The Financial Industry Regulatory Authority (FINRAannounced on March 30, 2015 that it fined H. Beck, Inc., LaSalle St. Securities, LLC, and J.P. Turner & Company, LLC for failing to supervise consolidated reports.  These consolidated reports were provided to public customers, according to the announcement.

According to FINRA, “[a] consolidated report is a single document that combines information regarding most or all of a customer’s financial holdings, regardless of where those assets are held,” and does not replace monthly reports received from the firm.

In the announcement, FINRA cited to FINRA Regulatory Notice 10-19.  A regulatory Notice is used by FINRA to remind its members of obligations required by FINRA Rules and securities laws.  In Regulatory Notice 10-19, FINRA made clear that:

If not rigorously supervised, this activity can raise a number of regulatory concerns, including the potential for communicating inaccurate, confusing or misleading information to customers, lapses in supervisory controls, and the use of these reports for fraudulent or unethical purposes.

Regulatory Notice 10-19, and FINRA’s announcement, make these concerns clear, and also put FINRA member broker-dealer firms on notice of their obligations to perform adequate supervision over these consolidated reports.  In Regulatory Notice 10-19, FINRA states that to the extent brokers are permitted to create consolidated reports, “firms are required to supervise this activity.”

In FINRA’s March 30 announcement, it fined the three firms for inadequate supervision over consolidated reports.  H. Beck, Inc., for example, has approximately 465 offices around the country and approximately 800 brokers.  For a period, H. Beck, Inc. had no system in place to supervise the creation and dissemination of consolidated reports, despite the fact that close to 50 brokers sent them to certain of their respective customers, according to AWC No. 2012031552601.  According to the AWC, certain of these consolidated reports contained inaccuracies.

Likewise, J.P. Turner, a firm of approximately 185 branch offices and 420 brokers, also was fined by FINRA for permitting close to 50 brokers to create and distribute to their customers consolidated reports, while the firm had no supervisory procedures in place addressing the use of consolidated reports, according to AWC No. 2013036404301.

We at Malecki Law have seen how consolidated reports, combined with lax broker-dealer firm oversight, can be used to perpetuate frauds against public investors.  Very often, brokers have the ability to create or modify the consolidated reports to include “investments” that may not be on the broker-dealer’s books and records.  If the firm does not properly supervise the creation and dissemination of these consolidated reports, then brokers may be permitted to give the questionable “investments” an appearance of legitimacy because they appear on a firm document.

Malecki Law has previously investigated and successfully handled securities arbitrations concerning issues related to consolidated reports.  If you believe you have suffered losses as a result of questionable actions taken in your securities account, please contact us immediately for a confidential consultation.

A Letter of Acceptance Waiver and Consent was recently accepted by FINRA’s Department of Enforcement from Andre Paul Young.  Mr. Young was accused of borrowing more than $200,000 from customers in violation of FINRA rules while a registered representative of MetLife Securities, Inc.  Specifically, Mr. Young was accused of violating NASD Rule 2370, FINRA Rule 3240 and FINRA Rule 2010.

It was alleged that from June 2010 through June 2012, Mr. Young borrowed roughly $208,000 from two MetLife Securities customers for personal expenses, including those associated with the settlement of certain estate matters.  Per the AWC, the customers issued five checks from their MetLife Securities brokerage account payable to a bank account number for an account owned by Mr. Young.

Per FINRA, this conduct was in violation of MetLife Securities policies and FINRA Rules.  FINRA Rule 3240 (and formerly NASD Rule 2370) expressly prohibits brokers from borrowing funds from customers.  In addition to those violations, Mr. Young allegedly failed to timely and completely respond to requests for documents and information in violation of FINRA Rule 8210.

Ultimately, Mr. Young consented to “a suspension from associating with any FINRA member in any capacity for a period of one year.”

Per his CRD, Mr. Young was also registered with Source Capital Group, Bancnorth Investment Group, Wachovia Securities and Prudential Securities.

