Recently in Securities Fraud & Unsuitable Investments Category

Biggest Recent FINRA Fines Point to Poor Supervision at Large Broker-Dealers

April 11, 2014,

Apparently the opportunity for bad brokers to engage in wrongful conduct is enabled by big brokerage firms, as recent Financial Industry Regulatory Authority (FINRA) fines indicate that these businesses fail to properly supervise their foot soldiers. The FINRA Rules, including Rule 3010, make clear that broker-dealers are the securities gatekeepers, because they are ultimately responsible for supervision of their brokers. Not all brokers take advantage of their customers, but those who do will certainly feel emboldened to continue their schemes if they know they can print account statements listing fictitious investments, or make misrepresentations to clients over emails they know will never be supervised.

InvestmentNews recent reported regarding the largest recent fines handed out by FINRA. The fines, some mentioned in prior blog posts, point to continued poor supervision at large broker-dealers.

For instance, we recently commented regarding FINRA's announcement on February 24, 2014 of a $775,000 fine for Berthel Fisher & Company Financial Services, Inc. and its subsidiary for failure to supervise brokers on recommendations and sales of alternative investments such as non-traded real estate investment trusts (REITs) and leveraged and inverse exchange-traded funds (ETFs).

Then, one month later on March 24, 2014, FINRA announced that it had fined LPL Financial LLC $950,000 for supervisory deficiencies related to brokers' recommendations and sales to public investors of alternative investments, including non-traded REITs, oil and gas partnerships, business development companies (BDCs), hedge funds, managed futures and other illiquid pass-through investments.

Other broker-dealers on InvestmentNews' notorious list include FINRA's report of a fine and ordered restitution in the amount of $1.2 million against Triad Advisors and Securities America for those companies' failure to supervise the use of consolidated reporting systems and inaccurate valuations being sent to customers, and for failure to retain the consolidated reports, in violation of applicable securities recordkeeping laws. These types of failures are particularly problematic, because they allowed brokers to sell potentially fraudulent investments with the appearance of legitimacy, since they were printed on firm account statements. Such investments, according to FINRA, included those held "away" from the broker-dealers, which sometimes included fictitious promissory note schemes or other fraudulent or Ponzi-like investments. FINRA reported that the supervisory failures extended to "hundreds of brokers."

The FINRA fine that topped the list was that handed to, again, LPL Financial LLC in the amount of $9 million (including a fund set up to compensate customers) for "systemic email failures" and "misstatements to FINRA," reported on May 21, 2013. FINRA found that from 2007 to 2013, LPL Financial, which had completed numerous mergers to become one of the country's largest independent broker-dealers, experienced repeated failures in their policies and procedures for supervising the email system. FINRA reported that LPL was unable, on many occasions, to capture email, supervise its brokers or even to respond to regulatory requests. Included in the supervisory oversights were 28 million emails sent or received from brokers acting as independent contractors through a DBA entity.

The attorneys at Malecki Law have prosecuted several failure to supervise cases over the years. Cases involving independent contracts acting through DBAs, or brokers peddling unsuitable alternative investments or issuing false reports, are some of the issues we have seen repeatedly. If you believe you have lost money as a result of inappropriately marketed or unsuitable investments, please contact an attorney at Malecki Law to determine if you may be able to recover some or all of your losses.

Managed Futures Fund Fees: When Is Enough Enough?

April 4, 2014,


When are money management fees too much? It is hard to imagine that any investor who has sought the guidance of professional financial advisors has not asked himself or herself this question at least once - most likely more. In the case of managed futures, the CFTC is asking that question for investors right now. Following an article in Bloomberg Magazine in the Fall of last year, 2013, the CFTC has launched a probe in to the fees charged by those who manage the more than $300 billion in the managed futures market.

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According to the Bloomberg report, investors in 63 managed futures funds paid out 89% of the $11.51 billion in gains from managed futures investors in the form of fees, commissions and expenses from January 1, 2003 to December 31, 2012 - more than $10.2 billion.

Bloomberg quoted Mr. Bart Chilton, a member of the Commodity Futures Trading Commission as saying:

""The big news here is, the fees are so outlandish, they can actually wipe out all the profits . . . We absolutely need to do a better job of letting consumers know in plain English what's going on. . . Those numbers tell a story. It's astounding."

For example, Spectrum Technical LP, run by Morgan Stanley, reportedly managed more than $1 billion, making gross profits of $490.3 million. Apparently, what seemed like a great gain for investors shockingly became a loss. It seems that all $490.3 million was eaten up in fees, which totaled $498.7 million - meaning an $8+ million loss for investors. However those charging the fees pocketed nearly half-a-billion dollars over the same time frame. Over ten years, Bloomberg reported that twenty nine Citigroup and Morgan Stanley funds charged over $1.5 billion in fees to investors.

