Industry Topics

Brokerages Are Making Brokers More Powerful: How Will That Effect The Securities Industry?

April 4, 2017 | Malecki Law Team

As reported in the Wall Street Journal, there has been a recent trend at big brokerages of shifting the power from the headquarters to brokers and branch managers. Apparently big brokerages like Bank Of America, UBS Group, and Merrill Lynch are “unleashing” their brokers and moving power closer to the brokers and their managers, both to keep brokers from leaving their firms and to increase revenues.

These modifications come in the wake of declining revenues and broker exoduses several big brokerages have experienced after the financial crisis. They have also witnessed that brokers who dislike or disagree with their managers and find them unhelpful tend to leave the brokerages more easily. The big brokerages have had to deal with rising regulatory costs and competing with an increasing number of independent advisers. According to research conducted by consulting groups, the registered investment adviser model is more successful as it is a smaller and more tightly integrated groups. Taking a cue from that, the zillion dollar brokerages are making changes aimed at empowering, training and giving their brokers more control over day to day decisions over clients, growth, and resource allocation. Merrill Lynch has plans to restructure the brokerage leadership, emphasize more on productivity and training, and reduce the number of divisions. UBS also made similar changes last year.

There are plans underway to also automate investment advisory and make use of robos to cater to a younger clientele so that the brokers can be freed up to deal with high net worth clients. All in all, this gradual shift is geared towards taking things back to how they were before the financial crisis hit, when the field agents and managers had more autonomy to structure their branches, price and sell services, be less accountable to corporate headquarters, hold more power and sway.

You May Know About Your Broker, But How Much Do You Know About Your Brokerage Firm?

March 23, 2017 | Malecki Law Team

There is an interesting point in this week’s Wall Street Journal titled “Brokerage Files Don’t Give The Full Pictures,” which talks about the how brokerage firms and individual brokers are held to different standards, when it comes to their BrokerCheck records. BrokerCheck, the online search tool from FINRA for brokers and brokerages, reports arbitration decisions that are not in a securities firm’s favor but not the negotiated legal settlements, whereas every settlement in a broker’s record is clearly delineated. So why does this gap exist in reporting and how does it continue to happen?

FINRA is not a government body, but it is overseen by the Securities and Exchange Commission (SEC). Within 30 days of reaching a settlement, brokerage firms are obligated to report agreements to FINRA, if the amount meets a certain threshold. However, BrokerCheck records pull information from an SEC document named “Form BD” that doesn’t ask brokerage firms about negotiated settlements. The agreement that gets reported to FINRA in the event of a settlement is not currently a part of SEC approved list of documents. This loophole in communication and reporting allows brokerage firms to maintain clean BrokerCheck records, without disclosing settlements to investors. As far as brokers are concerned, the BrokerCheck information comes from a different FINRA form that does require brokerages to disclose if they paid settlements on behalf of any employees over $15,000. It should be noted that many or most settlement payouts for brokers are actually paid for by brokerage firms and these firms are listed as co-defendants or only defendants in the FINRA arbitration proceedings.

Many individuals in the securities industry feel that data about brokerage firms should be more transparent so that they can be ranked based on this information. There are others who are “shocked” by this gaping hole in the BrokerCheck that does not paint the “full picture”, as per the WSJ story. Those in favor of the current scenario, argue that brokerage firms settle for many reasons without admitting to wrongdoing, so reporting settlements would create an unfair perception about the brokerage firm in an investors’ mind.

Jenice Malecki Makes An Appearance on CNBC’s American Greed

February 13, 2017 | Malecki Law Team

Recently, CNBC interviewed Jenice Malecki for their white collar crime series, “American Greed”. The episode tonight (Feb 13, 2017), by CNBC correspondent Scott Cohn, is focused on John Bravata, who ran a real estate Ponzi Scheme from 2006 to 2009, through his company BBC Equities LLC. He collected more than $50 million from investors, promising their money would be used to purchase real estate. However, most of it went into financing his lavish lifestyle. Being an experienced securities fraud lawyer and having handled high-profile real estate scams, Ms. Malecki was asked to share her expertise on-camera about real estate investment scams and what to watch out for.

In the video, Ms. Malecki cautions investors about typical real estate scams, who they target, the telltale signs of fraud and resources available for investor protection. This interview has already aired on CNBC and in over 27 NBC affiliated channels. It can also be viewed on http://www.cnbc.com/2017/02/10/the-greed-report-tempted-by-the-real-estate-market-investor-beware.html

Common Types of SEC Investigations That May Result in You Receiving a Subpoena

February 9, 2017 | Malecki Law Team

We frequently represent individuals who have received an SEC Subpoena, and often the first question asked is, “Why did I get this subpoena? I did nothing wrong.” The SEC investigates many kinds of misconduct, and the people they seek information and documents from (through the use of Subpoenas) very often are not “targets” of the investigation, but the SEC may believe they could be a “witness,” or may have useful information that could aid the investigation. Understanding the common investigations the SEC may commence is a good first step to understanding what prompted the Subpoena.