Malecki Law has handled numerous cases stemming from loans to brokers from their customers for investment purposes or other, that were ultimately never repaid.  If you or a family member loaned money to your broker and fear that money may be lost, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.


Malecki Law announces the filing of a $10 million FINRA arbitration claim against UBS Financial Services, Inc. and UBS Financial Services Incorporated of Puerto Rico (collectively “UBS”) on behalf of former UBS Puerto Rico registered representatives, Jorge Bravo and Teresa Bravo (the “Bravos”).

In the Statement of Claim filed with FINRA, the Bravos allege that through its management (including Miguel Ferrer, Robert Mulholland and Carlos Verner Ubinas Taylor) UBS misled both its brokers and its customers about the UBS Puerto Rican closed-end funds.  In their pleading, the Bravos accuse UBS of threatening, deceiving and coercing its brokers, including them.

Specifically, the Bravos allege that they were lured away from their prior firm by UBS under the false pretense that UBS could and would help them better serve their clients.  UBS was allegedly engaged in a fraudulent course of conduct in material conflict with both its customers and its brokers, unbeknownst to the Bravos.  Over the three years they were registered with UBS, the Bravos allege that they were repeatedly and fraudulently mistreated and misled by UBS for UBS’s own benefit, until being unceremoniously forced out by the firm.

In their filing with FINRA, the Bravos allege that UBS chose to deceive its customers to protect itself, its business and its revenue stream stemming from the Puerto Rican closed-end funds.  Allegedly motivated by its own self-preservation, UBS management is claimed to have engaged in a concerted effort to artificially preserve the viability of the market for the Puerto Rican closed-end funds.  To do so, UBS allegedly made material misstatements and omissions to both brokers and customers about the closed-end funds, UBS’s internal analysis of the closed-end funds and its assessment of the market for the closed-end funds, which they controlled.   UBS had reportedly settled charges with the SEC in 2012 for its misconduct in the Puerto Rican closed-end fund market in and around the years 2008-2009.   To settle those charges, UBS reportedly paid $26.6 million.

According to the Statement of Claim, both before and after the settlement with the SEC, UBS created a high pressure environment to induce brokers, including the Bravos, to find more assets and sell the Puerto Rican closed-end fund products, or else face termination.  The Statement of Claim cites to a recent article published by Reuters about a newly uncovered recording of Miguel Ferrer driving reluctant brokers to sell the Puerto Rican closed-end funds.  The Bravos allege that such high pressure tactics towards brokers and threats against their jobs were common at UBS during their time there.

The Bravos do not only allege that they were misled and induced into selling the Puerto Rican closed-end funds to their clients.  According to the Statement of Claim, Ms. Bravo was duped into purchasing $100,000 worth of the Puerto Rican closed-end funds for her own personal brokerage account at UBS, resulting in losses.

Ultimately, the Bravos allege that as a result of UBS’s willful and tortious misconduct, their business has been devastated, and their abilities to earn in the future have been irreparably compromised.  Therefore, the Bravos allege that UBS is liable to them for causes of action arising out of fraud, fraudulent misrepresentation, breach of the duty to inform an agent, negligence, negligent misrepresentation, tortious interference with business relationships and economic advantage, breach of contract, and violations of Puerto Rico Law 80.

The Bravos have requested a FINRA arbitration panel award them no less than $10,000,000 in compensatory damages. Their Statement of Claim also asks the arbitration panel to award the Bravos punitive damages, above and beyond their compensatory damages, to punish UBS for its conduct.

Notable are the striking similarities in the above alleged scenario and those allegations previously made against UBS by the SEC in the wake of the recent auction rate securities (ARS) collapse, for which UBS reportedly entered into a $22.7 billion settlement with the SEC.  In both cases, allegations were made that UBS placed its own interests above those of its customers – and in the case of the Bravos – its brokers, too.


The Financial Industry Regulatory Authority (FINRAannounced on March 26, 2015 that it fined Oppenheimer & Co., Inc. for failing to supervise Mark Hotton, a former broker who allegedly stole money from his clients accounts and excessively traded their accounts.  FINRA had already barred Mr. Hotton from the securities industry in 2013.

