Articles Posted in FINRA

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Money in WastebasketBank of America Merrill Lynch’s (“Merrill Lynch”) brokerage unit offered Strategic Return Notes (“SRNs”) to customers, resulting in losses of as much as 95% of the principal invested.  First issued in November 2010 and maturing November 27, 2015, the SRNs were designed to be linked to Merrill Lynch’s own proprietary volatility index (the “VOL”) which was designed to calculate the volatility of the S&P 500 Index.  The SRNs, which were issued at $10 per share, ultimately matured at just $0.50 per share.  Thus, investors in Merrill Lynch’s proprietary SRN’s were subjected to an enormous 95% loss on their principal investment.

In recent years, many investors have been solicited by their financial advisor to purchase so-called structured notes, which are often presented to customers as a higher-yielding, but still relatively safe alternative to fixed-income investments such as bonds.  Structured notes are issued and backed by financial institutions.  As hybrid products containing both a bond component and an embedded derivative, structured notes are designed to provide an investor with a return based on an equity index (or some other benchmark), as opposed to an interest rate typically associated with a traditional bond investment.

In theory, a structured note is supposed to provide an investor with an opportunity to earn enhanced income (in excess of the very low interest rates offered in the current environment on most bond investments), while also providing some downside cushion.  In practice, however, many structured notes engineered by various investment banks and sold by their brokers have proved to be horrendous investments.

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On November 15, 2017, H.R. Bill 4267 (the “Bill”), entitled the Small Business Credit Availability Act (the “Act”), passed the House Financial Services Committee by an overwhelming 58-2 vote.  This Bill seeks to amend the Investment Company Act of 1940 (’40 Act), specifically the regulations currently governing business development companies (“BDCs”).  In recent years, financial advisors have increasingly recommended BDCs, allowing for Mom and Pop retail investors to participate in private-equity-type investing.  Many income-oriented investors are attracted to BDCs because of their characteristic enhanced dividend yield.

As an investment vehicle, BDCs were first made available pursuant to the Small Business Investment Incentive Act of 1980, as a result of a perceived crisis in the capital markets.  At that time, small businesses were encountering severe difficulties in accessing credit through traditional means.  BDCs are a special type of closed-end fund designed to provide small, growing companies with access to capital.

BDCs are structured as hybrid between an operating company and an investment company under the ’40 Act.  Regulated as an investment company, BDCs are required to file periodic reports under the Securities Exchange Act, and further, are subject to a number of regulatory requirements.  Three of the most notable regulations currently governing BDCs are as follows:

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Strategic Realty Trust (“SRT,” formerly known as TNP Strategic Retail) is a San Mateo, CA based non-traded real estate investment trust (“REIT”) that invests in and manages a portfolio of income-producing real properties including various shopping centers located primarily in the Western United States.

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Market Analyze.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by their broker or money manager based on the investment’s income-producing potential.  Unfortunately, many investors were not informed of the complexities and risks associated with non-traded REITs, including the investment’s high fees and illiquid nature.  Currently, investors who wish to sell their shares of SRT may only do so through direct redemption with the issuer or by selling shares on an illiquid secondary market, such as Central Trade & Transfer.

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The Financial Industry Regulatory Authority (FINRA) recently fined Investors Capital Corporation $250,000 over the sale of unit investment trusts (UITs).  Investors Capital did not admit or deny the allegations leading to the fine, but also agreed to pay $841,500 in restitution to customers, bringing its total payment to over $1 million.

Abstract Businessman enters a Dollar Maze.FINRA alleged that certain Investors Capital brokers recommended that customers engage in unsuitable short-term transactions in UITs, and also alleged that the firm failed to apply sales charge discounts that should have been available to some customers. FINRA further alleged that Investors Capital Corporation lacked adequate systems and procedures to supervise the sales of UITs, leading to the violations.  Short-term trading in UITs may be uneconomical in many cases due to relatively high up-front sales charges, and UITs are typically recommended only as long-term investments.

Investors Capital’s alleged violations occurred between 2010 and 2015.

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Investors Capital will pay $1.1 million in fines and restitution over the sale of unit investment trusts (UITs) to resolve an investigation by the Financial Industry Regulatory Authority Inc. (FINRA).  FINRA alleges that certain Investors Capital brokers recommended unsuitable short-term trading of UITs and other complex financial products known as steepener notes in accounts of 74 clients, according to the settlement.

old bird cage

old bird cage

Investors Capital also allegedly failed to apply sales charge discounts to certain customers’ purchases of UITs, and inadequately supervised its representatives, according to FINRA’s allegations. To resolve the FINRA case, Investors Capital agreed to pay $250,000 in fines and $842,000 in restitution. The firm has already reportedly paid close to $224,500 in restitution to clients.

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Douglas William Finlay, Jr., a stockbroker formerly associated with Cadaret, Grant & Co., has entered into a  Letter of Acceptance Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA) to settle a case in which FINRA alleged that Finlay over-concentrated a customer’s assets in an unsuitable illiquid real estate investment trust (REIT).

