Investors Topics

White House Takes a Closer Look at Brokers Who Manage Retirement Accounts

January 23, 2015 | Malecki Law Team

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

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

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

Investors in Diversified Lending Group May Be Able to Pursue FINRA Arbitration to Recover Losses After Class Certification Bid Was Rejected

January 20, 2015 | Malecki Law Team

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

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

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

Risks of Self-Directed IRAs and Third-Party Custodians Underlined

January 8, 2015 | Malecki Law Team

The North American Securities Administrators Association (NASAA), an organization comprised of State securities regulators, recently issued an Investor Alert regarding self-directed IRAs and the third-party custodians who service those accounts. In fact, the term “custodian” may be a misnomer, because generally the third-party custodian does not custody any property, and only reports information to the IRS, or from an issuer to an investor.

According to the Securities and Exchange Commission’s Self-Directed IRAs Investor Alert, close to $100 billion was held in self-directed IRAs, making them possible targets for fraud. According to the SEC, self-directed IRAs are tax-deferred Individual Retirement Accounts that carry a financial penalty for premature withdrawals before the requisite age.

Investors certainly need to be wary of self-directed IRAs holding investments recommended by their financial advisor or registered representative. Increasingly, the attorneys at Malecki Law are seeing self-directed IRAs used as a means to fraudulently take money from investors. While they can be used for legitimate purposes, Malecki Law has seen self-directed IRAs used to funnel money out of legitimate investments into other investments that may be fraudulent.

As Oil Prices Drop, Investors Lose Millions

January 6, 2015 | Malecki Law Team

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

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

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

Merrill Lynch Fined For Fair Pricing and Supervisory Violations

December 16, 2014 | Malecki Law Team

The Financial Industry Regulatory Authority (FINRA) has announced that Merrill Lynch has been fined $1.9 million and ordered to pay restitution in the amount of $540,000 for fair pricing violations as well as supervisory violations related to the purchase of certain distressed securities.

According to FINRA, more than 700 transactions in Motors Liquidation Company (MLC) Senior Notes with retail customers were affected over a two year period. FINRA found that “Merrill Lynch purchased MLC Notes at prices that were not fair to its retail customers.” Specifically, Merrill Lynch was found to have purchased the notes from retail customers for anywhere between 5.3% and 61.5% below market price, leaving customers significantly disadvantaged. Merrill Lynch would later selling those shared purchased from retail customers to other broker-dealers at the prevailing market price.

Another problem FINRA found was that Merrill Lynch failed to have an adequate supervisory system in place to detect whether the prices paid to retail customers on the MLC Notes were fair and consistent with prevailing market prices.

Citigroup Fined for ETF Prospectus Failures

December 15, 2014 | Malecki Law Team

Citigroup, Inc. has reportedly agreed to pay a $3 million fine for failing to properly deliver prospectuses to some customers. Specifically, according to the Financial Industry Regulatory Authority (FINRA), Citigroup failed to deliver prospectuses to customers who bought shares in one or more of 160 exchange traded funds (ETFs) in late 2010. It has also been said that Citi may have not delivered prospectuses related to more than 1.5 million ETF purchases between 2009 and early 2011. Citigroup was also fined by the New York Stock Exchange in 2007 for similar issues. FINRA, according to reports, said Citigroup failed to have proper procedures in place to supervise the process.

This is the second such snafu by a major American bank resulting in a fine this year. Just this past September, Morgan Stanley said that it would pay for the losses incurred by customers who purchased certain mutual funds, after the bank admitted that it failed to make prospectuses for those funds available on its website. In total, this is believed to have cost Morgan Stanley roughly $50 million.

Financial firms have significant duties to their customers – risk disclosure being one of the most important. Transparency, including risk disclosure, is critical to the efficient functioning of the markets. So, when major financial firms fail to fulfill their duties, meaningful fines should be imposed. Whether or not the fines in these instances are meaningful remains up for debate.

Malecki Law is Investigating Possible Claims Related to the Sale of Shares of Amarin

December 8, 2014 | Malecki Law Team

Malecki Law is investigating possible unsuitability claims against stock brokers and financial advisors who sold shares of Amarin to investors for whom the stock was not appropriate.

