New York Securities Fraud Lawyers Blog

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EMPLOYEE RECOVERY $2M FOR A WHISTLEBLOWING TRADER

INVESTOR RECOVERY $7.2+M FOR PONZI SCHEME VICTIMS

INVESTOR RECOVERY $3.9M FOR TAX SHELTER FRAUD VICTIMS

BROKER PONZI SCHEME $7.4 MILLION

FAILURE TO SUPERVISE $4+ MILLION

BROKERAGE THEFT $3.8 MILLION

PONZI AT MAJOR FIRM $4+ MILLION

FAILED PRODUCT 28 EXPUNGEMENTS

WHISTLEBLOWER AWARD MAX 30% BOUNTY

NO ACTION INSIDER TRADING CASE

NO ACTION EMBEZZLEMENT CASE

NO ACTION MARKET MANIPULATION

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New York Securities Fraud Lawyers Blog

FINRA Censures And Fines Merrill Lynch For Financial Industry Rule Violations

February 23, 2015 | Malecki Law Team

The Financial Industry Regulatory Authority recently censured Merrill Lynch Pierce Fenner & Smith and fined the firm $100,000, sanctions to which the firm consented. These sanctions relate to Merrill Lynch’s alleged violation of several industry rules, including FINRA Rules 4370 and 2010. FINRA alleged that Merrill Lynch “failed to send required regulatory disclosures and notices in connection with the opening of approximately 12,989 [f]irm accounts” from early 2010 to early 2011.

This does not appear to be Merrill Lynch’s first such brush with the regulators over related violations. In 2012, Merrill Lynch was fined $2.8 million by FINRA amid allegations the firm overcharged customers more than $32 million due to an inadequate supervisory system in place at the firm. FINRA also specifically alleged that the Merrill Lynch failed to send necessary business continuity plans to more than 16,000 customers and failed to send required margin risk disclosure statements to nearly 7,000 customers over several years.

Margin can be a risky proposition for investors because it involves borrowing money from the firm for the purpose of “leveraging” positions in the account. While margin can boost profits in the portfolio, it can also magnify losses. For this reason, margin is typically unsuitable for most investors, especially those is with limited investment experience and those who cannot afford to incur significant losses.

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.

Expungement is Often One of the Only Tools Available to Brokers When Their Record is Tarnished by a Firm’s Proprietary Products Failure

February 5, 2015 | Malecki Law Team

In instances where a broker-dealer’s proprietary products fail, the brokers who are tasked with selling those failed products often suffer many customer complaints. In these situations, the brokers often are given faulty due diligence, research and information by the firm, and sometimes even forced to sell their employing firm’s product with their jobs threatened. Brokers have sued firms on these types of allegations, including former Morgan Keegan brokers. A similar situation occurred with the auction rate securities debacle that began in 2008. More recently, it appears due diligence failures and pressure may have been causes of problems for UBS brokers selling UBS Puerto Rico’s closed-end bond funds, leading to a substantial amount of customer complaints that have tarnished the reputations of many brokers in Puerto Rico.

Brokers with many customer complaints from failed products often have few options for cleaning up their professional record, which is publicly available through the Financial Industry Regulatory Authority’s (FINRA’s) CRD or Brokercheck system. One of the options involves expungement, where the broker initiates a claim against either the broker’s firm or customer requesting that a FINRA arbitration panel “expunge” or remove the customer’s complaint from the broker’s CRD record. A broker may also claim monetary damages, including damages for defamation for untrue statements that are made on a broker’s U-4 or U-5.

As mentioned in previous posts, once a firm’s product fails and the brokers get too many customer complaints, the employing firm may not want to keep them employed. It may be very difficult for brokers to obtain jobs elsewhere in the industry because once a broker gets 2 to 3 complaints, they required heightened supervision, something most broker-dealers avoid if possible.

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.

Broker-Dealers May Be Held Liable, If Found To Have Misled Brokers About a Product

January 26, 2015 | Malecki Law Team

Broker-dealers may be held liable to brokers who they threatened, misled, and/or lied to about the features and relative safety of an investment sold to their customers.

The stockbroker and broker-dealer relationship can be characterized as one of agent-principal, respectively. While many understand that an agent has a duty to his or her principal, frequently overlooked in this capacity is the duty of the principal to the agent.

In the securities world, it is known that a broker has certain and specific obligations to his firm both contractually and as agent. Yet many industry participants are unaware of the duties the firm can be said to have to its brokers beyond those bargained for in their employment contracts.

Brokers in Product Cases Can Be Victims Too

January 23, 2015 | Malecki Law Team

It is no secret on Wall Street today of what is happening in Puerto Rico in connection with the devastation of the UBS Puerto Rican Closed End Bond Funds. For many on the island and others in the 50 states, it is a whopper of a problem.

Any time there is a complete catastrophe with a product, such as there is in Puerto Rico, two sets of victims emerge.

The first is the investors who were likely misled and as a result have lost significant portions of their life savings.

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.

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.