Unauthorized Trading

Published on: July 16, 2012

Thompson National Properties 12 Percent Note Investors Could Recover Losses

Securities arbitration lawyers are currently investigating potential claims on behalf of investors who suffered significant losses as a result of their investment in the Thompson National Properties 12 Percent Notes Program. Many investors of this program, also known as TNP 12 Percent Notes, are concerned about the recent announcement which stated that interest payments on TNP 12 Percent Notes have been suspended, and what this announcement may indicate about the value of the investment.

Thompson National Properties 12 Percent Note Investors Could Recover Losses

TNP 12 Percent Notes were designed to raise capital for the tenant-in-common, or TIC, real estate operations of Thompson National Properties. A Securities and Exchange Commission filing states that the program, in 2008 and 2009, raised $21.5 million from 418 investors. The filing also states that the investment required a $50,000 minimum investment, and agreements to sell the notes were held by 22 independent broker-dealers. Reportedly, a recent announcement informed investors that the TNP 12 Percent Notes Program LLC would cease interest payments, but that it intends to restart payments in 2013.

Since its 2008 launch, TNP has launched 16 investment programs in addition to the TNP 12 Percent Notes. The largest of these investments was TNP Strategic Retail Trust, a non-traded real estate investment trust (REIT). Reportedly, this REIT has acquired necessity-anchored and grocery retail shopping centers. Its investments are valued at $200 million and the REIT raised nearly $91 million from investors. For more on this REIT, see the blog post “TNP Strategic Retail Trust Investors Could Recover Losses.”

Published on: June 6, 2012

Fidelity Investors Could Recover Losses Resulting from Facebook Stock

by InvestorLawyers

Securities fraud attorneys are currently investigating potential claims on behalf of investors who suffered losses as a result of their Facebook Inc. investments with Fidelity Investments. Allegedly there may have been execution problems at Fidelity Investments in regards to the Facebook stock. Reportedly, following Facebook’s initial public offering, “thousands” of clients of Fidelity were affected by trading issues.

Fidelity Investors Could Recover Losses Resulting from Facebook Stock

According to investment fraud lawyers, many Fidelity investors have learned that their Facebook stock orders were not executed at previously expected prices. In addition, some Fidelity investors decided to cancel their Facebook stock orders prior to the time it began trading, on May 18 at 11:30 am, but the stock was allegedly assigned to their accounts anyway. Many investors were confronted with margin calls that were unexpected because of Fidelity’s failure to honor the canceled orders. Securities fraud attorneys say this exacerbated the situation.

In a related case, Facebook Inc., Morgan Stanley and other banks are being sued by Facebook’s shareholders. The shareholders claimed Facebook’s weakened growth forecasts were hidden by the defendants prior to its $16 billion IPO. According to the complaint filed in the U.S. District Court in Manhattan, changes in the business forecast during the IPO process were only “selectively disclosed by defendants to certain preferred investors.” The complaint alleges that “the value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result.” A similar lawsuit was filed by another investor in a California state court. In the first three days of trading, Facebook shares declined 18.4 percent, reducing the stock’s value by more than $2.9 billion.

Published on: April 20, 2012

News: FINRA Fines Goldman Sachs Over ‘Trading Huddles’

by InvestorLawyers

According to an announcement on April 12, 2012, from the Financial Industry Regulatory Authority (FINRA), Goldman Sachs & Co. has been fined $22 million for “failing to supervise equity research analyst communications with traders and clients and for failing to adequately monitor trading in advance of published research changes to detect and prevent possible information breaches by its research analysts.” A related settlement with Goldman was announced by the Securities and Exchange Commission on the same day. Securities fraud attorneys say Goldman will pay $11 million each to the SEC and FINRA.

News: FINRA Fines Goldman, Sachs over “Trading Hurdles”

Goldman established “trading huddles” as a business process in 2006, according to FINRA’s statement. These “trading huddles” were designed to allow weekly meetings for research analysts, in which they would share trading ideas with traders for the firm. These traders worked with clients and, occasionally, equity salespersons. In addition, analysts apparently discussed specific securities while they were considering changing the conviction list status or published research rating of the security. Clients had access to the “trading huddle” information and were not restricted from direct participation through calls placed by analysts to high priority clients of the firm.

Unsurprising to investment fraud lawyers, a significant risk was created by trading huddles: material non-public information could be disclosed by analysts. Such information includes conviction list status and rating changes. Despite this risk, Goldman failed to have adequate controls to monitor communications before and after the trading huddles. Furthermore, an adequate monitoring system was not in place to detect possible trading in advance of conviction list and research rating changes in proprietary or employee training, institutional customer or client-facilitation and market-making accounts. Had these practices been allowed to continue, insider trading could have resulted, according to securities fraud attorneys.

