Investors Topics

Malecki Law Founder Offers Insights on FINRA-Barred Brokers Continuing to Work in the Financial Services Industry

October 17, 2024 | Adam G. Schreck

Despite the weight that a FINRA Bar carries in the financial services industry, investigations show that barred financial professionals have had little trouble remaining employed in the financial services industry. Financial Advisor IQ, along with its sister publication Life Annuity Specialist, is conducting investigations into individuals barred by FINRA who continue to sell financial products, like insurance and annuities, to public investors under state-issued insurance licenses.

The publications have uncovered nearly 350 individuals who are barred by FINRA but maintain active insurance licenses in at least one state. These individuals often continue to sell financial products (other than insurance) to public investors well after they were barred from the industry by FINRA, but when pressed, merely disclose that they are selling “insurance.” If you have been defrauded by a FINRA Barred Broker, you should consult experienced Securities Arbitration Counsel, like the attorneys at Malecki Law in New York.

While insurance regulation varies state by state, some states treat a FINRA Bar as sufficient reason to revoke an individual’s state insurance license. However, other state regulators take a more laissez faire approach, requiring additional misconduct on the part of the barred individual before revoking their insurance license. The inconsistent approach amongst states leaves investors vulnerable to bad actors in the financial services industry.

Retirement in an Ever-Changing Financial Market: Reg BI and KYC Implications

August 7, 2024 | Malecki Law Team

The alarming stock market decline on Monday, August 5, 2024, is a stark reminder of how important it is to plan for your future by educating yourself on the steps you can take to protect your assets, and how your financial advisor should be handling your account. Financial advisors must abide by industry rules and standards. Specifically, investment advisers are bound by the SEC’s Investment Advisers Act, which requires them to act in a fiduciary capacity putting your interests ahead of theirs, and brokers are bound by FINRA rules, which require brokers to act in your best interest in making recommendations. If you suspect that your financial advisor did not properly keep your liquidity needs or best interest in mind, you should consult with a securities law expert, like the attorneys at Malecki Law in New York.

In a concerning turn of events, the Dow Jones Industrial Average declined over 2.5% on Monday, August 5, while the S&P 500 lost 3%, and the Nasdaq index lost 3.4%. This decline allegedly stems from volatile tech stocks, increased unemployment and interest rates.

However, more importantly, financial advisors should keep a close eye on not only financial markets, but current events and world news. There may very well be signs that point to market declines before they occur, and while customers never want to lose money, there are specific customers, like those approaching retirement or who are currently retired, that may have a completely different set of goals and time horizons. For example, retired customers may not want to invest in volatile stocks, or trade aggressively because they may not have time to wait out a recovery in the markets. The onus is on your financial advisor to ensure that your investment strategy is in-line with your best interest, including, but not limited to, your personal liquidity needs, time horizon, and risk tolerance. If your investment strategy does not match up with your needs, or if your financial advisor does not take a proactive approach, you may have a case and should meet with an investor protection attorney, like the lawyers at Malecki Law in New York.

Recognizing World Elder Abuse Awareness Day: Why You Should Stay Vigilant Regarding Trustees and Power of Attorneys

June 14, 2024 | Malecki Law Team

June 15 is recognized as World Elder Abuse Awareness Day. It was initiated by The International Network for the Prevention of Elder Abuse and is recognized by the United Nations. Elder abuse is defined as any act or neglect where there is an expectation of trust, which causes harm to an older person. Harm can be physical or mental, but it can also be financial, especially if there is a designated trustee or power of attorney, who takes advantage of the elderly. If you, or someone you know was, or may have been the subject of any type of financial elder abuse, you should consult with a knowledgeable securities fraud lawyer, like the lawyers at Malecki Law in New York.

Unfortunately, 60% of abusers are family members, and between 1-2 million people over the age of 65 were victims of elder abuse by someone they depended on for care. Aside from the tangible repercussions that affect the elderly and their families, it is also greatly immoral.

