Securities Fraud & Unsuitable Investments

Malecki Law Announces Investigation of Former LPL Financial Broker Charles Fackrell

May 8, 2015 | Malecki Law Team

On the heels of an announcement from the Financial Industry Regulatory Authority (FINRA) that LPL Financial LLC has been fined approximately $12 million as a result of lax supervision, FINRA barred former LPL broker Charles Fackrell as a result of him refusing to comply with FINRA’s request for information. Mr. Fackrell was employed by LPL Financial in North Carolina from 2010 through 2014, according to a review of publicly available records.

According to a Letter of Acceptance, Waiver and Consent No. 20140437052 (AWC), the results of a FINRA investigation into Mr. Fackrell’s activities while employed at LPL Financial allegedly uncovered securities rule violations for selling private securities offerings.

In the AWC, Mr. Fackrell consented to the finding that he violated FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade). Rule 2010 requires that all FINRA members shall observe high standards of commercial honor and just and equitable principles of trade.

FINRA Alleges Substantial Fraud Claims Against Avenir Financial Group

May 6, 2015 | Malecki Law Team

Senior-aged investors continue to dominate securities related news coming out of the Financial Industry Regulatory Authority (FINRA). Though Avenir Financial Group, a New York-based broker-dealer, has only been a FINRA member for three years, the regulator has alleged substantial fraud claims against the firm, the firm’s Chief Executive Officer and Chief Compliance Officer Michael Clemens and several registered representatives.

In a New Release dated April 27, 2015, FINRA alleged that Avenir and registered representative Karim Ibrahim (a/k/a Chris Allen) defrauded a 92 year old customer of the firm by selling equity interests in the firm based on misleading and fraudulent terms. FINRA alleged that Mr. Ibrahim was aware that the firm was financially struggling, yet offered 5% of the company for $250,000, a valuation that was materially misleading because other investors had previously been offered lower prices and there was no basis for the change in the prices. FINRA alleged that Mr. Clemens aided and abetted the fraud by instructing Mr. Ibrahim regarding the proposed sale to the senior-aged customer.

In the related FINRA Complaint, FINRA detailed that Avenir “inexplicably” increased the equity share offerings. For example, the Complaint stated that a one percent share increased from an initial offer of $2,600 to a third offering costing $50,000. During this time, Avenir was allegedly suspended from operating a securities business when its net capital decreased below regulatory thresholds, and the firm faced an approximate $200,000 margin call that would have closed the firm had it not been for the investor who purchased the third offering.

FINRA Files Complaint Against Lawrence LaBine

April 30, 2015 | Malecki Law Team

Unfortunately, the elderly and the inexperienced investors are oftentimes the ones who find themselves victimized by unscrupulous and predatory brokers. Foreign persons – from Europe, South America, and elsewhere – also appear to be increasingly victimized by such U.S.-based brokers as well.

On April 28, 2015 the Financial Industry Regulatory Authority Department of Enforcement filed a complaint against Mr. Lawrence LaBine. According to the Complaint, Mr. Labine is accused of having violated NASD Rules 2310 and 2110 and FINRA Rule 2010 in making unsuitable recommendations to customers, Section 17(a) of the Securities Act and FINRA Rule 2010 in making misrepresentations and omissions concerning Domin-8 and D8, and Section 10(b) of the Exchange Act, Rule 10b-5 thereunder and FINRA Rules 2020 and 2010 by making fraudulent misrepresentations and omissions concerning Domin-8 and D8.

The Complaint alleges that Mr. LaBine made the subject fraudulent misrepresentations and omissions to customers, as well as unsuitable investment recommendations to customers while registered with DeWaay Financial Network. Many of Mr. LaBine’s customers at DeWaay to whom he sold unsuitable investments were said to be elderly and/or inexperienced investors.

