New York Securities Fraud Lawyers Blog

What is an 8210 Request and What Do I Do If I Get One?

April 29, 2015 | Malecki Law Team

Back in February, I wrote a piece on what to do when you get an SEC subpoena. SEC subpoenas are only part of the securities regulatory landscape. While the SEC can and will subpoena anyone – registered or unregistered – who is potentially the target of or may have helpful information related to an SEC investigation, FINRA registered representatives are additionally subject to FINRA inquiries via FINRA Rule 8210.

FINRA Rule 8210 allows FINRA investigators to essentially “subpoena” a person – i.e., require that they testify on the record and/or compel them to produce documents – without actually ever getting a subpoena. Instead, FINRA uses what is commonly (and not surprisingly) referred to as an “8210 Request.”

8210 Requests are similar to SEC subpoenas in their function, but differ slightly in practice. FINRA investigators will regularly tell parties that FINRA is not the government, but merely a private member organization. Why is that significant? Some may say that it’s significant because FINRA cannot actually “require” someone to come testify under a threat of contempt or jailtime; that your response is, in a way, “voluntary.”

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.

FINRA Fines H. Beck, Inc. for Insufficient Supervision

April 24, 2015 | Malecki Law Team

Just this past month, H. Beck, Inc. of Bethesda, Maryland submitted a Letter of Acceptance Waiver and Consent (“AWC”) to settle alleged FINRA Rule violations concerning the failures in the firm’s supervisory system and written supervisory procedures. H. Beck is said to have more than 800 registered representatives based out of over 460 registered branch offices.

Specifically, it was alleged in the AWC that the firm failed to maintain a supervisory system reasonably designed to ensure that customers received certain sales charge discounts. H.Beck was also alleged to have insufficient supervisory procedures governing the use of consolidated reports with customers, leading to inaccurate information being sent to customers.

According to the AWC, H. Beck failed to “identify and apply sales charge discounts to customers with eligible purchases of UITs.” A UIT, or uniform investment trust, is a type of investment company that offers undivided interests in a portfolio of securities. These interests are frequently called “units.”

FINRA Bars Wells Fargo Broker Aaron Parthemer for Outside Business Activities and Loans to Clients

April 24, 2015 | Malecki Law Team

Was this a case of a broker who did “too much” for his clients, Aaron Parthemer’s attorney claimed in an InvestmentNews news article dated April 23, 2015? One thing is sure: the Financial Industry Regulatory Authority (FINRA) has barred Aaron Parthemer from associating with any FINRA member broker-dealer in any capacity for violating industry rules by participating in private securities transactions, outside business activities, and for making loans to his clients, according to FINRA Letter of Acceptance, Waiver and Consent No. 2011030405801 (AWC). Each of these items alone could be sufficient for termination of a broker from their employing broker-dealer. The conduct detailed in the AWC spanned a time when Mr. Parthemer was employed and licensed to recommend the purchase and sale of securities by Morgan Stanley Smith Barney LLC from June 2009 through October 2011, and from October 2011 through March 2013 with Wells Fargo Advisors, LLC.

According to the InvestmentNews article, Mr. Parthemer was a Miami “socialite” who was a financial advisor to a number of NFL and NBA players and had his picture taken with such celebrities as Chris Brown and Nicki Minaj. According to the AWC, Mr. Parthemer was barred for a number of securities industry violations, including involvement in outside business activities in violation of FINRA Rules 3270 and 2010 and NASD Rule 3030. The AWC detailed that Mr. Parthemer worked as a President and Chief Executive Officer of a Miami nightclub (identified by the InvestmentNews article as “Club Play”) and also marketed an international tequila brand. Brokers are permitted to operate outside business activities if they are disclosed and approved by their employing broker-dealer. Disclosure and approval is required in order to ensure that inappropriate securities transactions do not occur outside the supervision of the broker-dealer.

