Senior Investors

LPL Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator

Published on: April 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The New Hampshire Bureau of Securities Regulation wants LPL Financial (LPLA) to pay clients $2.4 million in buybacks and restitution for 48 sales of nontraded real estate investment trusts that were purportedly unsuitable for elderly investors. The regulator, which says the firm did not properly supervise its agents, is also fining LPL $1 million plus $200,000 in investigative expenses.

The securities case springs from transactions involving an 81-year-old state resident that purchased a nontraded REIT from the firm in 2008. The investor, whose liquid net worth was $2.5 million and invested $253,000 in the financial instrument, would go on to lose a significant amount of money. A probe ensued.

The state regulator contends that the 48 REIT sales, totaling $2.4 million lead to concentration that went beyond LPL guidelines and that the firm sold hundreds of nontraded REITs to clients in New Hampshire on the basis of “clearly erroneous “client financial data, while frequently violating its own policies. LPL has reportedly admitted that 10 of the 48 transactions deemed unlawful by the state were unsuitable according to its own guidelines. The Securities Bureau wants to take away the firm’s license to sell securities in New Hampshire.

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors

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

The Securities Industry and Financial Markets Association claims that the White House is employing a methodology that is flawed to make the claim that investors are losing around $17 billion in retirement funds yearly because of trading practices that are abusive. SIFMA is against imposing tougher rules against brokers, including a draft rule expected to be released by the U.S. Department of Labor mandating that those who offer retirement plan advice meet a fiduciary standard and place their clients’ best interests before their own. Right now, brokers must only satisfy a suitability standard of care with the requirement that they make appropriate recommendations even if they aren’t necessarily the best.

President Obama wants the Labor Department to go ahead with the rule proposal. In February, the White House put out a report finding that some brokers use excessive trading and costly investments to enhance their commission, as well as take part in other practices that end up costing investors big time.

SIFMA, however, in its new report, claims that the White House is disregarding how similar rule changes such as the one the DOL is expected to propose, impacted investors in the United Kingdom where approximately 310,000 lost their brokers during the first quarter of 2014 alone because their accounts were too small for the representative to handle. Another 60,000 investors were rejected by brokers for their low balances. However, while the U.K.’s rule prohibits brokers from getting paid commissions from mutual funds, the DOL doesn’t plan to institute such a ban.

401K Fees in the Spotlight, With $62M Lockheed Settlement & Edison Class Action Case Before the Supreme Court

Published on: February 24, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Lockheed Martin Corp. has agreed to pay $62 million to settle a lawsuit accusing its employee 401(k) retirement plan of charging excessive fees to participants. As part of the settlement, the defense company will take part in monthly assessments of its plan, offer participants low-cost funds, and get bids from at least three outside companies that know how to deal with administrative matters involving big company retirement plans.

There are 100,000 participants and $27 billion of assets in Lockheed’s retirement plan. The civil case accused the company of not acting wisely when managing the retirement savings of employees, charging high fund fees, keeping a significant quantity of participants’ savings in low-yield funds, and paying record-keeping fees that were excessive.

Lockheed denied the allegations. Even though it is settling, the company is not admitting wrongdoing.

U.S. Department of Labor’s Fiduciary Rule for Retirement Advisers Hits Another Snag

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

Just as the Department of Labor appeared poised to push out its proposal to impose a fiduciary standard on retirement advisers, financial industry members have once more stepped forward to try to implement certain changes.

Last month, financial industry trade groups met with White House aide Valerie Jarrett to express their worries. The groups are concerned that certain restrictions will limit how much compensation brokers that sell investments for IRAs would be able to get for their services. They believe that this will stop representatives from dealing with investors who have middle-range incomes.

Meantime, the DOL contends that the proposed rules are needed to protect retirees and workers from getting advice that may be tainted by conflicts of interest. For example, a broker might be tempted to sell a retirement investment product that comes with a high-fee, which could hurt a client’s savings.

Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors

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

According to the Securities and Exchange Commission, ex-investment adviser Sherwin Brown is continuing to offer financial advice even though the regulator barred him from the industry and ordered him to pay $1.3 million for allegedly diverting client monies. Brown now calls himself a “money coach” and has kept his Jamerica Financial Inc. in operation, receiving compensation for his services. At a certain point, the firm, which has since been ordered inactive, had nearly $30 million in assets under management.

The regulator contends that between 6/11 and 5/14, a Wells Fargo & Co. (WFC) account in Jamerica Financial’s name received over 120 deposits totaling $330,000. The deposits were payable to Brown and his company. Notes in check memo lines indicated that the money was for investment advisory services.

Brown, who was barred from the industry in 2011, operates TheOfficialMoneyCoach.com, which includes a blog on investing. The site also promotes his investment books.