FINRA Orders RBC Capital Markets, LLC to Pay $1.4 Million for Failing to Supervise Unsuitable Sales of Reverse Convertible Securities

April 27, 2015 | Malecki Law Team

In what appears to be another example of broker-dealers continuing to ensure that the wrong speculative securities are sold to the wrong investors, the Financial Industry Regulatory Authority (FINRA) announced in a News Release on April 23, 2015 that RBC Capital Markets, LLC was fined approximately $1 million and ordered to pay restitution of approximately $400,000 for the firm’s failure to supervise the unsuitable sale of reverse convertible securities to public investors. According to FINRA Letter of Acceptance, Waiver and Consent No. 2010022918701 (AWC), a reverse convertible securities are “a complex structured product” that are interest-bearing notes in which principal repayment is linked to the performance of an underlying asset like a stock, a basket of stocks, or an index like the S&P 500.

In the News Release, FINRA’s Chief of Enforcement is quoted as stating: “[s]ecurities firms must ensure that their brokers understand the inherent risks associated with the complex products they are selling, and be able to determine if they are suitable for investors before recommending them to retail customers. When the firm establishes suitability guidelines, it must police the transactions to ensure they appropriately meet their own criteria.”

According to the AWC, RBC had faulty policies and procedures in place that did not appropriately supervise the recommendation of reverse convertibles to public investors. RBC’s failure to supervise the recommendation of reverse convertibles also occurred because the policies and procedures in place were not effectively enforced, according to the AWC. The AWC detailed that RBC failed to detect that more than a quarter of transactions in reverse convertibles “were unsuitable” and were inappropriately recommended to public investors with lower than necessary income, net assets, net worth and/or investment experience, or risk tolerances.

UBS Puerto Rico Held Meeting Telling Financial Advisors to Sell UBS Closed-End Bond Funds Despite Concerns

February 6, 2015 | Malecki Law Team

Reuters reported on February 6, 2015 that UBS in Puerto Rico held a meeting during which executives of the firm, including Miguel Ferrer, then the Chairman of UBS Financial Services Inc. of Puerto Rico, threatened financial advisors to sell UBS originated Puerto Rico closed-end bond funds despite the brokers’ and their customers’ growing concerns about “low liquidity, excessive leverage, oversupply and instability.” According to the Reuters article, Mr. Ferrer found “unacceptable” the view of UBS financial advisors who were wary of recommending UBS funds that were loaded with debt of the Puerto Rican government.

According to the Reuters article, in a recording made by an attendee of the meeting, Mr. Ferrer reprimanded the brokers to focus on the positive aspects of the products available or “get a new job,” continuing that it was “bullshit” for brokers to claim that there were no products to sell. Portions of the recorded meeting are available online in the Reuters article.

At the time of the recording, according to Reuters, many of UBS’s funds were highly concentrated in Puerto Rico’s debt at a time when there were concerns about the size of that debt and the weakness of the overall economy. This recording may be beneficial to both claimants and brokers who each have hundreds of millions of dollars in damages because their claims generally alleged that there was a lack of disclosure regarding the attendant risks of bond funds underwritten by UBS.

SEC Requests “Massive” Amount of Documents from Girard Securities Concerning Supervision of Registered Persons at Dispersed Branch Offices

January 29, 2015 | Malecki Law Team

InvestmentNews reported on January 29, 2015 that Girard Securities, Inc. is going to be audited by the Securities and Exchange Commission (SEC) and has requested what the Girard Securities Chairman and Chief Executive characterized as a massive request for data. As InvestmentNews reported, the request is not routine, and instead concerns supervision of registered persons who work at Girard Securities’ approximately 136 branch offices. Other firms have apparently received these data requests from the SEC as well.

According to the InvestmentNews article, Girard Securities agreed to be purchased by RCS Capital Corp., then run by Nicholas Schorsch. According to the article, the deal is nearing approval from the Financial Industry Regulatory Authority (FINRA). In December 2014, Mr. Schorsch resigned as chairman of American Capital Properties, Inc., then resigned as executive chairman of RCS Capital Corp.