One might ask, "Why would anyone invest in a fund where they could potentially lose money, and where an overwhelming majority of any gains would be eaten up by fees?" Many are introduced to managed futures by their broker or financial advisor. These funds are typically sold as an alternative to traditional investments such as stocks and bonds and as a way to further diversify a portfolio. However, many investors might not realize that managed futures funds reportedly pay commissions to the selling broker that can be as high as 4% of total assets invested annually. Total costs and fees to the investor can run as high as 9% of total assets invested per year.

Even more shocking misleading marketing information that is allegedly used to sell managed futures to investors. According to the Bloomberg report, charts produced by BarclayHedge (not related to Barclays PLC) show astonishing gains in the managed futures market to the tune of 29 fold growth in some cases. However, BarclayHedge reportedly only uses information volunteered by managed-futures traders, and the firm does not include the fees charged to investors in its calculations. Therefore, given the exorbitant fees associated with these funds, when shown to investors, these charts can be grossly misleading.

Ultimately, the sale of any security, including managed futures fund, to any investor through misrepresentations or omissions is not ok. Nor is it ok for a broker or financial advisor to solicit unsuitable investments to their customer solely to reap a high commission payout for himself or herself.

Any investor who believes that they have lost money as a result of a misrepresentation, omission or unsuitable solicitation may be able to recover some or all of their losses. The attorneys at Malecki Law are experienced in representing investors. For a free consultation, contact us.

FINRA Files LPL Financial for Failures to Supervise Alternative Investments

March 27, 2014,

LPL Financial LLC has been hit again for supervisory failures stemming from the recommendation of non-traded real estate investment trusts (REITs), as well as other illiquid investments, begging the question whether the fines are large enough to deter future bad conduct. According to a news release dated March 24, 2014, the Financial Industry Regulatory Authority (FINRA) announced that LPL Financial has been fined $950,000 for the firm's failures in supervision over alternative investments, including non-traded REITs, oil and gas partnerships, business development companies, hedge funds, managed futures and other illiquid pass-through investments.

LPL Financial submitted a Letter of Acceptance, Waiver and Consent No. 2011027170901 (AWC), in which it admitted to "fail[ing] to have a reasonable supervisory system and procedures to identify and determine whether purchases of [alternative investments] caused a customer's account to be unsuitably concentrated in Alternative Investments in contravention of LPL, prospectus or certain state suitability standards." LPL also admitted in the AWC that though it had a computer system to assist and supervision, this computer system did not consistently identify alternative investments that fell outside of the firm's suitability guidelines. Additionally, LPL stated that its written compliance and written supervisory procedures failed to achieve compliance with NASD Rule 2310 and state suitability standards.

NASD Rule 2310 has since been superseded by FINRA Rule 2111. The current rule establishes the industry standard that FINRA members and their employees must have a reasonable basis to believe their recommendations are suitable for their customers. The Rule further dictates that the firm must establish suitability for each customer by considering the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information, though this list is not exclusive.

LPL Financial's AWC was not the first time it was fined for selling non-traded REITs. In the AWC, LPL Financial disclosed that it entered into a prior settlement with the Massachusetts Securities Division wherein it consented to a $500,000 fine and approximately $2 million in restitution for the firm's role in selling such products in contravention of state rules concerning prospectus net worth, annual income requirements and state concentration limits.

Many State securities divisions limit the percentage of investors' investible assets that may be invested in such alternative investments such as REITs. Ohio, for instance, sets its concentration limit to 10%. The Ohio Division of Securities has in the past noted in a Securities Bulletin that Direct Participation Programs such as non-traded REITs involve substantial risks, including "severe restrictions on liquidity, ... upfront fees and expenses ranging between 12%-18% of the initial offering price and substantial ongoing fees thereafter,... and distributions to shareholders paid from borrowings or a return of the shareholder's investment after deducting fees paid to insiders. Broker-dealers are highly incentivized to sell these products by the 7%-10% commissions commonly charged to investors, some of the highest selling commissions of any investment product available."

Due to the very risky nature of alternative investments such as non-traded REITs, it is imperative that firms conduct appropriate suitability inquiries to determine whether a recommendation for the purchase of such a product is actually appropriate for each customer. According to FINRA Rules, it is also imperative that an investor be informed of all risks and costs associated with such an investment, though this is rarely done. If you believe you were not properly informed of the risks associated with alternative investments, or were recommended such an investment that may not be suitable for you, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

Jenice Malecki Of Malecki Law Heads To Washington To Meet With Congressmen And Senators About Investor Protection

March 13, 2014,

Jenice Malecki of Malecki Law will be in Washington, D.C. tomorrow to meet with Congressmen and Senators along with others from the Public Investors Arbitration Bar Association (PIABA) to advocate for the Investor Choice Act and federal legislation to increase transparency and accountability from our financial regulators.

