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.

Various news sources, including the New York Post, the Wall Street Journal and CNBC reported on January 22, 2015 that Owen Li, the manager of Canarsie Capital, published a letter to investors apologizing for the almost complete loss of money, stating he was “truly sorry.”

According to the Wall Street Journal, Canarsie, which was started at the beginning of 2013 and named for the Brooklyn neighborhood where Mr. Li grew up, had approximately $60 million at the beginning of this year, not including leverage.  With borrowed money, the fund had approximately $98 million at the beginning of 2014, according to the Wall Street Journal.

According to the CNBC article, Mr. Li previously worked as a trader for Galleon Group, which collapsed amid allegations of insider trading, and the 2011 conviction and imprisonment of Raj Rajaratnam, Galleon’s founder.

The Wall Street Journal’s article detailed that in March 2014, its prime broker, Morgan Stanley, stated it was uncomfortable with the firm’s risk practices, and a month later told Canarsie to find a new clearing firm concerning the continuing risk profile.

While hedge funds may experience large swings in profit or losses, it is essential that the marketing and subscription documents investors are shown accurately reflect the risks that will be applied to the invested funds.  In certain circumstances, investments may be misrepresented when marketers describe the investment as not being as risky as it truly is.

If you believe you may have suffered monetary losses as a result of investments that were not properly marketed or held outsized undisclosed risk, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

A memo drafted by Jason Furman, one of President Obama’s top economic advisors, entitled “Draft Conflict of Interest Rule for Retirement Savings” was reportedly obtained by Bloomberg News.

The memo cites research that says investors may lose between $8 billion and $17 billion per year as a result of stockbroker/financial advisor practices, such as excessive trading commissions.  That number, while astonishing, may even be an underestimate according to some people.

As a result, some on Capitol Hill are calling for stricter rules on Wall Street.

One thing being looked at is the imposition of a “fiduciary standard” on brokers when handling retirement accounts.  This would require brokers to act in their clients’ best interests.  Many are surprised to hear that brokers may not always be required to act in a fiduciary manner.  Yet the fact is that based upon the specific circumstances, some brokers may only be held to a lesser “suitability” standard.

Unfortunately, many brokers cave to the temptation presented by conflicts of interest, such as increased commissions for selling one mutual fund over another.  This leads to brokers looking out for themselves, at the expense of their customers.  The memo indicates that some investors lose up to 10% of their long term savings because of such conflicted advice.

Given reports that tens of millions of people have savings in retirement accounts that total more than $11 trillion in total assets, it is no surprise that a push to a fiduciary standard for these accounts is gaining steam.  Given their age and varying levels of diminished capacity, senior citizens tend to be especially vulnerable to the illicit sales practices of an unscrupulous broker.  This makes protecting senior investors a paramount concern.

The attorneys at Malecki Law have significant experience representing victims of investment fraud and negligent financial advisors in arbitration and have successfully recovered millions of dollars on the behalf of individual investors, as well as large groups of investors, who lost money due to inappropriate investment advice.

If you or a family member suffered losses because of inappropriate investment advice, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

Investors in Diversified Lending Group Inc., allegedly solicited by Tony Russon and other agents who worked under him at Russon Financial Services, may be able to sue Metropolitan Life Insurance Company in FINRA Arbitration after their California class action failed to obtain certification.  In Los Angeles this past week, a California Superior Court judge in Cantor et al. v. MetLife Inc. et al. rejected the class certification bid from 212 investors whose claims were based on being the victims of an alleged Ponzi scheme said to involve fraudulent investments sold by agents of MetLife and subsidiary New England Life Insurance Co.

It has been alleged that MetLife and New England Life failed to properly supervise Mr. Russon and others while they were unlawfully convincing investors to place large sums of money with Diversified Lending Group Inc.  According to reports, DLG was run by alleged Ponzi schemer, Bruce Friedman.  Investors reportedly lost millions to the scheme, devastating themselves and their families.

However, all may not be lost for investors after the class failed certification.  Investors may be able to pursue their claims in FINRA arbitration.  Arbitration works similarly to court proceedings in many ways, and it is a forum in which victimized investors regularly recover losses resulting from Ponzi schemes and other fraudulent investments.

The attorneys at Malecki Law have significant experience representing Ponzi scheme victims in arbitration.  The attorneys at Malecki Law have successfully litigated multiple claims on behalf of individual investors, as well as large groups of investors, who lost millions of dollars in Ponzi and Ponzi-style schemes.

It is the right of any and all investors who believe they may have been the victim of a Ponzi scheme to contact our offices to explore their legal rights and options. If you or a family member invested in DLG, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

 

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The financial industry is one built on commissions on the sales side and bonuses in the back office.  While sales staff can often readily determine where they fall on the commission scale to determine their net payout, non-sales personnel do not typically have that luxury.  Non-sales employees such as product engineers, traders and the like frequently receive performance bonuses that are not tied to any predetermined scale or schedule.   Just this past week Citigroup and Bank of America reportedly shrunk their bonus pool for certain investment banking, trading and other securities related employees.

Such performance bonuses are usually understood that they are not above and beyond, but rather a necessary part of the employee’s annual compensation.  Given that many bonuses may be multiples of an employee’s relatively small annual salary, not receiving a year-end bonus can be devastating for someone who was counting on it.  Those who get “stiffed” out of their bonus may find themselves facing the year ahead with uncertainty.  Worries like “How am I going to pay my mortgage? Or my child’s tuition?” can quickly become an unfortunate reality.

The first step someone in this position usually takes is speaking with their supervisor or a representative in their company’s HR department.  If you have already done this, you were likely told that your bonus was “discretionary” and the firm did not owe you a penny.

In many cases, this is only partially true.  While many employment agreements may include a provision that says bonuses are “discretionary,” the law still protects the rights of those who have provided a service but have not been fairly compensated.

Therefore, an individual may be entitled to sue and recover some or all of what they should have received in their bonus, even if the firm used its “discretionary” authority to not bonus the employee.   Depending on the individual’s specific circumstances, they may be able to recover under the common law theories of breach of express and/or implied contract, quantum meruit, restitution, and unjust enrichment.  State employment laws also offer protections to employees, which can vary from state to state, but may provide an avenue to recover some or all of the withheld bonus.

The attorneys at Malecki Law have experience representing employees in the financial industry in cases resulting from the withholding of an employee’s bonus.  If you or a family member had their bonus improperly withheld, contact the securities lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.