New York Securities Lawyers Blog

The New York Attorney General Eric T. Schneiderman announced today the unsealing of a 35-count indictment of and the arrest of Robert H. Van Zandt, a Bronx tax preparer who for years sold promissory notes in alleged real estate investments "guaranteeing" high rates of interest return. He sold these promissory notes out of his tax preparation business, the Van Zandt Agency, while he was licensed by various broker-dealers to sell securities.

Malecki Law currently represents a large group of investors who purchased promissory notes totaling almost $10 million in aggregate from Mr. Van Zandt in an arbitration before the Financial Industry Regulatory Authority ("FINRA"), the independent regulator of securities companies. The arbitration is pending against MetLife Securities, Inc., a broker-dealer who employed Mr. Van Zandt during a period in his career. While investors purchased the promissory notes directly from Robert Van Zandt and through the Van Zandt Agency, he was then licensed by MetLife Securities, Inc. to sell securities, and MetLife was required to perform certain supervisory and audit duties as a result of that employment relationship.

Malecki Law is also investigating the potential for other actions against other broker-dealers arising from Mr. Van Zandt's alleged real estate investments.

Broker-dealers owe heightened audit and supervisory duties of these off-site and often unregistered offices because promissory note fraud and other Ponzi-like frauds and schemes have become common. Under FINRA Rules, SEC guidance and prevailing industry standards, broker-dealers have affirmative duties to oversee and supervise the conduct of their associated persons, both inside and outside of their offices.

Specifically, firms have been repeatedly advised, both through FINRA Rules, NASD Rules and FINRA/NASD Notices to Members, to beware of certain improper or fraudulent activities which are regularly conducted and can have devastating effects on customers. Notice to Members 98-38 specifically outlined that geographically diverse offices present supervisory risks and potential problems in detecting faulty sales practices.

FINRA has, itself, has recently fined firms for lax supervisory performance, or inadequate systems for detecting potential fraud. Mr. Van Zandt, through the Van Zandt Agency, operated a tax preparation business, creating the sort of environment that would require heightened supervision.

The New York Attorney General noted in their press release that the fraud continued through at least 2011 and involved at least $4.6 million. We believe it was a larger scheme. Investors who believe they purchased similar investments through Mr. Van Zandt or any other employee at the Van Zandt Agency should immediately contact an attorney at Malecki Law to see if they qualify for an action against a broker-dealer who licensed and employed these individuals during the relevant time period.

Malecki Law is currently investigating whether investors were improperly sold Leveraged and Inverse Exchange-Traded Funds (ETFs) by any of the following Broker-Dealers: Citigroup Global Markets, Inc., Morgan Stanley & Co, LLC, UBS Financial Services, and Wells Fargo Advisors, LLC.

The Financial Industry Regulatory Authority (FINRA) announced that they had fined the above firms for selling leveraged and inverse ETFs without proper supervision.

Any investors who purchased a leveraged or inverse ETF from any of these firms and believe the products were unsuitable for then should contact an attorney at Malecki Law to explore their legal rights.

Malecki Law is investigating possible unsuitability claims against stock brokers and financial advisors who sold shares of KBS REIT I to investors. REITs are illiquid real estate investments, which may be unsuitable for both unsophisticated and elderly customers.

Just recently, KBS informed investors that it would be dropping its share price a whopping 29% from $7.32 to $5.16. This represents a nearly 50% drop from its original sale price of $10. For investors who bought shares of KBS REIT I as part of their retirement savings, this drop may be too much to handle.

In addition to the drop in share price, KBS has also informed investors that it will cease payment of its dividend. Since, many financial advisors sell REITs like KBS REIT I to retired customers as a way to obtain steady income, this announcement has to potential to be devastating to a retiree depending on that income.

