securities arbitration

Published on: September 12, 2011

FINRA Evaluating High Frequency Trading

High-frequency trading — a process in which computer algorithms are used to trade shares, foreign exchange and derivatives at superfast speeds — earns profits by extricating tiny price differences thousands of times a day, across trading platforms. The algorithms being used are treated by their owners as top secret; in fact, many have taken legal action against ex-employees who have allegedly stolen them. But this high-frequency trading may be a threat to market security.

Banks and other members of exchanges, along with broker-dealers, are being asked by the Financial Industry Regulatory Authority (FINRA) to hand over their high-frequency trading strategies and/or the software code so that the agency might watch for unusual trading patterns. Proponents of high-frequency trading claim that these strategies tighten the spread of market prices, but FINRA is concerned that they could hide potential market abuse.

FINRA, along with other securities authorities, has been trying to evaluate how high-frequency trading affects capital markets, and this request for strategy details and software code is just one more step toward that end. It would be possible for this technology to manipulate share prices, and so it is necessary for authorities to evaluate potential threats to prevent market abuse.

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 14, 2011

CITIGROUP FINED $500,000 BY FINRA

by InvestorLawyers

The Financial Industry Regulatory Authority (FINRA) announced on August 9, 2011, its decision to fine Citigroup Global Markets Inc. for failing to supervise one of its former registered sales assistants, Tamara Moon. Moon was employed at Citigroup’s Palo Alto, California, office and misappropriated a total of $749,978 over 8 years. In addition, she engaged in unauthorized trading and falsified account records. Moon’s discretions were made possible by Citigroup’s supervisory lapses, according to FINRA’s securities arbitration proceedings.

Citigroup fined $500,000 by finra

FINRA’s decision to fine Citigroup comes just under two years after its decision to bar Moon, which was announced on August 25, 2009. In connection with that decision, Susan L. Merrill, FINRA’s Executive Vice President and Chief of Enforcement at that time, said, “Firms have an obligation to supervise all of their personnel, including sales assistants who have access to confidential customer account information.” Current FINRA Executive Vice President and Chief of Enforcement Brad Bennett said, “Tamara Moon used her knowledge of Citigroup’s lax supervisory practices at the branch to take advantage of some of the firm’s most vulnerable customers, including the elderly. Citigroup had reason to know what she was doing and could have stopped her.”

Moon’s 22 victims consisted of individuals she thought were unable to properly monitor their accounts and included the elderly and the ill. In one case, Moon created a fake account for her father and used the account to misappropriate $30,000 of her own father’s money and $250,000 of other Citigroup customers’ money. Setting up and maintaining this account required Moon to forge her father’s signature multiple times. In another case, Moon stole $26,000 from an elderly widow by moving money from the widow’s account to other accounts, including some owned by Moon and some owned by other Citigroup customers, without authorization.

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.

Published on: August 4, 2011

JANNEY SETTLES SEC CHARGES FOR $850,000

by InvestorLawyers

Janney Montgomery Scott, a broker-dealer from Philadelphia, and his firm, Janney Montgomery Scott LLC, will pay $850,000 in his settlement with the Securities and Exchange Commission for not taking proper precautions to prevent insider trading. According to securities regulators, Janney didn’t establish proper policies and, in some cases, didn’t enforce what policies were in place, to prevent potential insider trading.

Janney Settles SEC Charges for $850,000

The firm’s lax policies and lack of adherence to them continued for more than four years, from January 2005 until July 2009. The policies in question affected the firm’s Equity Capital Markets division. This division included trading, equity sales and research departments. Problems with policies included a lack of enforcement and failure to follow policies as written. This misconduct made it possible for nonpublic information to be used in insider trading — a clear violation of the law that states a firm should seek to prevent this possible misuse of material.

In addition, Janney did not require pre-clearance for personal trades of its investment bankers or approval for its employees to have brokerage accounts at other firms. The firm also failed to maintain a proper firewall between the email of investment banking staff and research staff. These measures are necessary to properly supervise and maintain accountability that would prevent insider trading. Insider trading creates an unfair advantage in the market and, therefore, unbalances it, perhaps causing major repercussions.

Published on: August 3, 2011

FINRA RULING: EX-BROKER WILLIAM BAILEY SUSPENDED FOR TWO YEARS

by InvestorLawyers

William Bailey, a former broker for NEXT Financial Group Inc., was suspended for two years in Financial Industry Regulatory Authority (FINRA) securities arbitration. Bailey’s official cause for suspension, according to FINRA, was “unsuitable and excessive trading of mutual funds and variable annuities.” In addition, Bailey was charged with discretionary trading without prior written approval.

