New York Securities Fraud Lawyers Blog

With Market Events Like Evergrande, Retirees Should Know That They Can Recover Investment Losses from Their Brokerage Firm

September 21, 2021 | Malecki Law Team

Investors are still watching which way the market is ready to turn after yesterday’s 600-point drop in the Dow Jones Industrial average, the biggest one-day drop in over two months. While world markets appeared to be reacting to the prospect of loan defaults by the Evergrande Group – China’s second largest real estate company and the world’s largest property developer –retail investors, and retirees in particular, should keep in mind that this might be the beginning of something bigger. Given that U.S. equities remain at historic highs, portfolios still have a long way to fall. It is still unclear what ripple effect Evergrande will have even within China, as the Chinese government has yet to formally decide on whether it will bail out Evergrande or let it fail. But both scenarios are fueling fears of contagion within the U.S. and world markets. Some are calling this China’s “Lehman’s moment,” despite Evergrande’s debt only being about roughly half of the $600 billion in liabilities that Lehman had when it defaulted. There are rumblings, however, that Evergrande is the canary in the coal mine for China’s numerous other property companies, representing an outsized portion in driving China’s economy and GDP. The net effect on retail investors in the U.S., thus, depends to some degree on the level of Chinese investment and debt holdings by U.S. companies and financial institutions.

HSBC, BlackRock, and J.P. Morgan have been said to have significant exposure to the Chinese market generally, as do many individual U.S. companies, ranging from Wynn Resorts to Apple. As always, retail investors who are overconcentrated in any single company or market sector face the biggest risk. While the stock of many of these companies might seem relatively “safe” over the long term, not every investor can wait for the stock market to rebound. Seniors and retirees are a prime example, as this is a group regularly identified by U.S. regulators (e.g., FINRA and the SEC) as being vulnerable because they are typically saddled with higher expenses (e.g., medical and age-related expenses) at a time when they need liquidity and are no longer working or earning an income. For this reason, stockbrokers and financial advisors have a legal duty to retirees to recommend investments and an investment strategy that is suitable for this stage of life and the possibility that the stock market will not just continue to rise in perpetuity.

For retirees, overconcentration of an investment portfolio is often the culprit of an investment strategy or recommendation gone wrong. As we have written in this space before, brokers and financial advisors have long been required to have a reasonable basis for recommending an investment or strategy. And as of June 30, 2020, brokerage firms have had to comply with a new SEC rule, Regulation Best Interest (Reg BI), which further requires every recommendation to be in a customer’s best interests. Overconcentrating a retiree’s investment portfolio in largely equities (or worse, a single equity) is typically not in a retiree’s best interests and is what makes a portfolio most vulnerable to significant market events like Evergrande. Even though regulators do their best to raise the public’s awareness of this fact, retail enthusiasm during a bull market often drowns out the well-worn refrain to not put all your eggs in one basket. FINRA’s “Concentrate on Concentration Risk” publication is just one such warning.

Jenice L. Malecki Takes on Role as Adjunct Professor at New York Law School in its Securities Arbitration Seminar and Field Placement

September 17, 2021 | Malecki Law Team

A Cum Laude graduate alumni of New York Law School, Jenice L. Malecki, Esq., has taken on a mentor and adjunct professorial role as a professor in the Securities Arbitration Seminar and Field Placement. While at New York Law School, Professor Malecki was a member of the International Law Journal and a teaching assistant. She was part of a novel program at the time, when at Manhattanville College in Westchester, she was part of a BA/JD program, earning law school credits in undergraduate school. Now coming full circle and giving back, Professor Malecki has expended her previous role as a frequent guest lecturer and moot court judge for the Securities Arbitration Clinic at New York Law School, as well as other law schools including Fordham, Brooklyn Law School, Pace Law School, Yale Law School and Columbia Law School. Since founding New York Law School in 1999, Professor Malecki has regularly hired students from New York Law School as summer and school-year interns. Now, student receive an opportunity to work and receive academic credit while being mentored, supervised, and encouraged to develop a deep understanding of securities litigation and arbitration strategy.

The Securities and Arbitration Field Seminar teaches students how to interact with prospective clients, conduct client interviews, tackle legal analysis, draft pleadings as well as represent clients in arbitration proceedings before FINRA. The course involves both seminars and fieldwork experience. They engage in vigorous research, investigation and fact finding, as well as sit in on strategy discussions, write memoranda, briefs and pleadings, as well as assist in the review of discovery and case organization. Practical experience is invaluable to students, who can “hit the ground running” when they graduate with experience.

