The Financial Industry Regulatory Authority (FINRA) has announced that Merrill Lynch has been fined $1.9 million and ordered to pay restitution in the amount of $540,000 for fair pricing violations as well as supervisory violations related to the purchase of certain distressed securities.

According to FINRA, more than 700 transactions in Motors Liquidation Company (MLC) Senior Notes with retail customers were affected over a two year period.   FINRA found that “Merrill Lynch purchased MLC Notes at prices that were not fair to its retail customers.”   Specifically, Merrill Lynch was found to have purchased the notes from retail customers for anywhere between 5.3% and 61.5% below market price, leaving customers significantly disadvantaged.  Merrill Lynch would later selling those shared purchased from retail customers to other broker-dealers at the prevailing market price.

Another problem FINRA found was that Merrill Lynch failed to have an adequate supervisory system in place to detect whether the prices paid to retail customers on the MLC Notes were fair and consistent with prevailing market prices.

Proper supervision is critical in the brokerage industry for the protection of investors.  Unfortunately many financial firms have significant lapses in their supervision over their personnel.  When that happens, customers can incur substantial losses unnecessarily.

Customers who lose money as a result of supervisory failings on the part of their broker-dealer may be entitled to recover those losses.

If you or a family member may have lost money and you believe the account was not properly supervised, 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.

Citigroup, Inc. has reportedly agreed to pay a $3 million fine for failing to properly deliver prospectuses to some customers.  Specifically, according to the Financial Industry Regulatory Authority (FINRA), Citigroup failed to deliver prospectuses to customers who bought shares in one or more of 160 exchange traded funds (ETFs) in late 2010.  It has also been said that Citi may have not delivered prospectuses related to more than 1.5 million ETF purchases between 2009 and early 2011.  Citigroup was also fined by the New York Stock Exchange in 2007 for similar issues.  FINRA, according to reports, said Citigroup failed to have proper procedures in place to supervise the process.

This is the second such snafu by a major American bank resulting in a fine this year.  Just this past September, Morgan Stanley said that it would pay for the losses incurred by customers who purchased certain mutual funds, after the bank admitted that it failed to make prospectuses for those funds available on its website.  In total, this is believed to have cost Morgan Stanley roughly $50 million.

Financial firms have significant duties to their customers – risk disclosure being one of the most important.  Transparency, including risk disclosure, is critical to the efficient functioning of the markets.  So, when major financial firms fail to fulfill their duties, meaningful fines should be imposed.  Whether or not the fines in these instances are meaningful remains up for debate.

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Malecki Law is investigating possible unsuitability claims against stock brokers and financial advisors who sold shares of Amarin to investors for whom the stock was not appropriate.

Amarin is a biopharmaceutical company based out of New Jersey.  The company’s primary business involves the development and marketing of medicines used to treat cardiovascular disease.  Amarin is best known as the company that developed the pharmaceutical drug Vascepa.

Over the past few years, Amarin has been reportedly seeking various FDA approvals for Vascepa.  During the past four to five years, the shares of Amarin have shown great volatility.  The shares have gone from roughly $1 per share in February of 2010 up to $19 per share in May of 2011 and back down to just more than $1 per share today.  In October 2013, share prices went from more than $7 per share to just over $2 per share in less than two weeks.  Again this past October, share prices dropped roughly 50% in only one month’s time.

As a result, investors who were sold Amarin by their financial advisor may have experienced crushing losses.  It is believed that some financial advisors may have been advising clients to buy Amarin in the run up to major announcements by the company.  When negative news came out, the stock price fell dramatically, causing significant losses to investors.

Financial Industry Regulatory Authority (“FINRA”) rules expressly prohibit registered financial advisors from selling unsuitable investments to the public. Therefore, investors who bought Amarin at the recommendation of a financial advisor may be able to recover some or all of their losses.

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 Amarin, 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.

On November 12, 2014, the Wall Street Journal reported the results of an investigation performed of broker records. The article disclosed that the paper identified 16 “hot spots” where “troubled brokers tend to concentrate,” after analyzing about 550,000 records of brokers.