However, all is not lost for investors who were sold KBS REIT I. Financial Industry Regulatory Authority rules prohibit stock brokers and financial advisors from selling unsuitable investments to the public. Therefore, investors in KBS REIT I may be able to recover 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 KBS REIT I, 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. Our pursuit of excellence is constant, but our opportunities to make lasting positive change to the securities industry begin and end with determined clients who seek justice.

Malecki Law announces the filing of an Amended Statement of Claim against MetLife Securities in connection with the real estate investments solicited by Robert H. Van Zandt of The Van Zandt Agency in the Bronx, NY as part of an alleged Ponzi scheme currently under investigation by the New York State Attorney General's Office.

This past December, Malecki Law announced the filing of a civil arbitration complaint with the Financial Industry Regulatory Authority against MetLife Securities for more than $4 million on behalf of twenty-four investors. The attorneys at Malecki Law continue to take calls and anticipate either adding future victims to the existing claim or commencing a second action, if necessary.

In the following months, many more investors contacted the attorneys at Malecki Law requesting to be part of that action. So, on March 5, 2012, Malecki Law amended their complaint with FINRA to add an additional nineteen investors to the action. In total, Malecki Law's forty-three clients have suffered losses of over $9.2 million as a result of their investments through Mr. Van Zandt and the Van Zandt Agency.

We urge anyone with knowledge about the Van Zandt Agency or MetLife Securities supervision (or lack thereof) over the office to contact us. Investors or employees with knowledge of the events at the Van Zandt Agency who seek further information or want to explore their rights should contact Malecki Law by e-mail or phone. Malecki Law has a uniquely diverse background with significant experience representing clients in securities and investment fraud issues and is "AV Rated" by Martindale-Hubbell. Malecki Law hosts a website providing information and resources dedicated to the securities industry: www.AboutSecuritiesLaw.com. Please contact Jenice L. Malecki, Esq., MALECKI LAW, 11 Broadway, Suite 715, New York, NY 10004, Telephone: (212) 943-1233, Facsimile: (212) 943-1238, E-Mail: Jenice@MaleckiLaw.com.

We recently posted about the Behringer Harvard family of REITs and the devastation that these funds have had on investors' portfolios. Some investors have now begun to seek answers. Investment News reports that a 70 year old woman who has seen her share in Behringer Harvard Short-Term Opportunity Fund drop 96% has recently filed a letter with the Financial Industry Regulatory Authority (FINRA) to complain about her investment.

The shares of BH Short-Term Opportunity Fund have dropped to $.40 from $6.48 just one year ago, and from the $10 per share they were offered at just six years ago. Since the BH Short-Term Opportunity Fund had $130 million in total assets, it is clear that this investor is not alone. Many firms, such as Capital Financial Services, Inc. sold these products to senior citizens.

Since REITs can deliver regular income of up to 7-8% a year, they are attractive to seniors who live off the income generated by their investments. Since these products offer high commission, they are very attractive to the brokers who sell these products. However, all too often, the risks involved with investing in REITs are hidden from investors by their brokers, and these same seniors can see their entire life's savings disappear in the blink of an eye. Downplaying and failing to fully disclose the risks of an investment to a client is illegal, and investors who have suffered losses as a result may have the right to recover their entire loss.

It is the right of any and all investors who believe they may have suffered losses to contact our offices to explore their legal rights and options. If you or a family member suffered losses in Behringer Harvard REITs, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation.

Recently in the news have been stories about the devastation that the Behringer Harvard family of Real Estate Investments Trusts (REITs) has had on investors' portfolios. It was reported by Investment News that the value of the popular Behringer Harvard Opportunity REIT I is down 46% from its value this time a year ago, with prices down to just over $4 per share. The value of the Behringer Harvard REIT I has also seen substantial declines as well.

Unfortunately for many investors, a quick recovery does not appear to be in store. According to Investment News, Mr. Robert Aisner (Behringer Harvard's Chief Executive) "said in an interview ... that since the REIT is shedding assets, its valuation will go down in the long run." That is bad news for investors.

