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Articles Tagged with broker misconduct

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Money MazeFinancial advisor Melvin Elwood Case (CRD# 2393464) has been suspended from the securities industry.  According to publicly available information through FINRA, on January 19, 2018, Mr. Case, without admitting or denying FINRA Enforcement’s findings, consented to being barred from the securities industry in all capacities for a period of six months (the suspension is set to terminate on August 4, 2018).

Specifically, FINRA enforcement entered into a settlement via Acceptance, Waiver and Consent (“AWC”) with the Respondent, pursuant to which Mr. Case consented to a finding that he “willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934… this omission makes him subject to a statutory disqualification with respect to association with a [FINRA] member.”  As disclosed by FINRA, Mr. Case pled guilty to a felony charge of exploitation of an aged adult on or about August 2016.  It appears that final adjudication of guilt was withheld, and Mr. Case was placed on probation for a period of 24 months.

Based on his purported failure to report his criminal infraction to his employer, LPL Financial LLC (“LPL”) (CRD# 6413), Mr. Case was terminated by LPL on or about May 2, 2017.  As disclosed through FINRA, Mr. Case’s termination by LPL concerned allegations of “criminal charges involving exploitation of an aged adult after converting the victim’s money for his own benefit.”

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Apartment BuildingInvestors in American Finance Trust (“AFIN”), formerly known as American Realty Capital Trust V, Inc., may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their AFIN position was recommended by an investment advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or financial advisor.  According to its website, AFIN is structured to protect shareholder capital and produce stable cash distributions through the acquisition and management of a diversified portfolio of commercial properties leased to investment grade tenants.

AFIN is a publicly registered non-traded real estate investment trust (“REIT”) that is based in New York, NY.  Incorporated in early 2013 as a Maryland REIT, AFIN is registered with the SEC, and therefore, the non-traded REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.

According to publicly available information through the SEC, MacKenzie Capital Management LP (“Mackenzie”) recently made an unsolicited tender offer to purchase up to 1 million shares of AFIN common stock at $13.66 per share.  This tender offer is set to expire on March 22, 2018, unless extended.

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Money in WastebasketOn February 9, 2017, FINRA Enforcement signed off on a Letter of Acceptance, Waiver and Consent (“AWC”) between FINRA and former financial advisor Matthew C. Maczko (“Maczko” or “Respondent”) (CRD# 1888519).  Without admitting or denying FINRA’s findings, Mr. Maczko voluntarily consented to an industry bar from associating with any FINRA member firm in any capacity.

Mr. Maczko first became associated with a FINRA member firm in 1988 as a general securities representative under the employ of UBS Financial Services Inc. (“UBS”) (CRD# 8174).  During the course of his career, he worked at UBS for nearly twenty years, and thereafter, from 2008-2016, worked as a registered representative for Wells Fargo Advisors, LLC (“Wells Fargo”) (CRD# 19616).

According to the AWC, “[M]aczko had been terminated on September 2, 2016” by Wells Fargo in connection with the brokerage firm’s “[i]nternal review for adherence to industry standards of conduct based on concerns about the level of trading in a customer account.”  Furthermore, the AWC specifically referenced the following instance of alleged excessive trading, or churning, purportedly conducted by Maczko while affiliated with Wells Fargo:

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investing in real estate through a limited partnership Investors in Inland Land Appreciation Fund II, L.P. (“Inland II” or the “Limited Partnership) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution.  Inland II is based in Oak Brook, IL and is structured as a Delaware Limited Partnership.  The Limited Partnership was formed in June 1989, to invest in undeveloped land on an all-cash basis and realize the upside appreciation upon resale.  In October 1989, the Partnership commenced an offering of limited partnership units at $1,000 per unit.  In connection with this initial offering, Inland II received $50,476,170 in gross offering proceeds, and accepted all unit holders into the partnership.  The General Partner is Inland Real Estate Investment Corporation.

Pursuant to their business model, Inland II purchased, on an all-cash basis, 27 parcels of undeveloped land and two buildings.  All of these investments were made in the Chicago, IL metropolitan area.  Initially, the partnership anticipated holding the properties for a period of 2 -7 years from the time of land portfolio acquisitions.  However, due to several factors, including lengthy rezoning and entitlement processes, the Limited Partnership’s holding period greatly exceeded their initial estimates.