15.6.10 money in a cageIn the AWC, in which Finlay neither admitted nor denied the FINRA charges, FINRA found that Finlay failed to adequately disclose information to the customer about the REIT and also allegedly falsified a firm document that misrepresented the customer’s net worth and income.

As a result of the charges, Finlay’s license was suspended for 18 months.  FINRA also fined Finlay $15,000 and ordered him to pay disgorgement of $6,639.  The case is FINRA Disciplinary Proceeding No. 2013035576601

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Recently, Wade James Lawrence was barred from the financial industry by the Financial Industry Regulatory Authority (FINRA). Investors’ rights lawyers are exploring accusations made against Lawrence regarding misappropriation of funds during his time as a broker.  According to the FINRA report, Lawrence failed to respond to these allegations, and in doing so forfeited his opportunity to remain a practicing broker.

FINRA Bars Wade James Lawrence from Financial Industry

Lawrence’s most recent history as a broker was with Southwest Securities, where he was registered from August 2011 through December 2013.  Prior to that, he worked for Oppenheimer & Co. from June 2008 through July 2011, and Merrill Lynch from April 2003 through June 2008.   During his time at both Southwest Securities and Oppenheimer & Co., there were several complaints issued against Lawrence by customers who claimed to have received unsuitable recommendations.  One client even alleged that Lawrence borrowed $850,000 and failed to return the funds. This alleged borrowing occurred while Lawrence was with Oppenheimer & Co. and the FINRA report states that he intended to “…pay for the losses.  I [Lawrence] then voluntary resigned and left the appropriate funds in my personal account to be used to cover the losses.”  Despite this response, Lawrence failed to appear for testimony with FINRA regarding this, or any of the other complaints, which included additional allegations of misappropriated funds and failure to provide appropriate investment recommendations.

If you suffered significant losses as a result of doing business with Wade James Lawrence or believe that another stockbroker or financial advisor led you to inappropriately use investment funds, you may be able to recover your losses through securities arbitration.  To find out more about your legal rights and options, contact a securities fraud attorney at the Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

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David Zeng was recently barred from working within the securities industry after he failed to respond to inquiries concerning over a dozen customer complaints about his investment activities.  These complaints alleged misrepresenting an investment, unauthorized stock trading, unsuitable investment advice and fraud.

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Prior to starting with Merrill Lynch in 2009, Zeng worked for UBS Financial Services and before that for Morgan Stanley.

If you suffered significant losses as a result of doing business with David Zeng or received an unsuitable recommendation in any of the mentioned investment categories from another stockbroker or financial advisor, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

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Securities arbitration attorneys are currently investigating claims on behalf of investors who suffered significant losses in AXA Equitable Life Insurance Company Equi-Vest or Accumulator variable annuity contracts — specifically those invested in the managed funds, AXA Tactical Manager Strategy or ATM-managed funds.

Equi-Vest, Accumulator Variable Annuity Investors Could Recover Losses

Reportedly, the New York State Department of Financial Services (“DFS”) launched an investigation in 2011 concerning alleged omissions on the part of AXA Equitable regarding its applications for approval to alter the Equi-Vest and Accumulator variable annuities.  The change would substitute ATM-managed funds for previous managers.  According to DFS’ allegations, AXA Equitable misled DFS regarding the change’s impact and failed to disclose the underperformance of the ATM funds under the previous managers.  Allegedly, these actions resulted in a reduced return for investors, especially for those who paid fees to receive guaranteed minimum benefits and those who wanted to be more aggressive in their investment strategy. In order to settle the investigation, AXA Equitable agreed to pay $20 million on March 17, 2014. 

Some AXA Equitable investors may have been misled about the variable annuity contract changes. In addition, certain characteristics of variable annuities, including high penalties for early withdrawal, long surrender periods and low rate of return, make these products unsuitable for many investors. Many brokers are motivated to make unsuitable recommendations because of the large commissions associated with variable annuities.

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Securities attorneys are currently investigating claims on behalf of the customers of Christopher B. Birli and Patrick W. Chapin, who suffered significant losses as a result of misrepresentations and unsuitable recommendations of variable annuities. Reportedly, Birli and Chapin received significant sales commissions for allegedly unsuitable recommendations to their customers.

Customers Could Recover Losses for Unsuitable MetLife Variable Annuity Recommendations

On March 27, a complaint was filed with the Financial Industry Regulatory Authority Office of Hearing Officers against Birli and Chapin regarding the State University of New York retirement program. According to the complaint, Birli and Chapin recommended their customers switch MetLife variable Annuities with new ones held outside the retirement plan in MetLife IRA accounts.

Allegedly, Birli and Chapin circumvented their firm’s general prohibition of direct annuities exchange by recommending to their customers that they surrender their annuities to purchase another product available within the retirement program, wait 90 days, and then sell the second product in order to purchase the MetLife IRA annuity.

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