Published on: March 14, 2012

Is Your Broker a Psychopath?

by InvestorLawyers

According to an upcoming issue of trade publication CFA Magazine, 1 in 10 Wall Street employees likely is a clinical psychopath. According to Sherree DeCovny, journalist and author of the story, “A financial psychopath can present as a perfect well-rounded job candidate, CEO, manager, co-worker, and team member because their destructive characteristics are practically invisible.”

Is Your Broker a Psychopath?

It comes as no surprise that some psychopathic traits are magnets for stock broker fraud. And the relatively high number of psychopaths on Wall Street may explain why securities fraud runs rampant.

DeCovny’s story points to the research of several psychologists. It’s important to note that the term “psychopath” is not synonymous with rampaging murderers and should not instantly conjure up images of Norman Bates, she says. Rather, according to DeConvy, clinical psychopaths are charming, gregarious and bright. But they have no trouble lying and do so often. Furthermore, they may not feel empathy for others. She states that psychopaths are also more likely to take risks because they either don’t understand or don’t care about the consequences.

Published on: March 5, 2012

Stock Broker Misconduct: When Losses are the Result of Fraud

by InvestorLawyers

Sometimes losing money in the stock market and yelling “Fraud!” is a little like smelling smoke and yelling “Fire!” Just as smelling smoke might only mean dinner’s burning, losing money doesn’t always mean stock broker fraud has occurred. It is important for investors to be able to tell the difference between losses resulting from fraud and plain old bad luck. To that end, here are some common types of broker misconduct and tips on how to tell if you’ve been a victim:

Stock Broker Misconduct: When Losses are the Result of Fraud

Unauthorized Trading: Unauthorized trading occurs when a broker makes trades without permission. This is surprisingly common and brokers will often defend their actions by saying that the investor either agreed to the trade or ratified it by raising no objection when they received a confirmation.
Unsuitable Investments: Surprisingly, it is common for brokers to be unable to accurately measure risk. As a result, investors may have a portfolio that is far more risky than is appropriate. Brokers must, by law, take into account the risk tolerance and investment objectives of each client and make suitable recommendations based on those criteria. Unsuitable investments include investments that carry a risk that is not in keeping with the investor’s risk tolerance, as well as inadequate diversification and improper asset allocation. Churning, which generates excessive commissions through excessive trading, is also a form of unsuitable investments. Investors who suspect the trading on their account is excessive will most likely have to consult an investment attorney for an analysis of their portfolio.

Published on: March 2, 2012

News: FINRA Files Complaint Against Ex-broker

by InvestorLawyers

On February 9, 2012, ex-broker James Scott McKee was charged with aggravated theft in the first degree. As a result of his broker misconduct, McKee faces four charges of theft. In addition, a complaint has been filed against him with the Financial Industry Regulatory Authority (FINRA). McKee was formally affiliated with LPL Financial LLC, Morgan Stanley Smith Barney LLC and Berthel Fischer & Co. Financial Services Inc. According to the complaint filed with FINRA, McKee’s victims included a local church, an 81-year-old retiree and other unsophisticated investors.

McKee convinced an LPL client to invest $400,000. This investment took place in April 2007 and was put into a real estate venture. However, according to the FINRA complaint, McKee failed to notify or receive approval from LPL for the venture. Following a heart attack, which subjected the investor to significant medical expenses, she contacted McKee to have her money returned. McKee received two checks for $200,000 in February 2008 but failed to return the money to the investor. Instead, he told the client the funds remained invested and then used them for his own use. The money has not yet been returned to the client.

According to the police statement on the matter, McKee “committed aggravated theft by deception and fraud with respect to securities or securities business” from February 2008 to the present. According to Oregon officials, McKee sold unregistered securities, conducted unauthorized liquidation of investment account monies, concealed the liquidation and made an unauthorized deposit of said funds into his personal bank account.

Published on: March 1, 2012

FINRA Investor Alert: Inspecting Account Statements Helps Investors Detect Securities Fraud

by InvestorLawyers

Securities fraud often goes undetected because investors either don’t understand or don’t closely inspect their account statements from their securities firm. On February 23, 2012, the Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called “It Pays to Understand Your Brokerage Account Statements and Trade Confirmations.” This Investor Alert is designed to help investors to better understand their account statements. A careful inspection of account statements can help investors detect errors and broker misconduct, including overcharges and unauthorized transactions.

FINRA Investor Alert: Inspecting Account Statements Helps Investors Detect Securities Fraud

FINRA’s Vice President for Investor Education, Gerri Walsh, in a FINRA press release about the Investor Alert stated, “Investors whose portfolios have taken a hit might not be keen to open their account statements, but investors should review their statements carefully. Investors should also review trade confirmations as soon as they receive them because a single keystroke can make the difference between 100 and 1,000 shares.”

