Articles Posted in Securities Fraud

AARP Offers Older Investors 5 Warning Signs for Avoiding the Next Major Ponzi Scam

Published on: November 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The AARP has issued a fraud protection bulletin warning investors how to avoid becoming the victim of whoever happens to be peddling the next Ponzi scheme. Unfortunately, older investors are among the favorite prey of financial fraudsters. According Investor Protection Trusts CEO Don Blandin, one in five people in the 65 and over age group have already been exploited. Millions more are at risk.

To help investors, AARP has put out a description of five red flags warning of a possible financial scam:

1) The broker-adviser tells you that you wouldn’t be able to access your money during a “lock-up” period.

SEC and DOJ Charge Two Florida Men With Free Riding Securities Scam

Published on: November 10, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Two Florida men are accused of defrauding investors and broker-dealers by allegedly not telling them that they didn’t have enough money or securities to pay for their stock trades. The US Justice Department is charging Scott Kupersmith with securities fraud and wire fraud, while the Securities and Exchange Commission is charging him and Frederick Chelly with involvement in a front-running scam to trade free of risk at the expense of broker-dealers.

The U.S. Attorney for the District of New Jersey claims that Kupersmith engaged in free riding, which happens if a client sells or purchases securities in a brokerage account while lacking the money or securities to cover the trades. Kupersmith and his associates are believed to have facilitated the securities scam by setting up several brokerage accounts at financial firms in New Jersey and outside the state.

In addition to falsely representing himself as having a personal net worth of approximately $5 million, Kupersmith is also accused of made it appear as if he ran a Manhattan hedge fund with assets of up to $20 million. These misrepresentations allowed him to raise about $500,000 of investor monies, which he then used to cover personal expenses or pay principal and interest payments to earlier investors in this Ponzi-like scam.

The SEC says that Kupersmith and Chelly’s scam caused financial fraud allowed them to make $600K in illegal trading profit while broker-dealers lost more than $2 million as a result. The Commission says that the two men presented themselves as private investors or money managers.

They allegedly set up a number of accounts for corporate entities under their control in brokerage firms while buying/selling the same amount of the same stock in various accounts. Often, this would happen during the course of one day and with the intention of making money from the changes in stock price. The SEC says that Kupermith and Chelly would take the profits from the trades but that when substantial losses were likely, they wouldn’t pay able to cover sales they had asked for, which caused broker-dealers to take the losses.

The two men also falsely made it appear as if they had assets with a third-party custody bank even though they didn’t own the stock that they were selling and often didn’t have enough money to pay for the stock that they did buy. Share sale proceeds were then used to buy the same shares.

The two men used Delivery Versus Payment/Receipt Versus Payment accounts at the broker-dealers to trade. Te financial firms offered these accounts to the two men because they were under the impression that Kupersmith and Chelly had the money to cover their trades.

Read the SEC’s Complaint (PDF)

More Blog Posts:
Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M, Stockbroker Fraud Blog, November 8, 2011
Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011
Banco Espirito Santo S.A. Settles for $7M SEC Charges Alleging Violations of Investment Adviser, Broker-Dealer, and Securities Transaction Registration Requirements, Institutional Investors Securities Blog, November 5, 2011 Continue Reading ›

Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M

Published on: November 8, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says that Annabel McClellan has settled for $1M insider trading allegations that she and her husband gave relatives confidential information about merger deals. Annabel is the wife of Arnold McClellan, who used to be a partner at Deloitte Tax LP where he was head of the mergers and acquisitions teams.

If a federal judge approves the securities fraud settlement, the SEC will dismiss the claims against Arnold. By agreeing to settle, Annabel is not denying or admitting to the securities charges.

Per the SEC, Annabel used confidential information that she got from her husband to tip her brother-in-law James Sander and her sister Miranda. These family members then allegedly used this knowledge to make trades before the transactions (usually involved pending acquisitions and mergers) were announced to the public. This allowed them to make millions in illicit profits.

In addition to the civil penalty, Annabel has agreed to permanent enjoinment from violating Securities Exchange Act of 1934’s Section 10(b) and Rule 10b-5 thereunder. She also earlier pleaded guilty to obstructing the SEC’s probe into the insider trading scam after admitted to making false statements related to the investigation. Annabel maintains that her husband knew nothing about her activities.