New York Law School was founded in 1891, and has a long history of educating young lawyers that work in the heart of New York City’s legal, government, and financial networks. An independent law school in Tribeca, New York City, New York Law School embraces the motto “We are New York’s Law School” through providing various methods for achieving a vibrant legal education. New York Law School was one of the first schools to offer a Juris Doctorate evening program, as well as built a 235,000 square foot campus in the heart of lower Manhattan near the state and Federal courts to offer opportunities to students in all walks and stages of life. Students are able to interact and work with mentor attorneys, securities arbitration attorneys experienced in the field. Experiential learning is a critical aspect of New York Law School and its teaching method, encouraging students to foster and perfect their legal analysis and skills early on.

Yes, It is Possible to Negotiate a Reduced Punishment with FINRA Enforcement

September 1, 2021 | Malecki Law Team

Being a financial professional – i.e., a registered representative (RR) – regulated by the Financial Industry Regulatory Authority (FINRA) is not easy. When misconduct is alleged against the RR in a complaint to FINRA, whether brought by a customer or the employing brokerage firm, the system that is set up to resolve such allegations and disputes generally treats the RR, at least initially, as “guilty until proven innocent.” Good luck finding a “neutral” fact-finder willing to listen; instead, you will often find an ambitious FINRA staffer, looking for another notch in his or her belt to help their stats and upward mobility. If and when FINRA decides to bring charges against the RR, it helps to have an attorney who can negotiate a reduced punishment against the RR.

To protect investors and market participants, RRs must abide by the securities laws and FINRA’s rules of conduct. But even when a financial professional follows those rules, every RR knows that they remain at the mercy of both customers and their firms, who, with little effort, whether fairly or unfairly, can very easily file a public complaint to put other customers or firms on notice about the RR.

If a customer files a complaint or arbitration against the RR, the complaint is reported to and logged on the RR’s public record of disclosure within the Central Registration Depository (CRD). Any person with Internet access can then view the pending allegations against the RR by visiting BrokerCheck.FINRA.org, where those allegations can additionally surface with a Google search.

Investor Represented by Malecki Law Receives Maximum Whistleblower Award from SEC

July 27, 2021 | Malecki Law Team

Yesterday, the Securities and Exchange Commission (SEC) granted a whistleblower represented by Malecki Law the maximum-allowable award of 30% of whatever the agency recovers in connection with its 2018 action and investment fraud charges against Sandy J. Masselli Jr., Carlyle Gaming & Entertainment Ltd., and other associated entities. The alleged perpetrators from New Jersey were charged with securities fraud and the misappropriation of over $3 million in retail investor funds, alleged to have pocketed the money from selling unregistered securities and falsely telling investors that the investment was destined for an imminent and lucrative IPO.

The SEC provides significant financial incentive for whistleblowers to come forward regarding securities law violations. The SEC introduced its whistleblower program in 2012, and recently surpassed over $1 billion in awards granted to over 200 different whistleblowers; the largest SEC award on record is $83 million. Depending on the timeliness and credibility of the tip, the SEC’s whistleblower program is authorized by Congress, through the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to grant awards that range between 10% to 30% of any recovery that the agency’s enforcement division makes of $1 million or more. The recovered funds come from the assets recovered and sanctions money paid by persons or entities who are found to be in violation of the federal securities laws.

Although it can be lucrative, most whistleblowers come forward to report securities violations for moral reasons or because they are victims themselves. And the reality is that filing a successful claim, where the whistleblower is granted an award, is extremely rare. In 2020 alone, the SEC received almost 7,000 claims, yet it has only awarded barely 200 awards in nearly a decade since the program began. So while the whistleblower application form is fairly simple, it is often necessary to additionally provide the SEC with supplementary briefs with complete and properly redacted evidentiary exhibits, containing concrete and original information that is presented in a manner that gets the SEC’s attention.

Is it Possible to Recover Stock Market Investment Losses? For Retirees Misled by a Broker, the Answer is Yes.

July 15, 2021 | Malecki Law Team

While the stock market and S&P 500 continue to hit all time highs, many investors still have the 2008 market collapse fresh in their memories and know that this historic bull run could, and likely will, come to an end. There are many signs that the market is overheated, leading some to have speculated that a correction is inevitable, if not imminent. One of many lessons from prior market collapses is that the investment portfolios most at risk are those which are not properly diversified and may be overly concentrated in either one security or one particular sector of the market. For retirees, in particular, it is possible to sue and recover such investment losses when following the advice of a licensed financial advisor.

The cratering of an investment portfolio can come as a shock to most investors, particularly retirees who have increased medical and age-related expenses, and are thus unable to afford a long wait until the market bounces back. In some instances, legal action may be necessary to recover the lost funds. While there is less legal recourse for investors who choose their own investments through a self-directed brokerage platform, the opposite is true for investors who still rely on licensed stockbrokers for financial advice. Both financial advisors and their brokerage firms can be held liable for recommending investment decisions that are poorly suited to the investor’s needs.

The brokerage industry is regulated by the Financial Industry Regulatory Authority (FINRA), which, until recently, has long imposed FINRA Rule 2111, known as the “Suitability Rule” on all licensed stockbrokers and the brokerage firms that employ them. Under Rule 2111, brokers were required to have a reasonable basis for recommending a transaction that reasonably considers a broad range of factors, which “includes, but is not limited to, 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 the customer may disclose to the member or associated person in connection with such recommendation.”

SEC’s Amended Definition of Accredited Investor Creates More Opportunity, More Risk

May 25, 2021 | Malecki Law Team

In August 2020, the Securities and Exchange Commission (SEC) adopted amendments to expand the definition of an “accredited investor.” Adding these new expansive conditions as to who may qualify as an accredited investor will allow more investors to participate in private investment offerings, creating both more opportunity and more risk. The goal of the SEC with this expansion was to both simplify and amplify investor opportunities, investor protections, and capital formation.

Traditionally, an accredited investor can be a business or individual that is qualified to trade unregistered, privately traded securities (i.e., not traded on a public stock exchange) by fulfilling specified minimum requirements such as net worth, income, assets, and trading experience or authority. Typically, issuers of unregistered securities are limited to sell only to accredited investors because they are considered more able to handle the associated risks. While every investment has risk, non-public investments carry additional risk of having low liquidity, meaning it can be incredibly difficult to find a buyer if the investment goes south.

Accredited investors are important players in the securities industry because they provide liquidity and funds to new and unregistered investments in need of capital. Historically, an accredited investor can be a bank, a private business, an organization, a director, or any individual who typically has a separate or combined net worth of $1 million dollars.

Malecki Law Investigating Multi-Million Dollar Ponzi Scheme That Preyed on Guyanese Community and Churchgoers

February 1, 2021 | Malecki Law Team

Malecki Law is currently investigating allegations regarding a Ponzi scheme targeted by several regulators, including the Commodity Futures Trading Commission (CFTC), which filed a civil enforcement action against Avinash Singh and nine others, including Daniel Cologero and Randy Rosseau, who reside in Florida, and Hemraj Singh, from New Jersey, concerning allegations of an almost $5 million-dollar multi-level Ponzi scheme. We are specifically interested in speaking to any affected investors in Highrise Advantage, LLC or other related investments discussed below. Upon information and belief, Mr. Singh may have been working closely with Equity Trust Company and one or more of its representatives, including Anthony (“Tony”) Sopko, who may have been helping to bring new investors into the scheme.

Mr. Singh is accused of misappropriating funds fraudulently solicited by him and his co-defendants. They allegedly used their network of contacts to prey on those within their communities. One individual charged, Surujpaul Sahdeo, was a priest who may have used his company, SR&B Enterprises, to prey on the Guyanese community and community church-goers, allegedly using their donations to fund the Ponzi scheme through Mr. Singh, who is alleged to have been a main point of contact for recruiting many investors. It is alleged that all of the funds were funneled through commodity pools set up to funnel the fraudulently solicited funds– Highrise Advantage, LLC., Green Knight Investments, LLC, Bull Run Advantage, LLC, and King Royalty, LLC.

Firms like Equity Trust Company have supervisory duties that require them to monitor both the internal and external business activities of their employees like Mr. Sopko. This is significant because Ponzi victims often do not know who to turn to, as Ponzi funds are often spent and heavily depleted by the time a Ponzi scheme falls apart and is discovered. Nevertheless, Malecki Law has decades of experience in successfully recovering millions of dollars from financial firms, such as those Malecki Law sued and successfully recovered from in Ponzi schemes perpetrated by Hector May and Robert Van Zandt.

SEC Action and Criminal Charges Brought Against Michael Barry Carter of Morgan Stanley

August 2, 2020 | Malecki Law Team

On July 20, 2020, the Securities and Exchange Commission brought investment advisor and former registered representative Michael “Barry” Carter up on multiple federal charges relating to the alleged misappropriation of over $6 million in funds. Mr. Carter allegedly stole this money from his brokerage customers, including nearly $1 million from one elderly client, defrauding them in the process in an effort to remain undetected. His alleged fraudulent acts occurred between the fall of 2007 and spring of 2019 while working at Morgan Stanley, with over 40% of the misappropriation occurring in the last five years, all to sustain his extravagant lifestyle.

Mr. Carter was reportedly fired from Morgan Stanley in the summer of 2019 for misappropriation of funds. Later that fall, FINRA launched an investigation into his alleged crimes and he was then barred by FINRA for refusing to turn over documents relating to the alleged misappropriations.

Additionally, the state of Maryland reportedly brought criminal charges against Mr. Carter, to which he has already pled guilty to the investment advisory fraud charges and wire fraud; as part of his plea agreement he will, according to prosecutors, be required to pay back about $4.3 million, the total net proceeds of his illegal activities.

What To Expect When You File a FINRA Arbitration Claim

July 9, 2020 | Malecki Law Team

Filing a claim for most investors is a walk over a new bridge and involves doing something they have never done before: filing a “lawsuit.” Most people never wanted to have anything to do with the law, but if you lost your life savings, you really do not have much of a choice but to fight to get it back. The stress you may feel engaging in this process can be mitigated by understanding what lies ahead to prepare yourself mentally, emotionally and physically – by getting your evidence lined up. Outlined below is the process of filing a claim in arbitration through the final days of trial, which will hopefully bring ease to questions you may have regarding investor arbitrations.

In today’s world, many people invest their money as a way to increase their income. Some choose to invest on their own, while others use brokers and investment advisors. As with any job, unfortunately in these professions, bad apples do exist. Where wrongdoers exist, they cause harm to their clients and to their clients’ investment accounts. If this happens, clients can sue their broker by filing an arbitration claim within the dispute resolution forum of the Financial Industry Regulatory Authority (FINRA) – the only forum for retail investors to sue brokers and brokerage firms. The initial claim papers filed details the party or parties that have wronged you, specifies the relevant facts of the events leading up to and causing the harm in your investment account(s), and lists the remedies requested. When deciding on whether to file an arbitration claim with FINRA, Malecki Law’s FINRA arbitration attorneys can help discuss the merits of your claims and frame them in what is known as a “Statement of Claim,” like a complaint pleading in court.

Once a Statement of Claim arbitration has been filed with FINRA, the party or parties you are suing, also known as the “respondent(s),” have 45 days to file a response, which is called the “Statement of Answer.” The Answer will typically include relevant facts, supporting documents, and defenses from the perspective of the broker or firm you are suing. One can anticipate that in the Answer the respondent(s) will try to discredit your claims. Malecki Law is skilled and very familiar with debunking these typical defenses, as well responding to any creative new tricks. After reading the Answer, you have the opportunity to amend your Statement of Claim if you feel something should be changed from your originally filed claim.

Can FINRA Arbitration Claims Be Brought Against a Bank and Its Employees?

June 29, 2020 | Malecki Law Team

Many clients are asking whether FINRA arbitration claims can be brought against a bank and/or its employees for losses sustained in their investment accounts. The answer is yes. There are more than 5,000 commercial banks in the United States. Along with traditional banking services, many of these banks also provide in house “financial advisors.” In order to charge their customers more, these bank branch financial advisors encourage bank customers to invest their savings with them. Now more than ever, bank customers are being pressured into using these services, and their life savings are being invested rather than saved. This can lead to losses in customer accounts, where customers would have been better off keeping their funds in a savings account. Malecki Law’s FINRA arbitration attorneys have handled many cases involving claims where customers lost money investing with a commercial bank financial advisor.

Up until Congress repealed the Glass Steagall act in 1999, commercial banks, banks that take in cash deposits and make loans, could not offer investment services. The Glass Steagall Act separated commercial banks and investments banks and prohibited commercial banks from providing any investment service to its customers. Once the act was repealed, in order to make greater profit, banks took advantage and began offering these services. Although banks often incentivize their customers to use these services, such as offering lower fees or free checking, the bank’s investment services, however, are not free.

Investing funds with a bank is no safer than investing funds through an online or traditional brokerage firm. Customers ordinarily use banks for savings, checking, CDs, and, sometimes, securing a mortgage or other type of loan. These types of accounts are a bank’s specialty and are FDIC insured, meaning that these are vehicles designed to prevent the loss of money in customer accounts. Contrarily, investments are not a bank’s specialty and investing with a bank’s financial advisor, similar to making an investment in an online or traditional brokerage account, comes with risk, often incurring higher fees than an online or traditional brokerage account. Moreover, not only do the investment products offered at banks charge higher fees, but the quality and diversity of investment products is limited, which increases risk to the customer’s investments.