Investors who bought into this fund , believing it to be a safe investment, are now seeing substantial portions of their savings disappear. Too often, investors in REITs do not fully understand the risks of investing in these illiquid and oftentimes speculative products. These products often require investors to "lock in" their money for a set time period and are difficult if not impossible to sell in the interim, even amid sharp declines in value. For more information on the risks of REITs and other investments, click here.

Because of the inherent risks involved, it is not unlikely to see investors suffer substantial losses. However, brokers and other retailers of REITs far too often sell these to clients as safe, income-producing investments and substantially downplay the risks. These tactics are illegal and against the FINRA rules, and investors who are the victims of such practices may be entitled to recovery for all of their losses.

It is the right of any and all investors who believe they may have suffered losses to contact our offices to explore their legal rights and options. If you or a family member suffered losses in Behringer Harvard REITs, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation.

In a follow up to Malecki Law's recent announcement of our investigation into reverse convertible securities comes news that the Financial Industry Regulatory Authority (FINRA) has fined Wells Fargo Investments, LLC $2 million for the selling of unsuitable reverse convertibles securities, as well as failing to grant sales charge discounts to certain customers on Unit Investment Trust (UIT) transactions. A UIT can be defined as ownership of a fixed portfolio of securities within a finite timespan. FINRA's press release regarding the matter defines reverse convertibles as "interest-bearing notes in which repayment of principal is tied to the performance of an underlying asset, such as a stock or basket of stocks." Customers of such reverse convertibles risk sustaining losses if the value of the underlying asset falls to a certain level at certain points of maturity during the contracted term.

A separate complaint was filed by FINRA against Alfred Chi Chen, the former Wells Fargo registered representative who approved and sold the reverse convertibles. Chen recommended hundreds of unsuitable investments to twenty-one clients, most of whom were elderly investment novices with low capacities for risk. Fifteen of those twenty-one clients were over the age of eighty. Chen also made unauthorized trades in several accounts, including those of deceased customers.

FINRA specified that Wells Fargo failed between January 2006 and July 2008 to give qualified customers breakpoint and rollover/exchange discounts to which they were entitled upon purchasing UITs. This has been attributed to insufficient internal monitoring of sales and discount eligibility.

Wells Fargo has neither admitted nor denied any wrongdoing within these charges, but consented to FINRA's findings and will thus pay the fine in due course.

Investors with questions concerning potentially unsuitable or risky investments made by registered representatives should contact the attorneys at Malecki Law for a confidential consultation.

FINRA's December 15, 2011 News Release can be found here.

It has been difficult to not hear about the recent events surrounding MF Global Holdings Ltd and former Senator and New Jersey Governor, John Corzine. However, many investors do not really understand what happened or why. A recent article in Forbes Online titled "MF Global: Were the Risks Clear?" helps to break down just how these events transpired. The article details how overexposure to European sovereign debt (government bonds) leveraged by using borrowed money (called "margin") coupled with declines in the value of those bonds caused the downfall of the fund.

The almost overnight collapse of such a prominent and public investment fund as MF Global has brought many issues to light, and the Forbes article characterizes this "as the latest reminder to investors that it's important - and sometimes very difficult - to understand the entire spectrum of risk they're exposed to." These events also raise many questions that should be asked by investors, such as "Do I really understand how my advisor is managing my savings?" and "Have the risks in my portfolio been adequately explained to me?".

Many investors in MF Global have said that they did not understand what their money was being invested into, but rather trusted that the firm would do the right thing by them. One investor cited by the article said on his blog that "I am supposed to know the difference between an ethical operator and one that is not. The truth is that it often is very difficult to tell them apart." This has unfortunately come to be a fairly common sentiment by many individual investors, in reference to their personal broker and the funds they invested in.

In the present day, individual investors as well as large institutions and investment funds can all be equally at risk of the volatility in the European markets, like MF Global was. Investments directly in European bonds and others with exposure to the European markets may not be appropriate for conservative investors, including senior citizens and retirees, especially if these investments were made on margin. Individuals with these investments may have already lost or may be at risk of losing large portions or possibly all of their investments.