The McClellans were charged with insider trading by the SEC last year following a parallel probe by the Commission, the Financial Services Authority (FSA), the Department of Justice (DOJ, and the Federal Bureau of Investigation (FBI). According to the SEC’s complaint, at least seven times between 2006 and 2008, Arnold McClellan revealed confidential information to his wife, who then passed on what she knew to Miranda and James in London.

James, who owns a trading company, would then buy derivative financial instruments. He also took financial positions in US companies that were acquisition targets. When Arnold would find out that some of the deals were not certain, James would liquidate his positions. The Commission says that the trades were closely timed with phone calls made between the two sisters, as well as in-person visits between the couples. By 2008, James allegedly made over £1.5 million from the tips and his financial firm’s clients and colleagues made over £10 million.

Insider Trading
Insider trading hurts the stock market, affects investor confidence, and causes financial harm to the companies whose confidential information was used to benefit a few. Insider trading is a breach of fiduciary duty or another kind of relationship of confidence and trust. The person tipping, the one being tipped, and anyone who has access to the insider information that makes the trade can be charged with insider trading.

Read the SEC Complaint Against the McClellans, SEC
Wife of former Deloitte partner to pay $1 million, SFGate, October 18, 2011
FSA, SEC and DoJ investigation leads to two people being charged by the SEC with insider dealing in the U.S., Financial Services Authority, December 1, 2010

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Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011
Dallas Mavericks Owner Mark Cuban’s Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 28, 2011
Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011 Continue Reading ›

Banco Espirito Santo S.A. Settles for $7M SEC Charges Alleging Violations of Investment Adviser, Broker-Dealer, and Securities Transaction Registration Requirements

Published on: November 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Without denying or admitting to wrongdoing, Banco Espirito Santo S.A. a banking conglomerate based in Portugal, has consented to pay nearly $7M in disgorgement, prejudgment interest, and civil penalties to settle Securities and Exchange Commission allegations that it violated securities transaction, investment adviser, and broker-dealer registration requirements. The bank has also agreed to a bar from future violations, as well as an undertaking that it pay a minimum interest rate to US clients on securities bought through BES.

According to the SEC, between 2004 and 2009 and while not registered as an investment adviser or broker-dealer in the US, BES offered investment advice and brokerage services to about 3,800 US resident clients and customers. Most of them were immigrants from Portugal. Also, allegedly the securities transactions were not registered even though they did not qualify for a registration exemption.

The SEC says that by acting as an unregistered investment adviser and broker-dealer BES violated sections of the Exchange Act and the Advisers Act. The bank violated the Securities Act when it allegedly sold and offered securities in this country without registration or the exemption.

The SEC says BES used its Department of Marketing, Communications, and Customer Research in Portugal to send out marketing materials to clients outside the country. Customers in the US ended up getting materials not specifically designed for US residents. BES also worked with a customer service call center to service its US customers. Via phone, these clients were offered securities and other financial products. The representatives were not registered as SEC broker-dealers and had no US securities licenses even though they serviced US clients. US Customers were also offered brokerage services through ESCLINC, which is a money transmitter service in Rhode Island, Connecticut, and New Jersey. ESCLINC acted as a contact point for the investment and banking activities of BES’s US clients.

Registration Provisions
The SEC has set registration provisions in place to help preserve the securities markets’ integrity as well as that of the financial institutions that serve as “gatekeepers,” said SEC New York regional office director George S. Canellos. He accused BES of “brazenly” disregarding these provisions.

State securities laws and US mandate that investment advisers, brokers, and their financial firms be registered or licensed. You should definitely check to make sure that whoever you are investing with or seeking investment advice from his properly registered. It is also important for you to know that doing business with a financial firm or a securities broker that is not registered can make it hard for you to recover your losses if that entity were to go out of business and even if the case is decided in your favor (whether in arbitration or through the courts.)

More Blog Posts:

EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam, Stockbroker Fraud Blog, September 28, 2011

SEC Says Former United Commercial Bank Executives Concealed Millions of Dollars in Losses that Caused Bank’s Failure

Published on: October 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed securities fraud charges against former United Commercial Bank executives accusing them of concealing loss from assets and loans from auditors that resulted in UCBH Holdings Inc., its public holding company, to understate its operating losses in 2008 by at least $65 million. As the bank’s loans continued to go down in value, the financial firm went on to fail and the California Department of Financial Institutions was forced to shut it down. This resulted in a $2.5 billion loss to the Federal Deposit Insurance Corporation’s insurance fund.

