Securities Fraud & Unsuitable Investments

Malecki Law is Investigating Possible Claims Related to the Sale of Shares of Amarin

December 8, 2014 | Malecki Law Team

Malecki Law is investigating possible unsuitability claims against stock brokers and financial advisors who sold shares of Amarin to investors for whom the stock was not appropriate.

Amarin is a biopharmaceutical company based out of New Jersey. The company’s primary business involves the development and marketing of medicines used to treat cardiovascular disease. Amarin is best known as the company that developed the pharmaceutical drug Vascepa.

Over the past few years, Amarin has been reportedly seeking various FDA approvals for Vascepa. During the past four to five years, the shares of Amarin have shown great volatility. The shares have gone from roughly $1 per share in February of 2010 up to $19 per share in May of 2011 and back down to just more than $1 per share today. In October 2013, share prices went from more than $7 per share to just over $2 per share in less than two weeks. Again this past October, share prices dropped roughly 50% in only one month’s time.

Malecki Law is Investigating Possible Claims Against Craig Scott Capital

September 15, 2014 | Malecki Law Team

Malecki Law is investigating possible claims against Craig Scott Capital, based in Long Island, NY.

According to FINRA BrokerCheck, some customers of the firm have recently filed arbitrations related to the conduct of the firm’s brokers alleging “unsuitability, excessive trading and misrepresentation” against the firm. According to his CRD, the firm’s President and CEO, Craig Scott Taddonio, intends to vigorously defend himself in at least two arbitrations. Craig Scott Capital has also recently been the subject of a FINRA regulatory investigation resulting in the firm paying a fine.

Sources have reported that some brokers from Craig Scott Capital are alleged to be “cold-calling” investors with no prior relationship with the firm and soliciting sales of investments that may be unsuitable for the investor. These investments may include non-traded real estate investment trusts (“REITs”).

SEC Charges Robare Group with Fraud For Failing to Disclose Fee Arrangement with Broker-Dealer

September 12, 2014 | Malecki Law Team

How do you know your investment adviser is solely acting in your best interest? Sadly, even when it comes to picking mutual funds, your investment adviser may still only be thinking of himself or herself.

Take for example the allegations in a recent proceeding instituted by the SEC on September 2, 2014 against the Robare Group, Ltd. and two individual principals of the firm for failing to disclose a fee arrangement in which Robare was paid between 2 and 12 basis points on the client’s assets investments in no-transaction-fee (NTF) mutual funds on a broker’s platform, as reported by InvestmentNews. One basis point is equal to 1/100th of one 1%, so 10 basis points would equal .1%.

The SEC alleged that Robare earned close to $500,000 in fees over eight years, and failed to disclose the arrangement on the firm’s Form ADV. The SEC further alleged that in 2013, Robare managed approximately 350 separately managed discretionary accounts and had assets under management of approximately $150 million.

Oil and Gas Limited Partnerships Can Be Extremely Risky Investments

April 25, 2014 | Malecki Law Team

Much has been made in the recent months about supposed growth in the oil and gas markets, including speculation, such as the recent article on www.forbes.com that increasing demand will be preceded by increased investment in infrastructure that would bring the product to market.

Regardless of the potential growth as an investment, limited partnerships and business development corporations have historically been, and will likely continue to be, extremely risky investments that demand a careful suitability analysis and due diligence by financial professionals before they are recommended for public investors. In addition to the risks listed in the Forbes article, such as “acts of God and man” (environmental, terrorist, war, etc.), there are the risks that the investment never yields the promised gains, or that the investment itself is completely false, fictional and fraudulent.

Further, these investments also tend to be highly illiquid and require long holding periods. This fact alone can render an investment unsuitable for a particular investor, if they are at an age or place in their lives where access to cash is important, or if the investor actually told their financial professional that liquidity was important to them.

Biggest Recent FINRA Fines Point to Poor Supervision at Large Broker-Dealers

April 11, 2014 | Malecki Law Team

Apparently the opportunity for bad brokers to engage in wrongful conduct is enabled by big brokerage firms, as recent Financial Industry Regulatory Authority (FINRA) fines indicate that these businesses fail to properly supervise their foot soldiers. The FINRA Rules, including Rule 3010, make clear that broker-dealers are the securities gatekeepers, because they are ultimately responsible for supervision of their brokers. Not all brokers take advantage of their customers, but those who do will certainly feel emboldened to continue their schemes if they know they can print account statements listing fictitious investments, or make misrepresentations to clients over emails they know will never be supervised.

InvestmentNews recent reported regarding the largest recent fines handed out by FINRA. The fines, some mentioned in prior blog posts, point to continued poor supervision at large broker-dealers.

