bad brokers

Former Aegis Capital & Cumberland Broker Malcolm Segal Banned From FINRA

According to a recent FINRA disciplinary action report, former Aegis Capital Corp. broker Malcolm Segal has been permanently barred from FINRA for allegedly transferring client money from their investment accounts to an outside business account under Mr. Segal’s control.

REITs Are Booming, But What Do We Really Know About Them?

This week, we saw yet another large brokerage get hit with an enormous fine for alleged misconduct related to the alternative investments known as non-traded REITS (real estate investment trusts). This time, it was LPL Financial. The firm was ordered by FINRA (the Financial Industry Regulatory Authority) to pay around $950,000 in fines for allegedly failing to adequately supervise sales of non-traded REITs and other alternative investment products.

In the past few years, non-traded REITs have become increasingly popular. Last year, around $20 billion of these complex financial products were sold to investors, up from just over $10 billion in 2012. That’s a huge jump. And more REIT shares than ever before are expected to be sold this year.

The problem is, while the popularity of REITs has obviously grown very rapidly, we have not seen a corresponding increase in the level of knowledge and familiarity with these products on behalf of both brokers and investors. In other words, people are selling and buying more and more of a product they still don’t know much about. That’s a recipe for investing disaster.

Non-traded REITs have more in common with private placements and other more exotic investment products than they do with traditional investments like stocks, bonds, and mutual funds. As the name itself suggests, non-traded REITs are not publicly traded and are, therefore, notoriously illiquid. In many cases, the money you invest in a REIT may not be available for a three-to-five year period. Plus, the value of your investment in a REIT may actually at times be lower than reflected on your account statements. Brokers need to be aware of these features of non-traded REITs, and of course they absolutely must have a candid discussion with their customers about them, too. Too often, as we’ve seen in cases of our own, brokers eager to collect the elevated fees or commissions associated with alternative investments like REITs fail to communicate with customers about clear illiquidity issues, a common form of negligence.

Fortunately, FINRA has caught on to the trend and has issued a number of warnings and guidelines for investors interested in better understanding these REITs. Click here for more info.

If you or anyone you know has been the victim of broker misconduct or investment fraud involving REITS, alternative investments, or traditional financial products, please contact us immediately for a free consultation at 1-877-462-3330 or via email by clicking here.

O Canada... Broker Misconduct Crosses the Border

Human nature transcends national boundaries. At least, that’s what a recent and very disturbing investigative report suggests about financial advisors in our genial neighbor to the north, Canada. While Canada may not have anywhere near the United States’ problems with violent crime or even crime in general, it appears to be equally burdened by financial fraud and broker misconduct.

The CBC or Canadian Broadcasting Corporation is the country’s oldest and most venerable broadcasting network. And its Marketplace division covers the financial markets for the network. Given that about a third of all Canadians use investment advisors to manage their money, CBC’s Marketplace reporters thought it would be interesting to find out just what kind of advice these advisors were dispensing to ordinary folks like us. So they sent journalists posing as customers into five large banks and five popular and investment firms wearing a hidden camera.

Well, guess what…?

The hidden camera revealed that the advice these so-called “advisors” were giving was nothing short of “atrocious.” For more, check out the entire mind-boggling, stomach-turning piece here.

If you think it’s just a Canada thing, think again. As the media and FINRA’s own monthly disciplinary action reports suggest, negligent investment advice, broker misconduct, and outright fraud and theft are closer to the rule than the exception in our great country. And while regulators at the SEC and FINRA are working hard to fight and rectify all forms of misconduct, the best means of prevention still lies with the individual investor: us. Check out the CBC’s helpful tips on how to check out your broker, and then check out our own tips for financial self-defense here.

If you or anyone you know has been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation at 1-855-462-3330 or via email by clicking here.

Naming Names: FINRA's December 2013 Disciplinary Action Report


Every month and again on a quarterly basis, the agency that regulates the financial industry, FINRA, produces a report that runs down all disciplinary actions taken against brokerage firms and brokers. This long list of alleged wrongdoing and misconduct reads a lot like a police blotter. 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. For our part, 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. So, without further ado, here goes:


Virginia-based broker Ramnik Singh Aulakh of Success Trade Securities, Inc. was censured and barred by FINRA for failure to respond to requests for information regarding his allegedly participating in a huge $18 million fraud involving the offering of promissory notes.

