LPL Gets Stung by FINRA for $950K over Alternative Investments

News arrived recently that LPL Financial has once again run afoul of the agency that regulates the US securities industry, FINRA (Financial Industry Regulatory Authority). This time, LPL was slapped with a whopping $950,000 fine for allegedly failing adequately to supervise sales of alternative investment products like non-traded REITs (Real Estate Investment Trusts), oil and gas partnerships, business development companies (BDCs), hedge funds, and managed futures. 

Alternative Investments Have Concentration Limits

FINRA found that from January 1, 2008 to July 1, 2012, LPL Financial was deficient in its supervision and review of especially the concentration limits for investors set forth by the alternative investments themselves, as well as limits that LPL internally set for itself. In their offering documents, many alt investments like REITs will describe concentration and suitability recommendations/requirements for investors. Unfortunately, according to FINRA, LPL’s manual process, its automated system, and its supervisory staff all failed to properly take into consideration suitability standards when evaluating alternative investments.

In addition to the $950,000 penalty, FINRA has directed LPL to conduct a complete review of its policies and procedures, oversight, supervision, and training related to alt investments.

As FINRA pointed out it in its press release about the disciplinary action against LPL Financial, broker-dealers who sell alt investments to customers must evolve a supervisory system to ensure that these customers are not exposed to undue risk in their accounts. They must also meet the suitability requirements obtaining in each state, for each product, and for their own company.

Lack of supervision of this kind is a very common form of broker misconduct. If you or anyone you know has suffered losses due to unsupervised alternative investments such as REITs, you may be able to recover through the FINRA arbitration process. Please contact us immediately for a free consultation at 1-877-462-3330 or via email by clicking here and sending us a note.

Investors Unable to Sell Shares in PVCT Biopharm Stock

According to numerous investors using several different brokerage firms, including but not limited to TD Ameritrade, Wells Fargo, Fidelity, and ShareBuilder, on January 23, 2014, they found themselves unable to sell shares they held in a biopharmaceutical company, Provectus (symbol PVCT) for varying periods of time stretching up to five full hours in some cases. During this alleged sell "lockout" by the brokerages, investors could only watch helplessly as the stock price of PVCT rose to an all-time high before crashing again to deep lows, all during a day that witnessed enormous trading volume (30 million shares on the day). 

Our firm has now brought its first 3 cases against TD Ameritrade on behalf of investors who were allegedly "locked out" of selling their shares of PVCT for much of the day on 1/23/14. We are also pursuing multiple other actions against TD Ameritrade and other brokerages for the same issue.

If you or anyone you know was subject to this alleged "lockout" or "freeze" on selling PVCT on 1/23/14, please contact us immediately for a free consultation at 1 855 462 3330 or via email

FINRA Investor Alert: Beware Private Placements

Investor Alert: Beware Private Placements

Yesterday, the US securities industry watchdog, the Financial Industry Regulatory Authority (FINRA), issued its latest investor alert. The alert addressed new issues related to investing in private placement deals. If you’re not familiar with FINRA and its investor alerts, you should know that the agency is responsible not just for regulating the securities industry, but also for identifying problems surrounding new financial products and trends in broker misconduct and investment fraud.

The fact that private placement deals have earned their place on FINRA’s watchlist can be taken as a clear indication that these deals should be approached with caution and that they are almost certainly not appropriate for the casual and/or unsophisticated investor. In other words, buyer beware.

What Is a Private Placement?

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A private placement is a limited offering of a company’s securities that is not SEC-registered and not public. Most importantly, perhaps, as stipulated by Regulation D of the Securities Act of 1933, private placements are only suitable for “accredited investors.”

Put simply, accredited investors are high net-worth individuals with assets of $1 million or more (not counting primary residence), with strong verifiable incomes over the past two years. If you do not meet these requirements, you should absolutely not be invested in a private placement, nor should your broker invest your money into one. Such investments would be deemed unsuitable according to FINRA rules and regulations.

If You’re An Accredited Investor…

If, on the other hand, you do qualify as an accredited investor and you are interested in purchasing securities as part of a private placement deal, proceed with all due caution. As FINRA warns, companies that issue private placements are not required to file the same financial reports as publicly-traded companies, and these securities often include risks and liquidity considerations that more simple and transparent securities do not. When considering a private placement, investors and brokers should carefully read all documents supplied by the issuing company, including especially the offering memorandum or prospectus. Then, make sure that the risk and liquidity issues associated with this securities fit well into your overall investment portfolio.

