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

Securities Fraud Is A "Whole 'Nother Ballgame" For Pro Athletes

Professional athletes are among the most common targets of unscrupulous brokers and money managers. Many of these athletes, while wealthy, are also often young and inexperienced when it comes to finance and investment. Just because pro football, basketball, and hockey players have achieved an elite status in their profession does not make them any more sophisticated when it comes to investment products and strategies than the average American. However, since they do have such a high profile, they tend to attract fraudsters in much higher numbers than the rest of us. Our firm’s experience with professional athletes makes us uniquely sensitive to this situation and the struggle they face trying to recover losses when they’ve been swindled.

Accordingly, we were saddened but unfortunately not very surprised when, once again, we came across this article in the media describing how a dozen pro football players based in Florida were allegedly majorly defrauded. According to the Sun Sentinel, a group of at least twelve former or current NFL players filed claims through FINRA’s arbitration process against two Broward County financial advisors. Allegations made by the players and their attorneys include “unsuitable recommendations to invest in "illiquid, high-risk securities” in a now bankrupt Alabama casino and promissory notes offered by the parent company of Success Trade Securities.

In another case, also based in Florida and involving NFL players but this time filed in federal court, another group of players filed a lawsuit back in October alleging that a bank allowed about $53 million to be taken from players’ accounts for “illegitimate” purposes by the firm of a recently banned advisor named Jeffrey Rubin.

And that’s just recently, just in Florida. Cases like this sprout up all over the country, all the time. Pro athletes who may be unbeatable on the gridiron or on the ice need to be as careful as any other novice investor when it comes to the complex game of securities. As the saying goes, out there it’s “whole ‘nother ballgame.”

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

Non-Traditional ETFs, Popular and Perilous

News of the perils for retail investors of the complex financial products known as non-traditional ETFs has been fast and furious this year. This shouldn’t be too surprising. Non-traditional ETFs are the “it” investment these days: they have continued to grow in popularity, with their largest year-end proportion ever in 2013. According to Morningstar reporting, these exotic funds now account for 13.2% of all fund assets as of November. If you’re not familiar with non-traditional ETFs, chances are you will be soon: their popularity, in spite of several high profile lawsuits related to inappropriate use and unsuitability claims, seems unstoppable. The latest lawsuit involves a broker-dealer called “Stifel Financial Corporation.” According to a recent article, the securities industry watchdog FINRA (Financial Industry Regulatory Authority), fined and censured Stifel Nicolaus and Century Securities $550,000 and ordered restitution payments of $475,000 to a combined more than 60 customers for misconduct related to the recommendation and sale of leveraged and inverse ETFs.

photo by Katrina.Tuliao, Creative Commons

And it’s happening all the time.

For the very simple reason that far too many brokers who recommend and sell non-traditional ETFs to customers do not understand how they work. And their brokerage firms do not educate and/or supervise these brokers adequately.

FINRA’s crackdown on offenses connected to non-traditional ETFs is good news for investors whose portfolios have been damaged by these products and their improper use by clueless brokers.

Now, we’ve already said a lot about the havoc non-traditional ETFs have wreaked--but what are they?

Well, since you asked… Non-traditional ETFs are complex financial products designed to achieve specific performance results on a daily basis. An ETF or “Exchange-Traded Fund” is typically a registered investment company whose shares represent an interest in a portfolio of securities that are linked to a specific benchmark or index. (Some ETFs, for example, those invested in commodities or currencies, may not however be registered). ETFs are funds, but unlike traditional mutual funds, they are traded throughout the day on a securities exchange at market prices.

Non-traditional ETFs include both leveraged and inverse ETFs as well as leveraged inverse ETFs. Leveraged ETFs aim to deliver multiples of the performances of the underlying index or benchmark that the fund is tracking. Inverse ETFs or “short funds” on the other hand deliver the opposite of the index or benchmark. Some ETFs are both leveraged and inverse, in which case they combine qualities from both categories of ETFs, hoping to deliver multiples on the inverse of the performance of the index or benchmark. These are called “leveraged inverse ETFs” or “ultra-short funds.” To achieve results, non-traditional ETFs deploy various investment strategies that include swaps, futures contracts, and other derivative instruments. Again, and most crucially, both leveraged and inverse ETFs are designed to give results on a daily basis only.