According to FINRA’s announcement, Oppenheimer & Co., Inc. failed to supervise Mr. Hotton in many respects, including during his hire and during his employment, as well as failed to supervise the accounts he was trading.  Oppenheimer & Co., Inc. failed to supervise Mr. Hotton during his hire by failing to consider 12 prior reportable events that occurred in Mr. Hotton’s past, including criminal events and seven customer complaints, according to FINRA.

FINRA also announced that Oppenheimer & Co., Inc. failed to supervise Mr. Hotton during his employment by failing to subject him to heightened supervision despite learning that his business partners had allegedly sued him for fraud resulting in several million dollars’ damages.  Oppenheimer & Co., Inc. may have been required to subject Mr. Hotton to heightened supervision, a more expensive and time-consuming manner of supervision, because of the number of past customer complaints against him while employed at other firms or while at Oppenheimer & Co., Inc.  To may matters worse, FINRA noted that Oppenheimer & Co., Inc. further failed to supervise Mr. Hotton by failing to investigate “red flags” in correspondences and wire requests that could have signaled potential violations of securities laws and industry rules.  FINRA alleged that Mr. Hotton was wiring funds out of customers’ accounts to accounts he owned or controlled.

FINRA also announced that Mr. Hotton excessively traded certain of his clients’ accounts.  Excessive trading may occur when purchases and sales of securities are made at such a rapid rate that the purpose is only to increase the broker’s commissions earned from buying and selling.  Excessive trading may be evidenced from such high “turnover rates” as well as high “cost to equity ratios,” a ratio calculated from comparing the costs in the account to the equity.    Customers usually lose large percentages of money when their accounts are excessively traded, and broker-dealers are often best placed to detect and stop such trading, though they rarely do.

Finally, FINRA announced that Oppenheimer & Co., Inc. has failed to make timely disseminations to FINRA regarding their brokers, which meant that the investing public and other broker-dealers did not get necessary information in a timely manner.

Malecki Law has previously investigated and successfully handled securities arbitrations against Oppenheimer & Co., Inc. and certain of the firm’s brokers in the past.  If you believe you have suffered losses as a result of questionable actions taken in your account, please contact us immediately for a confidential consultation.

The Financial Industry Regulatory Authority recently censured Merrill Lynch Pierce Fenner & Smith and fined the firm $100,000, sanctions to which the firm consented.  These sanctions relate to Merrill Lynch’s alleged violation of several industry rules, including FINRA Rules 4370 and 2010.  FINRA alleged that Merrill Lynch “failed to send required regulatory disclosures and notices in connection with the opening of approximately 12,989 [f]irm accounts” from early 2010 to early 2011.

This does not appear to be Merrill Lynch’s first such brush with the regulators over related violations.  In 2012, Merrill Lynch was fined $2.8 million by FINRA amid allegations the firm overcharged customers more than $32 million due to an inadequate supervisory system in place at the firm.  FINRA also specifically alleged that the Merrill Lynch failed to send necessary business continuity plans to more than 16,000 customers and failed to send required margin risk disclosure statements to nearly 7,000 customers over several years.

Margin can be a risky proposition for investors because it involves borrowing money from the firm for the purpose of “leveraging” positions in the account.   While margin can boost profits in the portfolio, it can also magnify losses.  For this reason, margin is typically unsuitable for most investors, especially those is with limited investment experience and those who cannot afford to incur significant losses.

Not just limited to margin borrowing, disclosure is also very important in the financial services industry, generally.  There are numerous rules and regulations that cover the disclosures firms are required to send their customers. The main goal of many of these regulations is investor protection.  While these required disclosures should not be confused with a cure-all for fraud, when they are not sent to customers, the window for fraud opens even wider.

It is the right of any and all investors who believe they may have suffered losses as a result of recommendations of their financial advisor to contact our offices to explore their legal rights and options. If you or a family member invested in exchange traded funds, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

Malecki Law takes a proactive and informed approach to the financial news of today: actively engaging in fact-finding analysis on prospective cases from around the world. Our thorough knowledge of securities law’s history and fine points makes us ideal consultants for investors who have suffered losses due to misadvice from their broker or other financial counsel.