Ex-Edward Jones Financial Adviser is Criminally Charged with Bilking Disabled Woman of Over $160K

Published on: December 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Jason Cox, a former Edward Jones financial adviser, is criminally charged with allegedly defrauding a disabled woman. Robert C. Yeamans, who is the woman’s now deceased father, had tasked Cox with managing her account. The woman, who is in her fifties, is developmentally disabled.

According to a federal complaint, Cox took at least $160,000 from the investment account set up for her. He allegedly structured transactions by taking out small amounts during a short time period so he wouldn’t have to fulfill bank reporting requirements for bigger sums.

When worried banking officials asked the woman about the money, she told them she put it in a business that Cox owned but did not know what kind of enterprise it was. The bank closed her account.

Reliance Financial Advisors, Owners Face SEC Fraud Charges Involving Hedge Fund

Published on: December 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Reliance Financial Advisors and its co-owners Walter F. Grenda Jr. and Timothy S. Dembski with securities fraud. The agency says that the Buffalo, NY-based investment advisory firm and the two men misled clients when recommending that they get involved in a hedge fund managed by portfolio manager Scott M. Stephan.

Grenda and Dembski of Reliance Financial Advisors guided senior investors toward making highly speculative investments in the Prestige Wealth Management Fund, which Stephan managed, even though they allegedly knew he was inexperienced in this type of investing. The clients, who were either close to retirement, retired, or living on fixed incomes, collectively invested around $12 million.

Stephan was supposedly going to employ a trading strategy that involved a specific computer “algorithm,” which actually only day traded. Instead, he started making trades manually, his approach eventually playing a part in the hedge fund’s failure. The SEC has said that Stephan’s investing experience was greatly exaggerated in offering materials. (The majority of his career involved collecting car loans that were overdue.)

Ex-California Insurer Charged with Running $11M Ponzi Scam

Published on: December 8, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Joseph Francis Bartholomew is charged with 30 felony counts related to his alleged operation of an $11 million Ponzi scheme. The 75-year-old former licensed insurance agent has been called Orange County, Ca.’s Bernard Madoff, after the financier who ran a multibillion-dollar Ponzi scam for decades. Bartholomew allegedly bilked over 27 investors.

According to the California State Department of Insurance, he used his insurance business, MBP Insurance Services, to get people to trust him. Those involved reportedly included a number of family trusts, a church, an ex-baseball player, and senior citizens.

The Orange County Register said that Bartholomew made false promises to investors telling them that they could earn fast returns of up to 40%. For example, he is accused of offering one investor an unsecured investment while making the claim that the customer would get $10,000 a month if he invested $500,000. Bartholomew allegedly gave fraudulent assurances that the investment on third party life insurance policies was a legitimate one. He also made other misrepresentations, including claiming that over the last decade there had been no problems getting payments to investors.

SEC Commissioner Wants Elder Fraud at Top of 2015 Agenda

Published on: November 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. Securities and Exchange Commissioner Michael S. Piwowar says that he wants investigations into elder fraud to stay one of the agency’s top priorities in 2015. Financial fraud targeting seniors is costing this demographic big time. According to a 2011 study by MetLife and the Center for Gerontology at Virginia Tech senior financial fraud victims sustain around $2.9 billion in losses yearly.

One of the reasons for this is that older Americans tend to make more vulnerable targets for fraudsters. They are easier to deceive with bogus sales pitches and some of them may suffer from debilitating mental or cognitive illnesses that can make it hard for them to know they are being bilked.

Also, scammers like to go after elder investors because many of them have accumulated enough retirement money that they have significant funds that fraudsters can steal. Unfortunately, a senior that is the victim of elder financial fraud may no longer have the time or be at an age when he/she can earn back whatever is lost, which can make his/her retirement years a struggle.

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm

Published on: October 30, 2014 | by Shepherd Smith Edwards & Kantas, LLP

James “Jeb” Bashaw, the former star financial adviser at LPL Financial (LPLA) from Texas is now registered with International Assets Advisory, a small brokerage firm. LPL Financial fired Bashaw last month over allegations involving selling away. Then, for a while this month, he was with Wunderlich Securities Inc.

Selling away typically involves engaging in private securities transactions sans the required written disclosure or brokerage firm approval. It can also include borrowing from a client, as well as engaging in a transaction that is a potential conflict interest, again without the required disclosure in writing or firm approval.

Responding to the selling away allegations, Bashaw noted that he was “home supervised” and underwent more than a dozen perfect audits while affiliated with LPL. After his firing, Wunderlich took steps to hire Bashaw but there was a delay in transferring his license to the firm. In the end, the broker-dealer and Bashaw reportedly decided not to pursue a working relationship.