Per the SEC’s complaint, former chief operating officer Ebrahim Shabudi, chief executive officer Thomas Wu, and senior officer Thomas Yu were the ones that hid the bank’s losses. All three men are accused of delaying the proper recording of the loan losses and making misleading and false statements to independent auditors and investors and concealing from them that there had been the major losses on a number of large loans, property appraisals had gone down, property appraisals had been reduced, and loans were secured by worthless collateral.

Also accused of securities fraud by the SEC is former United Commercial Bank chief financial officer Craig On. The Commission said that he aided in the filing of false financial statements and misled outside auditors. To settle the SEC charges, On has agreed to pay a $150,000 penalty. He also agreed to an order suspending him from working before the SEC as an accountant for five years. He is permanently enjoined from future violations of specific recordkeeping, reporting, anti-fraud, and internal controls provisions of federal securities laws.

Criminal charges have also been filed against Shabudi and Wu. A grand jury indicted both men of conspiring to conceal loan losses, misleading regulators and investors, and lying to external auditors. Wu and Shabudi allegedly used accounting techniques and financial maneuvers, including concealing information that would have shown its decline, understating loan risks, and falsifying books, to hide the fact that that the bank was in trouble.

This is the first time such charges have been made against executives who worked at a bank that obtained government money—$298 million from TARP—to keep it running during the economic collapse.

Prior to its demise, United Commercial Bank, which was the first US bank to acquire a bank in China was considered a leader in the industry. It amassed assets of up to $13.5 billion in 2008. However, it also soon $67.7 million—way down from its $102.3 million profit in 2007. East West Bank acquired United Commercial Banks after regulators took it over in 2009.

Meantime, the FDIC is taking steps to bar 10 former United Commercial Bank officers from ever taking part in the banking industry.

SEC Charges Bank Executives With Hiding Millions of Dollars in Losses During 2008 Financial Crisis, SEC, October 11, 2011

Read the SEC Complaint (PDF)

Feds file charges against execs of failed United Commercial Bank, Mercury News, October 11, 2011

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SEC & DOJ File Charges Against San Francisco Investment Adviser For Alleged “Soft Dollar” Fraud

Published on: October 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is suing investment adviser Kurt Hovan for allegedly misappropriating $178K in “soft dollars” that he claimed was used for investment research. The federal agency contends that, in fact, the money was used to cover other business-related expenses. When Kurt, as Hovan Capital Management president, was asked to provide documents supporting this, he generated bogus research reports. Meantime, the US Department of Justice is charging the 43-year-old with obstruction and mail fraud.

Soft dollars are rebates or credits. They come from brokerage firms on commissions for trades made in investment adviser’s client accounts. If the soft dollar credits are disclosed appropriately, the IA may keep the credits and use them to cover expenses related to a specific area research and brokerage services benefiting clients.

The SEC contends, however, that Kurt didn’t solely use the soft dollars for research services. Instead, $166,667 was used to pay for the salary of his brother Edward Hovan. Soft dollars were also used to pay for computer hardware and office rent. Edward and Kurt’s wife Lisa Hovan (Hovan Capital Management’s chief financial officer) are also named in the SEC’s complaint. The SEC is accusing all three of them for violating federal securities laws’ antifraud provisions. Kurt Hovan and HCM are also accused of recordkeeping violations.

The securities lawsuit also claims that conceal their soft dollar-related activities, Kurt, Lisa, and Edward set up a “Bolton Research,” which was a shell company that Edward Hovan secretly controlled. The company then billed Hovan Capital Management’s brokerage companies for research that was never conducted. Edward allegedly kicked back $65,000 of payments to Kurt and Lisa.

The allegedly false reporting to the SEC is said to have taken place during a January 2010 examination of HCM. Staff requested that the financial firm give over copies of the research reports that Bolton Research had prepared. Instead, Kurt allegedly gave the SEC phony research reports and doctored materials.

The SEC is seeking disgorgement with prejudgment interest, injunctive relief, and other financial penalties.

Securities Fraud
As you can see, securities charges and criminal charge can be filed against an investment adviser that commits securities fraud. You may want to file your own securities fraud lawsuit to recover your losses if you lost money because investment adviser misconduct was a factor.

