finra suspension

Plain Broker-Dealers Aren't Always so Plain

Brokerages have a primary fiduciary and legal obligation to protect their clients. Period. Unfortunately, greed and other unsavory considerations often get the best of them, and far too many brokerages tend to lose sight of this fundamental tenet of the financial industry. Soon, they’re serving themselves at the expense of their clients. A recent article on the Financial Regulatory Authority’s disciplinary actions against Cedar Brook Financial Partners for allegedly making false statements about high-risk funds sold to wealth management firm Pepper Pike is another sharp reminder that brokerages are often willing to bend or break the rules to turn a profit.

According to the article, FINRA punished Cedar Brook for making “false and misleading statements” about two funds: Medical Capital Holdings Inc, or MedCap, and IMH Fund, a security backed by subprime mortgages. MedCap in particular created massive problems for firms like Cedar Brook, when the Anaheim, CA-based company was revealed to be a Ponzi scheme sold to investors across the country and totalling nearly $2.2 billion in notes. The fraud was exposed by the SEC. The whole works. Oh boy.

Now, MedCap was a superlative fraud. But that’s got nothing to do with Cedar Brook. Except that Cedar Brook allegedly went wrong by misrepresenting just how risky the financial products being offered by MedCap and IMH actually were to investors--as well as altering at least three of their own investors’ accounts to create a false presentations of their net worth, concealing unbalanced portfolio distributions and potential unsuitability issues. Bad news. And it turns out Cedar Brook were not the only brokerage guilty of playing dirty over MedCap and IMH fund. According to FINRA’s records, across the country, 18 firms and 66 individual brokers have suffered disciplinary action over MedCap; and 15 firms and 40 brokers have suffered similarly over the IMH fund. And you can bet your bottom dollar there’s more where that came from.

Until this most recent scandal, Cedar Brook was a fairly well-regarded Midwestern brokerage. But beneath that veneer of respectability lurked a significant history of complaints against its principals that any informed investors could have accessed via FINRA’s BrokerCheck, which provides a history of any and all complaints against brokerage firms and individual brokers nationwide. After all, around 95% of registered brokers have NO complaints on their record.

If you or anyone you know has been the victim of broker misconduct or fraud, please contact us immediately for a free consultation.


FINRA's Monthly Blacklist

We don't know about you, but seeing the unjust finally get their due always gives us a boost. hat's in part why we look forward to the release of FINRA's monthly "Disciplinary and Other FINRA Actions" report. This is just what it sounds like, a listing of all the sanctions, fines, suspensions, and other disciplinary actions that have handed down by FINRA against the iniquitous brokers, investment advisors, and brokerage firms who have dis-served or manipulated their customers in so many different ways. It's a long report, but what stood out to us is the recurring appearance of firms who have mishandled private placements in flagrant disregard for FINRA's warnings over the past few years that they would be cracking down on private placements (see 2010 and 2011 "Annual Regulatory and Examination Priorities Letters" as well as Regulatory Notice NTM 10-22 in April 2010.) FINRA was not kidding. Janco Partners, Lincoln Financial, Roth Capital Partners, and the Tidal Group--to name a few--have all suffered penalties as a result of failures to fulfill their obligations related to private placements. If you're not sure or need a refresher on what a private placement is, here's Wikipedia on the subject:

Preview of “Private placement - Wiki..., the free encyclopedia” copy.jpg

Also worth noting in the report is the fact that KMS Financial Services was punished for failing to do its due diligence before letting its broker-dealers sell shares in a dubious hedge fund. Bad on them. FINRA warned you! According to Regulatory Notice 10-22, if a firm knows about a private placement offering, they are required to conduct due diligence to make sure the private placement is suitable for its customers before investing. 

Finally, FINRA also provides listings for individual brokers who have been suspended. It's a long list (see page 17). If you've ever had it in the back of your mind that your broker-dealer ripped you off, why not see if he or she made the list... And then contact us.