A FINRA arbitration panel has ordered the National Planning Corporation to give over $2.6 million to an 84-year-old woman who was sold false promissory notes.
In a September 2017 petition, Sandra Alford of St. Louis sued National Planning of negligent misrepresentation, common law fraud, breach of contract and negligent supervision. Sandra Alford of St. Louis, was William Glaser's client, a past certified representative of the firm.
Harold A. Schwartz, a former Broker at Royal Alliance Associates INC allegedly impersonated one of his clients, in two telephone calls with the customer services hotline of an annuity company. Schwartz wound up being “permitted to resign voluntarily” from Advisor Group’s Royal Alliance wealth management firm.
The securities industry self-regulator, FINRA, has once again warned broker-dealers and investors over its unsuitable sales of leveraged and inverse ETFs. Over the past few years, ever since these sophisticated products rose to prominence, FINRA has repeatedly issued regulatory notices and investor alerts about the perils of investing in leveraged ETFs. The agency has also fined numerous broker-dealers and individual brokers for poor sales practices and supervision of leveraged ETFs.
Over much of last year, heated debate raged within the securities industry and among some politicians about the “best interest” standard and how it should be applied to registered financial advisors and stock brokers alike. Right now, two different standard apply to the industry. Bringing them all under one standard would unify a fractured industry and give greater clarity and increased protection to investors who may be unaware of which standard they are subject to.
Leading up to February, all of 2017 had seen volatility and the VIX at near record low levels. All was calm. Then, suddenly, in one day the percent gain in futures swung 96 percent. The huge leap crushed short-VIX ETPs, which lost nearly all of their value. Some of those products shut down entirely.
Since many people who invest money through FINRA-registered brokers do not know what FINRA (Financial Regulatory Agency) is, let alone keep up with the agency's latest warnings, we like to raise awareness out there among everyone who is kind enough to read our blog whenever FINRA issues a new alert or warning. Usually these warnings come as a result of an uptick in cases seen in FINRA's arbitration process. And so, by our reasoning, if FINRA has been seeing more cases of a certain type of investment fraud or broker misconduct, then maybe you out there have too. Or maybe we can help prevent others from falling prey to it. At any rate, this week saw FINRA issue a new alert titled, "Cold Calls from Brokerage Firm Impostors--Beware of Old-Fashioned Phishing."
As the warning describes, scam artists have recently been cold-calling citizens while impersonating at least one well-known brokerage firm and engaging them in conversation in the hope of getting people to reveal personal financial information, including of course their social security numbers. As FINRA notes, this scheme is a throwback twist on what's known as Internet "phishing," or spattering people with spam messages with the intention of culling financial information for nefarious purposes. We say "throwback" because this more recent version of the scam uses not email but the somewhat old-fashioned telephone cold-call, which as the fraudsters must know adds a much more personal element to the phishing. After all, over the past decade or so we've learned to be very suspicious of emails find their way into our inbox from Nigeria and so on, but we may be a little less wary of an actual person talking to us on the phone, especially if they say they work for such-and-such major brokerage firm.
The mechanics of the scam work like this. Once the caller gets you on the line, he or she will tell you about a special offer on Certificates of Deposit (CDs) or some other financial product. They'll insist that, if you invest, you can get yields well above the norm. If you seem even remotely interested, they don't go in for the kill right away. They say they'll have their supervisor get back to you with more information, or else they may send you applications forms to fill out. At some point in these interactions, however, they will try to obtain your personal financial information. Once they have it, they'll use it to steal your money or your identity. And that's very bad news indeed.
FINRA provides a few useful tips for how to avoid getting fleeced by this particular scam. We would add that like most scams, the fraudsters rely on two key dynamics: false promises and lack of due diligence. You can beat this scam and many others like it simply by always sticking to the rule of thumb that "if it sounds too good to be true, it probably is;" and by insisting that, rather you giving them more information, they give you more information. That way, you can look more deeply into the background they claim to have, whether it's with a large brokerage company or as an independent. You can call the brokerage itself, the compliance office, FINRA's general intake phone line, or use FINRA's BrokerCheck to see if your shady cold-caller is who they say they are.
If you or anyone you know has been the victim of investment fraud or broker misconduct, please contact us immediately for a free consultation.
