FINRA JANUARY 2016 BROKER DISCIPLINARY ACTION REPORT

BROKER MISCONDUCT 

Each month and again on a quarterly basis, the agency that regulates the financial industry, FINRA (Financial Industry Regulatory Authority), produces a detailed report of disciplinary actions recently taken against brokerage firms and brokers. This list of alleged wrongdoing and misconduct reads a lot like a police blotter on money matters. We strongly encourage any investor who suspects their broker and/or broker-dealer of having lost them money on dubious terms to at least skim this report to see if you recognize any names, schemes, products, or securities.

 

For our part, in addition to circulating the entire FINRA broker-dealer disciplinary report to help get the word out about these alleged misdeeds, we like to pick out some of the highlights from each report. Specifically, we’re looking for schemes or abuses that might be more far-reaching than the individual cases brought through the FINRA arbitration process. In other words, we name names here because we hope to raise awareness out there about certain brokers and products that might otherwise go unnoticed except for the case appearing in the report. In this particular report, we noticed repeated alleged offenses of financial abuse against elderly clients and the misuse and lack of supervision of nontraditional or leveraged ETF investment products.

 

BROKERAGE FIRMS & BROKERS

 

Jacob Lerman of Willow Grove, Pennsylvania was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Lerman consented to the sanction and to the entry of findings that in a written response to a FINRA request, he admitted to forging a customer’s signature on an application to open an individual retirement account but claimed that the customer had authorized him to sign her name to the application. The findings stated that Lerman later admitted at his on-the-record testimony that his response was inaccurate and that the customer had not authorized him to sign the application.

Glenn Robert King of Marlboro, New Jersey. A complaint was filed, alleging that Mr. King made fraudulent misrepresentations and omissions to customers of his member firm in connection with the sale of UlTs. The complaint alleges that King failed to disclose the features and risk of UITs, and failed to disclose the sales charges and costs associated with each of the UITs they purchased. King misrepresented to the customers, who were all retirees, that he would use their investment funds to purchase safe, no-risk bonds, and that he would not charge any fees or commissions on the transactions. In reality, King used the customers’ funds to purchase UITs, resulting in approximately $17,000 in realized losses to the customers (and approximately $43,000 in unrealized losses) and approximately $38,000 in commissions to him. King further failed to provide the customers with prospectuses for their UITs, as the firm’s procedures required. As a result of his conduct, King willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and violated NASD Rule 2120 and FINRA Rule 2020. The complaint also alleges that King engaged in a pattern of short-term trading in longterm investment products in customer accounts. This pattern of trading was excessive and unsuitable, and resulted in approximately $163,000 in losses to the customers, while King generated gross commissions of approximately $210,000. King did not have a reasonable basis to believe that such transactions were suitable for any investor.

Wedbush Securities Inc. was censured, fined $130,000, and required to remediate its supervisory violations. The sanctions surrounded claims that Wedbush created and produced to FINRA staff falsified and misleading documents, in connection with the staff’s review of the firm’s reporting of municipal securities transactions. The findings stated that the firm altered MSRB Report Cards by whiting-out date information and adding supervisory signatures that gave the false impression that the firm conducted and evidenced supervisory reviews of MSRB Report Cards, when in fact the firm had not conducted such supervisory reviews. The findings also stated that the firm reported municipal securities transactions to the MSRB in an untimely manner, failed to conduct supervisory reviews of MSRB Report Cards, and failed to designate a registered principal with responsibility to conduct supervisory reviews of the firm’s reporting of municipal securities transactions.

Wells Fargo Securities, LLC. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it provided confirmations to customers that inaccurately reflected the capacity in which the firm acted in connection with transactions over a period of about 15 months. The findings stated that in connection with the development of a new business platform, the firm discovered an issue with the accuracy of trade confirmations it provided to customers. The findings also stated that the firm failed to establish, maintain, and enforce a reasonable supervisory system and WSPs designed to achieve compliance with all applicable securities laws and regulations, including supervision of trade confirmations and monitoring the accuracy of confirmations. Although the firm detected inaccurate confirmations in connection with transactions involving municipal securities, it failed to determine if the inaccuracies were more widespread and involved other securities. The inadequate supervision resulted in the failure to deliver accurate trade confirmations.

Dennis Paul Van Patter of Little Elm, Texas. Without admitting or denying the findings, Van Patter consented to the sanctions and to the entry of findings that his recommendation that a retired customer invest in alternative investments was not suitable in light of the customer’s ranked primary investment objectives and risk tolerances, the concentrated nature of the investments, and the customer’s financial circumstances. The findings stated that Van Patter recommended that the customer invest $1,614,000 in alternative investments, such as real estate investment trusts, note programs, oil and gas drilling partnerships, and other private placements, all of which are securities. The investments Van Patter recommended were all described in the offering documents as being speculative, highly speculative, highly risky, and/or involving a high degree of risk. As a direct result of Van Patter’s recommendations, the customer had approximately 52 percent of his liquid net worth concentrated in high-risk alternative investments.

John David Kavaler of Boston, Massachusetts. Without admitting or denying the findings, Kavaler consented to the sanctions and to the entry of findings that he made unsuitable recommendations to his customers and failed to comply with his suitability obligations. The findings stated that Kavaler recommended that the customers invest in a highly volatile ETN. The ETN is a complicated and risky investment that is not suitable for unsophisticated investors. The findings also stated that Kavaler did not adequately explain the nature and risks of the ETN, mistakenly recommending the product as a suitable hedge for long positions in the market for the customers. Kavaler also failed to take into account the significant difference between hedging strategies to limit potential losses and trading in a speculative investment to turn a quick profit on market movements or expected market movements. Moreover, Kavaler’s customers did not fully understand the product, and therefore should not have been encouraged to purchase it.

George Anthony Zedan of Whittier, California was named a respondent in a FINRA complaint alleging that he converted a total of approximately $17,000 belonging to an elderly customer before a bank placed a hold on Zedan’s account. The complaint alleges that Zedan proposed that he and the customer jointly purchase residential property for renovation and resale. According to Zedan, the customer was to fund the venture, while Zedan was to identify real estate agents, potential properties and potential contractors. The purported real estate venture agreement was not reduced to writing. Following discussions with Zedan, the customer liquidated securities in her account worth $306,183 to use in the purported real estate venture with Zedan. Zedan’s member firm issued a check in the amount of $300,000 to the customer. At Zedan’s direction, the customer deposited a check in the amount of $300,000 into her personal bank account, and also at Zedan’s direction, wrote a personal check made out to Zedan in the amount of $300,000. In the memo line of the check, the customer wrote “real estate.” Zedan deposited the customer’s check in his personal bank account via an automated teller machine (ATM). After depositing the customer’s check into his personal bank account, Zedan failed to use the funds to purchase real estate. In fact, Zedan never identified any properties to place bids on, nor did he place bids on any properties or apply for any loans for the purchase of any property. Instead, without the customer’s knowledge or consent, Zedan proceeded to convert the customer’s funds to his personal use. The bank’s investigator called the Glendale California Police Department to report possible elder abuse in connection with the $300,000 check that the customer provided to Zedan and a felony complaint was filed. The case against Zedan was dismissed due to the fact that the victim, the elderly customer, had died. The complaint also alleges that Zedan completely failed to provide all of the documents and information FINRA requested during the course of its investigation.

 

FINRA Securities Litigation Lawyers

 

If you or someone you know has been the victim of investment fraud or broker misconduct, please contact our experienced securities attorneys immediately for a free consultation toll-free at 1-855-462-3330 or by using our online contact form.

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