It is the right of any and all investors who believe they may have suffered losses to contact our offices to explore their legal rights and options. If you or a family member suffered losses in unsuitable or risky investments, such as those in European debt, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation.

Malecki Law is currently investigating Financial Industry Regulatory Authority (FINRA) brokerage firms who have advised customers to purchase leveraged and inverse ETFs (Exchange Traded Funds), including those issued by Direxion, ProFunds (ProShares) and Rydex. Some of these ETFs trade under the symbols FAS, FAZ, UPRO, SDOW, SPXU, UDOW, RSU and RSU, among many others.

From 2007 through 2010, the market for inverse and leveraged ETFs such as these has grown from $1 billion to $30 billion, in large part due to these products being solicited in the accounts of normal, unsophisticated investors.

These products are highly complex, using various trading strategies in an attempt to deliver their promised returns, and are oftentimes not suitable for the investment portfolio of a conservative or retired investor.

Unfortunately, many brokers and brokerage firms fail to properly inform their clients about the complex nature of these investments and the associated risks involved. Hence, these investors do not understand the complex structure of the investment or the risks involved. Since these products are highly leveraged and structured to perform only in the very short term, they generally only suitable for speculative day trading, not long-term investment.

Compounding the problem with these investments is the use of margin in an investors account by his or her stock broker. By borrowing on margin to purchase leveraged ETFs, an investor can be exposed to extreme risk and market volatility. Such volatility could result in the investor receiving a margin call, which if not met, can devastate the account.

It is the right of any and all investors who believe they may have suffered losses to contact our offices to explore their legal rights and options. If you or a family member suffered losses in leveraged or inverse ETFs, such as those listed above, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation.

In a follow up to our recent critique of dividing defrauded consumers into "net winners" and "net losers" comes a decision from U.S. District Judge Jed Rakoff, who has dismissed Bernie Madoff trustee Irving Picard's claims filed to regain nearly $1 billion from Fred Wilpon and Saul Katz, the owners of baseball's New York Mets. The decision may potentially limit Picard's future chances of recouping investors' initial investments with Madoff, in what analysts have dubbed "clawback suits" filed by the trustee against the defrauded.

The judge's decision illustrates a difference between U.S. bankruptcy law and securities law regarding when investors should return money previously received from their broker. A thorough, easy-to-read explanation of fraud can be found on our home site. For New York law, that period spans up to six years prior to a broker's bankruptcy, while Federal law caps that limit at only two years. What Picard will be able to recoup depends greatly upon whether he will continue to be held to Federal standards. Several district court judges have in recent months sided with Madoff investors' requests to move cases out of bankruptcy court, a setting that typically favors the trustee.

What we can all learn from these rulings is that where and when an investment is made - as well as where and when any necessary litigation takes place - can be just as important as the venture you've chosen to pursue. For one, it's notable that our national standard for "clawback" measures is more favorable than that of New York, a state housing Wall Street and an immense amount of high stakes real estate, as well as many entertainment and banking endeavors. Clearly, it pays for investors to be informed about their state's "clawback" legislature: for those of us engaging the market longterm, timing is everything, and how recently you've been the victim of fraud sets crucial perimeters.

With only nine of eleven of Picard's claims against the Mets tossed out in court, he may still go forward in seeking to recoup $301 million in principal and $83.3 million in what he brands "false profits". Picard's challenge comes in explicitly proving that the Mets were "willfully blind" in ignoring warning signs of fraud, thereby placing the duty of such investigation upon the investor. "[Why] would defendants willfully blind themselves to the fact that they had invested in a fraudulent enterprise?" asked Judge Rakoff in his written decision. It is a succinct and astute question that sums up the value of accountability in our marketplace, and makes an apt demand of those committing fraud to accept the penalties of their deception.

