Suitability

Published on: September 29, 2011

Causes, Concerns and Consequences of Market Volatility

The words “market volatility” seem to be used now more than ever. One recent report from The New York Times said, “Market Swings Are Becoming New Standard,” a scary sentiment for investors.

CAUSES, CONCERNS, AND CONSEQUENCES OF MARKET VOLATILITY

One possible explanation for the increased volatility is the use of computerized high frequency automated trading, which accounts for 60 percent of the volume of trades. In addition, it takes much less time today to send and receive information as it did in the past. As a result, information that affects the market spreads at an increased rate, increasing the volatility of the market. In addition, exchange-traded funds that utilize derivatives and leverage or track broad indices are likely contributors to increased volatility.

However, bad economic times can also account for some of the market volatility. With the bank failures of 2008, the Euro crisis anxiety and the general undermining of confidence in the market lately, it’s no wonder we’re experiencing so many ups and downs. Still, experts believe the volatility that results from these factors will eventually be remedied as economic standing improves.

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: September 2, 2011

ENGLE, SCHUSTER SENTENCED IN NEBRASKA’S BIGGEST SECURITIES FRAUD CASE

by InvestorLawyers

Former Nebraska City brokers Rebecca Engle and Brian Schuster were sent to prison for bilking investors out of more than $20 million — an amount which is, according to the Nebraska Department of Banking and Finance investigation supervisor Thomas Sindelar, the biggest securities fraud case in history of the state. The broker misconduct of Engle and Schuster included more than 130 investors.

Engle and Schuster Sentenced in Nebrask's Biggest Securities Fraud Case in History

Engle and Schuster apparently sold high-risk securities to investors but failed to disclose the risks and warnings associated with the investments. Most of the victims of their broker fraud were retired or nearing retirement age. As such, high-risk investments were unsuitable for them. Engle and Schuster apparently had no private placement investment experience when beginning and could not keep track of where investorsâ€™ money was going. Two companies they invested in, LightStream and Sunshine — a utility company and broom making company, respectively — went bankrupt. Schuster and Engle then neglected to tell investors about the bankruptcies.

Reportedly, while Engle wanted to go to authorities about the situation in 2004, Schuster convinced her not to. The pair then went to investors for another $5 to $6 million to keep the investment company afloat.

Published on: August 22, 2011

FINRA REVISES SUITABILITY RULE 2111

by InvestorLawyers

The Financial Industry Regulatory Authority (FINRA)’s new Rule 2111 will help prevent broker misconduct resulting from a failure to adhere to the suitability standard by adding several factors to determining suitable recommendations. Previously, the only factors brokers were required to consider when offering investments to customers were investment objectives, tax status and financial status. Under the new rule, broker-dealers must take into account age, risk tolerance, time horizon, liquidity needs, other investments and experience, in addition to the factors previously outlined.

When questioned about the definition of the terms “risk tolerance,” “time horizon” and “liquidity needs,” FINRA provided the following guidelines:

Risk Tolerance: “A customer’s ability and willingness to lose some or all of [the] original investment in exchange for greater potential returns.”