasonable commissions that substantially exceeded the firm’s calculated rate for appropriate charges. One client was reportedly overcharged about $1.2 million.

Citigroup let Hernandez go in February 2006 and one month later, without admitting to or denying FINRA charges, he consented to the findings made against him and was barred by FINRA.

FINRA contends that Hernandez was able to overcharge clients because Citigroup neglected to properly supervise him. FINRA also found that it wasn’t until October 2007 that Citigroup told its brokers about its calculated commission rates or that they weren’t allowed to charge commissions higher than these rates. In the cases when commissions were greater than Citigroup’s calculated rates, FINRA says the firm lacked the proper procedures and policies for determining whether a commission was inappropriate.

By agreeing to settle, Citigroup is consenting to FINRA’s findings but is not admitting or denying the charges. The firm offered to reimburse customers who were affected.