Articles Posted in Securities Fraud & Unsuitable Investments

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.

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.

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.


As oil prices have continued to plummet and commuters across the country have regaled the resulting savings at the pump, investors in oil and gas related stocks, ETFs and master limited partnerships have been shocked by the crushing losses on their brokerage account statements.

With interest rates near all-time lows, some financial advisors with clients seeking income have strayed from the usual safe, reliable treasury bills, high-grade municipal bonds, and the like, instead recommending riskier investments in search of higher yield and more income.  If such investment advisors recommended securities tied to the oil and gas sector, the last few months may have proven disastrous for their clients.

For example, financial advisors have been known to recommend “Master Limited Partnerships” (MLPs), which offer an investor the opportunity by into an oil/natural gas discovery, production and distribution enterprise.  While MLPs offer typically higher rates of income than more traditional investments, investors are frequently not advised by their financial advisor of the significantly higher risks.  Unfortunately, investors who were sold MLPs as safe, income producing investments, may only be learning of these previously hidden risks now that their investment has dropped significantly in value.

MLPs are not the only way to invest in oil and natural gas.  Another way to invest in oil and gas in through “Exchange Traded Funds” (ETFs).  ETFs are typically sold as an alternative to mutual funds that trades like a stock.

Unfortunately, that is not the whole picture.  ETFs can be riskier than traditional mutual funds, and have some features that make them different from stocks.

One classic example is leverage, meaning that the product is structured in a way to amplify gains (and losses).  (You can read more about leveraged ETFs here.)  While more gains may sound good, there is more risk of more losses, which is bad.  For many investors leveraged ETFs are not appropriate.

Investors who have had their portfolio concentrated in leveraged (or even ordinary, non-leveraged) ETFs in the oil and gas sector have probably seen the value of their portfolio drop catastrophically.

For example, the following oil, gas, and energy related ETFs have lost between 30% and 85% of their total value in the last 3 months alone:

  • Direxion Daily Nat Gas Rltd Bull 3X ETF (GASL)
  • VelocityShares 3x Long Crude Oil ETN (UWTI)
  • ProShares Ultra Bloomberg Crude Oil (UCO)
  • Direxion Daily Energy Bull 3X ETF (ERX)
  • First Trust ISE-Revere Natural Gas ETF (FCG)
  • PowerShares S&P SmallCap Energy ETF (PSCE)
  • ProShares Ultra Oil & Gas (DIG)
  • SPDR® S&P Oil & Gas Equipment&Svcs ETF (XES)
  • PowerShares Dynamic Oil & Gas Svcs ETF (PXJ)
  • United States Brent Oil ETF (BNO)
  • Market Vectors® Oil Services ETF (OIH)
  • Market Vectors® Unconvnt Oil & Gas ETF (FRAK)
  • iPath® S&P GSCI® Crude Oil TR ETN (OIL)

To the average investor, losing that much value in such a short amount of time can be shocking and devastating.  When such losses were the result of fraudulent recommendations by a financial advisor, they may be illegal.

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 lost money in exchange traded funds, MLPs or any other oil, natural gas and energy related security, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

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.

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.

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 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.