investments

Surely My Financial Advisor Has an Insurance Policy to Protect Me When Things Go Wrong, Right? Not So Fast…

February 10, 2023 | Adam G. Schreck

Although a handful of states have requirements in place, surprisingly few Registered Investment Advisors (RIAs) across the country carry liability insurance to protect clients from their own wrongdoing leaving investors as the only party left to bear the brunt of losses when things go sideways.

The professional liability insurance industry for Registered Investment Advisors (RIAs) has been described by one in the industry as, “the Wild West.” There is immense uncertainty as to the number of independent RIAs who carry professional liability insurance as well as extreme variability within the specifics of the policies offered to RIAs. While there are some states that require RIAs to carry insurance, most states do not have mandates in place, and the federal government has yet to draft any laws on the matter.

At the forefront of requiring RIAs to maintain insurance coverage are Oregon and Oklahoma. In 2018, Oregon became the first state to pass legislation requiring RIAs registered with the state to carry professional liability insurance. The Oregon law requires RIAs to carry at least $1 million in coverage and to show proof of such coverage during the state’s licensing process. Similarly, in 2020, Oklahoma passed legislation requiring RIAs registered with the state to carry professional liability and cybersecurity insurance. Curiously, the Oklahoma law fails to indicate how much insurance coverage is required for RIAs. If you are an investor in Oregon, Oklahoma, or any other state, who believes you have lost money due to your RIA’s wrongdoing, you should consult with a Securities Law Firm like Malecki Law.

I Received a Subpoena from the SEC – What Will I have to Produce?

February 7, 2017 | Malecki Law Team

You just received a Subpoena from the Securities and Exchange Commission (SEC). What will you have to produce? We regularly represent securities industry professionals and investors who have gotten these Subpoenas, and the reaction is usually the same: people are nervous and concerned. How will this affect your business, and how what will it take the comply?

Getting an SEC Subpoena is a serious matter, and it is imperative that you carefully comply in a timely manner. Subpoenas will typically require you to produce documents or testify, or both. Your goal should always to limit your involvement with the federal authorities, and this begins with your production of documents in response to the Subpoena.

The first step is to remember that just because you received a Subpoena does not mean you automatically did something wrong. You may not be the SEC’s target, but may be someone the Commission believes has information related to another person or business. The SEC is not obligated to tell you whether they view you as a target or a witness, and you should not assume you are a target.

Windsor Street Capital and AML Officer Charged By SEC

February 2, 2017 | Malecki Law Team

Windsor Street Capital (formerly known as Meyers Associates) and its anti-money laundering (AML) officer, John D. Telfer, have been charged with securities violations by SEC, according to a recent report. Windsor allegedly failed to report at least $24.8 million in questionable penny stock sales. The violations cited by the SEC relate to the unregistered sale of hundreds of millions with insufficient due diligence, per InvestmentNews.

The suspicious transactions allegedly date back to June 2013 and resulted in nearly $500,000 in commissions and fees for Windsor, according to the SEC. InvestmentNews reports that Mr. Telfer has been charged with aiding and abetting by virtue of his alleged failure to properly monitor the transactions at issue.

Jenice Malecki Will Be A Panelist At An Upcoming Unique National Investor Town Hall Meeting

October 25, 2016 | Jenice L. Malecki, Esq.

Alliance for Investor Education and the PIABA Foundation is Hosting an Educational Conference about Securing Investors’ Financial Futures

The National Investor Town Hall Meeting is a day-long series of presentations, free to the public, aimed at educating investors about the risks and rewards of financial investing. It will be held on October 29, 2016 at the Rancho Bernado Inn in San Diego, California. Many respected industry professionals, including Ms. Malecki and federal and state regulators will participate in four sessions to help attendees understand risk tolerance, choose financial advisors and avoid becoming victims of financial fraud.