Reuters reported on February 6, 2015 that UBS in Puerto Rico held a meeting during which executives of the firm, including Miguel Ferrer, then the Chairman of UBS Financial Services Inc. of Puerto Rico, threatened financial advisors to sell UBS originated Puerto Rico closed-end bond funds despite the brokers’ and their customers’ growing concerns about “low liquidity, excessive leverage, oversupply and instability.”  According to the Reuters article, Mr. Ferrer found “unacceptable” the view of UBS financial advisors who were wary of recommending UBS funds that were loaded with debt of the Puerto Rican government.

According to the Reuters article, in a recording made by an attendee of the meeting, Mr. Ferrer reprimanded the brokers to focus on the positive aspects of the products available or “get a new job,” continuing that it was “bullshit” for brokers to claim that there were no products to sell.  Portions of the recorded meeting are available online in the Reuters article.

At the time of the recording, according to Reuters, many of UBS’s funds were highly concentrated in Puerto Rico’s debt at a time when there were concerns about the size of that debt and the weakness of the overall economy.  This recording may be beneficial to both claimants and brokers who each have hundreds of millions of dollars in damages because their claims generally alleged that there was a lack of disclosure regarding the attendant risks of bond funds underwritten by UBS.

Investor claims surrounding the PR bond funds have skyrocketed in the past two years.  Now, in light of the published details about the meeting by Reuters, it appears the financial advisors who recommended the bond funds to their clients may have also been misled and pressured by UBS.  As we have written previously, where proprietary products result in substantial losses to investors, they also damage the registered representatives who must rely on the firm’s marketing and research to sell the products.  According to the Reuters article, UBS also pressured its financial advisors with termination if they did not continue to sell the Puerto Rico bond funds.  Because of this, those financial advisors may have claims against UBS PR for losses to their business, the muddying of their professional records and any damages suffered as a result of the investor claims that are reported on the FINRA CRD reports.

Malecki Law has also previously written about duties owed by employing firms to their registered representatives.

Financial advisors and registered representatives have obtained favorable judgments against their employing firms in the recent past.  In the early- and mid-2000s, there was a plethora of litigation surrounding the Morgan Keegan bond funds, which were found to have been misleading to both customers as well as the financial advisors who suffered employment and reputational damage as a result of recommendations made based on firm advice and directives.

Financial advisors who worked for and sold Morgan Keegan bond funds that failed in 2008 were often successful in obtaining expungement of the customer disputes from their CRD record, because arbitration panels found that they were not involved in the complained of investment-related sales practice violations and did not know of their employing firm’s failure to perform adequate due diligence on the products they originated and offered for sale to the investing public.

In instances where a broker-dealer’s proprietary products fail, the brokers who are tasked with selling those failed products often suffer many customer complaints.  In these situations, the brokers often are given faulty due diligence, research and information by the firm, and sometimes even forced to sell their employing firm’s product with their jobs threatened.  Brokers have sued firms on these types of allegations, including former Morgan Keegan brokers.  A similar situation occurred with the auction rate securities debacle that began in 2008.  More recently, it appears due diligence failures and pressure may have been causes of problems for UBS brokers selling UBS Puerto Rico’s closed-end bond funds, leading to a substantial amount of customer complaints that have tarnished the reputations of many brokers in Puerto Rico.

Brokers with many customer complaints from failed products often have few options for cleaning up their professional record, which is publicly available through the Financial Industry Regulatory Authority’s (FINRA’s) CRD or Brokercheck system.  One of options involves expungement, where the broker initiates a claim against either the broker’s firm or customer requesting that a FINRA arbitration panel “expunge” or remove the customer’s complaint from the broker’s CRD record.  A broker may also claim monetary damages, including damages for defamation for untrue statements that are made on a broker’s U-4 or U-5.

