FINRA

Published on: October 14, 2011

FINRA Decision: Merrill Lynch Fined $1 Million

On October 4, the Financial Industry Regulatory Authority (FINRA) announced its decision to fine Merrill Lynch a total of $1 million. In an investigation conducted under the supervision of FINRA’s Enforcement Chief Counsel, Susan Light, investigators Brian Vincent and Richard Chin found that Merrill Lynch did not have an adequate supervisory system that would monitor employee accounts and allow them to identify potential broker misconduct.

FINRA Decision: Merrill Lynch Fined $1 Million

Merrill Lynch’s supervisory system, as it was functioning before FINRA’s decision, captured employee-opened accounts automatically and a social security number was used by the system as the primary tax identification number. However, if the same SSN was not used as the primary account identification number, the system would not record the account in its database. Under this system, it was the responsibility of the employees to manually enter these accounts into the supervisory system. Therefore, if the employee failed to enter his or her account, the account was not properly monitored.

Because of the discrepancies in Merrill Lynch’s supervisory practices, there was an instance of stock broker fraud committed in San Antonio, Texas, in which an employee’s account was used. In December 2009, Bruce Hammonds was barred from the securities industry for convincing 11 individuals to invest in a Ponzi scheme. The scheme lasted 10 months, during which Merrill Lynch’s failure to supervise the account it had approved allowed him to collect investments totaling over $1 million from the 11 investors. In addition to the Ponzi scheme, the lacking supervisory system failed to properly monitor 40,000 employee/employee-interested accounts between January 2006 and June 2010.

Published on: October 13, 2011

FINRA Investor Alert: Public Non-traded REITs

by InvestorLawyers

On October 4, the Financial Industry Regulatory Authority (FINRA) — the agency which handles securities arbitration — released a new Investor Alert titled “Public Non-traded REITs — Perform a Careful Review Before Investing.” The purpose of this alert is to aid investors in understanding the risks, benefits, fees and features of non-traded REITs, or real estate investment trusts.

FINRA Investor Alert: Public Non-Traded REITs

According to FINRA’s press release on the alert, “While investors may find non-traded REITs appealing due to the potential opportunity for capital appreciation and the allure of a robust distribution, investors should also realize that the periodic distributions that help make non-traded REITs so appealing can, in some cases, be heavily subsidized by borrowed funds and include a return of investor principal.” The press release goes on to say that non-traded REITs usually carry a very limited redemption of shares, as well as high fees and an eroded total return.

REITs purchase a portfolio of properties by pooling the capital of many investors. REITs can involve a variety of properties including hotels, office buildings, apartments and timber-producing land. The alert concentrates on REITs that do not trade on a national securities exchange, as opposed to those that do.

Published on: October 10, 2011

Research Center on the Prevention of Financial Fraud Launched by FINRA, Stanford University

by InvestorLawyers

Together, the FINRA Investor Education Foundation and Stanford University’s Center on Longevity have launched the Research Center on the Prevention of Financial Fraud. The new research center will supplement work by the government, research groups and law enforcement to better understand how fraud causes Americans to lose money.

RESEARCH CENTER ON THE PREVENTION OF FINANCIAL FRAUD LAUNCHED BY STANFORD

Stanford’s Center on Longevity is involved in this project because the elderly are widely victimized for fraud and are indisputably targeted by scammers. However, early findings have discovered that the conventional idea of elderly falling victim to fraud because of weakness is not necessarily the truth. Rather, the elderly are likely targeted because they often have more money. In addition, they are more exposed to the market, exploring new investment opportunities in much the same way that younger generations explore the job market or romantic relationships. More exposure to the market means a greater risk of being the target of stock broker fraud.

According to Laura Carstensen, psychology professor and founding director for the center, an overwhelming number of fraud victims are more than 50 years old.

Published on: October 7, 2011

FINRA Ruling: Raymond James & Associates, Raymond James Financial Services to Pay Restitution, Fines

by InvestorLawyers

In a press release issued on September 29, 2011, the Financial Industry Regulation Authority (FINRA) announced its securities arbitration ruling against Raymond James Financial Services Inc. (RJFS) and Raymond James & Associates Inc. (RJA). The firms were charged with “unfair and unreasonable commissions on securities transactions.” RJFS and RJA were ordered to pay $1.69 million in restitution as well as a total of $425,000 in total fines. Of those fines, RJFS will pay $200,000 and RJA will pay $225,000.