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Ms. Malecki will be meeting with Rep. John Dingell (D-MI), Senator Kirsten Gillibrand (D-NY), Rep. Stephen Lynch (D-MA), Senator Charles Schumer (D-NY), and Rep. Blaine Luetkemeyer (R-MO).

The primary significance of the Investor Choice Act will be the elimination of pre-dispute arbitration agreements that are commonly used in broker-dealer and investment advisor contracts. These agreements force customers who sue their broker, advisor or firm to pursue their claims only in arbitration. By eliminating these agreements, customers who have a dispute with their advisor, broker, or firm will have the option of electing to sue in arbitration or go to court and have their case heard by a jury.

Talking points will include: 1) the problems with mandatory arbitration, 2) who are the people bringing claims against their brokers, financial advisors, etc., and 3) why choosing arbitration over court should be the choice of the investor, not the broker-dealer.

Ms. Malecki will also be discussing the need for more transparency among our financial regulators like the Securities and Exchange Commission (SEC) as well as the Financial Industry Regulatory Authority (FINRA).

This discussion will center around the benefits and need for the public at large to have access to information about how the securities industry is regulated and to be able to verify the fairness of FINRA's arbitration forum, with a focus on how the lack of transparency harms the investing public.

Bitcoin Appears Headed for Regulation

March 6, 2014,

As the old adage goes, one good deed deserves another. And so it is for bitcoin, which the Wall Street Journal reported may receive regulatory oversight in the not-too-distant future. It seems that enough people complained about what appears to have been a hacker-theft that led to the bankruptcy filing by Mt. Gox, until recently one of the major bitcoin exchanges. While the Federal Reserve appear unwilling, the WSJ noted that the Federal Trade Commission recently stated their goal "is to protect consumers, whether they pay by credit card, check, by some sort of virtual currency." Despite Mt. Gox's bankruptcy filing, the market for bitcoin continues to be routed through exchanges that up until now have operated with minimal to no oversight and bitcoins continue to be used to purchase services and goods, and likely, as a basis for investment.

The nature of Mt. Gox's collapse is noteworthy. As reported on Tech Crunch, over the course of approximately one month, a supposed software bug caused Mt. Gox to lose approximately $500 million worth of bitcoin, including 750,000 bitcoin owned by investors and 100,000 bitcoin owned by Mt. Gox itself. Realizing the theft, Mt. Gox ceased investor transfers and shut down at the end of February 2014 and applied for bankruptcy protection from creditors. The WSJ reported on March 5, 2014 that the shutdown may have been caused by Mt. Gox's bank refusing to process wire transfers after its repeated requests that Mt. Gox close its account.

Mt. Gox's predicament may be the most publicized, but it certainly is not alone. According to the WSJ article on March 3, 2014, a recent study found that of 40 bitcoin exchanges, 18 have closed in the past three years, generally causing customer accounts to be completely wiped out. The WSJ reported that fraud is sometimes the cause of such closures. In other related bitcoin news, it was reported by the New York Post on March 5, 2014 that Autumn Radke, the CEO of bitcoin exchange firm First Meta, as a result of what may have been suicide.

As of the end of February 2014, Bitcoin has slid in value to approximately $550, half of its value from a high of over $1,100 in mid-December 2013, according to CoinDesk's Bitcoin Price Index. Given this significant volatility, it is amazing that only now are regulators looking in to whether they have the ability to provide regulation over the currency. Currently, it is estimated that there is approximately $6.9 billion in bitcoin in the world.

In addition to the risk of total loss of one's investment, bitcoin holds other hallmarks that make it a particularly risky investment, including that it is often effected in anonymous transactions and that transactions are irreversible, meaning defrauded parties often have no or limited recourse, as noted by the WSJ.

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.

Credit Suisse Group AG Admits to Providing Brokerage and Investment Advisory Services Without Registering with the SEC

February 24, 2014,

Money makes the world go 'round and apparently also makes Credit Suisse employees work faster or slower, as the case may be. The Wall Street Journal reported on Friday February 21, 2014 that Credit Suisse Group AG (Credit Suisse) agreed to pay $196 million to settle charges brought by the Securities and Exchange Commission that it provided brokerage and investment services to U.S. clients without registering with the SEC. According to the SEC's Order, Credit Suisse willfully violated the Exchange Act and Investment Advisors Act by failing to register, in violation of Section 15 of the Securities Exchange Act of 1934 and Section 203 of the Investment Advisors Act of 1940. The SEC announced in a news release on Friday that Credit Suisse admitted to the violations.