There's an old pun making a comeback among New York securities lawyers: "Don't count your check-ins before they're cashed." The divide between so called "net winners" and "net losers" is a hot topic, particularly with regard to the defrauded victims of vilified Ponzi schemer Bernard Madoff. A thorough explanation of affinity fraud can be found in our Investors section, with a set of Ponzi scheme red flags available here from Investor.gov.

In August, the U.S. Second Circuit Court of Appeals upheld Madoff trustee Irving Picard's decision to award upfront recovery payments of as much as $500,000 solely to the scheme's "net losers": investors whose withdrawals from Madoff's fund did not match their initial investment. "Net winners" - those who withdrew more than their initial entry into the fund - seek the same recovery, but have been denied by Picard in a motion that has now held up in court.

Branding either party winners or losers is problematic, and discredits the fact that all of these investors suffered and were betrayed by the same scheme. Moreover, a precedent was set favoring "net winner" restitution in the case of Randall v. Loftsgaarden 478 U.S. 647 (1986), in which the Supreme Court ruled that "[t]his deterrent purpose is ill-served by a too rigid insistence on limiting plaintiffs to recovery of their 'net economic loss'". A 2001 ruling in California Ironworkers Field Pension Trust v. Loomis Sayles, 259 F.3d 1036, (9th Cir. 2001) binds respondents to an "Anti-Netting Rule", concluding that gains in one investment do not offset losses in another. Why then might Picard's whims prove to be, as one Wall Street Journal headline wonders, "the Final Word on This Issue?"

Encouraging trends in recent rulings and arbitration have favored the "Well Managed Account Theory", a method of calculating damages by taking the initial value of the investor's portfolio, adjusting by a percentage change in an appropriate index during the relevant period, then subtracting the value of the portfolio at the end of that period. The theory is better suited for today than the prevailing wisdom of old, commonly known as the "Net Out of Pocket Theory", in which claimants receive only the amount they originally invested less their subsequent withdrawals.

This latest Madoff ruling thus seems outdated (albeit still the industry norm), lacking both fair compensation for investors and accountability from the brokerage industry. Consider but one example, Leigh v. Engle, 858 F.2d 368, (7th Cir. 1988), where the court "undertook the straightforward approach of comparing the return on the improper investments with that of a reasonably prudent alternative investment" and "adopted the 'most generous' of the reasonable damage calculations submitted".

In March 2010, the SIPC (Securites Investor Protection Corporation) determined that Madoff's net losers were entitled to up to $500,000 in up-front recovery payments, while net winners were not. Picard totals losses at $17.8 billion, while a recent figure from investor representatives cites as much as $64.8 billion squandered. Picard and federal prosecutors have recovered $11 billion, about 60% of their loss estimation. The appeals court's criticism of compensating both parties equally is that to do so would give the same merit to presumptions of profit as it does to quantifiable cash investment.

In fact, what these "winners" seek is a reasonable estimate of net worth had their money been invested with genuine, sensible regard. Not a "best-of-all-worlds" fantasy complete with mountains of Apple and Facebook stock, but a fair sum in step with how their investments would have performed in the hands of any legitimate professional. The Net Out of Pocket theory discourages investment altogether, offering these supposed "winners" less than they would have made by putting their money into a savings account, and the same amount made by placing it under their mattresses. Yet Picard's lawsuit against one high profile client, the owners of the New York Mets, continues to move forward on the grounds that these fleeced investors should have better investigated their broker, or risk accusations of "willful blindness" and "conscious avoidance". Validating such baseless claims not only allows broker-dealers to regulate their own fraud, but offers impunity to those who defraud investors up to the point at which losses would equal prior gains.