The list of these 16 hot spots include: Fort Lauderdale/Boca Raton, FL; Long Island, NY; Sarasota FL; Collier/Lee Counties, FL; Treasure Coast, FL; Southern Manhattan, NY; Greater Las Vegas, NV; Eastern Maricopa County, AZ; Staten Island, NY/Middlesex & Monmouth Counties, NJ; Greater Sacramento, CA; Southern Miami-Dade County, FL; Greater San Diego, CA; Metro Detroit, MI; North L.A./San Fernando Valley, CA; Orange County, CA; and Western Maricopa County, AZ. The results of the plots on the WSJ’s map show that these hot spots appear to collect around the metro New York area, Southern Florida and Southern California.

The WSJ reported that “troubled brokers” were determined as having three or more disciplinary red flags over their career, including regulatory actions, criminal charges, client complaints, recent bankruptcies and terminations. Regulatory actions include proceedings commenced by regulators, including the Securities and Exchange Commission and Financial Industry Regulatory Authority, which generally seek financial penalties and/or temporary or permanent bars from the securities industry. The article also noted that three red flags is also three times the national average for brokers, many of whom maintain clean records.

For the metro New York area particularly, the WSJ article reported that the New York Attorney General overseas a broker workforce of approximately 95,000 brokers, including 11,000 brokers in the three hot spots identified in that area. Despite the fact that approximately 15% of all registered brokers work in New York, the NYAG assessed only $5,500 in sanctions against brokers, representing about 1% of the total sanctions assessed nationwide, the WSJ reported. The article quoted a NYAG spokesperson as stating that New York’s securities law does not provide the NYAG with review procedures or authority to “regularly examine” brokerage firms, unlike FINRA and other states.

The WSJ article also noted that there were 50% more households than average run by individuals over the age of 65 and income over $100,000 in the “hot spots” where the troubled brokers tended to accumulate. The incidence of elevated levels of brokers with three or more “red flags” in communities that also contain larger than average wealthy elderly populations is a potentially troubling phenomenon that may only become more pronounced with the ageing of the baby boomers generation. The WSJ article noted that it was hard to determine whether there is a correlation between larger than average communities of troubled brokers and wealthy elderly individuals.

The attorneys at Malecki Law represent investors who have lost money in their brokerage accounts as a result of brokers who are often driven by self-interest, including overcharging or overtrading their clients accounts, or recommending investments solely to earn large upfront commissions. If you believe you were not properly recommended investments, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

Malecki Law is investigating possible claims against Craig Scott Capital, based in Long Island, NY.

According to FINRA BrokerCheck, some customers of the firm have recently filed arbitrations related to the conduct of the firm’s brokers alleging “unsuitability, excessive trading and misrepresentation” against the firm. According to his CRD, the firm’s President and CEO, Craig Scott Taddonio, intends to vigorously defend himself in at least two arbitrations. Craig Scott Capital has also recently been the subject of a FINRA regulatory investigation resulting in the firm paying a fine.

Sources have reported that some brokers from Craig Scott Capital are alleged to be “cold-calling” investors with no prior relationship with the firm and soliciting sales of investments that may be unsuitable for the investor. These investments may include non-traded real estate investment trusts (“REITs”).

Non-traded REITs are well-known in the financial industry for paying high commissions to the selling broker, but have run into problems in the past, causing investors to suffer significant losses. These products should only be sold to investors for whom they are suitable. Unfortunately, they are frequently sold to investors for whom they are not appropriate.

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 has suffered losses, 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. Information on a selection of funds and companies currently under investigation by Malecki Law can be found below.

handshake.jpgHow do you know your investment adviser is solely acting in your best interest? Sadly, even when it comes to picking mutual funds, your investment adviser may still only be thinking of himself or herself.