In the Order, the SEC noted that Credit Suisse apparently knew the services its relationship managers were providing across borders to U.S. clients was improper, and set up a properly registered entity to transfer the U.S. business. However, the Order went on to detail that the transfers took far more time than was initially planned, partly because Credit Suisse did not properly incentivize its employees to timely transfer the accounts. This, in addition to other wrongful conduct led the Commission to conclude that Credit Suisse failed to implement its own policies and procedures to efficiently move the accounts. The Order and the WSJ article both noted that Credit Suisse has subsidiaries that are properly registered to provide both brokerage business and investment advisory business to U.S. clients. Until the bank completed its exit from its cross-border business, it continued to charge brokerage and advisory fees to the U.S. clients it served.

Registration by brokers, dealers and investment advisors with the SEC or state regulators is a bedrock principle of the securities laws and is designed to protect investors. Section 203 of the Investment Advisors Act regulates and requires registration of brokers, dealers and investment advisors, with limited exception. The SEC regularly fines individuals and entities such as Credit Suisse for failing to follow these laws.

U.S. clients who held these accounts may not have known that they were transacting paying fees to an unregistered entity to provide advisory services. These clients may possess causes of action for those transactions and fees paid. While there may not be a private right of action under the Investment Advisors Act of 1940, it may still serve to establish duties and obligations of investment advisors. Investors should always look to their specific investment advisory agreements to determine whether breaches have occurred.

The attorneys of Malecki Law have experience representing investors in actions against firms in FINRA arbitration and in court. Investors of Credit Suisse Group or other unregistered firms should contact Malecki Law to determine whether they were inappropriately charged fees, and to determine if any other causes of action may exist.

Buyers Should Beware when Considering Investments Involving Bitcoin

February 12, 2014,

blank-coin.jpgBitcoin, and the exchanges that provide a space for trading Bitcoin, have received a lot of press lately. The Wall Street Journal reported on February 11, 2014 that the price of a Bitcoin dropped to approximately $650. This would be a significant drop from a trading high of over $1,100 per Bitcoin in mid-December 2013, according to CoinDesk's Bitcoin Price Index.

As the Journal reported, the Slovenia-based Bitcoin-trading exchange Bitstamp halted customer withdrawals while Bulgaria-based BTC-e had delays in crediting transactions. This, apparently, came as a result of a hacker attack on the exchanges. Recently, Mt. Gox, a Tokyo-based Bitcoin trading exchange recently reported that it was halting withdrawals for a period of time after it discovered a software glitch that "could give rogue traders a way to falsify transactions," as reported by the Journal. Incidentally, according to Wired, Mt. Gox stands for "Magic: The Gathering Online Exchange" and prior to 2011 was a digital trading exchange for Magic playing cards. According to that Wired article, in 2011, the website was changed to handle transactions exchanging Bitcoin.

Back in 2011, it was reported by Daily Tech that Mt. Gox was forced to shut down trading and "roll back" trades after 478 accounts were allegedly hacked, resulting in the withdrawal of a total of 25,000 Bitcoins. Mt. Gox reportedly informed investors that they "assume no responsibility should your funds be stolen by someone using your password," and that the hacker made off with only 1,000 of the Bitcoins stolen. According to the Daily Tech article, the hacker gained access to the investors' passwords by hacking Mt. Gox's database.

The Securities and Exchange Commission (SEC) has taken notice of Bitcoin. In 2013, it charged an individual named Trendon T. Shavers for running a Ponzi scheme involving Bitcoin. According to the SEC's news release, he set up a company called Bitcoin Savings and Trust and raised approximately 700,000 Bitcoin, allegedly offered investors 7% weekly interest as a result of Bitcoin arbitrage activity. However, he used certain investors' Bitcoins to pay other investors' interest, as well as his own personal expenses.

The SEC then issued an Investor Alert to inform the public of Ponzi schemes involving virtual currency. In the Investor Alert, the SEC stated that fraudsters may choose to use virtual currencies like Bitcoin, because of the lack of governmental or regulatory oversight. The SEC went on to state that any investments in securities, such as promissory notes or other investments promising regular payments in Bitcoin, remain subject to the SEC's jurisdiction and continue to require licensure by federal or state agencies.