On a daily basis, non-traditional ETFs “reset.” This key characteristic of the product is the one most often misunderstood or misapplied by investors and professional financial advisors alike. Since leveraged and inverse ETFs are intended for daily use only, holding shares in them for longer-term investment can be dangerous due to the effects of compounding, particularly in volatile markets. Non-traditional ETFs can be an effective means of trading and shorting within a complex investment strategy when closely monitored by a financial professional. However, they  are typically not suitable for intermediate or long-term investment and any financial advisor who uses them in this way may be guilty of misconduct and/or unsuitability.

If you’ve gotten this far, you now probably know more than most brokers about how this product works.

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

FINRA Stats Suggest Stacked Panels Don't Matter

The securities industry watchdog FINRA (Financial Industry Regulatory Authority) released some interesting figures this week concerning awards in their arbitration hearing process. FINRA is a regulatory arm of the SEC, and its arbitration process--which unfolds outside the US criminal justice system--resolves most forms of securities litigation between investors and broker-dealers. That’s because the vast majority of investors, whether they realize it or not, when they open their accounts with a FINRA-registered brokerage firm sign an agreement binding them to arbitration in the event of legal claims of malfeasance, misconduct, fraud, etc. For more on that, please click here.

Creative Commons, Wikimedia

...Now back to those figures. For many years, FINRA required that in claims over $100,000, at least one member of the three-person panel that sits in judgment over the arbitration process have securities industry affiliations. In practice, that generally meant that one member of the panel came from the brokerage side of the dispute. In 2011, after years of criticism and pressure, however, the SEC and FINRA changed this requirement to give investors a choice. Today, investors can choose between a panel with at least one member hailing from the securities industry; or a panel composed entirely of “public arbitrators” who do not currently have industry affiliations but may have previously worked in the securities industry.

According to FINRA’s new data, since this 2011 adjustment to the rules took effect, they have found that investors have a very small statistical edge in winning an award for damages from a panel with at least one “insider” over a panel of “public arbitrators.” Evidently, panels composed of three public arbitrators ordered brokerages to pay investors damages in 43% of cases that ended with a ruling while 44% of panels with one securities industry insider did. In other words, the results weren’t what everybody thought they would be. Statistically, there’s almost no difference in terms of getting an award between having a panel with an insider and one without.

But the statistics belie much more important information, which does not appear to be forthcoming from FINRA. As The Public Investors Arbitration Bar Association (PIABA), an Oklahoma-based group of lawyers who represent investors, has plainly stated: "The problems of the results go deeper than simply the removal of the industry arbitrator.” After all, let’s just remember that more than half of all cases that make it to arbitration go without any award whatsoever. What’s more, FINRA hasn’t provided any data regarding the amount of damages sought in the original claim versus the amount of damages actually awarded in cases won by investors.

While we’re happy to hear that some form of parity has been reached within the arbitration process, we tend to agree with PIABA that the problems run much deeper. And we’re afraid FINRA may be patting itself on the back a little too soon.

FINRA Panel Awards $900K in Non-traded REITs Case

This week, a FINRA arbitration panel in Florida turned some heads with a $900,000 award to investors who had lost money in two non-traded REITs offered by Inland American Real Estate Trust, Inc. One of the nation’s largest real estate trusts, Inland American controls more than $11 billion in real estate assets. The REITs at issue in the case were Inland Western Real Estate Investment Trust and Inland American Real Estate Investment Trust.

photo by Kevin Dooley (Creative Commons)

Maybe you’ve heard of REITs already. They’re real estate trusts that pool investor money in order to control large assets such as shopping malls, apartment complexes, even timber land. There are two basic kinds of REITs that are publicly registered (as well as something called a “private REIT” or “private placement REITs” which we we’ll talk about another time): exchanged-traded REITs and non-exchanged-traded REITs. In the case of traded REITs, they are similar to more familiar securities like stock in that their shares are listed on a national securities exchange and they can be sold rather easily on the secondary market.