Our securities fraud law firm knows that the thought of pursuing a financial firm to get your money back can be an overwhelming process, which is why you want to retain an experienced investment fraud lawyer that knows how to successfully pursue your recovery while protecting your rights.

SEC CHARGES BAY AREA INVESTMENT ADVISER FOR DEFRAUDING CLIENTS AND FALSIFYING DOCUMENTS DURING SEC EXAM, SEC, September 28, 2011
Belvedere investment adviser faces criminal charges in fraud case, Marin Independent Journal, September 28, 2011

More Blog Posts:
New Jersey Investment Adviser Who Pleaded Guilty to $11.5M Financial Fraud Gets 168-Month Prison Sentence, Stockbroker Fraud Blog, September 29, 2011
Investors Working with Incompetent Registered Investment Advisers Have Few Protections, Reports Bloomberg, Stockbroker Fraud Blog, August 11, 2011
Custodial Firms Get Tougher About Registered Investment Adviser Compliance, Stockbroker Fraud Blog, December 28, 2010 Continue Reading ›

New Jersey Investment Adviser Who Pleaded Guilty to $11.5M Financial Fraud Gets 168-Month Prison Sentence

Published on: September 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Sandra Venetis, a New Jersey investment adviser has been sentenced to 168 months behind bars. Venetis had entered guilty pleas to che charges of securities fraud and transacting in criminal property. She also must pay $11,579,781 in restitution to the investors she defrauded.

The government had accused Venetis, who owns Systematic Financial Associates Inc., of soliciting her financial firm’s clients so that they would put their money in an “alternative investment program” that she ran separate from her registered investment advisory business. This was between 1997 and 2010. To get these clients to invest, she falsely told them the money was being used to pay for loans for doctors’ quarterly pension funds. There were even occasions when Venetis would tell these clients to liquidate their positions in securities so they could take part in her alternate program. 114 clients sent her about $16.7M.

None of the investors’ money went to any doctors-although she did make up fictitious physicians and forged real doctors’ names on promissory notes to make it look as if she was using her clients’ money in the manner promised. Venetis has admitted that not only did she not run a legitimate alternative investment program, but also that she created Systematic Financial Services Inc. so that she could run her financial scam. She acknowledges that she used some of the investor money to help cover her advisory’s operation costs.

It was last year that Venetis and three of her firms, Systematic Financial Services, LLC, Systematic Financial Services, Inc., and Systematic Financial Associates, Inc., settled SEC charges over the multimillion-dollar financial fraud. The Commission said that Venetis and her companies violated sections of the Securities Act of 1933, Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the Investment Advisers Act of 1940. Relief defendants included Venetis LLC, which Venetis also owned and operated, her brother Kevin Persley, and her daughter Jennifer Venetis.

The Commission accused Venetis of telling investors that the Federal Deposit Insurance Corporation had guaranteed promissory notes that would make about 6-11% tax-free interest annually. Although investors believed their investments were paying for loans to doctors the money paid for Venetis’s business debts and personal spending, including travel abroad, property taxes, home mortgages, gambling, and money for relatives.

Venetis and the companies settled the charges and all agreed to the relief sought by the SEC, including enjoinment from future securities law violation, payment of disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and appointment of an independent monitor.

N.J. IA Sentenced to 168 Months After Pleading Guilty in $11.5M Fraud, BNA Securities Law Daily, September 12, 2011
SEC CHARGES NEW JERSEY INVESTMENT ADVISER IN MULTI-MILLION DOLLAR OFFERING FRAUD, SEC, September 2, 2010

More Blog Posts:
FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisors, Stockbroker Fraud Blog, September 13, 2011
Investors Working with Incompetent Registered Investment Advisers Have Few Protections, Reports Bloomberg, Stockbroker Fraud Blog, August 11, 2011
Harvest Managers, Benchmark Asset Managers, and Investment Advisor to Pay $11.6 Million to Settle SEC Charges Over Allegedly Mishandled Client Funds, Stockbroker Fraud Blog, July 23, 2011
SEC Extends Temporary Rule Allowing Principal Trades by Investment Advisers Registered as Broker-Dealers, Institutional Investment Fraud Blog, January 13, 2011 Continue Reading ›

EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam

Published on: September 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In separate securities lawsuits, the Securities and Exchange Commission and the Commodity Futures Trading Commission are both suing EagleEye Asset Management LLC, which a Massachusetts asset management firm, and Jeffrey A. Liskov, its principal.