According to the SEC, the most common types of investigations of potential securities violations include:

Misrepresentation or omission of important information about securities – when promoting the sale of securities, brokers, broker-dealers and other securities professionals should ensure that promotional materials accurately reflect the characteristics and risks of the securities.

How Long Does The SEC Subpoena Process Take?

February 8, 2017 | Malecki Law Team

When you receive an SEC subpoena, one of the first things that you want to know is “how long before this is over?” While that is an important question, it unfortunately is not one that has a definite answer.

Frequently, the time to produce materials will range from weeks to about a month. As we said yesterday in our post about what materials are required to be produced, an extension of time to produce documents may be negotiated. Also, if the materials requested are more difficult to obtain or require forensic computing, the time to produce may be longer as well.

Once you have produced documents, the waiting game begins. Before anything else happens, the Commission usually will review the materials you have provided. Typically, once they have reviewed your production, the Commission will either: 1. Make a supplemental request of you for more documents, 2. Call you in for testimony, or 3. Choose not to have you in for testimony.

I Received a Subpoena from the SEC – What Will I have to Produce?

February 7, 2017 | Malecki Law Team

You just received a Subpoena from the Securities and Exchange Commission (SEC). What will you have to produce? We regularly represent securities industry professionals and investors who have gotten these Subpoenas, and the reaction is usually the same: people are nervous and concerned. How will this affect your business, and how what will it take the comply?

Getting an SEC Subpoena is a serious matter, and it is imperative that you carefully comply in a timely manner. Subpoenas will typically require you to produce documents or testify, or both. Your goal should always to limit your involvement with the federal authorities, and this begins with your production of documents in response to the Subpoena.

The first step is to remember that just because you received a Subpoena does not mean you automatically did something wrong. You may not be the SEC’s target, but may be someone the Commission believes has information related to another person or business. The SEC is not obligated to tell you whether they view you as a target or a witness, and you should not assume you are a target.

Windsor Street Capital and AML Officer Charged By SEC

February 2, 2017 | Malecki Law Team

Windsor Street Capital (formerly known as Meyers Associates) and its anti-money laundering (AML) officer, John D. Telfer, have been charged with securities violations by SEC, according to a recent report. Windsor allegedly failed to report at least $24.8 million in questionable penny stock sales. The violations cited by the SEC relate to the unregistered sale of hundreds of millions with insufficient due diligence, per InvestmentNews.

The suspicious transactions allegedly date back to June 2013 and resulted in nearly $500,000 in commissions and fees for Windsor, according to the SEC. InvestmentNews reports that Mr. Telfer has been charged with aiding and abetting by virtue of his alleged failure to properly monitor the transactions at issue.

SEC Bars Michael Breton for “Cherry-Picking”

January 26, 2017 | Malecki Law Team

Michael J. Breton of Massachusetts was banned from the securities industry by the SEC according to a recent InvestmentNews report. According to the report, Mr. Breton cost his clients $1.3 million by “cherry-picking” trades – i.e., placing trades through one central account then allocating the profitable trades to himself and the losing trades to clients. This practice reportedly continued from 2011 to July of this past year.

On Wednesday, the SEC filed charges against Mr. Breton and Strategic Capital Management, Mr. Breton’s firm, in federal court in Massachusetts. Mr. Breton has agreed to plead guilty to criminal securities fraud and forfeit $1.3 million, per the report. According to InvestmentNews, the US Attorney’s Office has agreed to recommend a maximum sentence of no more than three years.

BlackRock Charged By SEC For Removing Whistleblower Incentives In Employee Separation Agreements

January 18, 2017 | Malecki Law Team

BlackRock has been charged by the SEC with removing whistleblower incentives in their separation agreements with employees, per the SEC. According to the Commission, BlackRock’s charges stemmed from allegations that the company forced employees to waive their ability to obtain whistleblower awards.

Provisions such as those in Dodd-Frank provide for monetary compensation to those who provide information to the SEC concerning securities law violations, provided certain criteria are met. Whistleblowers may also file anonymously.

Per the SEC, over 1,000 employees signed such agreements, in which the employee was forced to waive the right to monetary recovery as a condition for receiving separation payments from the company.

FINRA Investigates Cross-Selling at Broker-Dealers

October 27, 2016 | Malecki Law Team

As reported recently, the Financial Industry Regulatory Authority has commenced an investigation into the cross-selling activities of several broker dealers in the wake of the Wells Fargo fallout. FINRA’s objective has reportedly been to determine just how much cross selling is taking place (including promotion of products such as credit cards and loans) and what incentives are being provided to employees to engage in the conduct.

A FINRA spokesperson was quoted as saying, ““In light of recent issues related to cross-selling, FINRA is focused on the nature and scope of broker-dealers’ cross-selling activities and whether they are adequately supervising these activities by their registered employees to protect investors.”

Supervision at broker dealers is a very critical aspect of customer service. It is important that brokers and their firms are only promoting and selling products to customers that are appropriate for that customer and in the customer’s best interest. As has been shown by the Wells Fargo disaster, cross-selling incentive programs can compromise that goal by creating a conflict of interest.