Read more here.


Georgia-based broker James Arnold Busch of Wells Fargo Financial Advisors, LLC was barred from FINRA for allegedly using elderly customers’ bank accounts to misappropriate around $1.3 million. According to FINRA, in some cases Mr. Busch also allegedly liquidated securities from his clients brokerage accounts in order to use the funds himself.

Read more here.


Mary Alice Faher, of WR Rice Financial Services, was fined and suspended from FINRA for allegedly recommending and effecting purchases of unsuitable investments for customers who were retired or of limited financial means, including membership interests, diversified land contracts, and limited partnerships. These investments allegedly exposed her clients to high levels of risk and illiquidity.

Read more here.


Broker Francis Melvin Johnson of Newport Coast Securities was barred from FINRA for allegedly borrowing more than $1 million from the family trust of one of his clients.

Read more here.


Martin John Maloney, a broker at Metflife Securities, was barred from FINRA for allegedly diverting a customer’s funds into his own pocket when he represented that the money was going into an indoor golf and driving range.

Read more here.


Christopher Ryan Reber Orlando (that’s a mouthful) of PlanMember Securities Corporation was fined and suspended from FINRA for two years for allegedly handling private securities transactions to the tune of $7 million that were executed outside his firm. Big no-no.

Read more here.


Dallas-based broker Bryan Mark Rigg of WFG Investments, Inc. was censured and suspended by FINRA for allegedly participating in private securities transactions without approval from his brokerage, including $500,000 worth of the company’s preferred stock.

Read more here.


Broker Lawrence Spaulding Rule of Wells Fargo Advisors (Wachovia) was suspended from FINRA for allegedly getting up to some excessive unsuitable trading of customer, including trades totaling over $2.3 million.

Read more here.


Los-Angeles-based broker Scott Donovan Schroeder of Milkie Ferguson Investments, Inc. was barred from FINRA for allegedly making unsuitable investment recommendations to elderly customers, including high-risk life settlement contracts and private placements.

Read more here.


Daniel Edmund Walsh of Securities America, Inc. was suspended from FINRA for allegedly selling almost $5 million worth of equity indexed annuities (EIAs) to customers outside the scope of his employment and without notifying his brokerage.

Read more here.


JP Morgan Brokers Banned for Stealing from Elderly Widow

Photo by Pedro Ribeiro Simos,  Creative Commons

Photo by Pedro Ribeiro Simos, Creative Commons

In a recent investigation by the Financial Industry Regulatory Authority (FINRA), two brokers were banned from practicing as registered financial advisors when it was discovered that they allegedly stole $300,000 from an elderly widow of diminished mental capacity. The bad brokers, Fernando L. Arevalo and Jimmy E. Caballero, didn’t work for some fly-by-night boiler room outfit either: they worked for JP Morgan Chase Securities, LLC. According to FINRA, ordering their elderly client to liquidate two annuities and deposit the proceeds into a bank account one of the brokers had opened jointly for himself and her, the account was then drawn upon by Arevalo and Caballero. Evidently, they used their client’s savings to write checks to themselves, pay for personal and retail purchases, and pay down car and real estate loans. In the end, JP Morgan Chase Securities reimbursed the elderly client. Other investors who’ve been victimized in this fashion haven’t been so lucky. It pains us to report it, but stories like this are not at all uncommon. Full reimbursement from a brokerage firm, on the other hand, is quite unusual. Usually, recovering losses like this can be an uphill battle, even for the most determined victim.

FINRA issued a statement reaffirming their commitment to protecting elderly investors, who are often targeted by unscrupulous brokers: "One of FINRA's top priorities is to protect senior investors. We will continue to aggressively pursue and rid the industry of brazen brokers who take advantage of vulnerable customers,” said Susan Axelrod, Executive Vice President of Regulatory Operations.

If you or someone you know has been the victim of broker misconduct or investment fraud, please contact us immediately at 1-855-462-3330 for a free consultation.

Brokers Purging Permanent Record

An eye-opening recent report brings unsettling news that alleged misconduct or fraud by stockbrokers is routinely being erased from the permanent record kept by securities industry watchdog, the Financial Industry Regulatory Association (FINRA). As we’ve written about numerous times, FINRA’s very helpful online searchable database, BrokerCheck, strives to protect investors against shady brokers by collecting comprehensive data on all disciplinary action taken against them. Unfortunately, the usefulness of BrokerCheck is apparently being seriously undermined by the extraordinarily high rate of expungement, according to the report by the Public Investors Arbitration Association (PIABA).