Ramping up their effort to become a kind of consumer protection agency for novice investors, the SEC recently launched a very helpful site featuring tons of great investment advice at Investor.gov.
A lot of the suggestions featured here are also included in our 10 Tips for Financial Self-Defense, so download that if you haven't already. In order to supplement your arsenal of weapons in the fight against financial misconduct and bad brokers, check out the SEC site. It touches on everything from how markets work to investment basics to retirement planning. Of course, this body of knowledge is exactly why, as a novice investor, you might engaged the services of a broker. But as with everything from buying a car to picking the right doctor, the more research you can do on your own, the less likely you will be to get fleeced. Information, after all, is power. And there's a wealth of information on the SEC site. Click here to go to the introductory video that gives you a tour.
For the social media savvy, better hop on the SEC Investor Ed twitter feed. We have! Here, you'll get updates and investor alerts that will help you get out in front of problems with your investments that you may not have anticipated or simply do not understand. For example, Ponzi schemes. We've got a page on our site explaining the history of the Ponzi scheme and how it works. If you thought these scams faded with the incarceration of Bernie Madoff, think again. According to the latest SEC investor alert, they are alive and well among virtual currencies like Bitcoin. Other alerts on scary yet fascinating topics include Investment Options Implying SEC Endorsement, Pump-and-Dump Stock Email schemes, and Binary Options and Fraud. With our own blog here at The Green Firm, we'll do our best to keep abreast of the latest trends in investor scams and try to develop the legal angle for you. So stay tuned to the SEC and to us!
As always, if you or anyone you know has been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation.
A recent investor alert about email hacking issued by financial industry watchdog FINRA (Financial Industry Regulatory Authority) reminded us that scams can come from almost any direction at any time, and we thought we should do our part to help get the word out about the latest in investor fraud and criminal activity. At The Green Firm, we generally focus our attention on the ways in which crooked brokers and irresponsible brokerage firms get over on their unwitting clients. But if you're an investor, you should always keep in mind that threats to your investments and your financial security often come from that most insidious, complex, and anonymous of sources: the internet.
According to FINRA's alert, they have recently been receiving an increasing number of reports of investor email accounts being hacked and those compromised accounts being used to send instructions to brokerages regarding the transfer or withdrawal of funds. Basically, what happens is, once a hacker has broken into your email, they search your contacts and/or sent email; they find your broker or brokerage's email address; and then they email a request for your money to be wired out of your account to a third-party account, often overseas. And poof! Your money disappears.
FINRA isn't the only agency getting the word out on this. Apparently it's happening often enough for the FBI, the Financial Services Information Sharing and Analysis Center (FS-ISAC), and the Internet Crime Complaint Center (I3C) to be issuing warnings of their own.
If you're unfortunate enough to have your email account hacked, there are some telltale signs that will help you act quickly and do damage control before your money vanishes. First, you'll probably get messages or notifications from friends that your account has been sending Spam messages. Second, you may see a sudden influx of "bounced" email messages in your inbox, as the hacker or hacker's program sends out a flurry of random emails, often to contacts with invalid addresses. Finally, you may find you can no longer access your own email account because the password has been changed.
Now, here's what you do if you notice any of those things we just mentioned:
1) Notify your broker and brokerage firm immediately that your account may have been hacked.
2) Notify your bank and credit card holders of possible fraud activity.
3) Check your online statement for unauthorized activity.
4) Change all your usernames and passwords on all your email accounts and online investment accounts.
Hopefully, if you act fast enough, the fraudsters won't get very far with their scamming. Once you've done all of the above, you may as well also notify the security agencies so that they can help prevent others from fallen victim to the same scams and crooks.
This week a number of articles suggested that, as we feared, Wall Street has learned nothing from the recent financial crisis. Well, maybe not nothing. Rather than steering clear of the securitized debt responsible for the collapse of the real estate market and much of the financial market as well, Wall Street investment firms are working on new and innovative ways of resurrecting securitized financial products (you remember that stuff, right? Layer upon a layer of bad debt with an icing of good debt on top...).