Girard Securities recently accepted and consented to findings by FINRA that it did not have sufficient systems and procedures to guard against preventing third party fraudulent wire transfer activity. In the Letter of Acceptance, Waiver and Consent (AWC) No. 2012033033901, it was described that Girard had approximately 360 registered individuals in 136 branch offices. It also states that two clients who had recently gotten divorced had their email hacked.

NY Hedge Fund a Total Loss – Manager is “Truly Sorry”

January 23, 2015 | Malecki Law Team

Various news sources, including the New York Post, the Wall Street Journal and CNBC reported on January 22, 2015 that Owen Li, the manager of Canarsie Capital, published a letter to investors apologizing for the almost complete loss of money, stating he was “truly sorry.”

According to the Wall Street Journal, Canarsie, which was started at the beginning of 2013 and named for the Brooklyn neighborhood where Mr. Li grew up, had approximately $60 million at the beginning of this year, not including leverage. With borrowed money, the fund had approximately $98 million at the beginning of 2014, according to the Wall Street Journal.

According to the CNBC article, Mr. Li previously worked as a trader for Galleon Group, which collapsed amid allegations of insider trading, and the 2011 conviction and imprisonment of Raj Rajaratnam, Galleon’s founder.

White House Takes a Closer Look at Brokers Who Manage Retirement Accounts

January 23, 2015 | Malecki Law Team

A memo drafted by Jason Furman, one of President Obama’s top economic advisors, entitled “Draft Conflict of Interest Rule for Retirement Savings” was reportedly obtained by Bloomberg News.

The memo cites research that says investors may lose between $8 billion and $17 billion per year as a result of stockbroker/financial advisor practices, such as excessive trading commissions. That number, while astonishing, may even be an underestimate according to some people.

As a result, some on Capitol Hill are calling for stricter rules on Wall Street.

Investors in Diversified Lending Group May Be Able to Pursue FINRA Arbitration to Recover Losses After Class Certification Bid Was Rejected

January 20, 2015 | Malecki Law Team

Investors in Diversified Lending Group Inc., allegedly solicited by Tony Russon and other agents who worked under him at Russon Financial Services, may be able to sue Metropolitan Life Insurance Company in FINRA Arbitration after their California class action failed to obtain certification. In Los Angeles this past week, a California Superior Court judge in Cantor et al. v. MetLife Inc. et al. rejected the class certification bid from 212 investors whose claims were based on being the victims of an alleged Ponzi scheme said to involve fraudulent investments sold by agents of MetLife and subsidiary New England Life Insurance Co.

It has been alleged that MetLife and New England Life failed to properly supervise Mr. Russon and others while they were unlawfully convincing investors to place large sums of money with Diversified Lending Group Inc. According to reports, DLG was run by alleged Ponzi schemer, Bruce Friedman. Investors reportedly lost millions to the scheme, devastating themselves and their families.

However, all may not be lost for investors after the class failed certification. Investors may be able to pursue their claims in FINRA arbitration. Arbitration works similarly to court proceedings in many ways, and it is a forum in which victimized investors regularly recover losses resulting from Ponzi schemes and other fraudulent investments.

As Oil Prices Drop, Investors Lose Millions

January 6, 2015 | Malecki Law Team

As oil prices have continued to plummet and commuters across the country have regaled the resulting savings at the pump, investors in oil and gas related stocks, ETFs and master limited partnerships have been shocked by the crushing losses on their brokerage account statements.

With interest rates near all-time lows, some financial advisors with clients seeking income have strayed from the usual safe, reliable treasury bills, high-grade municipal bonds, and the like, instead recommending riskier investments in search of higher yield and more income. If such investment advisors recommended securities tied to the oil and gas sector, the last few months may have proven disastrous for their clients.

For example, financial advisors have been known to recommend “Master Limited Partnerships” (MLPs), which offer an investor the opportunity by into an oil/natural gas discovery, production and distribution enterprise. While MLPs offer typically higher rates of income than more traditional investments, investors are frequently not advised by their financial advisor of the significantly higher risks. Unfortunately, investors who were sold MLPs as safe, income producing investments, may only be learning of these previously hidden risks now that their investment has dropped significantly in value.