The Bitcoin, a virtual currency, remains a risky investment, given that exchanges are not yet subject to governmental regulation. 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 and appropriate under each specific investor's circumstances. If you believe you were not properly informed of the risks associated with an investment based on Bitcoin, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

Steep Market Selloffs May Uncover Risks in Accounts Such as Adverse Consequences of Margin

January 27, 2014,

crisis-1260919-s.jpgIt was reported by Bloomberg News on Friday January 24, 2014 that there was a "massive selloff" in emerging markets that led to a decline of approximately 2% to the Dow Jones Industrial Average and S&P 500. It is during such fast and sudden selloffs that underlying problems in public investors' brokerage accounts are typically uncovered.

At Malecki Law, we have seen an increase in claims arising from margin in investors' accounts. Overwhelmingly, investors were not informed about the risks of buying securities on margin and were only told that they could make more money by leveraging their accounts to buy more securities. However, without fully understanding the risks of products and services such as margin, public investors cannot make a fully informed decision about whether it is suitable for them.

Margin is essentially a loan from the brokerage firm to the investor. The effect of margin is not similar to that of a typical home mortgage, because the securities or cash in the investor's brokerage account serves as collateral for the loan and large market drops can cause margin calls, request for more money or collateral or a sell-off of positions. Investors may use margin to increase their purchasing power or "buying power," as some brokers like to say. However, it is very important that the investor is fully informed of all risks associated with the use of margin, including that they can lose more than they borrow.

Like all loans, brokerage firms make money charging interest on the margin. So, as more money is borrowed, the interest payments increase. The Financial Industry Regulatory Authority (FINRA) underlines that in a down market, the securities that are used as collateral also tend to decline in value. The brokerage firm may issue a "margin call" if the value of collateral sinks too low. In these circumstances, the brokerage firm may demand that additional cash be deposited in the account, and if the investor fails to do so, the firm may unilaterally sell securities to satisfy the margin calls. For these margin calls, investors are typically given as little as three days' notice, and it often comes as a shock that a service that was described as helpful or safe has ended up being very costly (although that is a sign the investor does not understand and should not be in margin).

Margin can be used with many different types of investments, including equity/stock, bonds, mutual funds, etc., but increases in the leverage in a brokerage account increases the risk of the investment, and consequently, also increases the risk to investors of substantial losses. Due the manner in which margin accounts work, investors may lose more than they borrow by making interest payments and satisfying margin calls.

Margin is especially dangerous when purchasing shares of ETFs that already use leverage. By purchasing these shares on margin, the investor is "leveraging their leverage" meaning that they are taking on much more risk. Even relatively small movements in the market can cause crushing losses on such a position. Below are a few leveraged ETFs that incurred serious losses over the past three months.

  • Barclays Short B Lvgd Inv S&P 500 TR ETN - BXDB
  • Direxion Daily Gold Miners Bull 3X Shrs - NUGT
  • Direxion Daily Technology Bear 3X Shares - TECS
  • Direxion Daily Financial Bear 3X Shares - FAZ
  • Direxion Daily Semicondct Bear 3X Shares - SOXS
  • Direxion Daily Small Cap Bear 3X Shares - TZA
  • Direxion Daily Mid Cap Bear 3X Shares - MIDZ
  • ProShares Ultra Silver - AGQ
  • ProShares UltraShort Semiconductors - SSG
  • ProShares UltraShort SmallCap600 - SDD
  • Direxion Daily Brazil Bull 3X Shares - BRZU
  • ProShares UltraShort Nasdaq Biotech - BIS
  • ProShares UltraShort S&P500 - SDS
  • Direxion Daily Nat Gas Rltd Bear 3X Shrs - GASX
  • ProShares Ultra Gold - UGL
  • PowerShares DB Gold Double Long ETN - DGP
  • ProShares UltraShort Russell2000 Value - SJH
  • Direxion Daily Dev Mkts Bear 3X Shrs - DPK
  • Direxion Daily South Korea Bear 3X Shrs - KORZ

Unfortunately, public investors can suffer losses due to their margin account in a stock market that rises or falls. Securities rules require that a broker fully advise the investor of all risks to establishing and using margin in their account. If you believe you were not properly informed of the risks associated with margin, please contact the attorneys at Malecki Law to determine if you have a claim for damages.

Leveraged and Inverse ETFs Can Spell Trouble for Investors Who Buy Them and Brokerage Firms Who Sell Them

January 15, 2014,

Just this past week, two brokerages units of Stifel Financial were ordered by the Financial Industry Regulatory Authority ("FINRA") to pay more than $1 million related to the sale of leveraged and inverse exchange-traded funds ("ETFs"). Of the more than $1 million to be paid, $550,000 comes in the form of a fine to be split by Stifel, Nicolaus & Co., Inc. and Century Securities Associates Inc. The firms were also ordered to pay more than $475,000 in restitution to 65 customers to compensate them for losses incurred on ETF purchases.

