Industry Topics

My Company Just Stiffed Me Out of My Bonus: Can I Sue?

January 12, 2015 | Malecki Law Team

The financial industry is one built on commissions on the sales side and bonuses in the back office. While sales staff can often readily determine where they fall on the commission scale to determine their net payout, non-sales personnel do not typically have that luxury. Non-sales employees such as product engineers, traders and the like frequently receive performance bonuses that are not tied to any predetermined scale or schedule. Just this past week Citigroup and Bank of America reportedly shrunk their bonus pool for certain investment banking, trading and other securities related employees.

Such performance bonuses are usually understood that they are not above and beyond, but rather a necessary part of the employee’s annual compensation. Given that many bonuses may be multiples of an employee’s relatively small annual salary, not receiving a year-end bonus can be devastating for someone who was counting on it. Those who get “stiffed” out of their bonus may find themselves facing the year ahead with uncertainty. Worries like “How am I going to pay my mortgage? Or my child’s tuition?” can quickly become an unfortunate reality.

The first step someone in this position usually takes is speaking with their supervisor or a representative in their company’s HR department. If you have already done this, you were likely told that your bonus was “discretionary” and the firm did not owe you a penny.

Merrill Lynch Fined For Fair Pricing and Supervisory Violations

December 16, 2014 | Malecki Law Team

The Financial Industry Regulatory Authority (FINRA) has announced that Merrill Lynch has been fined $1.9 million and ordered to pay restitution in the amount of $540,000 for fair pricing violations as well as supervisory violations related to the purchase of certain distressed securities.

According to FINRA, more than 700 transactions in Motors Liquidation Company (MLC) Senior Notes with retail customers were affected over a two year period. FINRA found that “Merrill Lynch purchased MLC Notes at prices that were not fair to its retail customers.” Specifically, Merrill Lynch was found to have purchased the notes from retail customers for anywhere between 5.3% and 61.5% below market price, leaving customers significantly disadvantaged. Merrill Lynch would later selling those shared purchased from retail customers to other broker-dealers at the prevailing market price.

Another problem FINRA found was that Merrill Lynch failed to have an adequate supervisory system in place to detect whether the prices paid to retail customers on the MLC Notes were fair and consistent with prevailing market prices.

Citigroup Fined for ETF Prospectus Failures

December 15, 2014 | Malecki Law Team

Citigroup, Inc. has reportedly agreed to pay a $3 million fine for failing to properly deliver prospectuses to some customers. Specifically, according to the Financial Industry Regulatory Authority (FINRA), Citigroup failed to deliver prospectuses to customers who bought shares in one or more of 160 exchange traded funds (ETFs) in late 2010. It has also been said that Citi may have not delivered prospectuses related to more than 1.5 million ETF purchases between 2009 and early 2011. Citigroup was also fined by the New York Stock Exchange in 2007 for similar issues. FINRA, according to reports, said Citigroup failed to have proper procedures in place to supervise the process.

This is the second such snafu by a major American bank resulting in a fine this year. Just this past September, Morgan Stanley said that it would pay for the losses incurred by customers who purchased certain mutual funds, after the bank admitted that it failed to make prospectuses for those funds available on its website. In total, this is believed to have cost Morgan Stanley roughly $50 million.

Financial firms have significant duties to their customers – risk disclosure being one of the most important. Transparency, including risk disclosure, is critical to the efficient functioning of the markets. So, when major financial firms fail to fulfill their duties, meaningful fines should be imposed. Whether or not the fines in these instances are meaningful remains up for debate.

Are Some Customers Paying Too Much In Fees? The SEC Cracks Down on Linkbrokers

August 15, 2014 | Malecki Law Team

“Is my stockbroker charging me too much in commissions and fees?” This is a common question many investors frequently have. Unfortunately, all too often, the answer to this question is “Yes.”

In fact, just yesterday, the SEC announced that it had fined a New York based broker-dealer, Linkbrokers (an affiliate of London-based ICAP), $14 million for over-charging its customers in the form of markups (and markdowns), among other things.

Markups are the difference between the lower price a broker-dealer can buy an investment for and the higher price charged to a retail customer when they buy investments directly from the broker-dealer’s inventory, rather than on the open market. For example, if a broker-dealer were able to buy a stock at $10 per share and charge a retail customer $11 for that same share, the markup would be $1. Markups are common in the financial services industry, but to be acceptable, they must not be excessive and must be appropriately disclosed to the customer.

Are We Coming Up On A “Sweet Spot” for SEC Whistleblowers?

August 1, 2014 | Malecki Law Team

In only three years, the Dodd-Frank whistleblower program, which promises cash rewards for those whose tips lead to a successful investigation by the SEC, has yielded more than 6,500 tips according to a recent article in the Wall Street Journal. Though traditionally thought of as insiders, tipsters do not just come from only inside the companies targeted. Rather, whistleblowers are coming forward from all walks of life, including investors and retirees, in addition to insiders and the family of insiders according to the article.

The rate at which individuals are submitting tips also seems to be rising. As a firm that represents whistleblowers, Malecki Law has also seen a growth in calls from prospective whistleblowers seeking legal counsel to file a tip with the SEC. Just recently Jenice Malecki, Esq. was interviewed by Rob Lenihan of Thomson Reuters: “‘I can tell you that whistleblowers as potential clients have increased over the last year — substantially,’ Malecki said. ‘There’s definitely an increase, and everybody who is somehow involved in the securities industry either as a customer or otherwise feels like they have some information they could tip on.'”

