Down Markets – A Good Time to Look For Red Flags and Recoverable Investment Losses

The news has been full of stories of investment losses. First, it was cryptocurrencies and related investments on a roller coaster ride of valuation. Then, in the last week, the major stock market indices followed… Dow Jones, S&P 500, Nasdaq…

What is a Main Street investor to do?

As a securities attorney representing investors in disputes with the financial industry, down markets mean my phone starts ringing. Investors start to look closely at their portfolios.

Some find surprises. Potential claims against their financial advisor to recover investment losses.

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Ten Red Flags for Investors

Ten Red Flags of Investment Fraud We’ve updated our list of ten red flags that  investors should be aware of: danger signs that point to potential mismanagement of an account or investment fraud by a financial advisor. These red flags are useful as you evaluate your own investments, review the investments of an elderly relative, […]

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Elder Abuse

New FINRA Rule to Help Prevent Elder Financial Abuse

On February 5, 2018, a new FINRA rule geared towards preventing financial exploitation of seniors – also called elder financial abuse – goes into effect. This is new Rule 2165, which creates a limited safe harbor for brokers to put a temporary hold on certain disbursement requests from a brokerage account.

The rule “permits members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers.” The new rule also amends existing FINRA Rule 4512, to require members to take reasonable efforts to have the customer identify the name of a trusted contact person as part of gathering customer account information. The broker may contact that person if there is a suspicious request for a disbursement of funds. The broker may also contact that person to confirm the customer’s contact information, health status, or identify of any legal guardian, executor, trustee, or holder of a power of attorney.

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Investor Alert – NASAA and SEC Warn about Cryptocurrency Related Investments

This past Thursday, the same day I posted about a recent FINRA Investor Alert regarding cryptocurrency, there was a new press release from the North American Securities Administrators Association (NASAA) with further guidance on the same topic. NASAA’s analysis and warning amounts to this: Initial Coin Offerings (“ICOs”), and all other investment products related to cryptocurrency or the blockchain, pose a threat to investors.

“A NASAA survey of state and provincial securities regulators shows 94 percent believe there is a ‘high risk of fraud’ involving cryptocurrencies. Regulators also were unanimous in their view that more regulation is needed for cryptocurrency to provide greater investor protection.”

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Investor Alert – Cryptocurrency Stock Scams

FINRA recently released an Investor Alert on cryptocurrency scams. Investors should be wary of jumping into this “hot,” volatile sector, and do their research before handing over their money to a potential fraudster, or, for a risky investment that they don’t understand.

In the last quarter, cryptocurrencies such as Bitcoin and Ripple have received a fresh burst of press attention. This includes reporting on massive price swings up and down, and stories of overnight millionaires. According to the media, a Welsh man who spilled lemonade on his laptop in 2013 and absentmindedly threw the hard drive away now wants to mine the local dump for the hard drive. Why? It contained the key to access his lost Bitcoin fortune said to be worth $100 million — but only if he finds it and if the drive is still operational. It’s a good metaphor for Wild West, gold rush atmosphere of the whole cryptocurrency hype.

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Raymond James Fined $2 Million by FINRA for Supervisory Failures

On December 21, 2017, the Financial Industry Regulatory Authority (FINRA) announced it had fined brokerage firm Raymond James Financial Services, Inc. $2 million for significant supervisory failures in reviewing email communications. FINRA found that, over a nine-year period, Raymond James did not have a reasonably designed supervisory system and procedures for reviewing email communications.

Why is email review important? Under FINRA rules, brokerage firms must reasonably supervise all electronic communications technology used by a firm and its brokers to conduct firm business. Many firms used a risk-based approach to supervision, automatically searching for key words and phrases in emails. This review is important for firms to catch bad conduct, such a broker involved in unapproved “outside business activities,” or conducting securities transactions that are not approved by the firm, also known as “selling away.”

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FINRA Expels New York Stockbroker Hank Mark Werner

On November 8, 2017, the Financial Industry Regulatory Authority (FINRA) announced that a broker named Hank Mark Werner of upstate New York had been barred from the securities industry. The headline: “FINRA Hearing Panel Bars Broker for Defrauding Elderly, Blind Customer”.

The pattern of this behavior is outrageous but not all that unusual. It makes a good example of how financial professionals fail their clients.

According to the FINRA news release, Mr. Werner served as the licensed broker for an elderly couple since 1995. The husband died in 2012. Mr. Werner made some 700 trades on “behalf” of his client, a sightless 77-year old recently widowed woman in poor health between October 2012 and December 2015. He ultimately collected $210,000 in commissions. The panel’s decision includes an order of restitution to the widow, a fine, Mr. Werner’s banishment from the industry, and a further fine and censure for his employer – Legend Securities, brokerage firm expelled from the securities industry as of April, 2017.

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Dual-Registered Advisors Barred From Recommending 401(k) Rollovers

LPL Financial Bars Its Dual-Registered Advisors From Recommending 401(k) Rollovers in Brokerage Capacity According to an internal advisor memo, LPL Financial is prohibiting its “hybrid” or dual-registered advisors to recommend 401(k)to IRA rollovers to LPL clients in a brokerage capacity. Investment News reports that the policy was adopted in response to the Department of Labor’s […]

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Victory!

Victory – Vindicated By The California Court of Appeals

“The victory benefits investors everywhere by making clear that basic rules of due process do apply in FINRA arbitration”. In August, 2014, I represented Sandra Liebhaber in a FINRA hearing requested by Royal Alliance Associates and its one time financial advisor, Kathleen Tarr. This was an expungement hearing in which Royal Alliance and Tarr asked FINRA to erase any trace of the claim that my client had filed and settled with Royal Alliance. To grant that extraordinary remedy, the FINRA three-person panel had to find essentially that Ms. Liebhaber had filed a false claim. Ms. Liebhaber did not and would not file a false claim, and when I found out about the request, Darlene Pasieczny and I agreed to represent her without charge at the hearing to oppose the expungement. At the hearing, the arbitrators allowed Ms. Tarr to testify that she was a minister’s daughter and had done nothing wrong.

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