The CFTC is accusing the two defendants of defrauding at least one US-based client while trading forex on a margined or leveraged basis for her. Per the CFTC’s lawsuit, the client decided to grant permission to EagleEye and Liskov to trade part of her retirement money because Liskov allegedly advised her that this type of trading was appropriate for her conservative investment objects.

However, Liskov allegedly did not warn her of the risks involved or tell her that he did not have a successful track record with forex trading. While the trading did generate short-term profits for the woman, she lost most of the money that she invested. The CFTC contends that instead of revealing the trading losses, Liskov allegedly forged the client’s name and set up a new account opening documents and on more than $3 million in secret wire transfers from her mutual fund account to her forex account so that trading wouldn’t have to stop. The woman client lost more than $3.24 million, while Liskov and EagleEye made about $235,000 in performance incentive fees.

Per the SEC, between 4/08 and 8/10, Liskov made misrepresentations to clients to persuade them to move funds they’d placed in securities investments into forex trading. The SEC contends that these investments were not appropriate for elderly clients that had conservative investment objectives and that this caused them to sustain significant financial losses totaling almost $4 million. EagleEye and Liskov allegedly earned performed fees of over $300K, plus management fees. The Commission believes that having clients make short-term investment gains and then earning performance fees before these gains were lost was the defendants’ plan.

Liskov allegedly did not even help some investors understand the nature of forex trading. With other clients, he deemphasized the degree of investment risk involved. The SEC also says that Liskov made false statements with claims that he had achieved success with forex trades when, in fact, the opposite was the case.

Meantime, Massachusetts Secretary of the Commonwealth William Francis Galvin (D) has also filed administrative charges against the investment advisor firm and Liskov. Galvin is accusing them of violating Massachusetts’s Uniform Securities Act.

Our securities fraud law firm has helped thousand of investors recoup their losses caused by broker misconduct and investment adviser fraud. Working with a stockbroker fraud law firm is the best way to help you get back your lost investment.

Read the SEC’s Complaint (PDF)

CFTC Charges Massachusetts Man Jeffrey Liskov and His Company, EagleEye Asset Management, LLC, with Committing a $3 Million Forex Fraud, CFTC, September 8, 2011
State files complaint against local investment advisor, WickedLocal, September 13, 2011
Mass. Adviser Sued by Regulators Over Alleged Forex Trading Scheme, BNA Securities Law Daily, September 9, 2011

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Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011
Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc., Stockbroker Fraud Blog, May 6, 2011
$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011 Continue Reading ›

Some of the SEC Charges Against Investment Adviser Over Alleged Involvement In J.P. Morgan Securities LLC Collateralized Debt Obligation Are Dismissed

Published on: September 24, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has thrown out some of the Securities and Exchange Commission charges against GSCP (NJ) managing director Edward Steffelin for his alleged involvement in a JP Morgan Securities LLC collateralized debt obligation deal. GSCP (NJ) was the collateral manager for the CDO transaction.

While JP Morgan Securities settled for $153.6 million the SEC’s allegations that it misled investors about the CDO deal by agreeing to pay $153.6 million, Steffelin opted to fight the charges. He claimed that there was no reason for him to think that the CDO offering documents were problematic. He argued that nothing had been left out and nobody was “defrauded.”

In district court, Judge Miriam Goldman Cedarbaum granted Steffelin’s motion to dismiss the SEC’s 1933 Securities Act Section 17(a)(3) claims against him. Per the Act, any person involved in the sale or offer of securities is prevented from taking part in any transaction or practice that would deceive or be an act of fraud against the buyer. Cedarbaum said it would be a “big stretch” to conclude that Steffelin owed the investors that bought the CDO a fiduciary duty. However, she decided not to throw out the SEC’s securities claims related to the 1940 Investment Advisers Act, which has sections that make it unlawful to sell or offer securities to get property or money as a result of an omission or material misstatement. The act also prevents investment advisers from taking part in a transaction or practice that performs a deception or fraud on a client.