Shockingly, 96.9% of expungement demands by brokers who had allegedly run afoul of FINRA were granted.

The Exception Becomes the Rule in FINRA Expungement

Expungement of customer claims against brokers is intended to be exceptional, offering blameless brokers whose alleged offenses went unproven in arbitration to clean up their records and start fresh. It certainly appears, however, from the findings in this report, that brokers are instead systematically abusing this process and that FINRA is enabling them to do it.

By Alan Cleaver. Creative Commons.

By Alan Cleaver. Creative Commons.

While brokers have every right to eliminate false or fraudulent claims against them and resume their careers, when the process of expungement suffers abuse, it is ordinary investors who lose out the most. Without a complete and accessible accounting of a broker’s past behavior, investors have no way to conduct their own background check on prospective or current stockbrokers. Instead, if they don’t know the broker personally or have a recommendation from a trusted source, they’re forced to rely on the reputation of the broker’s firm or, even worse, what he or she says about their history or past performance.


Investors Have a Right to the Complete Record

Making expungement too easy for brokers not only sends the wrong message to brokers considering crossing the line into misconduct or fraud, it also diminishes an important protection for investors who rely so heavily on strangers (even if they are accredited, well-trained, and professional financial advisors) for investing: the right to complete and accurate information.

If you or someone you know has been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation at 1-855-462-3330.


What's In It For You? Broker Transfer Incentives

The heavily-regulated fiduciary relationship between financial advisor and investor is the bedrock on which the whole system of contractual American investing rests. Without it, brokers could treat your money like it was their own. (Unfortunately, sometimes they still do: click here to see a few eye-opening cases…). But with the core fiduciary relationship in place and the Financial Industry Regulatory Authority (FINRA) perpetually looking over brokers’ shoulders to make sure they honor that relationship, investing money in our great country goes smoothly. Of course, there will always be bumps in the road, including when the fiduciary relationship becomes less straightforward, more fraught with nuance and complexity. This usually happens when the broker’s interest and the investor’s interest become misaligned somewhere. In other words, in certain circumstances, what’s good for you the investor may or may not be good for your broker (like when you push to invest in products with lower fee/commission rates). Or, conversely, what’s good for your broker may or may not be good for you the investor. An example of the latter often occurs when a broker is recruited away from his current brokerage firm by another firm using big incentives. In this case, the first thing the broker will do is call you up and say, “Hey! I just got transferred to this great new firm. You should come jump ship with me!”

Creative Commons

Creative Commons

Maybe. Then again, maybe not.

Recently, FINRA has been pushing for changes in the disclosure rules surrounding recruiting and transfers such as these, for the very reason that while it may be great news for brokers to jump firms because they stand to get a large bonus for bringing their client book with them, it may require you, their client, to liquidate your portfolio and reconstitute it at another firm, incurring surrender charges and opening you up to ugly tax implications, and so on. In other words, bully for the broker. Not so bully for you. That’s why FINRA is considering requiring brokers to disclose any incentive structure from their new firm for up to one full year after transfer to their clients. This way, you know what your broker stands to gain from you transferring, and you can make an informed decision on your own instead of just going along because your broker said so.

While these changes are still on the books at FINRA and are scheduled to be addressed at their meeting next week, they’re also a useful reminder that in the specific situation where your broker has been transferred and asks you to go along with them, even without FINRA behind you, you can ask them to explain to you what’s in it for you. You can even ask them what’s in it for them. Always, always, always keep in mind that your broker is a professional who works for you. We’ve seen far too many cases of broker misconduct or investment fraud perpetrated because customers give brokers way too much deference and leeway. Here, as in any retail business, brokers and customers alike would be wise to remember: “The customer is always right.”

As always, if you or anyone you know has the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation.