According to the Wall Street Journal, FINRA said that some of the brokers who were selling the ETFs did not have a full understanding of the products they were selling, including the risks associated with them.

Brokerage firms can be fined and/or sued when they allow their brokers to sell unsuitable, or inappropriate, investments to customers, especially when the brokers have not been properly trained. Industry regulations require that a broker understand both the product they are selling and the customer to whom they are selling the product. Most importantly a broker must understand the risks of the products being sold and appreciate the customer's ability (or inability) to tolerate risk. Brokerage firms are also required to train their brokers properly, including what qualifies as a suitable, or appropriate, recommendation to a customer.

Regulators have been looking at the sale of ETFs, especially inverse and leveraged ETFs, in recent years. In the past few years, FINRA has reportedly fined multiple brokerage firms millions of dollars, including Citigroup, Morgan Stanley, UBS and Wells Fargo over the sales of ETFs.

These investments are complex and often not completely understood by the average investor. They use futures and/or derivatives to 1) multiply the return (and loss) of a given index on a given day and/or 2) cause the value of the ETF to rise when the index falls, or vice versa. However, they are largely designed as a product for day-traders and are not typically supposed to be recommended as "buy and hold" investments.

For example, below are twenty five ETFs that lost the most in the past 12 months per Yahoo Finance, many of which are inverse, leveraged, or both. Malecki Law is investigating and/or has recently pursued claims for customers who incurred losses in these ETFs.

1. Direxion Daily Gold Miners Bull 3X Shrs (NUGT)
2. VelocityShares Daily 2x VIX ST ETN (TVIX)
3. C-Tracks Citi Volatility Index TR ETN (CVOL)
4. Barclays Short B Lvgd Inv S&P 500 TR ETN (BXDB)
5. Direxion Daily Semicondct Bear 3X Shares (SOXS)
6. VelocityShares Daily 2x VIX MT ETN (TVIZ)
7. Direxion Daily Small Cap Bear 3X Shares (TZA)
8. ProShares UltraPro Short Russell2000 (SRTY)
9. VelocityShares Long VIX ST ETN (VIIX)
10. ProShares VIX Short-Term Futures ETF (VIXY)
11. ProShares UltraPro Short QQQ (SQQQ)
12. ProShares Ultra Silver (AGQ)
13. Direxion Daily Nat Gas Rltd Bear 3X Shrs (GASX)
14. Direxion Daily Mid Cap Bear 3X Shares (MIDZ)
15. ProShares UltraPro Short MidCap400 (SMDD)
16. Global X Gold Explorers ETF (GLDX)
17. Market Vectors Junior Gold Miners ETF (GDXJ)
18. Direxion Daily S&P500 Bear 3X Shares (SPXS)
19. Direxion Daily China Bear 3X Shares (YANG)
20. ProShares UltraPro Short Dow30 (SDOW)
21. ProShares UltraShort Russell2000 Growth (SKK)
22. Direxion Daily Technology Bear 3X Shares (TECS)
23. Market Vectors Gold Miners ETF (GDX)
24. ProShares UltraShort SmallCap600 (SDD)
25. ProShares UltraShort Health Care (RXD)

If you believe you have lost money as a result of an investment in these or any ETFs, or because of some other investment, contact an attorney at Malecki Law for a free consultation to determine if you may be able to recover your losses.

REIT Investment on the Rise - But Is That a Good Thing?

October 1, 2013,

As reported recently by the Wall Street Journal, investment in non-traded Real Estate Investment Trusts ("REITs") is at an all-time high and poised to continue to rise. Some estimates anticipate more than $18 billion to be invested in non-traded REITs by the end of this year.

Solicited with the prospect of annual yields of more than 6%, income-seeking investors have had their hard-earned savings steered into non-traded REITs, oftentimes without a complete disclosure of the risks involved. Many brokers and financial advisors pitch REIT investments to their retirement and near-retirement aged customers, emphasizing the perceived "safety" of real estate investment coupled with the higher than normal annual yield, but do not fully explain the associated risks and bloated commissions (as high as 15% in some cases).

What many investors are not told is that because these investments are not publically traded, while the REIT itself may report to them a specific value for their shares, the actual value of their investment may not be readily available - and could even be 10-20% lower if sold on secondary markets. This discount is often caused by the illiquidity of the investment. In other words, sellers are forced to sell for less than what they paid in order to get out of the investment (also called liquidating the investment).

The Financial Industry Regulatory Authority has even posted warnings on its website about the dangers of REIT investing, yet many investors are never made aware of these risks by their brokers.