Title of the Post Goes Here

FINRA’s findings showed that RJFS and RJA used automated commission schedules from January 1, 2006 until October 31, 2010 for equity transactions. These automated commission schedules affected more than 15,500 customers and 27,000 transactions. In total, nearly $1.69 million was charged in excessive commissions. In most cases, the excessive commissions were charged on low-priced securities. According to FINRA’s press release, “The firms’ supervisory systems were inadequate because the firms established inflated schedules and rates without proper consideration of the factors necessary to determine the fairness of the commissions, including the type of security and the size of the transaction.”

In addition to the restitution and fees, the firms must conform to the requirements of the Fair Prices and Commissions Rule by revising their automated commission schedules. Once the automated commission schedules have been revised, the firms must calculate and repay any additional overcharges that occurred from November 1, 2010, until the date the schedules were corrected.

Published on: September 30, 2011

Sentencing Passed on Stock-Tip Scam Mastermind

by InvestorLawyers

Kenneth Marsh was sentenced September 20 to 8 years in prison for his role in a “boiler-room” fraud. Marsh was the last of eighteen defendants to receive sentencing for a phony stock-tip scheme that resulted in the theft of $20 million from more than 5,000 investors.

SENTENCING PASSED ON STOCK-TIP SCAM MASTERMIND

Between 2005 and 2010, Marsh, 44, acted as owner and CEO of Gryphon Holdings, which was operating as Gryphon Financial during that time. Gryphon Financial was an investment advisory services company on Staten Island. Using high-pressure tactics, Marsh and his colleagues convinced their victims to pay anywhere from $99 to $250,000 for tips and falsified investment newsletters. According to Judge Jack Weinstein, Marsh used the money he stole to support his extravagant lifestyle which consisted of expensive real estate, cocaine and a Porsche.

In addition to the high-pressure sales tactics, Marsh solicited money from retail investors by using fake names. “Michael Warren” and “Ken Maseka” were, according to Marsh’s scam, previous employees of Lehman Brothers and Goldman Sachs, and were self-made billionaires. Neither Warren nor Maseka actually existed. Marsh was, at one time, a stock broker but he had been barred by FINRA in securities arbitration.

Published on: September 16, 2011

When They Say “BARRED,” They Mean It

by InvestorLawyers

John A. “Jack” Grant, a former stockbroker, was barred from associating with investment advisers, brokers and dealers in 1988, following an action that accused him of selling unregistered securities and misappropriated funds totaling $5,500,000. Grant, however, did not withdrawal from the securities business and continued advising small business and individuals on their investments and management of their assets. Some of the individuals he advised were brokerage customers from before the SEC bar.

When they say barred they mean it

As a result of Grant’s violation of the bar, the Securities and Exchange Commission filed a civil injunctive action against him, along with Sage Advisory Group LLC and Benjamin Lee Grant. Lee Grant is Sage Advisory Group’s owner, as well as Jack Grant’s son. Grant allegedly has been using his son to implement his advice to investors.

According to the complaint filed by the SEC, Grant has advised clients, through his son, from at least 1998. Furthermore, Grant’s son, who is fully aware of the bar against him, allowed him to be associated with Sage Advisory Group and neither they, nor the firm, informed their clients that Grant had been, and remains, barred from association with investment advisors. This, according to the complaint, is in violation of Section 206 and 207 of the Investment Advisers Act of 1940.

Published on: September 9, 2011

KHAN, BLUECHIP SECURITIES FINED BY FINRA

by InvestorLawyers

According to the Financial Industry Regulatory Authority’s “Disciplinary and Other FINRA Actions” report for August 2011, Bluechip Securities Inc. and Muhammad Akram Khan were disciplined and fined. Bluechip was censured and fined the amount of $15,000, while Khan was suspended from association with FINRA members for 18 months and fined $385,000. Both Khan and the firm consented to FINRA’s ruling but did not admit nor deny the findings.

Khan, bluechip securities fined by finra

Khan’s transactions generated just over $380,000 in commissions. According to FINRA’s findings, just under $400,000 of money from customer accounts was lost. Two customer accounts showed extreme commission-equity ratios of 22,131 percent in one account and 450 percent in the other. In addition, Khan executed unsuitable transactions, transactions at unfair prices, and could not reasonably believe that his customers were knowledgeable or experienced enough to evaluate the risks of the transactions on their own. Furthermore, they were not financially able to bear the risks associated with the transactions, none of the customers gave him written authorization to exercise discretion and none of the accounts were accepted by the firm as discretionary accounts.