The SEC’s charges revolved around a JPM-structured CDO called Squared CDO 2007-1. It mainly included credit default swaps that referred to other CDOs linked to the housing market. Per the Squared CDO’s marketing collaterals, GSCP was noted as the one choosing the portfolio’s deals. What wasn’t included in the disclosure was the fact that Magnetar Capital LLC, a hedge fund, played a key part in choosing the CDOs and had a short position in over 50% of the assets. This meant that Magneta Capital stood to gain financially if the CDO portfolio failed.

JP Morgan Securities is JP Morgan Chase affiliate. Under the terms of its $153.6 million settlement, the financial firm agreed to fully pay back all monies that investors lost. By agreeing to settle, JP Morgan Securities did not admit to or deny wrongdoing. Other large financial firms that have settled SEC securities fraud cases related to CDOs in the last 16 months include Citigroup, which recently reached a $250 million settlement and Goldman Sachs, which settled its case with the SEC last year for $550 million.

More Blog Posts:
Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rackoff, Institutional Investor Securities Blog, November 9, 2011

Retirement Fund’s CDO Lawsuit Against Morgan Stanley is Dismissed by District Court, Institutional Investor Securities Blog, October 27, 2011

Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts, Stockbroker Fraud Blog, August 10, 2011

***This post has been backdated.

Five Broker-Dealers Fined by FINRA Over Allegedly Misrepresenting Commissions as Fees to Clients

Published on: September 16, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has issued fines against broker-dealers Pointe Capital, Inc., John Thomas Financial, First Midwest Securities, Inc., A&F Financial Securities, Inc., and Salomon Whitney LLC for allegedly mischaracterizing part of their commission charges to clients and calling them service handling fees, This caused the amount of total commissions that clients were charged to be understated. As a result, the fees for handling-related services ended up costing clients more.

FINRA says trade commissions and fee schedules should clearly reflect the actual commission charges, which shouldn’t be disguised.

Among the sanctions issued by FINRA:

• A $60,000 fine against Salomon Whitney LLC. FINRA accused the financial firm is accused of charging clients handling service fees of up to $69.95/trade plus commission. FINRA contends that Salomon Whitney did not tell its Connecticut clients that part of the transactional handling fee was a profit to the financial firm, the fee was not determined by the costs of handing a specific transaction, and certain clients were fined lower fees. FINRA believes the handling fee charged by Salmon Whitney was unreasonable. By agreeing to settle, the financial firm is not denying or admitting to the findings.

• First Midwest Securities, Inc. was fined $150,000. The financial firm is accused of charging clients up to $99.75/trade plus commission. FINRA says that this “handling fee” was in fact a commission and not reasonably connected to any direct handling services conducted by First Midwest Securities. The SRO notes that some customers even paid handling fees that were double of what other First Midwest Clients paid. FINRA also says that First Midwest Securities committed other violations, including having inadequately written supervisory procedures and “unfair and unreasonable” markdowns and markups. The financial firm has settled the securities case but is not admitting to or denying FINRA’s allegations.

• FINRA charged A&F Financial Securities, Inc. a $125,000 fine for charging clients an up to $65/trade handling fee, as well as commission. FINRA says that A & F acted inaccurately and improperly. FINRA also accused the financial firm of failing to comply with continuing education requirements, having inadequate supervisory system and procedures, and not properly assessing its training needs or developing and executing a written training plan. A & F also admitted to the findings without denying or admitting to them.

• FINRA fined John Thomas Financial A $275,000 fine for its up to $75/trade handling fee plus commissions. The SRO is also alleging other violations, including deficiencies related to complaint reporting, supervisory controls and certifications, and branch office supervision and recordkeeping. FINRA says the broker-dealer effected key changes to its business without obtaining its approval. John Thomas Financial agreed to settle but did not deny/admit to the findings.

• Pointe Capital, Inc. was fined $300,00 for charging an up to $95//trade handling fee plus commission. FINRA contends that seeing as the “handling” charge wasn’t reasonably linked to actual handling-related services/expenses, the clients were actually charged another commission. Pointe Capital has settled the case.

FINRA Fines Five Broker Dealers for Improper Handling Fees, FINRA, September 7, 2011

More Blog Posts:
FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisor, Stockbroker Fraud Blog, September 13, 2011
Financial Industry Regulatory Authority Alerts Investors About Gold Stock Scams, Stockbroker Fraud Blog, August 25, 2011
Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation, Stockbroker Fraud Blog, July 16, 2011 Continue Reading ›