There is still the potential for big money to be made by the issuers of these products and the brokers who sell them, so firms like LPL Financial and Ameriprise Financial, along with others, continue to market them to their customers.

Unfortunately, illiquidity and large losses have been incurred by REIT investors in the past and may be looming on the horizon for investors who may currently own unsuitable REITs.

Continue reading "REIT Investment on the Rise - But Is That a Good Thing? " »

Criminal Charges Filed Against SAC Capital Adisors

August 2, 2013,

As has been widely reported, Criminal charges were filed against SAC Capital Advisors LP, with accusations that the hedge-fund firm is guilty of a decade long "scheme" of insider trading. In total, prosecutors charged SAC Capital and its business units with a total of four counts of securities fraud and one count of wire fraud. The charges come after a multiyear investigation by the FBI, prosecutors, and the SEC. The government is also accusing former SAC portfolio manager, Richard Lee, of conspiracy to commit securities fraud. The indictment comes only a short time after SAC agreed to a $616 million settlement of insider-trading charges.

Civilly, prosecutors are looking to have SAC and any of its affiliated corporate entities surrender all of their assets. SAC manages some $14 billion in assets, a majority of which does not come from outside investors.

In a separate civil action, the SEC is seeking a lifetime ban for Steven A. Cohen, who started SAC twenty-one years ago with roughly $20 million of personal funds, from managing client money. Mr. Cohen has not been charged criminally but denies any allegation of wrongdoing. Before the financial crisis of 2008, SAC held over $16 billion in assets and reportedly charged some of the highest fees in the business - 3% annually on the total investment, plus as much as 50% of whatever profits the firm generates.

This is just the latest example of the tarnishing of some of the largest and most prestigious names on Wall Street. The revelations of the past five years should serve as an indication to investors that even the most well-known financial firms and well-respected individuals at those firms are not always "doing things by the book" and can still be negligent or even perpetrate a knowing fraud. Investors should also be aware that if they find themselves the victims of a negligent financial advisor or a larger scale fraud, they may have a right to recover some or all of their losses.

Continue reading "Criminal Charges Filed Against SAC Capital Adisors" »

Maxwell B. Smith Sentenced for Running a New Jersey Ponzi Scheme: Investors Should Look to His Brokerage Firm for Relief

June 12, 2013,

Maxwell B. Smith was sentenced to serve the next seven years in federal prison for operating a $9 million Ponzi scheme. Maxwell sold investments as a fund that made loans to nursing homes. Smith had previously plead guilty to several counts of mail fraud as well as money laundering.

It is believed that Smith was employed as a financial professional at several financial firms in New Jersey, where he provided financial advice to his clients, many of whom may have lost money to his Ponzi scheme, Health Care Financial Partners ("HCFP"), purportedly a fund with hundreds of millions of dollars in assets. Investors even received a prospectus guaranteeing 7.5% to 9% per year, tax free. Investors could buy bonds in amounts ranging from $25,000 to $300,000.

Investors may not know that broker-dealers, like the ones that it is believed registered Mr. Smith, have a duty to supervise their employees. As a result, in situations like these, investors may be entitled to recover against the financial firms that employed the financial advisor for failing to supervise their employee.

Mr. Smith was apparently employed by Rickel & Associates, Inc., Atlantic Group Securities, Inc., JJB Hilliard, WL Lyons, Inc., PNC Investments, and Cantone Research, Inc. during the Ponzi schemes operation. It is believed that had these firms properly supervised Mr. Smith, they should have caught and stopped this Ponzi scheme.

Continue reading "Maxwell B. Smith Sentenced for Running a New Jersey Ponzi Scheme: Investors Should Look to His Brokerage Firm for Relief" »

Jenice Malecki of Malecki Law Speaks with the Wall Street Journal About "Ending Up In Arbitration"

March 20, 2013,

Securities attorney Jenice Malecki spoke recently with Wealth Management at wsj.com's Caitlin Nish about what makes a strong investor claim against a broker and the steps that lead up to brokers having to defend themselves in arbitration.

To watch the video click here.

Investors who have lost money because of bad advice, unsuitable investment recommendations and misconduct by their financial advisor may seek to recover their losses through arbitration.

Arbitration is known as an "alternative dispute resolution" process. Rather than file a lawsuit in court in front of a judge and jury, an investor can sue their financial advisor in arbitration in front of a panel of one to three neutral people, known as "arbitrators." These arbitrators will hear the evidence and reach a decision regarding the claim.

Most securities arbitrations take place under the rules of the Financial Industry Regulatory Authority (FINRA), as virtually all brokerage firms require members to arbitrate customer complaints upon the customer's request and then create customer agreements containing arbitration clauses.