A power of attorney (POA) is a common, yet important legal instrument that designates a person to oversee someone’s personal and financial affairs by acting as their agent. POAs are common among elderly people, who become the principal of the POA, and must be of sound mind when executing the POA. It is a way to relieve the stress of handling their affairs by themselves, or to prepare for any future debilitating disorders, such as dementia. The agent is usually a person that the principal trusts to handle their affairs fairly, and with their best interest in mind. If you suspect that an elderly family member was not of sound mind when executing a POA, or if there was any foul play in handling your elderly family member’s financial affairs, you should speak with an investor protection attorney, like the lawyers at Malecki Law in New York.

After Nearly 4 Years of Regulation Best Interest, Broker-Dealer Efforts to Consider Reasonably Available Alternatives for their Retail Clients Remain Lacking

May 24, 2024 | Adam G. Schreck

Regulation Best Interest (Reg BI), which was instituted in June 2020, dramatically changed the relationship between broker-dealers and retail investors. Prior to Reg BI, broker-dealers owed a duty to investors to only recommend securities that the broker-dealer believed to be “suitable” for a particular investor based on such investor’s investment profile. Reg BI was implemented to replace the “suitability” standard and to impart on stockbrokers a duty owed to investors that was more analogous to the fiduciary duties owed to clients of financial advisors. Reg BI is made up of four core obligations, including a Disclosure Obligation, a Care Obligation, a Conflict of Interest Obligation, and a Compliance Obligation. If your stockbroker sold you investments that were not in your best interests or in line with your investment profile, you should contact a knowledgeable Securities Fraud Lawyer, like the lawyers at Malecki Law in New York, to determine whether you have a case.

Within Reg BI’s Care Obligation is a seemingly disregarded requirement on broker-dealers to consider “reasonably available alternatives” (RAAs) when making recommendations to retail customers. This requirement applies to recommendations of investments, account types, and even investment strategies made by a broker to their retail investor client. The RAA requirement is encompassed by a broker-dealer’s obligation to “have a reasonable basis to believe that the recommendation is in the best interest of a particular retail customer based on that retail customer’s investment profile and the risks, rewards, and costs associated with the recommendation…”

For a stockbroker to believe that a particular recommendation is in the best interest of an investor, logically the stockbroker must consider other available products that might be able to achieve the investor’s goals with less risk and/or costs. The SEC has described the RAA requirement as a “key component” in achieving compliance with Reg BI’s Care Obligation. If you have experienced investment losses from products recommended by your stockbroker and your broker failed to consider reasonably available alternatives, you should consult a Regulation Best Interest law firm, like Malecki Law in NYC.

E*Trade’s Platform Was Down While “Meme Stock” Leader “Roaring Kitty” Woke Up

May 13, 2024 | Jacqueline Candella

On May 13, 2024, E*Trade’s trading platform was down at market open, which caused its customers to be unable to sign in, halting their ability to buy or sell securities. Many retail investors took social media by storm about the event. If you were locked out of your online brokerage platform, you should consult an Investor Protection law firm in New York, like Malecki Law.

This may remind you of the GameStop short-squeeze and rise of Reddit investors during the wake of COVID, where a trading freeze ensued.

Keith Gill, who led the Reddit craze in 2021, also known as the “Roaring Kitty,” woke up from his social media nap and made his return by posting a picture on Sunday night of a man seemingly leaning forward in his video game chair, indicating the intent to become re-involved. Mr. Gill made a few other cryptic posts, one of which depicted a movie villain stating, “Fine, I’ll do it myself.”

AI, Oh My – SEC Announces First Ever “AI Washing” Enforcement Actions

May 9, 2024 | Adam G. Schreck

On March 18, 2024, the Securities and Exchange Commission (the SEC) announced that it had settled charges against two registered investment advisers (RIAs) related to false and misleading representations about each RIA’s alleged use of artificial intelligence (AI) in effecting financial services, conduct which the SEC coined as “AI Washing.” In total, the SEC collected $400,000 in civil penalties from the firms, with Delphia (USA) Inc. (Delphia) agreeing to pay $225,000 and Global Predictions Inc. (Global Predictions) agreeing to pay $175,000. As AI increasingly takes over the mainstream in the coming years, investors must remain attentive to the representations RIAs and broker-dealers make about utilizing AI in the financial services they offer to public investors.