For instance, we recently commented regarding FINRA’s announcement on February 24, 2014 of a $775,000 fine for Berthel Fisher & Company Financial Services, Inc. and its subsidiary for failure to supervise brokers on recommendations and sales of alternative investments such as non-traded real estate investment trusts (REITs) and leveraged and inverse exchange-traded funds (ETFs).

Managed Futures Fund Fees: When Is Enough Enough?

April 4, 2014 | Malecki Law Team

When are money management fees too much? It is hard to imagine that any investor who has sought the guidance of professional financial advisors has not asked himself or herself this question at least once – most likely more. In the case of managed futures, the CFTC is asking that question for investors right now. Following an article in Bloomberg Magazine in the Fall of last year, 2013, the CFTC has launched a probe in to the fees charged by those who manage the more than $300 billion in the managed futures market.

According to the Bloomberg report, investors in 63 managed futures funds paid out 89% of the $11.51 billion in gains from managed futures investors in the form of fees, commissions and expenses from January 1, 2003 to December 31, 2012 – more than $10.2 billion.

Bloomberg quoted Mr. Bart Chilton, a member of the Commodity Futures Trading Commission as saying:

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.

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.

Bitcoin Appears Headed for Regulation

March 6, 2014 | Malecki Law Team

As the old adage goes, one good deed deserves another. And so it is for bitcoin, which the Wall Street Journal reported may receive regulatory oversight in the not-too-distant future. It seems that enough people complained about what appears to have been a hacker-theft that led to the bankruptcy filing by Mt. Gox, until recently one of the major bitcoin exchanges. While the Federal Reserve appear unwilling, the WSJ noted that the Federal Trade Commission recently stated their goal “is to protect consumers, whether they pay by credit card, check, by some sort of virtual currency.” Despite Mt. Gox’s bankruptcy filing, the market for bitcoin continues to be routed through exchanges that up until now have operated with minimal to no oversight and bitcoins continue to be used to purchase services and goods, and likely, as a basis for investment.

The nature of Mt. Gox’s collapse is noteworthy. As reported on Tech Crunch, over the course of approximately one month, a supposed software bug caused Mt. Gox to lose approximately $500 million worth of bitcoin, including 750,000 bitcoin owned by investors and 100,000 bitcoin owned by Mt. Gox itself. Realizing the theft, Mt. Gox ceased investor transfers and shut down at the end of February 2014 and applied for bankruptcy protection from creditors. The WSJ reported on March 5, 2014 that the shutdown may have been caused by Mt. Gox’s bank refusing to process wire transfers after its repeated requests that Mt. Gox close its account.

Mt. Gox’s predicament may be the most publicized, but it certainly is not alone. According to the WSJ article on March 3, 2014, a recent study found that of 40 bitcoin exchanges, 18 have closed in the past three years, generally causing customer accounts to be completely wiped out. The WSJ reported that fraud is sometimes the cause of such closures. In other related bitcoin news, it was reported by the New York Post on March 5, 2014 that Autumn Radke, the CEO of bitcoin exchange firm First Meta, as a result of what may have been suicide.

Credit Suisse Group AG Admits to Providing Brokerage and Investment Advisory Services Without Registering with the SEC

February 24, 2014 | Malecki Law Team

Money makes the world go ’round and apparently also makes Credit Suisse employees work faster or slower, as the case may be. The Wall Street Journal reported on Friday February 21, 2014 that Credit Suisse Group AG (Credit Suisse) agreed to pay $196 million to settle charges brought by the Securities and Exchange Commission that it provided brokerage and investment services to U.S. clients without registering with the SEC. According to the SEC’s Order, Credit Suisse willfully violated the Exchange Act and Investment Advisors Act by failing to register, in violation of Section 15 of the Securities Exchange Act of 1934 and Section 203 of the Investment Advisors Act of 1940. The SEC announced in a news release on Friday that Credit Suisse admitted to the violations.

In the Order, the SEC noted that Credit Suisse apparently knew the services its relationship managers were providing across borders to U.S. clients was improper, and set up a properly registered entity to transfer the U.S. business. However, the Order went on to detail that the transfers took far more time than was initially planned, partly because Credit Suisse did not properly incentivize its employees to timely transfer the accounts. This, in addition to other wrongful conduct led the Commission to conclude that Credit Suisse failed to implement its own policies and procedures to efficiently move the accounts. The Order and the WSJ article both noted that Credit Suisse has subsidiaries that are properly registered to provide both brokerage business and investment advisory business to U.S. clients. Until the bank completed its exit from its cross-border business, it continued to charge brokerage and advisory fees to the U.S. clients it served.

Registration by brokers, dealers and investment advisors with the SEC or state regulators is a bedrock principle of the securities laws and is designed to protect investors. Section 203 of the Investment Advisors Act regulates and requires registration of brokers, dealers and investment advisors, with limited exception. The SEC regularly fines individuals and entities such as Credit Suisse for failing to follow these laws.