Mr. Parthemer was also barred for providing approximately $400,000 in loans to certain securities customers, in violation of FINRA Rule 3240. Rule 3240 makes it clear that loans to or from clients are only permitted in certain limited circumstances where disclosure is made to the employing broker-dealer and such loan is approved. Supervision by broker-dealers is necessary, again to ensure that there are no violations of securities laws or industry rules occurring. The AWC noted that the loans made by Mr. Parthemer were never disclosed to Wells Fargo.

FINRA Censures EDI Financial, Inc. related to the Solicitation and Sale of Private Placements

April 23, 2015 | Malecki Law Team

EDI Financial, Inc. in Irving, Texas has been censured and fined $100,000 by the Financial Industry Regulatory Authority, according to a recent report issued by FINRA. According to the report, EDI Financial entered into a Letter of Acceptance Waiver and Consent (“AWC”) with FINRA consenting to the fine and censure along with the entry of findings that it failed to “adopt and implement supervisory systems and procedures necessary to achieve compliance with the firm’s suitability obligations.” According to FINRA, the failures of the firm’s supervisory system related to the solicitation and sale of private placements, specifically customer suitability.

Firms and their registered representatives have an obligation to ensure that all investments recommended to their customers are suitable (in other words, appropriate) for the customer. Firms have an obligation to consider things such as the customer’s risk tolerance, age, income, and investment objective, among others.

Notwithstanding this obligation, it was alleged that “despite the risk and illiquidity of private placements” EDI failed to have appropriate supervisory procedures in place with respect to the proportion of a customer’s assets that could be put in the private placement. This is known in the industry as “concentration.”

JP Morgan Securities LLC Financial Advisor and Broker Michael Oppenheim Charged with $20 Million Fraud by SEC

April 21, 2015 | Malecki Law Team

The Securities and Exchange Commission (SEC) announced on April 16, 2015 that it filed a complaint in the United States District Court for the Southern District of New York alleging that Michael J. Oppenheim defrauded former clients out of $20 million dollars. Mr. Oppenheim was previously employed and licensed to recommend the purchase and sale of securities by JP Morgan Securities LLC, according to his publicly available FINRA CRD Report.

According to the SEC’s announcement and complaint, Mr. Oppenheim used his position as a financial advisor to convince two former clients to withdraw approximately $12 million from their accounts and give the money to him upon false promises that the money would be invested in “safe and secure municipal bonds for their accounts.” However, the SEC complaint alleges that Mr. Oppenheim instead invested the ill-gotten money into either his own brokerage account or that of his wife, and subsequently lost the bulk of the funds in a risky options trading strategy.

The SEC complaint goes on to allege that after losing the investors’ money, he created fake account statements to make it look as though the money was not lost. He also allegedly transferred money between other investors’ accounts to replenish money he stole earlier. In total, the SEC complaint alleges that approximately $20 million was taken from Mr. Oppenheim’s clients’ accounts from March 2011 through October 2014, which, if true, would have been while he was licensed by JP Morgan Securities LLC to recommend securities transactions to public investors.

FINRA Fines H. Beck, Inc., LaSalle St. Securities, LLC, and J.P. Turner & Company, LLC for Failing to Supervise Consolidated Reports

April 17, 2015 | Malecki Law Team

The Financial Industry Regulatory Authority (FINRA) announced on March 30, 2015 that it fined H. Beck, Inc., LaSalle St. Securities, LLC, and J.P. Turner & Company, LLC for failing to supervise consolidated reports. These consolidated reports were provided to public customers, according to the announcement.

According to FINRA, “[a] consolidated report is a single document that combines information regarding most or all of a customer’s financial holdings, regardless of where those assets are held,” and does not replace monthly reports received from the firm.