Delphia is primarily in the business of offering robo-advisory services to retail investors. “Robo-advisors” are typically algorithm driven platforms that offer investors automated investment advice based on data provided to the platform by the investor with very little, if any, human interaction. In touting its robo-advisory services to the public, Delphia represented that investor data was actively utilized to “train” and “power” its proprietary algorithms that was capable of making investment predictions up to “two years into the future.” In reality, the SEC found that Delphia never successfully implemented its investor data-driven algorithms and misrepresented its AI capabilities to the public. Notably, Delphia was also investigated by the SEC for identical conduct in 2021. If you are being investigated by the SEC, you need skilled Regulatory Lawyers in New York, like Malecki Law, to get you through the investigation.

Global Predictions offers retail investors non-discretionary investment advice, namely portfolio allocation recommendations, through its proprietary investment application PortfolioPilot and the use of proprietary algorithms. Global Predictions represented to the public that it was the “first regulated AI financial advisor” and that it actively utilized AI capabilities in the services offered to investors. After its investigation, the SEC determined that Global Predictions made false and misleading representations on its Form ADV, press releases, website, social media accounts, and paid testimonials about the company’s AI capabilities which Global Predictions was unable to substantiate. The SEC also determined that Global Predictions violated the SEC’s Amended Marketing Rule and failed to implement policies and procedures related to achieve compliance with the same. If you have made investment decisions based on AI-related misrepresentations made to you by your investment adviser or stockbroker, you should consult an experienced, AI-Securities Fraud Attorney, like the ones at New York’s Malecki Law.

Can My Broker or Investment Advisor Sell Me Cryptocurrency?

November 8, 2023 | Jacqueline Candella

Can my broker or investment advisor sell me cryptocurrency (“crypto”)? Is it an investment? The answer is not so simple; no, they cannot sell it directly, but they may try to sell it to you indirectly through a fund or private placement. Rest assured, it is still just as volatile and not appropriate for most investors. Malecki Law is looking into the sale of crypto-based products, as they have been on the rise. Although investors might be intrigued and ecstatic to get into the new shiny investment on the street, it is still a high-risk bet, no matter what your investment professional may say.

Investing in something new can be enticing, but it does not necessarily mean that it is in your best interest as an investor. If you were sold crypto-based products and sustained substantial losses, you need a Crypto-Based Investment law firm in New York, like Malecki Law, to review your potential claim.

What is crypto? Digital assets are the umbrella which crypto falls under. There is a wider range of assets that land under the digital assets umbrella, such as non-fungible tokens (“NFTs”). The common denominator of the variety of digital assets is that they tend to use blockchain technology. Crypto consists of a broad range of virtual currencies, such as Bitcoin (BTC) or Ethereum (ETH).

What Does a Defective Securities Product Look Like? Example: GWG Holdings L Bond

May 3, 2023 | Malecki Law Team

Today, very few products use asbestos, an abundant and inexpensively produced heat-resistant mineral once common in a wide array of construction materials, auto parts, and firefighter equipment, to name a few. Its use was rampant until studies revealed that asbestos causes various forms of cancer—clearly a defective product, use of asbestos is now scarce and regulated by the government.

Defective securities products are no different. Brokerage firms often develop complex securities products that promise to beat the market but instead result in catastrophic financial losses to investors. If this sounds familiar to you, you need to contact a New York Defective Securities Law Firm, like Malecki Law. Touted as the next big thing since sliced bread, some defective securities are so complex that even the brokers who sell them do not understand how the product works. Some other such products are easier to understand, but their viability is misrepresented, or their attendant risks are downplayed. The GWG Holdings L Bond is of the latter kind.