While there is logic to insuring the worst hit victims get compensated, a view of "net winners" is flawed. Someone who invested in 1980, then received only their net sum back by 2010 is in a far worse predicament than someone who invested in 2008 and received their investment alone. Through litigation, Madoff's supposed "Net winners" are seeking adjustment for inflation on their claimed earnings and losses, arguing that a sum invested in Madoff in previous decades was worth more in the past than it is today, required greater investment and commitment, and would have benefitted from subsequent boom periods. One million dollars invested in 1980, they argue, would be worth much more than the same sum invested shortly before the '08 collapse. Presently, the SIPC does not permit inflation or interest adjustments in the dispensing of investor compensation.

This leads us to a lynchpin of SIPC claims: that investors must prove that their loss was a result of insolvency - the inability to pay debts - and not of fraud, misrepresentation, or poor stock selection. A high profile case such as Madoff's brings conscious deceit to light as the very cause of such insolvency. Thus, if Wall Street seeks to rebuilds its contract with Main Street, it seems imperative for the SIPC and like-minded organizations to enforce the responsibilities that the professional securities market has towards victims of fraud.

New York securities law saw quite the news day, as the Financial Industry Regulatory Authority (FINRA) issued a news release on September 7, 2011 announcing fines against five Broker-Dealers, three of them based in New York, for mischaracterizing fees charged to customers. The three New York based firms were John Thomas Financial of New York, NY, A&F Financial Securities, Inc. of Syosset, NY and Salomon Whitney, LLC of Babylon Village, NY. FINRA alleged that the firms understated commissions but charged additional handling fees to make up transaction based income for the firm. FINRA found that by structuring their fees this way, the firms ended up charging fees significantly higher than the actual cost of the services the firms provided.

In making their findings, FINRA reiterated that broker-dealers must accurately disclose commissions earned. By settling these charges with FINRA, the firms did not admit or deny wrongdoing, but they did consent to the entry of FINRA's findings and also agreed to implement actions sufficient to remedy the handling-fees violations.

Such mischaracterization of handling-fees is one example of how broker-dealers can put their own interests ahead of the interests of their clients, and represent what is essentially securities fraud. If you held an account with one of these firms or you think your broker-dealer may have charged fees in excess of what they disclosed to you, your entire portfolio may need a thorough review for suitability.

FINRA's September 7, 2011 News Release can be found here.

In rough economic times such as these, many investors have seen their accounts suffer large losses. As New York securities lawyers, we've seen some investors' accounts lose 25-50% over the course of a few months or years, while others have seen their accounts lose such large amounts seemingly overnight. A large drop in account value is unsettling for every investor, but for those nearing retirement or senior citizens living off their savings, large losses are extremely alarming and can be devestating. Regardless of their age or situation, investors who have suffered large losses often find themselves asking the same questions, "Is my account down because of the market, or is it something else?"

Investors who are approaching retirement or who are already retired are typically risk-averse - i.e. willing to accept lower returns to avoid the possibility of devastating losses. However, many of these investors find themselves being sold on "sure thing," "big winner," "can't lose," and "have your cake and eat it too" investment strategies that seem, and in fact are, too good to be true. Those who buy into these false promises can find themselves unknowingly invested in products and strategies that are much riskier than what they wanted, and most importantly, what they should have been invested in. Unfortunately, good times in the market can hide these risks from the average investor. It is not until a downswing in the market that these risks come to light, often taking the form of large, unexpected and crippling losses.

Many people who want to invest seek out professional guidance in handling their savings and their investments because they feel safer in the hands of professionals whom they trust and whom they believe are looking out for their best interests. Unfortunately, this trust can be abused and investors often find themselves in accounts that are not suitable for their financial needs and the amount of risk they are willing to take with their investments.

Investors often place complete trust in their financial advisor and follow all recommendations made to them, believing that their financial advisor has their best interest at heart. Regrettably, this is not actually the case and all too often, these people can find themselves in a situation where they do not even know what products they are invested in, until it is too late and they are financially devastated.