Private Placements Afflict Many Retail Investors

We greatly appreciate FINRA's calling attention to the pitfalls of private placement deals, since over the years we’ve seen far too many cases of novice investors purchasing these securities when they were not accredited investors and/or when they did not understand the product itself. And of course, they lost a lot of hard-earned money doing so.

As always, if you or anyone you know has been the victim of broker misconduct or investment fraud related to private placements or any other financial security, please contact us for a free consultation.

No Such Thing As a "Free Lunch" (Seminar)

The Financial Industry Regulatory Authority or FINRA reports that 64% of Americans over 40 years old have at one time or another received unsolicited invitations to enjoy a so-called "free lunch seminar" that promises to teach them about money management and investing. Those are some impressive figures. Alas, as we all know, there's no such thing as a free lunch in this world. So if you do choose to accept one of these invitations, be prepared for the usual salesperson full-court press as the sponsoring firms or brokers who are behind the seminar try their darndest to turn you into a new client or sell you something you probably don't want. Typically, these seminars transform into a veritable flea market of sales pitches involving books, financial products, money management tools or software, or investing services. You may get a bellyful of appetizing lunch gratis, but you'll also most certainly be getting an earful of sales palaver as well.

According to a recent article on the subject, "Securities regulators such as FINRA conducted more than 100 examinations of free-meal seminars. In half the cases, invitations and advertisements contained exaggerated or misleading claims, and 12 percent of them appeared to involve fraud."

Wow. With those daunting statistics in mind, if you still want to attend a free lunch seminar, do yourself a big favor and:

Commit to nothing. It's ok to grab a lunch on someone's else tab, especially if it's good eats (!), but knowing in advance you're inevitably going to come under pressure from financial salespeople connected to the seminar means you can steel yourself for no matter what they come at you with. Of course, always be polite, accept whatever literature or information packets they're handing out, but do not agree to or sign anything while you're at the seminar, especially if you haven't done any background research ahead of time. Which brings us to...

Do background research. It's the Age of Information, people! There's absolutely no reason in the world you should be attending a free lunch seminar/sales pitch session without knowing something about who's behind it and who's going to be doing the speaking. General research can be done through Google or social media. If the seminar sponsors are brokerages or individual brokers, use FINRA's wonderful online resource BrokerCheck to look into their professional history. If you're still not sure who you're dealing with by the time you get to the seminar, turn the tables on the pitch masters by putting them on the spot by asking for references. Let them feel some high-pressure.

We at The Green Firm have handled several cases in the past that involved our client being sold a bill-of-goods at one of these shady seminars. Don't be their next victim. If, however, you or anyone you know has already been the victim of broker fraud or fraud related to informational seminars hosted by financial industry professionals, please contact us immediately for a free consultation.

Bad Apple REIT Spoils a Bunch

Sometimes a bad investment is just a bad investment. At least, that's the message that was sent by a recent ruling from a US federal judge in a class-action suit against Richmond-based Apple REIT Co, a real estate investment trust which invests primarily in hotels. The story begins in Washington back in October 2012 when FINRA sanctioned brokerage David Lerner Associates (DLA) of Syosset, NY to the tune of $14 million for restitutions to customers and fines. FINRA's sanction was punishment for what the regulatory agency determined was a whole lot of unfair practices by DLA related to offering Apple REIT Ten, as well as excessive markups on municipal bonds and CMOs. To read the full complaint, click here.

As sole distributor of Apple REITs, DLA was found to be targeting unsophisticated investors and the elderly; selling the illiquid securities without determining if they were suitable for customers; using misleading marketing materials; and touting the REIT's performance as a "fabulous cash cow" and "gold mine." FINRA slapped them up for all of that, and suspended Lerner personally from the securities business for one-year, plus a two-year suspension from being a principal in a brokerage business. But here's where the story gets more interesting than just your average misbehaving brokerage...

he same customers who won restitution from DLA got together in a class-action suit and sued Apple REIT Co. Why not, right? If DLA was messing around, maybe Apple REIT was, too. But, somewhat surprisingly, as the April 3, 2013 ruling on the matter by US District Judge Kiyo Matsumoto of the Eastern District of New York stipulates, "investors had received sufficient disclosure to understand the risks of investing" and that Apple’s investment objectives “did not constitute actionable misrepresentations or omissions.” In other words, Apple REIT did nothing wrong. They had a high-risk product that had a real chance to be an illiquid investment given the nature of the real estate market, and apparently they had disclosed all relevant information in their marketing and promotional material. In this case, the bad Apple wasn't Apple REIT: it was DLA.