Khan, who was also AML Compliance Officer for the firm, neglected to conduct an independent test of the program, did not retain accurate records, did not maintain minimum net capital for a securities business-violating SEC Rule 15c3-1-and filed inaccurate Financial and Operational Combined Uniform Single Reports. In addition, through sending and receiving text messages, Khan violated Securities and Exchange Act Rule 17a-3 because of a failure to preserve the electronic communications properly.

Published on: August 26, 2011

FINRA RULING: BUNDA TO PAY FINES AND RESTITUTION

by InvestorLawyers

Securities arbitration for Frankfort, Ill., trader Robert T. Bunda ended with a sixteen-month suspension and a total penalty of $346,740. The payment order includes $171,740 in restitution and a $175,000 fine. The restitution total is equal to his total personal gain that resulted from his misconduct. The Financial Industry Regulatory Authority (FINRA) found that Bunda engaged in manipulative trading and attempted to conceal that trading by using one of his undisclosed outside brokerage accounts. Bunda’s manipulative trading included “spoofing that artificially impacted the market price of a NASDAQ security,” according to FINRA’s August 18^th announcement.

Finra ruling: bunda to pay fines and restitution

While Bunda neither admitted nor denied the allegations against him, he did consent to FINRA’s ruling.

“This case underscores FINRA’s commitment to aggressively pursue disciplinary actions for manipulative trading schemes that undermine legitimate trading activity,” says FINRA Executive Vice President of Market Regulation Thomas Gira. “Bunda’s conduct was designed to artificially move the market for his own personal gain and demonstrates an unsuccessful attempt to conceal improper trading activity through non-disclosure of outside brokerage accounts.”

Published on: August 11, 2011

FINRA RULING: SUNTRUST ORDERED TO PAY $5 MILLION

by InvestorLawyers

Securities arbitration ended with a Financial Industry Regulatory Authority (FINRA) announcement on July 26 that SunTrust Robinson Humphrey Inc. and SunTrust Investment Services Inc. will pay a total of $5 million for “violations related to the sale of auction rate securities (ARS).” $400,000 of the $5 million fine will be paid by SunTrust IS for failure to provide adequate ARS procedures, sales material and training. The remaining $4.6 million will be paid by SunTrust RH, the underwriter of the ARS, for sharing material non-public information, using inadequate sales material, having inadequate procedures and training for the sales of ARS, and failure to adequately disclose increased ARS risk of failure.

The FINRA investigation determined that SunTrust RH became aware of stresses in the ARS market in late summer 2007. These stresses increased the risk of auction failure. SunTrust Bank instructed SunTrust RH to reduce the usage of the bank’s capital and began examining their financial capabilities. These stresses continued to increase. The firm’s sales representatives were not adequately informed of the risks and were simultaneously encouraged to sell SunTrust RH-led ARS issues.

FINRA Executive VP and Chief of Enforcement, Brad Bennett, stated “SunTrust Robinson Humphrey and SunTrust Investment Services withheld information about the ARS market which prevented their sales representatives from making proper recommendations and their customers for making informed decisions about ARS. Because of that, the customers were left holding illiquid securities when the auctions failed.”

Published on: August 10, 2011

FINRA ORDERS UNITS OF MERRIL LYNCH TO PAY $8.1 MILLION

by InvestorLawyers

Recent Financial Industry Regulatory Authority (FINRA) securities arbitration resulted in the order for units of Merrill Lynch to pay compensatory damages to Staton Family Investments Inc. totaling $8.1 million for breach of fiduciary duty. Staton Family Investments and Daniel Staton accused Merrill Lynch of securities fraud, negligence, breach of contract and common stock theft. According to the claimants, 1,260,000 shares of Duke Realty Corp. common stock were stolen from their accounts.

Finra Orders Units of Merril Lynch to Pay $8.1 Million

Daniel Staton was found to not be personally affected, so he was dismissed as a claimant. When the claim was filed in December 2008, claimants requested more than $1 billion in restitution: $900 million in treble damages or 1,260,000 shares of the aforementioned stock, $300 million in compensatory damages, $50 million for punitive damages and other costs including attorneys’ fees.

The alleged wrongdoing occurred, according to the claimants' lawyer, when Merrill Lynch failed to make Staton Family Investments adequately aware of the terms of certain trigger prices that could possibly reduce the value of Duke Realty’s stock to nothing. Around the time the stock dipped below the trigger price, another $4 million was requested from the family company by Merrill Lynch, while still not notifying them of how undercollateralized the loan was. Though Merrill Lynch only requested $4 million, the money they actually owed amounted to $23 million.