According to publicly available documents filed with the Securities and Exchange Commission (“SEC”), as of December 31, 2016, the Limited Partnership had a remaining parcel of land it had yet to sell.

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stock market chartOn December 13, 2017, the Financial Industry Regulatory Authority (“FINRA”) disclosed that registered representative Brian Michael Travers has been barred from the securities industry.  Specifically, pursuant to a Letter of Acceptance, Waiver, and Consent (“AWC”), pursuant to which Brian Travers neither admitted or denied FINRA’s findings, Mr. Travers acknowledged that on November 1, 2017, he received a written request from FINRA seeking his on-the-record testimony.

FINRA’s request concerned: “[a]n investigation into, among other things, potential undisclosed outside business activities and private securities transactions…”  As set forth in the AWC, “By refusing to appear for on-the-record testimony as requested pursuant to FINRA Rule 8210, Travers violates FINRA Rules 8210 and 2010.”

Publicly available information through FINRA indicates that Brian Travers (CRD# 4767891) first entered the securities industry in 2004, and was most recently a registered representative of MML Investors Services, LLC (“MML”) (CRD# 10409) until his former employer terminated his registration in April 2017.  Previous to working for MML (2013 – 2017), Mr. Travers was a financial advisor affiliated with Lincoln Financial Advisors Corporation (“Lincoln Financial”) (CRD# 3978).  According to FINRA BrokerCheck, Mr. Travers was discharged from his employment with MML on April 4, 2017, in connection with an “[u]ndisclosed outside activity.”

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financial charts and stockbrokerOn December 8, 2017, the Securities and Exchange Commission (“SEC”) issued a Cease-and-Desist Order (“Order”) against Ameriprise Financial Services, Inc. (“Ameriprise”) in connection with allegations that Ameriprise and its employees or agents purportedly misrepresented the performance of certain ETF strategies.  Specifically, the SEC’s investigation focused on sales of AlphaSector strategies by ETF manager F-Squared Investments, Inc. (“F-Squared”).  The F-Squared AlphaSector strategies, which were based upon an algorithm, were sector rotation strategies designed to issue a “signal” as to whether to buy or sell certain ETFs, that together, comprised the industries in the S&P 500 Index.

Pursuant to the Order, the SEC has alleged that F-Squared materially miscalculated the historical performance of its AlphaSector strategies (from April 2001 to September 2008) by incorrectly implementing signals in advance of when such signals could have occurred.  In addition, the SEC alleged that F-Squared relied upon hypothetical and back-tested historical performance that was purportedly inflated substantially over what actual performance would have been had F-Squared applied the signals accurately.

In December 2014, F-Squared agreed to pay a $35 million fine to the SEC, and furthermore, admitting to wrongdoing regarding falsifying performance numbers in its advertising and marketing materials.  See In the Matter of F-Squared Investments, Inc., Admin. Proceeding No. 3-16325 (Dec. 22, 2014).  By July 2015, F-Squared filed for Chapter 11 bankruptcy protection.

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money whirlpoolThe Financial Industry Regulatory Authority (“FINRA”) has barred former Wells Fargo (CRD# 126292) financial advisors Charles Henry Frieda (CRD# 5502319) and Charles B. Lynch, Jr. (CRD# 3004877) for allegedly engaging in a pattern and practice of recommending an unsuitable over-concentration in energy-sector securities to numerous customers.  On April 12, 2016, Mr. Lynch was discharged by Wells Fargo for “loss of management confidence,” as reported on Wells’ Form U-5 filing with regulators.  His partner, Mr. Frieda, remained at Wells until September 2017.

Pursuant to FINRA Rule 9216, on November 27, 2017, both Messrs. Lynch and Frieda submitted a Letter of Acceptance, Waiver and Consent (“AWC”) for the purposes of proposing a settlement to certain alleged industry rule violations.  Specifically, it was alleged by FINRA Enforcement in the AWC that “From November 2012 to October 2015” both former Wells Fargo advisors “[r]ecommended an investment strategy that was unsuitable for certain retail customers” and purportedly involved the brokers recommending “[a]n over-concentration in energy-sector securities, some of which were speculative, resulting in significant customer losses.”