Take for example the allegations in a recent proceeding instituted by the SEC on September 2, 2014 against the Robare Group, Ltd. and two individual principals of the firm for failing to disclose a fee arrangement in which Robare was paid between 2 and 12 basis points on the client’s assets investments in no-transaction-fee (NTF) mutual funds on a broker’s platform, as reported by InvestmentNews. One basis point is equal to 1/100th of one 1%, so 10 basis points would equal .1%.

The SEC alleged that Robare earned close to $500,000 in fees over eight years, and failed to disclose the arrangement on the firm’s Form ADV. The SEC further alleged that in 2013, Robare managed approximately 350 separately managed discretionary accounts and had assets under management of approximately $150 million.

The SEC alleged that the fee arrangement created an incentive for Robare to favor mutual funds available on the broker’s platform when giving investment advice to its clients. Robare’s alleged incentive to favor these mutual funds created a conflict of interest with its clients, a fact that was not disclosed, or only partially and incompletely disclosed, by the firm, according to the SEC’s allegations.

The SEC alleged that Robare violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (Advisers Act), which make it unlawful for an investment adviser to defraud or engage in a practice that would operate as a fraud upon any client. Regarding the false or incomplete filings on the firm’s ADV, the SEC alleged that all respondents violated Section 207 of the Advisers Act) by making untrue statements in an application or report filed with the SEC.

According to the InvestmentNews article, the SEC’s Asset Management Unit charged a different adviser in 2012 with also failing to disclose a revenue-sharing arrangement.

Investment Advisers are considered fiduciaries of their customers, and therefore hold various fiduciary duties, including to act in the client’s best interest. If an investment adviser places his or her own interest ahead of their client, they risk breaching those duties, and as illustrated in the allegations made by the SEC in proceedings against Robare, fraud charges by regulators. Investment Advisers who are also registered representatives with a broker-dealer may face private actions brought by their clients for recommending unsuitable investments (i.e. investments that are not proper for the client given their risk tolerance, age and other circumstances).

It is not uncommon for clients to learn that unsatisfactory performance in their brokerage accounts often mask further and more damaging securities law violations. If you believe you were not properly recommended investments, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

“Is my stockbroker charging me too much in commissions and fees?” This is a common question many investors frequently have. Unfortunately, all too often, the answer to this question is “Yes.”

In fact, just yesterday, the SEC announced that it had fined a New York based broker-dealer, Linkbrokers (an affiliate of London-based ICAP), $14 million for over-charging its customers in the form of markups (and markdowns), among other things.

Markups are the difference between the lower price a broker-dealer can buy an investment for and the higher price charged to a retail customer when they buy investments directly from the broker-dealer’s inventory, rather than on the open market. For example, if a broker-dealer were able to buy a stock at $10 per share and charge a retail customer $11 for that same share, the markup would be $1. Markups are common in the financial services industry, but to be acceptable, they must not be excessive and must be appropriately disclosed to the customer.

According to the SEC, from 2005 through February 2009, Linkbrokers did not properly disclose the markups and markdowns, nor were many of the markups (and markdowns) reasonable. Instead, Linkbrokers is said to have defrauded customers by claiming to charge them minimal commissions, while in fact charging them excessive markups that could be as much as 10-times what the customers believed they were paying. The SEC alleged that Linkbrokers charged markups that were as high as $228,000.

Linkbrokers also allegedly defrauded customers by using a version of a scheme known commonly as “cherry-picking.” Such a scheme involves trading for both customer accounts and “house” accounts, which hold the broker-dealer’s money. The cherry picker then chooses the profitable trades and assigns them to the house accounts, while dumping the losing trades into the customer accounts, causing the broker-dealer to profit and the customer to lose money.

Linkbrokers is said to have placed orders for customers to either buy or sell at a specific price, known as a “limit order,” and executed such trades accordingly. However, depending on how the market moved after that point in time, Linkbrokers allegedly bought or sold those positions back into the market at a profit, which it kept for its own house accounts. They then allegedly lied to the customers, telling them that the limit orders had never been executed, causing the customers to suffer losses.