Amarin is a biopharmaceutical company based out of New Jersey. The company’s primary business involves the development and marketing of medicines used to treat cardiovascular disease. Amarin is best known as the company that developed the pharmaceutical drug Vascepa.

Over the past few years, Amarin has been reportedly seeking various FDA approvals for Vascepa. During the past four to five years, the shares of Amarin have shown great volatility. The shares have gone from roughly $1 per share in February of 2010 up to $19 per share in May of 2011 and back down to just more than $1 per share today. In October 2013, share prices went from more than $7 per share to just over $2 per share in less than two weeks. Again this past October, share prices dropped roughly 50% in only one month’s time.

Wall Street Journal Investigation Uncovers “Hot Spots” Where Brokers With “Disciplinary Red Flags” Accumulate

November 14, 2014 | Malecki Law Team

On November 12, 2014, the Wall Street Journal reported the results of an investigation performed of broker records. The article disclosed that the paper identified 16 “hot spots” where “troubled brokers tend to concentrate,” after analyzing about 550,000 records of brokers.

The list of these 16 hot spots include: Fort Lauderdale/Boca Raton, FL; Long Island, NY; Sarasota FL; Collier/Lee Counties, FL; Treasure Coast, FL; Southern Manhattan, NY; Greater Las Vegas, NV; Eastern Maricopa County, AZ; Staten Island, NY/Middlesex & Monmouth Counties, NJ; Greater Sacramento, CA; Southern Miami-Dade County, FL; Greater San Diego, CA; Metro Detroit, MI; North L.A./San Fernando Valley, CA; Orange County, CA; and Western Maricopa County, AZ. The results of the plots on the WSJ’s map show that these hot spots appear to collect around the metro New York area, Southern Florida and Southern California.

The WSJ reported that “troubled brokers” were determined as having three or more disciplinary red flags over their career, including regulatory actions, criminal charges, client complaints, recent bankruptcies and terminations. Regulatory actions include proceedings commenced by regulators, including the Securities and Exchange Commission and Financial Industry Regulatory Authority, which generally seek financial penalties and/or temporary or permanent bars from the securities industry. The article also noted that three red flags is also three times the national average for brokers, many of whom maintain clean records.

Malecki Law is Investigating Possible Claims Against Craig Scott Capital

September 15, 2014 | Malecki Law Team

Malecki Law is investigating possible claims against Craig Scott Capital, based in Long Island, NY.

According to FINRA BrokerCheck, some customers of the firm have recently filed arbitrations related to the conduct of the firm’s brokers alleging “unsuitability, excessive trading and misrepresentation” against the firm. According to his CRD, the firm’s President and CEO, Craig Scott Taddonio, intends to vigorously defend himself in at least two arbitrations. Craig Scott Capital has also recently been the subject of a FINRA regulatory investigation resulting in the firm paying a fine.

Sources have reported that some brokers from Craig Scott Capital are alleged to be “cold-calling” investors with no prior relationship with the firm and soliciting sales of investments that may be unsuitable for the investor. These investments may include non-traded real estate investment trusts (“REITs”).

SEC Charges Robare Group with Fraud For Failing to Disclose Fee Arrangement with Broker-Dealer

September 12, 2014 | Malecki Law Team

How do you know your investment adviser is solely acting in your best interest? Sadly, even when it comes to picking mutual funds, your investment adviser may still only be thinking of himself or herself.

Take for example the allegations in a recent proceeding instituted by the SEC on September 2, 2014 against the Robare Group, Ltd. and two individual principals of the firm for failing to disclose a fee arrangement in which Robare was paid between 2 and 12 basis points on the client’s assets investments in no-transaction-fee (NTF) mutual funds on a broker’s platform, as reported by InvestmentNews. One basis point is equal to 1/100th of one 1%, so 10 basis points would equal .1%.

The SEC alleged that Robare earned close to $500,000 in fees over eight years, and failed to disclose the arrangement on the firm’s Form ADV. The SEC further alleged that in 2013, Robare managed approximately 350 separately managed discretionary accounts and had assets under management of approximately $150 million.