FINRA Ruling, Ex-Broker William Bailey Suspended for Two Years

Bailey’s broker misconduct took place over the span of nearly two years, from January 2006 to December 2007. His misconduct affected seven investors between the ages of 66 and 93. In addition, three customers were convinced by Bailey to hold their variable annuities for only a short time before switching them to new ones. FINRA determined that this was a violation to the broker’s suitability standard because it did not improve their financial situations and was not in keeping with their needs and financial objectives.

During this time period, Bailey recommended 484 “short-term mutual fund switch transactions,” according to FINRA. The average turnover for Bailey’s trades was only 60 days — a practice known as "churning." Sales charges and trading fees for these 484 transactions amounted to $147,000 and Bailey’s commissions for these transactions amounted to more than $120,000. Currently, there is no mention of financial restitution and Bailey did not admit or deny wrongdoing.

Published on: July 29, 2011

THREE INVESTORS WIN $5.5 MILLION FROM NEUBERGER BERMAN

by InvestorLawyers

Securities arbitration ended this month for a claim made by three clients against Neuberger Berman. The Financial Industry Regulatory Authority (FINRA) panel ruled on July 15^th that Neuberger Berman must pay $5 million in damages, $450,000 in (3 percent annual) interest and $7,500 in legal fees. Investment attorneys stated that the financial award covered the investments of all three clients.

Three Investors Win $5.5 Million from Neuberger Berman

In 2008, the claimants were persuaded by broker Brian Hahn to invest in Lehman Brothers Structured Notes, named comBATS and XLF, despite the customers’ previous insistence to avoid any Lehman investments. According to investment attorney Alan Block, “The way the notes were sold it wasn’t clear that Lehman was the underwriter.”

Nicholas P. Lavarone, who also represented the claimants in securities arbitration, said, “The customers were all told that the principal of the structured notes were either fully protected or partially protected.” It was clear, however, once Lehman Brothers filed for bankruptcy and the structured notes became practically worthless, that Lehman was, in fact, the underwriter and they were neither fully nor partially protected. In addition to the structured notes, one of the claimants invested a sum of $1 million in a private-equity hedge fund named Libertyview Credit Select. The assets of this fund were lent to Lehman Brothers.

Published on: July 26, 2011

STL BROKER SENTENCED FOR DEFRAUDING INVESTORS

by InvestorLawyers

While stock broker fraud is always a despicable crime to the victims of the fraud, the case of Joshua Gould's broker misconduct seems infinitely worse for the close relationship between victim and perpetrator, as well as the vulnerable nature of other investors. Gould, a former independent broker for Woodbury Financial Services in University City, defrauded friends, family, and investors, including the elderly, widows, and religious organizations.

Hedging and “Failure to Hedge” Claims

Not even Gould's own mother was safe, and she lost around $500,000 to her son, the bulk of her inheritance. All in all, more than 25 people were swindled out of more than $5 million. Gould spent some of the money on charitable donations to boost his reputation while at the same time spending it on strippers and entertaining them at St. Louis hotel parties. In addition, he paid the rent of at least one stripper. Gould also paid off personal debt, renovated his home, started several businesses, and facilitated a ponzi scheme.

Once the theft was discovered, Gould confessed and, according to his lawyer, has cooperated and attempted to remedy the losses of his victims. During his trial, he expressed remorse for his actions and disdain for himself.

Published on: July 21, 2011

SECURITIES ARBITRATION FILED AGAINST JAMES J. ALBRIGHT, AIG

by InvestorLawyers

On July 5, a securities arbitration claim was filed against James J. Albright Jr. and what was formerly known as AIG Financial Advisors. Claims were made on behalf of eight individuals against Albright and what is now Sagepoint Financial Inc., but more slighted customers are expected to come forward.

Securities Arbitration Filed Against James J. Albright, AIG

The claim states that Albright recommended the purchase of risky, non-traded, illiquid Real Estate Investment Trusts (REITs) to the eight claimants but failed to sufficiently disclose the risks. Inland Western Retail Real Estate Trust, KBS REIT and Behringer Havard are among the unsuitable REITs Albright recommended to his investors. These investments reportedly caused hardships and financial ruin among the investors, including substantial losses and locked assets.

“We believe that tens if not hundreds more of his trusted clients were invested in those REITs, and we anticipate filing many more arbitration actions to seek damages and other relief for them," James Eccleston of Eccleston Law, the firm that filed claim with the Financial Industry Regulatory Authority (FINRA), stated.