Naming Names: FINRA's August Disciplinary Action Report

Reading FINRA’s monthly Disciplinary Action Report is a little like reading a police blotter. There’s an almost endless list of brokers under scrutiny for trying to get away with dumb, reckless, or malevolent acts. They get investigated, fined, and/or expelled by FINRA. The report for August 2013 recently came out, and again we found the usual stunning array of villains and victims. For instance…

Wikipedia Creative Commons

Wikipedia Creative Commons

One broker who allegedly impersonated his own client while on the phone with his own brokerage company in order to re-route his client’s statements to him. One would assume did this to hide massive losses from his client.

Another broker duped his own grandmother, who was suffering from dementia, into purchasing shares in a fictional company the broker owned.

Still another bad broker deceived his parents by diverting almost $1.5M in funds from their investment accounts into bank accounts he controlled.

And of course the report includes far too many brokers who convinced their customers to give them personal loans. Don’t ever loan your financial advisor money!

Normally, we soak up the FINRA report and keep an eye out for new trends and schemes in broker misconduct. But this month, for the first time, we thought we’d share. Since FINRA’s reports don’t have nearly as wide a readership as they deserve, we figured we’d run down some of the cases that caught our attention and that also might have affected more customers than those mentioned in FINRA’s summaries. In other words, if you’ve been the victim of investment fraud or broker misconduct, you might want to scan our abridged list of alleged offenders below--then take a look at FINRA’s complete list by clicking here, or try their wonderful tool called BrokerCheck by clicking right here. Enough with the build-up, it’s time to name names…

Charles Crotts, a broker based in Lexington, North Carolina and formerly of American Portfolios Financial Services (APFS) and Royal Alliance Associates, has been barred from FINRA for allegedly improperly borrowing money from clients, making unsuitable investment recommendations, and getting into some shady “undisclosed outside business activities” (hm). Read more here.

Darrell Frazier of Dublin, Ohio and formerly of Park Avenue Securities LLC, got himself barred from FINRA membership for allegedly guaranteeing customers not only protecting against loss of principal but a 7 or more percent return on their investments in a variable annuity he was promoting. Although Frazier neither admitted nor denied it, the claim also alleged that he lied to customers when they did not see their “guaranteed” return, and that he made all kinds of other glaringly unsuitable recommendations.

Read more here.

Based out of McGregor, Texas, Roger Fuller, formerly of Chase Investment Services, got himself barred from FINRA in a claim that stated he may have forged documents and had ownership interests in securities accounts at an executing member firm.

Read more here.

FINRA barred broker Jon Guay of San Jose, California and formerly of Cuna Brokerage Services, QA3 Financial Corp, and Wunderlich Securities for a claim that Guay neither admitted nor denied that found Guay taking his customers’ money for a futures trading account or to invest in a specific company only to deposit the funds, guess where, into a bank account he controlled. Guay also allegedly got involved in a dodgy mutual fund scheme.

Read more here.

From the Big Apple, New York, New York, Juan Carlos Parets formerly of Westrock Advisors, Joseph Gunnar & Co, and John Carris Investments, settled with FINRA and was suspended for allegedly misleading customers and omitting material in a promissory note offering. According to the claim, which Parets neither admitted nor denied, he also did not understand the product he was selling to his customers, nor was the product suitable for them.

Read more here.

In addition to actions taken, FINRA also provides a list of complaints that are unresolved and should therefore not be taken as an indication of culpability or guilt. But…

Richard Blair of Austin, Texas and formerly of Murchison Investment Bankers, IMS Securities, and Wealth Solutions Inc. was named in a claim alleging that Blair mislead his clients and did not put their interest before his own when steering them toward a real estate investment trust, the Cole REIT. Also, Blair allegedly provided retail customers with false or misleading forms in deals involving the purchase of those pesky variable annuities.

Read more here.

John Carris Investments LLC along with brokers Jason Barter, George Carris, and Andrey Tkatchenko can’t be happy about a complaint filed against them by FINRA that alleges they were involved in a highly complex and manipulative “intentional prearranged trading” scheme.

Read more here.

Jeremy Tintle of Atlanta, Georgia and formerly of Morgan Keegan & Company and Oppenheimer & Company will have to fight the claim filed against him by FINRA that alleges he inappropriately recommended private securities that were speculative and illiquid to a retail investor, losing her around $150,000.

Read more here.

If you’ve lost money and you think it may be due to broker misconduct but you don’t see your broker’s name above, please check FINRA’s complete report or enter your broker’s name into BrokerCheck.

And, as always, if you or someone you know think you’ve been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation.