FINRA

New Study Finds Financial Fraudsters Who Evoke Emotions May Be Able to Bilk More Money from Senior Investors

May 6, 2016 | Malecki Law Team

New research shows that getting senior-aged investors to exhibit heightened emotions may cause those investors to more easily part with their hard-earned savings and retirement proceeds, according to a New Release published by the Financial Industry Regulatory Authority (FINRA).

The research was made possible with funding from the AARP Fraud Watch Network and the FINRA Investor Education Foundation. In the study, Stanford University Psychologists found that inducing emotions in older adults increased their intention to buy falsely advertised items, according to the News Release. As reported, the study was conducted on younger adults and older adults, with both groups were induced to exhibit excitement or anger before watching advertisements known to be misleading. According to the Release, the young adults group tended to believe advertisements based on their believability, and not subjective emotional states, while older adults tended to believe the misleading advertisements based only on their emotional states.

One researcher was quoted as noting “Whether the con artist tries to get you caught up in the excitement of potential riches or angry at the thought of past and future losses, the research shows their central tactic is the same and just as effective… Cons are skilled at getting their victims in to a heightened emotional state where you suspend rational thinking and willingly hand over your hard earned money to a crook.”

New Fiduciary Rule to Protect Retirement Investments

April 8, 2016 | Malecki Law Team

This week, it has been reported that the Department of Labor proposed tougher laws after issuing new regulations requiring financial advisors and brokers managing 401k and retirement accounts to act in the best interest of their clients. These rules were proposed a year ago and after deliberating on it for a year, the White House has finalized these tougher requirements. However, it might be a year before these rules go into effect.

An academic study commissioned by the White House revealed that “conflicts of interest” in financial investing was costing Americans about $17 billion a year in retirement savings. Although brokers are required to only recommend “suitable” investments under the current “suitability standard”, they can push a more expensive product that pays a higher commission than a cheaper fund that would be equally appropriate for that investor.

The new rule fiduciary rule is aimed to at reducing fees and commissions that erode retirement savings and hold brokers to higher standards. It will cast a wider net on who is subject to the fiduciary standard.

New Study Reveals: 7% of Financial Advisers Are Guilty of Misconduct. How Safe Are You?

March 21, 2016 | Malecki Law Team

In February 2016, academics Mark Egan, Gregor Matvos and Amit Seru at the University of Minnesota and University of Chicago business schools released a report titled “The Market for Financial Adviser Misconduct” on financial advisers in the United States. The report reveals how rampant securities fraud and broker misconduct is throughout the country. For the purpose of the study, these academics have analyzed the full set of disclosures of approximately 10% of employees in the finance and insurance sectors between 2005 and 2015, and taken in to account customer complaints, arbitrations, regulatory actions, terminations, bankruptcy filings and criminal proceedings. Based on this study, 7% of advisers were reported to have engaged in misconduct. The actual unreported cases may add to this number.

Here at Malecki Law, it is our mission to protect individuals who have been victimized by unscrupulous brokers. Here are some excerpts highlighting the important findings from this study:

According to the report, prior offenders are five times more likely to repeat their misconduct as compared to an average adviser. Approximately one-third of advisers with misconduct reports are repeat offenders. That is why we encourage all investors to investigate their broker on FINRA’s BrokerCheck

FINRA Bars Chicago Broker George E. Johnson Over Allegations of Fraud and Stock Manipulation

February 24, 2016 | Malecki Law Team

The Financial Industry Regulatory Authority (FINRA) has announced that it barred broker George E. Johnson from the securities industry for allegedly engaging in manipulation of stock trading, and for committing fraud. FINRA also imposed a 6-month suspension against a second broker, Joseph Mahalick, and a 2 year suspension against a supervisor, Christopher Wayne. All three individuals are reported to have worked at the time for the brokerage firm Meyers Associates, L.P. out of the firm’s Chicago, Illinois office. Mr. Johnson has been working for and was registered by Newport Coast Securities, Inc. from April 2013.

FINRA’s Order stated that during May 2012, Mr. Johnson manipulated the market for the common stock of IceWEB, Inc. (OTCBB: IWEB) by soliciting customers to buy the stock while also soliciting other customers to sell at increasingly higher and artificially inflated prices and frequently effecting matched orders among his own customers. Before and during this time, FINRA’s Order set forth that Mr. Johnson distributed to his clients misleading research and sales materials concerning IWEB, and failed to disclose material information.

The Order alleged that Mr. Johnson first became involved with IWEB when his employer acted as a placement agent for the company, and that he continued to recommend the stock to his clients through private placements and in the open market, despite the company having years of financial issues. At the time, IWEB stock was valued at around .12/share, and the Order alleged that Mr. Johnson solicited purchases and sales in the stock to artificially increase the share price to .17/share, allegedly for the purpose of earning placement agent business from IWEB to earn substantial placement fees.

Broker Transition Part 2 – Are Your Clients Really Yours? Navigating the Protocol

February 19, 2016 | Malecki Law Team

From Deutsche Bank to Credit Suisse and Barclays, brokers are in transition for a variety of reasons – some voluntary and some obligatory. Either way, for a FINRA registered representative, leaving their broker-dealer can be a nerve-wracking time. Regardless of the reason for leaving, the ultimate goal is always the same: get to your new firm and bring with you as many clients as you can without getting sued by your old broker-dealer in a FINRA Arbitration.

But, easier said than done. In addition to the logistical challenges, there are also some legal hurdles that must be cleared first.

The first major question that should be asked is: “Does the Protocol for Broker Recruiting apply?” If either your old firm or new firm are not signatories to it, then your answer should be “No.” If both your old firm and your new firm are signatories to it, then the answer to that question should be “Yes” – but some restrictions may apply.

Highland Funds Energy Master Limited Partnerships Post Significant Losses

February 16, 2016 | Malecki Law Team

The New York securities and investment fraud attorneys at Malecki Law are interested in hearing from investors in Highland Funds’ series Energy Master Limited Partnerships (MLPs).

Highland Funds’ four Energy MLPs have declined by approximately 23% in the year to date, per Morningstar. These funds include:

Highland Energy MLP C (HEFCX)

FINRA’s 2016 Priorities: FINRA is Searching for Sales Practice Issues

February 11, 2016 | Malecki Law Team

Brokers beware; FINRA is watching your firm, and you. Becoming embroiled in a regulatory inquiry or investigation can become a major and costly headache and impediment to registered representatives’ business.

In January 2016, the Financial Industry Regulatory Authority (FINRA) released its annual list of priorities, showing what sorts of sweeps they may perform, and investigations they may bring, in the coming year. brokers working in the securities industry should be aware of the priorities that are relevant to them, including those having to do with sales practice.

FINRA’s 2016 Priorities make clear that they intend a top-down review of the following areas, which may lead to firm-wide or broker specific investigations, including:

Investor Recovery Options for United Development Funding Investors

February 5, 2016 | Malecki Law Team

United Development Funding (“UDF”) has come under fire in recent months – being accused of operating like a “Ponzi scheme.” It has allegedly disclosed that since April 2014, it has been under SEC investigation.

UDF operates several publicly-traded and non-traded Real Estate Investment Trusts (REITs) along with other real estate related companies, according to reports. UDF reportedly operates in a manner that is different from traditional REITs – in that its assets are not real estate holdings, but rather development loans that it originates.

The UDF fund family is reportedly comprised of four public companies – United Mortgage Trust (non-traded), UDF III (non-traded), UDF IV (publicly traded symbol: UDF), and UDF V (non-traded).

SEC Announces 2016 Priorities that Involve Securities Industry Participants

February 5, 2016 | Malecki Law Team

The sad truth is that the Government loves the easy kill. It is often easier for regulators to extract settlements and punishments against smaller market participants, including brokers, traders and analysts, than the giant wire houses, because large companies can match the resources of the Government.

The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), among other regulators, regularly engage in investigations to explore, deter and punish market conduct that violates the securities laws and industry rules. While it can be hard to know what those investigations will be, the regulators like the SEC disclose regulatory priorities on an annual basis. These examination priorities are areas where the SEC will be dedicating resources throughout 2016.

Of the 2016 Priorities announced by the SEC, the following may lead to broad investigations:

A Summary of FINRA’S Regulatory Priorities in 2016

February 5, 2016 | Malecki Law Team

Recently, FINRA issued the 11th Regulatory and Examination Priorities Letter that addresses issues in the financial industry, if left unaddressed could adversely effect market integrity and investors. In 2016 their key points of emphasis have been identified as (1) culture, conflicts of interest and ethics; (2) supervision, risk management and controls; and (3) liquidity. The Letter also highlights specific policies and procedures the FINRA will use to ensure that member firms are compliant with the priorities identified.

According to Richard G. Ketchum, CEO and Chairman, FINRA, “ Firm culture, ethics and conflicts of interest remain a top priority for FINRA. A firm’s culture contributes to, and is also a product of, a firm’s supervision and its approaches to identifying and managing conflicts of interest and the ethical treatment of customers. Given the significant role culture plays in how a firm conducts its business, this year the letter addresses how we will formalize our assessment of firm culture to better understand how culture affects a firm’s compliance and risk management practices.”

Culture, Conflicts of interest and Ethics