A few years ago, GWG Holdings Inc. created what they called the L bond, a speculative, unrated, high-risk, and high-yield investment instrument. GWG issued the bond to raise funds to purchase life insurance policies from insureds with the intention to collect the policies’ payouts upon their deaths. Each L Bond was priced at $1,000 principal with a minimum buy-in of 25 units ($25,000) and offered to investors with varying maturity terms and corresponding interest rate incomes. Given the investment’s high risk and price tag, the L Bond was deemed suitable only for wealthy investors. Nevertheless, brokers fraudulently sold it to the elderly, retirees, and other relatively inexperienced people with conservative to moderate risk tolerances and limited resources. If your broker sold you high-risk investments and failed to disclose or explain their inherent risks, you should have an experienced Defective Securities Lawyer in New York, like the lawyers at Malecki Law, review your portfolio. Based on the foregoing, it is clear this story does not have a happy ending; but before getting there, a word on the L Bond’s defective nature is apropos.

Surely My Financial Advisor Has an Insurance Policy to Protect Me When Things Go Wrong, Right? Not So Fast…

February 10, 2023 | Adam G. Schreck

Although a handful of states have requirements in place, surprisingly few Registered Investment Advisors (RIAs) across the country carry liability insurance to protect clients from their own wrongdoing leaving investors as the only party left to bear the brunt of losses when things go sideways.

The professional liability insurance industry for Registered Investment Advisors (RIAs) has been described by one in the industry as, “the Wild West.” There is immense uncertainty as to the number of independent RIAs who carry professional liability insurance as well as extreme variability within the specifics of the policies offered to RIAs. While there are some states that require RIAs to carry insurance, most states do not have mandates in place, and the federal government has yet to draft any laws on the matter.

At the forefront of requiring RIAs to maintain insurance coverage are Oregon and Oklahoma. In 2018, Oregon became the first state to pass legislation requiring RIAs registered with the state to carry professional liability insurance. The Oregon law requires RIAs to carry at least $1 million in coverage and to show proof of such coverage during the state’s licensing process. Similarly, in 2020, Oklahoma passed legislation requiring RIAs registered with the state to carry professional liability and cybersecurity insurance. Curiously, the Oklahoma law fails to indicate how much insurance coverage is required for RIAs. If you are an investor in Oregon, Oklahoma, or any other state, who believes you have lost money due to your RIA’s wrongdoing, you should consult with a Securities Law Firm like Malecki Law.

Know Your Custodian – Uniform Transfers and Gifts to Minors Acts

January 18, 2023 | Malecki Law Team

The Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) allow adults to give or transfer assets to minor beneficiaries. The slight difference between the accounts is that the UGMA is limited to financial assets while the UTMA includes any tangible or intangible assets. These accounts allow children to safely invest and build up capital legally before they become adults. There are also tax benefits to these accounts as contributions are made with after-tax dollars. If you believe your brokerage firm failed to supervise your trust account or the advisor managing your trust, you need to consult a New York Failure to Supervise Trusts Law Firm like Malecki Law.

Each of these accounts have a custodian who acts in the child’s interest as a fiduciary. This means that the investments made and the way the money in the accounts is managed must be for the child’s benefit. When the minor reaches the age of majority, the custodian no longer has authority to make decisions on behalf of the beneficiary and the beneficiary continues to monitor the account on their own. Additionally, once the money is transferred to the beneficiary, it is permanently their property.

FINRA Rule 2090, the “Know your Customer” rule, requires firms “verify the authority of any person purporting to act on behalf of the customer. So, brokerage firms and their members are supposed to know the essential details about who is acting on behalf of the customer (i.e. the custodian). Did your brokerage firm fail to “know” your custodian? Did you suffer losses because of this? You should reach out to a New York Failure to Supervise Trusts Lawyer like the lawyers at Malecki Law for a free consultation. The member must not only know the customer at the beginning of their relationship (account opening) but throughout the whole of the relationship. In line with this “Know your Customer” rule, firms are supposed to have a supervisory system for their members, which makes sure brokers are in compliance with procedures. The problem is that many firms do not have supervisory procedures in place for UT/UGMAs. In turn, the brokers do not know their customers, resulting in custodians not being monitored.