Hopefully, we've all learned in the meantime to be more vigilant and skeptical of the finance world's "miracle" products. Not only that, but the Financial Industry Regulatory Authority and its CEO, Richard Ketchum, are continuing to broadcast their message of "Heightened Supervision" by investment advisors and brokerage firms when it comes to complex financial products. As Ketchum plainly warns, if broker-dealer firms want their affiliated financial advisers to offer tricky investment opportunities like options trading, variable annuities, or complex products like leveraged and non-traditional ETFs, they MUST undertake greater supervision of the advisers and of the performance of the products themselves.
For investors who have already been the victim of the misuse or abuse of one of those products, it's not just a warning: it's a chance to win money back.
As we at The Green Firm have seen firsthand in recent cases, it can often be difficult to recover money from an individual broker's misconduct. Often it's simply a matter of "you can't get blood from stone." BUT, that advisor's misconduct often extends to the supervising broker-dealer. And thanks to Ketchum's strong message, it should become increasingly easy to hold broker-dealer firms responsible for failing to deliver the kind of "Heightened Supervision" that complex financial products require, according to FINRA. Not only does this supervision apply to the proper use of specific products; it also applies to the suitability of specific products to specific investors. In other words, FINRA's concept of "suitability" dictates that there must be an affinity between the investment product and the customer. If you're a risk-averse or conservative investor, your broker should not have you invested in high-risk, complex financial products.
Finally, in the article, Ketchum mentions that, "When a broker moves to a new firm and calls a customer to say, 'You should move your account with me because it will be good for you,' the customer needs to know all of the broker's motivations for moving. In some instances, recommendations to customers can be driven by direct and indirect compensation incentives to the financial advisor and the firm itself."
We at The Green Firm would just like to remind that your own interests and the interests of your broker are not always aligned. The best protection you have against broker misconduct is free: ask lots of questions. If your broker switches employers and insists you migrate with them, be sure to ask what's in it for them.
SInce The Green Firm is currently pursuing a case involving a particularly egregious abuse of non-traditional ETFs, we thought it might be useful to revisit these exotic investment products and explain why they tend to be misunderstood and misused by stock brokers more accustomed to a traditional "buy-and-hold" strategy. Traditional investing principles urge brokers to "buy low and sell high." Often this means holding onto a specific financial product or stock for a long period of time while waiting for it to arrive at its "true," projected, or peak value, at which point the product is sold before it has a chance to decline. Generally, this type of traditional "value" investing is stable, low risk and low return; it also happens to be suitable for customers with a low-risk tolerance. Non-traditional ETFs, on the other, are complex, high-risk financial products that are designed to perform radically differently. According to FINRA's website, leveraged and inverse ETFs "commonly represent an interest in a portfolio of securities that track an underlying benchmark or index [not the stock market as a whole]. A leveraged ETF generally seeks to deliver multiples of the daily performance of the index or benchmark that it tracks. An inverse ETF generally seeks to deliver the opposite of the daily performance of the index or benchmark that it tracks. Inverse ETFs often are marketed as a way for investors to profit from, or at least hedge their exposure to, downward-moving markets. Some ETFs are both inverse and leveraged, meaning that they seek a return that is a multiple of the inverse performance of the underlying index." One should note that inverse ETFs are particularly tricky, since they are hedging instruments, and thus are intended to perform well in volatile markets. While a financial advisor may describe these non-traditional ETFs as a product that would be suitable in a down market, given the fact that these products "reset" daily (meaning they are designed to meet their objectives on a daily basis), even in a declining market these non-traditional ETFs should not be held for longer than one trading session. Here are some helpful examples from FINRA's Regulatory Notice 09-31:
FINRA Resolution 09-31
Many an unfortunate customer has lost money due to an uninformed or negligent broker keeping them invested in leveraged and inverse ETFs inappropriately. We have found in our cases that oftentimes the individual financial advisor does not understand the nature or use of non-traditional ETFs, and so are forced to look at the firm they work for in seeking an answer to the question of why they are investing customers in products they themselves have no grasp of. In many cases, branch managers and even the brokerage firms are not nearly familiar enough with these complex products. Clearly, ETFs can be counterintuitive and risky financial products that are not suitable for every investor, nor understood or properly used by every financial advisor or firm.
If you or someone you know has lost money as a result of improper use of non-traditional ETFs, please contact us.
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