The takeaway: if a REIT discloses the nature of their product in all the small print and legalese in their offering material, that does not remove the duty of the financial adviser to make sure that this investment is suitable for an individual customer. It's the financial adviser's responsibility not only to ensure suitability, but to make a full disclosure to the customer about the risks and liquidity issues involved in an investment of this (or any) type.

If you or anyone you know has been the victim of misleading marketing material or any other form of broker misconduct, please contact us for a free consultation.

An Injustice Lurks within the Justice System

How often do you read the fine print? Or, ok, let's make the question more concrete... Have you read our site disclaimer? It sits at the very bottom of the page there, down in the footer, in a font that's a little smaller than our body text font so as not to annoy people, and it definitely qualifies as a kind of fine print. It's ok if you've never read it. It's not like we're asking you to sign away your rights based on what's in the disclaimer or anything--we're not your brokerage company or financial adviser. Because that's basically what they do. We'll come to the point: it's just as unlikely for you to read The Green Firm site disclaimer as it is for you to read the fine print in the agreement you signed with your brokerage or financial adviser that gets you to waive your right to file a claim against them in court or to participate in a class-action lawsuit. Don't know what we're talking about? Well... Chances are you already signed the agreement without even realizing what you were giving away. And that's exactly what the brokerages count on.

Fortunately, there's been a push recently by some politicians along with an influential member of the SEC to onsider adopting new rules that would prevent or restrict brokerages from forcing customers to sign away their right to sue. As things stand, if your broker loses all your money through chicanery or negligence and you want to sue him or her and their supervising brokerage firm, you will have to take your case before an arbitration panel administered by the Financial Industry Regulatory Authority, or FINRA. No trial, no jury--just you, attorneys, and an arbitration panel. Now, brokerages like to argue (as credit card companies do as well) that binding customers to arbitration reduces legal costs and help with frivolous litigation. Well, fine, that's bully for them! But from where we sit--and it seems like more and more people are starting to agree with us--this arrangement doesn't just favor the interests of the big brokerages and advisers, it's unjust and, dare we say it, borderline UnAmerican. 

Yeah, ok, we should all read the fine print. But realistically, as we demonstrated above, most people don't. This puts customers in the awful position of being fleeced not once but twice: first, when the brokerage gets them to sign away their right to sue or join a class-action suit; and then again when their advisers through negligence or misconduct lose the customer's hard-earned cash. 

FINRA Is Watching, But Always Be Vigilant

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.

Rogue Broker Runs Wild

A recent article on alleged con man Karl Hahn caught our eye for two key reasons. First, it's yet another cautionary tale of a friend swindling another friend out of a whole lot of money. We saw this not long ago in the case of major league pitcher, Barry Zito. In this particular case, the victim was a Silicon Valley legend named Chase Bailey, formerly a chief scientist for Cisco Systems, serial startup entrepreneur, actor and filmmaker. Bailey and Hahn became friends while Hahn, a former financial adviser, was working for Deutsche Bank. Hahn began the alleged con by selling Bailey very expensive life insurance policies, then proceeded to fleece Bailey out of millions of dollars through a series of what appear to be completely false and fraudulent coastal real estate deals. Some friend. Unfortunately, by the time Bailey caught on to Hahn, the alleged con man had already filed for bankruptcy, making it extremely unlikely Bailey and his legal team will be able to recover the $10.5M judgment from Hahn personally (in a colorful wrinkle, Hahn now finds himself working at Home Depot). However, and this is the second key reason we wanted to share this article:

"Also linked to the case are three of Hahn's former employers: Merrill Lynch, Deutsche Bank and Oppenheimer. All denied "vicarious liability" for, and negligent supervision of Hahn, but according to FINRA records, they all reached unspecified settlements before a FINRA hearing commenced."

As this quote indicates, in cases where it may prove difficult to recover from a rogue broker like Hahn, we at The Green Firm have found that through extensive investigation, we are often able to expose the broker's employers by showing that they knew or should have known about this type of gross misconduct and yet they did nothing to protect their clients.  

If you or someone you know has the been the victim of investment fraud or broker misconduct, please contact us immediately to discuss your legal rights.