As mentioned in previous posts, once a firm’s product fails and the brokers get too many customer complaints, the employing firm may not want to keep them employed.  It may be very difficult for brokers to obtain jobs elsewhere in the industry because once a broker gets 2 to 3 complaints, they required heightened supervision, something most broker-dealers avoid if possible.

The attorneys at Malecki Law has represented brokers in arbitrations against their employing firms to obtain expungement.  If you have suffered adverse marks to your professional record, either on your U-4, U-5 or CRD report, please contact the attorneys at Malecki Law for a confidential assessment to determine if you can seek expungement or have a claim for damages.

InvestmentNews reported on January 29, 2015 that Girard Securities, Inc. is going to be audited by the Securities and Exchange Commission (SEC) and has requested what the Girard Securities Chairman and Chief Executive characterized as a massive request for data.  As InvestmentNews reported, the request is not routine, and instead concerns supervision of registered persons who work at Girard Securities’  approximately 136 branch offices.  Other firms have apparently received these data requests from the SEC as well.

According to the InvestmentNews article, Girard Securities agreed to be purchased by RCS Capital Corp., then run by Nicholas Schorsch.  According to the article, the deal is nearing approval from the Financial Industry Regulatory Authority (FINRA).  In December 2014, Mr. Schorsch resigned as chairman of American Capital Properties, Inc., then resigned as executive chairman of RCS Capital Corp.

Girard Securities recently accepted and consented to findings by FINRA that it did not have sufficient systems and procedures to guard against preventing third party fraudulent wire transfer activity.  In the Letter of Acceptance, Waiver and Consent (AWC) No. 2012033033901, it was described that Girard had approximately 360 registered individuals in 136 branch offices.  It also states that two clients who had recently gotten divorced had their email hacked.

According to the AWC, the hackers, through email only, were able to direct wire transfers out of the clients’ accounts.  The AWC also stated that the Girard Operations Principal who received the wire requests sought additional information by email only rather than verbally, and after getting suitable answers from the fraudsters via email, processed the wires.  The AWC stated that Girard’s own policy and procedures required that the Operations Principal request verbal confirmation of the wires.  Meanwhile, the AWC stated that an Operations Manager at Girard’s home office stated that verbal confirmation had been received.

We at Malecki Law have seen many cases involving fraud where securities firms have many branch offices.  The more branch offices a firm has, the more employees are required to perform supervision over these offices.  It becomes harder for firms to dedicate the proper amount of time and resources to supervision and compliance when they have more branch offices and those branch offices are more spread out geographically.

Despite this, merely because a firm’s office is a branch and not home office, the same amount of supervision must be performed to protect public investors from fraudulent and other wrongful conduct.  FINRA Rules, securities laws and related case law make clear that supervision over all registered persons is the “final responsibility” of the FINRA member.

Very often, the registered persons working at branch offices also perform other jobs, such as accountancy, tax preparation, real estate brokerage and other services.  These offices raise additional issues that require closer supervision, something firms often are not willing to perform.

The SEC’s inquiry into supervision of these remote branch offices should be viewed as a good sign for public investors, because the SEC’s scrutiny should cause the employing firms to ensure their policies and procedures are adequate and their supervision systems are being performed appropriately.

If you believe you have suffered monetary losses as a result of investments held in a remote branch office, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

Broker-dealers may be held liable to brokers who they threatened, misled, and/or lied to about the features and relative safety of an investment sold to their customers.

The stockbroker and broker-dealer relationship can be characterized as one of agent-principal, respectively.   While many understand that an agent has a duty to his or her principal, frequently overlooked in this capacity is the duty of the principal to the agent.

In the securities world, it is known that a broker has certain and specific obligations to his firm both contractually and as agent.  Yet many industry participants are unaware of the duties the firm can be said to have to its brokers beyond those bargained for in their employment contracts.

For examples, we can look at the Restatement (Third) of Agency, which is a set of principles issued by the American Law Institute, that is meant to clarify the current state of the law of agency. The Restatement Third tells us that “[a] principal has a duty to deal with the agent fairly and in good faith.”  This includes “a duty to provide the agent with information about risks of physical harm or pecuniary loss that the principal knows, has reason to know, or should know are present in the agent’s work but unknown to the agent.”