Remarkably, too many stockbrokers and investment advisers continue to charge their clients excessive fees and commissions. Such conduct is against the law and against financial industry rules. Investors who have been charged excessive fees and commissions may be entitled to a return of some or all of the commissions and fees paid in the account, along with a reimbursement for some or all of any losses that were suffered in the account as well.

If you believe that you may have been charged excessive fees or commissions on your investment account, contact an attorney at Malecki Law for a free consultation to find out if you may be entitled to recover some or all of your losses. The attorneys at Malecki Law have decades of experience representing investors.

In only three years, the Dodd-Frank whistleblower program, which promises cash rewards for those whose tips lead to a successful investigation by the SEC, has yielded more than 6,500 tips according to a recent article in the Wall Street Journal. Though traditionally thought of as insiders, tipsters do not just come from only inside the companies targeted. Rather, whistleblowers are coming forward from all walks of life, including investors and retirees, in addition to insiders and the family of insiders according to the article. businessman-with-the-notebook-1-1362246-m.jpg

The rate at which individuals are submitting tips also seems to be rising. As a firm that represents whistleblowers, Malecki Law has also seen a growth in calls from prospective whistleblowers seeking legal counsel to file a tip with the SEC. Just recently Jenice Malecki, Esq. was interviewed by Rob Lenihan of Thomson Reuters: “‘I can tell you that whistleblowers as potential clients have increased over the last year — substantially,’ Malecki said. ‘There’s definitely an increase, and everybody who is somehow involved in the securities industry either as a customer or otherwise feels like they have some information they could tip on.'”

Although some individuals may have initially been reluctant to come forward for fear of retaliation, a recent push to protect the rights of whistleblowers has helped to alleviate many of those concerns. Such a positive development coupled with the mechanisms in place that allows whistleblowers to report securities laws violations anonymously has allowed tipsters to come forward without unnecessary fear of retribution.

In addition to ensuring that the rules are followed and that rule-breakers are held accountable, whistleblowers would appear to have more good reason to come forward. Even though $15 million has already been awarded to whistleblowers, it would appear that this is just the tip of the ice berg. Mr. Sean McKessey, head of the SEC’s whistleblower program, was quoted by the Wall Street Journal as saying that the numbers will soon grow and that a “‘critical mass’ of tips will soon yield more investigations, fines and bounties.” According to Mr. McKessey, “we’re getting close to the sweet spot.” This would mean more money for whistleblowers.

If you believe you may have valuable information and are thinking about blowing the whistle, contact an attorney at Malecki Law for a free consultation. The attorneys at Malecki Law have experience representing whistleblowers, and can help you file your whistleblower complaint with the appropriate agency to maximize your chances at getting the reward to which you may be entitled.

It’s Buyer Beware, according to guidance and alerts issued recently by the SEC, FINRA and IRS concerning risks inherent in Bitcoin. Bitcoin is described by all three offices as a decentralized, peer-to-peer virtual currency that can be used in place of, and traded for, traditional currencies, though is not backed by any central authority, government bank or otherwise.

First, the IRS released Notice 2014-21 on March 25, 2014 in question and answer format to describe the tax implications of Bitcoin. Generally speaking, the IRS has taken the stance that Bitcoin will be considered property, and for investors, may constitute a capital asset, requiring reporting of gain or loss based on fair market value. Given the opaque nature of Bitcoin, this may cause further risks to investing, as investors may be required, by themselves, to calculate gains and losses, a job typically taken up by banks, wire houses and clearing firms.

The SEC, in its second Bitcoin alert dated May 7, 2014, reiterated risks associated with investments in the digital medium. Given that Bitcoin is a relatively new innovation, the SEC warned that it has a potential to give rise to frauds that may propose “guaranteed” high rates of return.