“Financial fraud costs Americans approximately $50 billion each year. It has been my mission for over a decade to educate and empower investors, lending them a voice and holding big entities accountable for violating their fiduciary and ethical duties,” said Jenice Malecki, the founder of Malecki Law. She further adds, “I am excited to be part of this much needed grass-root investor education drive.”

The SEC Has Brought Charges Against Two Executives for Accounting Fraud in Nicholas Schorch’s flagship REIT Company

September 15, 2016 | Malecki Law Team

According to published materials, two years ago the SEC started investigating, American Realty Capital Properties Inc (ARCP) and its executives, for allegedly overstating financial results and deliberate concealment of financial mistakes, which rattled the REIT brokerage empire built by Nicholas Schorsch. After investigations, the SEC reported that it recently brought charges against Brian S. Block and Lisa P. McAlister, the former chief financial and chief accounting officers of American Realty Capital Properties Inc.

The FBI announced Block’s arrest at his home in Pennsylvania on charges of securities fraud and conspiracy. In June, McAlister reportedly pled guilty to four securities fraud and false filing counts. According to the charges brought by the SEC, they are alleged to have intentionally inflated a key metric to make sure that the REIT met analysts’ estimates for the first two quarters of 2014. As per AdvisorHub, Block’s attorney was quoted saying “[t]here is little precedent for the notion that criminal charges are appropriate when accountants make decisions involving these sorts of accounting principles [non-GAAP principles applicable only to REITs].”

After ARCP, with apparent market capitalization of $11.5 billion, publicly disclosed its intentional errors and result inflation in 2014, Schorsch controlled REITs and holding companies lost billions of dollars and ten broker dealers filed for Chapter 11 bankruptcy.

FINRA Fines UBS Financial Services, Inc. $250,000 For Mutual Fund Supervisory Failures

August 18, 2016 | Malecki Law Team

Generally speaking, it’s usually not a good thing when when a company is fined for similar conduct multiple times.

Just this month, UBS Financial Services, Inc. submitted a Letter of Acceptance, Waiver and Consent No. 2013038351701 (AWC) that detailed a $250,000 fine for failures in supervision regarding sales of mutual fund shares to investors. According to the AWC, for a four year period, from approximately 2009 to 2013, UBS failed to provide sales charge waivers to customers entitled to waivers through rights of reimbursement. The AWC detailed that this conduct created a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade).

Mutual fund class A shares generally require the investor to pay an upfront sales charge, except where the mutual fund waives the charge, such as when the mutual fund is purchased with a right of reimbursement. The AWC detailed that investors sometimes purchase class A shares with right of reimbursement when they reinvest proceeds from earlier redemptions of Class A shares in the same fund or fund family within a specific time period.

BROKER REPORT: Financial Advisor Michael A. Margiotta

August 3, 2016 | Malecki Law Team

The securities fraud attorneys at Malecki Law are interested in hearing from investors who have complaints against stockbroker Michael Margiotta. Mr. Margiotta has been employed and registered since June 2015 with Merrill Lynch, Pierce, Fenner & Smith, Inc., a broker-dealer, according to his publicly available BrokerCheck, as maintained by the Financial Industry Regulatory Authority (FINRA).

Per his BrokerCheck report, prior to his employment Merrill Lynch, Mr. Margiotta was employed by UBS Financial Services Inc. from October 2008 to June 2015, and with Citigroup Global Markets Inc. from December 2003 to November 2008, as well as other prior firms.

Mr. Margiotta’s BrokerCheck report indicates that he has received two customer complaints. The first complaint received by Mr. Margiotta involved allegations that he purchased securities that were unsuitable for the investor and sought damages of $1 million, according to the BrokerCheck report. That complaint resulted in a settlement to the investor of $355,000 to the investor the BrokerCheck report details. The second complaint received by Mr. Margiotta alleged unsuitability and that the broker informed the client “oil had bottomed out for sure prompting [the investor] to purchase securities which plummeted,” according to BrokerCheck records.

Broker Report: Steven Syslo

July 26, 2016 | Malecki Law Team

The attorneys at Malecki Law are interested in hearing from customers of Steven Syslo who were recommended investments in SandRidge Energy, Inc. as a safe investment, or suitable for conservative investors. Mr. Syslo was employed by Morgan Stanley from June 2009 to June 2016, according to his publicly available BrokerCheck report maintained by the Financial Industry Regulatory Authority (FINRA). As disclosed in his BrokerCheck report, Mr. Syslo is currently employed by UBS Financial Services, Inc.

In July 2011, SandRidge Energy, Inc. traded at around $12 per share. The company announced that it was filing for bankruptcy protection on May 16, 2016, as reported by the Wall Street Journal. According to the article, SandRidge Energy is an Oklahoma City-based driller, and is the latest oil and gas company to file for bankruptcy in 2016. Now, the company’s stock trades for pennies, and it is the company’s stockholders, including individual investors, who may be feeling the effects of substantial losses in their portfolios.

Broker-dealer firms such as Morgan Stanley are obligated by the securities laws and industry rules to ensure that recommended investments are suitable for each investor. Brokers must consider each investor’s age, tax status, net worth, investment experience and risk tolerance, among other factors. Investments in commodities such as oil and gas companies are generally considered to be risky investments. If investors were seeking conservative, stable investments, but were recommended oil and gas stocks or limited partnership interests, they may have claims for damages for unsuitable investments.

BROKER REPORT: Former Pruco Securities Financial Advisor Winston Wade Turner Barred from Associating with any FINRA Member

July 14, 2016 | Malecki Law Team

The securities fraud attorneys at Malecki Law are interested in hearing from investors who have complaints against former stockbroker Winston Wade Turner. Mr. Turner had been employed and registered with Pruco Securities, LLC, a broker-dealer, from July 2013 to August 2015, according to his publicly available BrokerCheck, as maintained by the Financial Industry Regulatory Authority (FINRA).

Per his BrokerCheck report, Mr. Turner was previously employed by MetLife Securities Inc. from December 2011 to July 2013. Mr. Turner was discharged on August 3, 2015 for making an unsuitable variable annuity recommendation, providing inaccurate information to the company regarding the transaction, and for making payments to a client dissatisfied with the performance of their annuity, according to BrokerCheck records.

Mr. Turner was subsequently barred from associating with any FINRA securities firm according to a Default Decision entered in the FINRA Office of Hearing Officers on July 8, 2016, in Disciplinary Proceeding No. 2013038398401. According to the Decision Mr. Turner violated: (i) FINRA Rules 4511 and 2010 by providing false information and engaging in deceptive acts in connection with recommendations of variable annuities; (ii) Section 10(b) of the Exchange Act, Rule 10b-5 and FINRA Rules 2020 and 2010 by fraudulently misrepresenting and omitting material facts to his customers; and (iii) FINRA Rules 8210 and 2010 by failing to provide testimony and information in FINRA’s proceeding.

Product Spotlight: AR GLOBAL REITs

July 13, 2016 | Malecki Law Team

Malecki Law’s team of investment attorneys are interested in speaking with those who invested in AR Global REITs. Industry analysts and consultants believe that investors in a number of AR Global-sponsored real estate investment trusts (REITs) are in danger of having their distributions cut, per InvestmentNews.

Specifically, investors in American Realty Capital Global Trust II, American Realty Capital New York City REIT, American Finance Trust, American Realty Capital Hospitality Trust, American Realty Capital Retail Centers of America, Healthcare Trust, and Realty Finance Trust may be at risk, according to the report.

The problem is said to stem from the MFFO (modified funds from operations a/k/a cash flow) at seven of AR Global’s REITs. The MFFO of these seven funds reportedly failed to match or exceed their distributions. In simple terms, this would mean that the funds failed to take in as much as they were distributing. Such a situation has the potential to mean big trouble for investors including distribution cuts and rapid decline in asset value – i.e., less income and large losses to the principal.