In the announcement, FINRA cited to FINRA Regulatory Notice 10-19. A regulatory Notice is used by FINRA to remind its members of obligations required by FINRA Rules and securities laws. In Regulatory Notice 10-19, FINRA made clear that:

MetLife Broker Andre Paul Young Suspended By FINRA

April 16, 2015 | Malecki Law Team

A Letter of Acceptance Waiver and Consent was recently accepted by FINRA’s Department of Enforcement from Andre Paul Young. Mr. Young was accused of borrowing more than $200,000 from customers in violation of FINRA rules while a registered representative of MetLife Securities, Inc. Specifically, Mr. Young was accused of violating NASD Rule 2370, FINRA Rule 3240 and FINRA Rule 2010.

It was alleged that from June 2010 through June 2012, Mr. Young borrowed roughly $208,000 from two MetLife Securities customers for personal expenses, including those associated with the settlement of certain estate matters. Per the AWC, the customers issued five checks from their MetLife Securities brokerage account payable to a bank account number for an account owned by Mr. Young.

Per FINRA, this conduct was in violation of MetLife Securities policies and FINRA Rules. FINRA Rule 3240 (and formerly NASD Rule 2370) expressly prohibits brokers from borrowing funds from customers. In addition to those violations, Mr. Young allegedly failed to timely and completely respond to requests for documents and information in violation of FINRA Rule 8210.

Malecki Law Announces The Filing of A $10 Million FINRA Claim Against UBS On Behalf Of Two Former UBS Puerto Rico Brokers

April 15, 2015 | Malecki Law Team

Malecki Law announces the filing of a $10 million FINRA arbitration claim against UBS Financial Services, Inc. and UBS Financial Services Incorporated of Puerto Rico (collectively “UBS”) on behalf of former UBS Puerto Rico registered representatives, Jorge Bravo and Teresa Bravo (the “Bravos”).

In the Statement of Claim filed with FINRA, the Bravos allege that through its management (including Miguel Ferrer, Robert Mulholland and Carlos Verner Ubinas Taylor) UBS misled both its brokers and its customers about the UBS Puerto Rican closed-end funds. In their pleading, the Bravos accuse UBS of threatening, deceiving and coercing its brokers, including them.

Specifically, the Bravos allege that they were lured away from their prior firm by UBS under the false pretense that UBS could and would help them better serve their clients. UBS was allegedly engaged in a fraudulent course of conduct in material conflict with both its customers and its brokers, unbeknownst to the Bravos. Over the three years they were registered with UBS, the Bravos allege that they were repeatedly and fraudulently mistreated and misled by UBS for UBS’s own benefit, until being unceremoniously forced out by the firm.

FINRA Fines Oppenheimer & Co., Inc. $3.75 Million for Failing to Supervise Broker

April 14, 2015 | Malecki Law Team

The Financial Industry Regulatory Authority (FINRA) announced on March 26, 2015 that it fined Oppenheimer & Co., Inc. for failing to supervise Mark Hotton, a former broker who allegedly stole money from his clients accounts and excessively traded their accounts. FINRA had already barred Mr. Hotton from the securities industry in 2013.

According to FINRA’s announcement, Oppenheimer & Co., Inc. failed to supervise Mr. Hotton in many respects, including during his hire and during his employment, as well as failed to supervise the accounts he was trading. Oppenheimer & Co., Inc. failed to supervise Mr. Hotton during his hire by failing to consider 12 prior reportable events that occurred in Mr. Hotton’s past, including criminal events and seven customer complaints, according to FINRA.

FINRA also announced that Oppenheimer & Co., Inc. failed to supervise Mr. Hotton during his employment by failing to subject him to heightened supervision despite learning that his business partners had allegedly sued him for fraud resulting in several million dollars’ damages. Oppenheimer & Co., Inc. may have been required to subject Mr. Hotton to heightened supervision, a more expensive and time-consuming manner of supervision, because of the number of past customer complaints against him while employed at other firms or while at Oppenheimer & Co., Inc. To may matters worse, FINRA noted that Oppenheimer & Co., Inc. further failed to supervise Mr. Hotton by failing to investigate “red flags” in correspondences and wire requests that could have signaled potential violations of securities laws and industry rules. FINRA alleged that Mr. Hotton was wiring funds out of customers’ accounts to accounts he owned or controlled.