Chances are that if you have a brokerage account, you have already agreed to arbitrate your claims. You may even be bound to do so.

Whether you choose arbitration or are required to participate in it, most arbitration uses rules and procedures similar to those used by the courts to resolve claims. During the proceedings, the arbitrators will determine what evidence is heard and then will consider all evidence presented to reach a decision. An investor usually receives the arbitrators decision about if and how much they won within thirty days of the close of the arbitration proceeding.

If your investment losses are putting you on the road to arbitration, it makes sense for you to contact an attorney with experience handling such securities claims, such as those here at Malecki Law for a free consultation.

FINRA Fines Ameriprise and its Clearing Firm $750,000 For Failing to Supervise Jennifer Guelinas

March 19, 2013,

signing.jpgThe Financial Industry Regulatory Authority, (FINRA) issued a news release on March 4, 2013 announcing that it had fined Ameriprise Financing Services, Inc. and its affiliated clearing form American Enterprise Investment Services, Inc. $750,000 for failing to have reasonable supervisory systems in place to monitor wire transfer requests. In the News Release, FINRA disclosed that its investigation was related to Ameriprise's former registered representative Jennifer Guelinas, who apparently converted approximately $790,000 over four years from two of her clients by forging wire requests that paid in to accounts she controlled.

According to the News Release, Ameriprise failed to detect several "red flags," including that Ms. Guelinas submitted forged wire requests from a customer's account to an account that appeared to be under her control. FINRA further disclosed that on at least three occasions where Ameriprise initially rejected wire requests, they were then accepted on either the same day or another day after simply being resubmitted by Ms. Guelinas. The News Release stated that Ameriprise also accepted one request after it had begun to investigate Ms. Guelinas, and accepted another wire transfer request that was submitted by Guelinas after she was terminated, though the firm recognized its mistake in time before the money was accessed.

FINRA Rules require that securities firms have and enforce reasonable supervisory procedures in place to monitor each registered representative's conduct to ensure that they are acting in compliance with securities laws. According to the News Release, Ameriprise did not have adequate reasonable supervisory procedures in place. The FINRA News Release stated that Ameriprise had already paid full restitution to the two customers for losses in their accounts.

The risks of not having adequate supervisory procedures in place are well evidenced in this enforcement action by FINRA. It appears Ms. Guelinas took advantage, knowing that Ameriprise had no effective supervision in place relating to wire requests. The securities laws, interpretive materials as well as applicable case law make clear that securities firms serve as the gatekeepers to the securities industry, and are the first line in defense against securities fraud.

The attorneys at Malecki Law engage in securities litigation and arbitration in forums such as FINRA, where they have handled many cases involving firms' failures to supervise their registered representatives. If you believe you have lost money as a result of questionable conduct by your broker, please contact an attorney at Malecki Law to determine if you may be able to recover some or all of your losses.

Citigroup Reportedly Agrees to Settle Class Action For $730 Million

March 19, 2013,

It has been reported that New York based Citigroup has agreed to pay $730 million to settle claims that it misled investors with respect to nearly 50 bond and preferred stock offerings over a period of more than 24 months between 2006 and 2008. The investors' claims were said to be based on misleading statements from the bank over Citigroup's exposure to mortgage backed securities, its loss reserves, and the credit quality of some of its held assets.

Before the settlement can be finalized, it must be approved by the US District Court in Manhattan. If approved, it would be the second largest financial crisis related settlement to date - trailing only Bank of America's $2.43 billion settlement related to its purchase of Merrill Lynch. According to the Wall Street Journal, Citigroup claimed to have done nothing wrong and stated that it settled to avoid the trouble and costs of extended litigation.

This is just one more of many such settlements that have resulted from the financial crisis, totaling billions of dollars that have been returned to investors. Just last year, it was reported that Citigroup paid $590 million to settle allegations by investors that it misled shareholders about other problems in 2007 and 2008. Wachovia and Bank of America, among others, have also been reported to have recently reached settlements in excess of $500 million with investors.

The events underlying cases such as this one, brought on behalf of classes of investors are large, striking examples of how banks mislead investors on the grandest scale. However, class actions are not the only avenue investors have to recover their losses.

Misled and defrauded investors have the option to opt out of large class actions and pursue their claims independently. While joining a class action may seem like the easy way for a victimized investor to recoup their losses, class actions have been criticized for returning less to individual victims than could have been obtained had each investor brought their own individual case.

Investors who have suffered losses and wish to get back as much of their losses as possible, should call the securities fraud attorneys at Malecki Law for a free consultation to explore their rights.