When confronted about large losses many brokers will simply blame it on the market, telling clients that "there's nothing I can do," "we'll have to just ride it out," "it's just the way the market is sometimes," or "it will bounce back, I promise." However, this is not always true. Sometimes, investment losses can be simply due to unfortunate swings in the market, but a properly diversified portfolio with the appropriate risk level should not experience such huge, devastating losses. These sudden, large losses may actually be the result of unsuitable investments or broker misconduct, including violations of state and federal law and SEC and FINRA Rules.

Other factors, such as a lack of diversification and an over-concentration in one type of investment or in one industry can also lead to losses. Trading on margin is also a risky strategy that many advisors portray as "safe" and "common practice" to their clients. More advanced investments such as ETFs and derivate products, like structured notes and mortgage backed securities, are also a big problem since they are often sold to investors who do not understand them or in some cases, do not even know what they are.

These sorts of investments, when unsuitable or improper for a customer, are barred from being recommended in order to protect investors from self-interested brokers and financial advisors. Investors who have been misled and suffered losses as a result do have rights and may be entitled to be reimbursed for some or all of the losses they have suffered.

Continue reading "Is my account down because of the market, or is it something else?" »

Malecki Law, a New York securities law firm based in Manhattan, is currently investigating claims against IRA Services Trust Company and Fiserv, Inc. arising out of investments solicited and promissory notes issued through the Van Zandt Agency in relation to real estate investments in the Bronx, New York and elsewhere.

The Attorney General of the State of New York is currently investigating the practices of the Van Zandts and on April 6, 2011, filed an application in the Supreme Court of the State of New York for an order of discovery and preliminary injunction against the Van Zandts and other related agencies.

Based on the initial inquiry of the securities fraud lawyers of Malecki Law and the Attorney General's investigation, there are questions about whether or not the Van Zandt Agency broke the law by engaging in the fraudulent issuance, promotion offer and sale of securities to the public in the State of New York. It is believed that hundreds and possibly thousands of investors may have lost money invested with the Van Zandts.

There may be claims against IRA Services and Fiserv for failing in their due diligence, supervision and providing a facility for an alleged fraud by an unregistered investment advisor that was also not a broker dealer. The lawyers at Malecki Law are focusing on potential claims against IRA Services and Fiserv, who may have breached various duties to individual investors, as they may be the only hope of a recovery for those who lost money.

Continue reading "Malecki Law Announces Investigation of IRA Services Trust Company and Fiserv, Inc. Arising Out of Investments with the Van Zandt Agency" »

The talk among New York securities lawyers this week was all about the Financial Industry Regulatory Authority (FINRA) release of Regulatory Notice 11-39 addressing business use of social media website in the wake of surging popularity of social media tools such as Facebook and Google+. These social media tools make connecting with friends, colleagues and third-parties easy, but also raise novel questions related to the extent to which associated persons may use these sites for business use and registered principals must supervise such use.

Securities Exchange Act Rule 17a-4(b)(4), which requires the retention of copies of communications between members, brokers or dealers and the public of "business as such," underlies Regulatory Notice 11-39. Thus, a firm's or an associated person's communications with the public through social media posts may require pre-approval by the firm and/or registered principal, and be subject to regulation by FINRA, depending on whether the communication is related to the firm's "business as such" and is "static" as opposed to "interactive." Generally, all communications related to a firm's business as such must be recorded and preserved, while all static posting is deemed an advertisement requiring the firm's pre-approval under NASD Rule 2210.

Regulatory Notice 11-39 begins to address the grey area of posting to message boards. Associated persons, be they advertising in the first place or responding to questions via such message boards, are limited to what they can say and claim. Thus, postings in static forums or blogs on websites would require pre-approval of all statements made relating to the firm's business.

In today's brave new electronic world, it is not uncommon to have introduction to brokers and registered representatives through the use of social media websites. If such an acquaintance has made boasts or promises of business performance, such statements may violate FINRA and SEC laws and regulations and may constitute "red flags" of further inappropriate behavior.

FINRA Regulatory Notice 11-39 is available here.