Because stockbrokers largely rely upon their firm for research on different products, this can be important in the securities context.  For example, there may arise a situation where a firm has knowledge that a product its brokers are selling is toxic.   Another example may be a situation where a firm or group of firms supports a market in a particular security, and has made the decision to no longer support that market. In either of these situations, if the brokers do not know the product is toxic or will no longer be supported, the firm, as principal, could be held liable for failing to disclose those facts to its agents, the brokers.

As many have seen in the recent ARS (auction rate securities) cases, and now are beginning to see in the cases involving the UBS Puerto Rico closed end funds, when a toxic or unsupported product collapses, brokers may be “left holding the bag.”

Such market disasters have the potential to cost customers millions upon millions of dollars in losses and lost liquidity.  When those customers file suit against the firm that sold them the product, the customers usually take their business elsewhere.  Therefore, the broker(s) on those customers’ accounts find themselves in a situation where they have lost customer business and gained customer complaints on their CRD – not a good swap for the broker.  Customer complaints are commonly known as a “mark” on a broker’s license, which appears on their Form U-4 employment record or Form U-5 termination record if they are fired.

Losing customers and gaining “marks” on their license can cause the broker significant pecuniary (monetary) loss even if they remain with the firm, and even more so if they lose their job completely.  If that broker’s firm fed them false information or told them nothing was wrong with the product before the product collapsed, they may feel “set up” by their firm.

When the number of a broker’s customer complaints grows, it becomes less and less likely that the firm will continue to support that broker.  Oftentimes, firms will set unrealistic asset gathering, production, and/or other requirements to create a pretext to force such brokers out the door.

Under the laws of agency, contract, tort and others, brokers who were threatened, misled, or lied to by their firm may be able to recover for their losses.

Malecki Law is experienced in representing registered brokers and financial advisors in expungement proceedings and in arbitrations for lost wages and compensation against the current or former firm.

It is no secret on Wall Street today of what is happening in Puerto Rico in connection with the devastation of the UBS Puerto Rican Closed End Bond Funds.  For many on the island and others in the 50 states, it is a whopper of a problem.

Any time there is a complete catastrophe with a product, such as there is in Puerto Rico, two sets of victims emerge.

The first is the investors who were likely misled and as a result have lost significant portions of their life savings.

Another, often overlooked, set of victims is the brokers/financial advisors who sold the product.  Frequently, brokers in situations like this are not given complete information and are misled themselves.  Firms may even have high pressure sales meetings, threatening brokers that they will lose their jobs, or their bonuses or their book of business if they do not sell the firm’s toxic product.

After the product “blows up” those brokers then can find themselves looking for answers from their firm as to why they were treated this way.  As these brokers find themselves subject of multiple lawsuits and customer complaints, the prospects of finding a job elsewhere in the securities industry disappear.  This can leave someone in that position completely devastated, with few options to provide for themselves and for their families.

The firm is frequently the party responsible in such situations, including those in upper management, who failed to properly inform the brokers on features and risks of the product, or worse, misled them completely.  The head of UBS Puerto Rico, Miguel Ferrer has come under scrutiny by the SEC.  In In the Matter of Ferrer, a case held before ALJ Brenda P. Murray, Miguel Ferrer, who at the time worked for UBS as a Chairman, Chief Executive and Vice-Chairman, was accused of acting with scienter, negligently making misrepresentations, or omitting material information in emails and memos sent to brokers regarding UBS’s Puerto Rican Bond Funds.

Brokers who are victims in product cases are not without hope.  Brokers who have been misled and mistreated by their firm in the case of a toxic product may be able to sue the firm in FINRA Arbitration. In arbitration, brokers may be able to have their CRD records expunged, and recover for lost earnings as a result of losing their job and their book of business.

Malecki Law is experienced in representing registered brokers and financial advisors in expungement proceedings and in arbitrations for lost wages and compensation against the current or former firm.