The SEC alert listed several warning signs of potentially fraudulent conduct, in addition to promises or “guarantees” on return:
• Unsolicited offers, including cold-calls or emails;
• Unlicensed sellers, or individuals or businesses that are not registered with FINRA, the SEC or other regulators;
• No net worth or income requirements;
• Any offer that sounds too good to be true (these sorts of investments often are); and • Pressure to buy immediately.

The SEC alert also highlighted the very large volatility in the valuation of Bitcoin, noting that the exchange rate has dropped more than 50% in a single day. Given this extreme volatility, even reputable businesses may inappropriately attempt to solicit investment via Bitcoin. The SEC noted that in March 2014, the Texas State Securities Board issued an emergency order against an oil and gas company for soliciting investments via Bitcoin for exploratory wells in West Texas. While oil well exploration is well-known to be a risky endeavor, the emergency order was made because the solicitations were deemed unregistered securities, and if the business held Bitcoin, it could affect the amount of money available for business operations, a risk not disclosed in its solicitations.

The FINRA investor alert noted other risks, including that due to the international and anonymous nature of Bitcoin, investments are not guaranteed, are irreversible, and may be implicated in illegal activities. If an investment is made that turns out to be fraudulent, it may be hard or impossible to recover your losses, as the investment/currency is not backed by any U.S. banks or federal regulatory agencies.

Investments based on bitcoin must still be marketed and sold in accordance with securities laws and related regulations, and so must be suitable for investors appropriate under each specific investor’s circumstances. If you believe you were not properly informed of the risks associated with an investment involving bitcoin, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

oil-pumps.jpgMuch has been made in the recent months about supposed growth in the oil and gas markets, including speculation, such as the recent article on www.forbes.com that increasing demand will be preceded by increased investment in infrastructure that would bring the product to market.

Regardless of the potential growth as an investment, limited partnerships and business development corporations have historically been, and will likely continue to be, extremely risky investments that demand a careful suitability analysis and due diligence by financial professionals before they are recommended for public investors. In addition to the risks listed in the Forbes article, such as “acts of God and man” (environmental, terrorist, war, etc.), there are the risks that the investment never yields the promised gains, or that the investment itself is completely false, fictional and fraudulent.

Further, these investments also tend to be highly illiquid and require long holding periods. This fact alone can render an investment unsuitable for a particular investor, if they are at an age or place in their lives where access to cash is important, or if the investor actually told their financial professional that liquidity was important to them.

Oil and gas limited partnerships, like other alternative investments, also tend to be high-commission products, giving brokers an incentive to recommend and sell to unsuspecting investors without making the necessary suitability analysis required of them by FINRA Rules and applicable securities laws.

The North American Securities Administrators Association (NASAA) cites potential tax consequences and fraudulent sales techniques of investments in oil and gas as additional concerns for investors. For example, while cold-callers may claim that springtime weather will bring more motorists that will demand more oil, the increased use of oil and gas in good weather is a known fact and usually already built into the market price, so such claims can be half-truths with serious omissions. Sometimes, as NASAA points out, these investments are marketed in high-pressure sales calls from “boiler rooms” to market the investments. Investors should be extremely weary if they receive such unsolicited phone calls.

As reported by MarketWatch, while yields may look or sound promising, the fine print of the limited partnership investment structure may include substantial layers of fees and expenses that could “erode” returns to the investors. Further, MarketWatch noted that certain such investments may merely return principal back to the investor, rather than any actual income on the investment. Other “investments” that return principal are typically known as Ponzi schemes.

We at Malecki Law have unfortunately seen poor marketing and solicitation tactics involved when recommending alternative investments like oil and gas limited partnerships. It is also not uncommon for financial professionals to fail to disclose all of the attendant risks of these investments, including any lock-up periods, relative illiquidity of the investments generally, as well as tax drawbacks. Securities rules require that a broker fully advise the investor of all risks when recommending investments in oil and gas limited partnerships and other similar alternative investments. If you believe you were not properly informed of these risks, or feel you were subjected to high-pressure sales tactics that forced you into unsuitable investments, please contact the attorneys at Malecki Law to determine if you have a claim for damages.