As part of the AWC, FINRA Enforcement alleged that Messrs. Lynch and Frieda violated FINRA Rule 2111.  In relevant part, Rule 2111 – the so-called suitability rule – mandates that a broker “must have a reasonable basis to believe that a recommended… investment strategy involving a security or securities is suitable for the customer, based on the information obtained through reasonable due diligence….”

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7-waysAs recently reported, the Financial Industry Regulatory Authority (“FINRA”) barred broker John Phillip Correnti (CRD# 5319471) in light of his failure to provide testimony and documents in connection with an investigation into potential violations of applicable securities industry rules.  Publicly available information through FINRA indicates that, in a career spanning 2007 – 2016, Mr. Correnti was previously affiliated with four different brokerage firms.  Most recently, Mr. Correnti was associated with AXA Advisors, LLC (“AXA”) (CRD# 6627) (2015-2016).

FINRA records also indicate that Mr. Correnti was the subject of a customer dispute in 2011, which concerned allegations of mismanagement, misrepresentations, breach of fiduciary duty, as well as claims grounded in negligence / negligent misrepresentation.  Furthermore, FINRA records indicate that Mr. Correnti was discharged from his employment with AXA in July 2016, following allegations concerning “[h]is apparent involvement in the possible manipulation of a low-price security.”

In August 2017, Mr. Correnti, who worked as a registered representative for AXA in Cleveland, Ohio, was barred from the securities industry by FINRA.  Specifically, FINRA sanctioned Mr. Correnti with an industry bar following his failure to completely respond to FINRA’s request for documents, as well as his incomplete testimony.  In addition, FINRA records suggest that the investigation was aimed, at least in part, on whether Mr. Correnti “[e]ngaged in undisclosed business activities….”

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Investors in American Finance Trust and  Lightstone Value Plus REIT V may have viable arbitration claims before the Financial Industry Regulatory Authority (FINRA) if a stockbroker or investment advisor made an unsuitable recommendation to the investor to  purchase them, or made a misleading sales presentation in recommending them.
Publicly registered non-exchange traded REITs like American Finance Trust and Lightstone Value Plus REIT V are complex investment vehicles that carry substantial risk, including significant fees and lack of liquidity (often making redemption difficult for a shareholder seeking to exit an investment).  Many retail investors are steered into purchasing non-traded REITs upon the recommendation of their broker or financial advisor who will typically tout the investment’s income component to their clients seeking an income stream.  Unfortunately, many investors who purchase shares in non-traded REITs are not fully informed of the many complexities and risks associated with such an investment.

American Finance Trust (“AFT”) is a non-traded REIT that was formed in January 2013 and subsequently launched by American Financial Advisors, LLC.  More recently, in February 2017, AFT (with $2.1 billion in assets) and American Realty Capital-Retail Centers of America (with $1.25 billion in assets) announced shareholder approval for a merger of the two non-traded REITs.

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Two former JP Morgan Chase Securities Inc.-registered brokers, Fernando L. Arevalo and Jimmy E. Caballero are the subjecct of regulatory charges alleging theft. Reportedly, the Financial Industry Regulatory Authority (FINRA) permanently barred both Caballero and Arevalo from the securities industry.

Two JP Morgan Brokers Barred by FINRA for Theft of $300,000 from Elderly Client

FINRA’s investigation of the two brokers found that they allegedly collaborated to steal approximately $300,000 from one of their clients, a widow who had diminished mental capacity. Reportedly, the client held accounts at both JP Morgan and a related bank affiliate. She sold two annuities between April and July 2013 and deposited the proceeds — approximately $300,000 — into a bank account that had been opened for her by Arevalo.

Subsequently, the funds were allegedly withdrawn using two cashier’s checks. On the same day, the money was allegedly deposited by Caballero into a joint account he opened at a different bank in his name and the client’s name. When the deposits were questioned by the bank and further confirmation was required, Arevalo allegedly drove the client to the bank so she could confirm the source of the funds.

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