The Investor Alert uses plain language to detail to investors their account statements’ key elements and “red flags” that could indicate to investors that misconduct or mistakes may have occurred. Investors should also look for their investment objective, which is listed on many account statements. This investment objective will indicate the investor’s strategy and will contain words such as “conservative” or “growth.” This description – and the account activity – should accurately reflect the goals of the investor.

Published on: February 13, 2012

Broker Misconduct: Illegal Transfer of Funds Through Email Hacks

by InvestorLawyers

On January 27, 2012, the Financial Industry Regulatory Authority (FINRA) issued an Investor Alert warning investors of fraudsters compromising investor email accounts to send trading instructions as a way to commit fraud. According to FINRA, fraudsters will use the email account to gain access to information that they can then use to request wire transfers to overseas accounts. Because this form of fraud can be committed by stock brokers and traders, stock broker fraud attorneys are encouraging defrauded investors to come forward with potential claims.

Broker Misconduct: Illegal Transfer of Funds Through Email Hacks

In some cases, firms failed to verify the instructions via telephone but released the funds anyway. This violation in procedure may entitle defrauded investors to a recovery of losses through securities arbitration. According to the SEC, four brokerage firms have been charged for allowing traders to trade in the U.S. securities market, despite the fact that they were unregistered. In the same case, Igors Nagaicevs, a trader, was charged with making $874,896 through unauthorized purchases and sales. He also broke into accounts 159 times from 2009 to August 2010. According to the SEC, he cost investors possibly over $2 million.

“Nagaicevs engaged in a brazen and systematic securities fraud, repeatedly raiding brokerage accounts and causing massive damages to innocent investors,” says the director of the SEC’s San Francisco regional office, Marc J. Fagel.

Published on: December 23, 2011

FINRA Ruling: Wells Fargo Fined, Complaint Filed Against Chen

by InvestorLawyers

December 15, 2011, the Financial Industry Regulatory Authority (FINRA) announced its decision to fine Wells Fargo Investments LLC for “unsuitable sales of reverse convertible securities through one broker to 21 customers, and for failing to provide sales charge discounts on Unit Investment Trust (UIT) transactions to eligible customers.” The fine totals $2 million; in addition, Wells Fargo must pay restitution to customers who had unsuitable reverse convertible transactions and/or did not receive the sales charge discounts on UIT transactions. Furthermore, the stock broker misconduct of Alfred Chi Chen led FINRA to file a complaint against him.

Finra Ruling: Wells Fargo Fined, Complaint Filed Against Chen

UITs offer sales charge discounts on purchases that exceed certain thresholds, often called “breakpoints,” or involve redemption or termination proceeds from another UIT during the initial offering period. Wells Fargo’s insufficient monitoring of the reverse convertible sales caused them to fail to provide breakpoint and rollover and exchange discounts in the sales of UITs to eligible customers from January 2006 to July 2008.

The registered representative, who is no longer with Wells Fargo, Alfred Chi Chen, made unauthorized trades in multiple customer accounts. In some cases, the customer accounts belonged to deceased individuals. FINRA filed a complaint against Chen, in addition to its decision to fine Wells Fargo. According to FINRA’s investigation, Chen’s broker misconduct extended to 21 clients, most of which had limited experience in investments, low risk tolerances and/or were elderly. To these 21 clients, Chen made hundreds of unsuitable recommendations for reverse convertible investments. Repayment of reverse convertibles, which are interest-bearing notes, is tied to the performance of a stock, basket of stocks, or another underlying asset. These investments were unsuitable for many of Chen’s low-risk profile clients because they risk sustaining a loss if the value of the underlying asset falls below a certain level at maturity or during the term of the reverse convertible, according to FINRA.

Published on: November 30, 2011

Investment Fraud: Unauthorized Trading

by InvestorLawyers

Unauthorized trading, a form of broker misconduct that occurs when a broker makes a trade without the investor’s consent, can be a valid claim for securities arbitration. However, there is more than one way for unauthorized trading to be committed. In one way, the broker may believe that the transaction is suitable for their client but can’t or doesn’t contact the investor before making the trade. However, in other circumstances, the broker may make the trade and then try to convince the investor to consent to the trade — even though it’s after the fact, which the broker does not disclose. This second scenario is especially tricky because if the client then consents to the trade, the unauthorized trading may go unnoticed unless the client is careful to check the dates of transactions on their monthly statements.

Investment Fraud: Unauthorized Trading

The following suggestions will help you prevent unauthorized trading and determine if you have been a victim of unauthorized trading:

1. Take notes! This can be especially helpful in determining if you have been a victim of the second method of unauthorized trading described above. It is important to keep careful notes of all conversations between you and your broker. Notes should include dates, times, what was discussed and what your instructions were to your broker. These notes can be compared with monthly statements to determine if your broker conducted trades that were either unapproved or conducted before your approval was given. Remember, unauthorized trading is still fraud, even if you later consented to the trade, and should not go unchecked.