Although some individuals may have initially been reluctant to come forward for fear of retaliation, a recent push to protect the rights of whistleblowers has helped to alleviate many of those concerns. Such a positive development coupled with the mechanisms in place that allows whistleblowers to report securities laws violations anonymously has allowed tipsters to come forward without unnecessary fear of retribution.

FINRA Files LPL Financial for Failures to Supervise Alternative Investments

March 27, 2014 | Malecki Law Team

LPL Financial LLC has been hit again for supervisory failures stemming from the recommendation of non-traded real estate investment trusts (REITs), as well as other illiquid investments, begging the question whether the fines are large enough to deter future bad conduct. According to a news release dated March 24, 2014, the Financial Industry Regulatory Authority (FINRA) announced that LPL Financial has been fined $950,000 for the firm’s failures in supervision over alternative investments, including non-traded REITs, oil and gas partnerships, business development companies, hedge funds, managed futures and other illiquid pass-through investments.

LPL Financial submitted a Letter of Acceptance, Waiver and Consent No. 2011027170901 (AWC), in which it admitted to “fail[ing] to have a reasonable supervisory system and procedures to identify and determine whether purchases of [alternative investments] caused a customer’s account to be unsuitably concentrated in Alternative Investments in contravention of LPL, prospectus or certain state suitability standards.” LPL also admitted in the AWC that though it had a computer system to assist and supervision, this computer system did not consistently identify alternative investments that fell outside of the firm’s suitability guidelines. Additionally, LPL stated that its written compliance and written supervisory procedures failed to achieve compliance with NASD Rule 2310 and state suitability standards.

NASD Rule 2310 has since been superseded by FINRA Rule 2111. The current rule establishes the industry standard that FINRA members and their employees must have a reasonable basis to believe their recommendations are suitable for their customers. The Rule further dictates that the firm must establish suitability for each customer by considering the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information, though this list is not exclusive.

Whistleblower Due To Receive $63+ Million Reward

March 21, 2014 | Malecki Law Team

Keith Edwards, a former J.P. Morgan employee is due to receive a nearly $64 million payment from the U.S. government for the tips he provided as a whistleblower. Mr. Edwards provided information that led to a payment by J.P. Morgan to the government in the amount of $614 million stemming from insurance on home loans.

Allegedly, J.P. Morgan had been falsifying certifications for Federal Housing Administration and Department of Veterans Affairs loans, going back as far as 2002. As a result, the agencies reportedly suffered substantial losses.

It was reported that the $614 million was paid by J.P. Morgan to settle the charges levied against it as a result of Mr. Edwards’ tips. In settling, J.P. Morgan reportedly admitted to approving thousands of FHA and hundreds of VA loans that did not pass normal underwriting requirements.

Jenice Malecki Of Malecki Law Heads To Washington To Meet With Congressmen And Senators About Investor Protection

March 13, 2014 | Malecki Law Team

Jenice Malecki of Malecki Law will be in Washington, D.C. tomorrow to meet with Congressmen and Senators along with others from the Public Investors Arbitration Bar Association (PIABA) to advocate for the Investor Choice Act and federal legislation to increase transparency and accountability from our financial regulators.

Ms. Malecki will be meeting with Rep. John Dingell (D-MI), Senator Kirsten Gillibrand (D-NY), Rep. Stephen Lynch (D-MA), Senator Charles Schumer (D-NY), and Rep. Blaine Luetkemeyer (R-MO).

The primary significance of the Investor Choice Act will be the elimination of pre-dispute arbitration agreements that are commonly used in broker-dealer and investment advisor contracts. These agreements force customers who sue their broker, advisor or firm to pursue their claims only in arbitration. By eliminating these agreements, customers who have a dispute with their advisor, broker, or firm will have the option of electing to sue in arbitration or go to court and have their case heard by a jury.

Berthel Fisher and PNC Fined In Connection With The Sale Of ETFs

February 25, 2014 | Malecki Law Team

Just yesterday, FINRA announced that it has fined Iowa-based broker-dealer Berthel Fisher $775,000 for failures to adequately train and supervise brokers selling alternative investments, such as real estate investment trusts (“REITs”), and non-traditional exchange traded funds (“ETFs”), including leveraged and inverse ETFs.

In addition to REITs and ETFs, Berthel brokers also reportedly sold managed futures, oil and gas investments, equipment leasing programs and business developments companies, all while having “inadequate supervisory systems and written procedures for sales” of these investments.

Firms are required to have sufficient supervisory systems and written procedures for the sale of such investments to help ensure that these potentially risky and illiquid investments are only sold to investors for whom they are suitable and appropriate. Oftentimes, these investments are not appropriate for your average investor.

All Eyes On The SEC After Recent Losses

February 21, 2014 | Malecki Law Team

In recent weeks, attention has turned to the Securities and Exchange Commission‘s declining success rate when going to trial against alleged wrongdoers. Publications such as the New York Times and Wall Street Journal have run multiple articles recently about this surprising decline. Per the Wall Street Journal, the SEC’s success rate has dropped to 55% since October, as opposed to the more than 75% success rate in the three consecutive years prior.

While the cases at the center of this decline were in the works well before Mary Jo White took the helm at the SEC, many are beginning to speculate how the Commission will react. Ms. White recently touted the then 80% success rate last year, citing it as a potential reason why attorneys counsel their clients to settle rather than face trial. However, this may be on the verge of changing. Emboldened by the newfound success of defendants in defending trials against the Commission, those who may find themselves in the SEC’s crosshairs may begin to opt to go to trial.

Recent cases, such as the insider-trading investigation and trial of billionaire Dallas Mavericks owner, Mark Cuban, have only intensified the public interest in the Commission and the work it does to investigate violations of the securities laws.