Non-traded REITs are different. Their shares are not traded on a national securities exchange, they demand high fees, and they are highly illiquid. Often, investors will not be able to get their money out of a non-traded REIT for 8 years or more. Finally, distributions thrown off by a REIT are subject to reductions or stoppages by the issuer of the REIT if they deem it necessary--and there’s nothing you can do about it. These factors make REITs, and especially non-traded REITs, rather risky investments, especially for novice investors who do not fully understand the liquidity issues involved.

In summer 2012, FINRA dedicated one of its “Investor Alerts” to the subject of non-traded REITs. For more information, please click here. Below you’ll find a helpful chart provided by FINRA that helps describe and distinguish between traded and non-traded REITs:

We’ve litigated numerous cases in which brokers seeking higher fees placed unwitting investors in non-traded REITs without informing them of the risks involved, especially the risks related to liquidity. Years later, when the REITs stop issuing distributions or the investors want out, they find themselves stuck in a product they don’t understand and that is not appropriate for them. Because there is no secondary market for such securities, investors simply have nowhere to go.

If you or anyone 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.

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

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.

Brokerage Fined $700,000+ for Misuse of Non-Traditional ETFs

The Financial Industry Regulatory Authority (FINRA) recently announced that it has fined Atlanta-based brokerage firm J.P. Turner & Company, L.L.C. more than $700,000 for the alleged misuse and unsuitable recommendation and sale of complex securities products called non-traditional ETFs to customers who had no business holding these products. According to FINRA’s press release, JP Turner brokers also allegedly engaged in excessive mutual fund switches, which involves using mutual fund products designed for long-term use on a short-term basis in order to generate illegitimate trading fees.

In our many successful cases dealing with customers who have suffered losses due to the misuse and abuse of non-traditional ETFs, we have found that investors rarely understand what a non-traditional ETF actually is or how it works. What’s more, very few brokers actually understand non-traditional ETFs! Which is probably why in 2009 FINRA also issued one of its regular “Investor Alerts” about perils of investing in non-traditional ETFs--for brokers and clients.

Photo by Rafael Matsunaga, Creative Commons

Traditional ETFs are defined by FINRA as “registered investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index.” Non-traditional ETFs like those at issue in the case against J.P. Turner & Company generally come in two forms: leveraged and inverse. Leveraged ETFs offer returns at a multiple (often 2X or 3X) whatever benchmark they track. Inverse ETFs act the way they sound: they offer returns at an inverse multiple of the benchmark. If you benchmark falls, you win; and vice versa. If you’re already a little confused, don’t worry: so apparently are the thousands of financial advisors out there recommending and misusing these products. Not to add the confusion, but...

There’s one other aspect of these complex products that is absolutely crucial to understanding them: they “reset” daily. That means that they are only effective one day at a time and should not be held in investor accounts for any longer than that. According to FINRA, JP Turner’s brokers failed to grasp this unique quality of non-traditional ETFs held the ETFs for not a day, days or weeks--but months at a time!

For more information about non-traditional ETFs, please click here.

If you or anyone you know has been the victim of the misuse of non-traditional ETFs or any other form of broker misconduct or investment fraud, please contact us immediately toll-free at 1-855-462-3330 for a free consultation.

Bad Brokers Target Pro Athletes

Bad brokers are everywhere. But they tend to really grab headlines--and swindle truly staggering amounts of money--when they defraud professional athletes. We’ve featured more than one post here about individual and groups of pro ballplayers from every major sport who’ve been taken advantage of by close friends or crooked brokers. Unfortunately, so many athletes we know to be unstoppable on the field make for easy targets when it comes to their personal finances.

Photo by Jeramey Jannene

Just this week, news arrived that broker, Jinesh “Hodge” Brahmbhatt formerly of Success Trade Securities, Inc., who was apparently at one time “approved” by the NFL to provide investment advice to players, allegedly sold more than $18 million in bogus promissory notes to 58 different investors. Many of these investors were current or former NBA and NFL players. If you’re wondering why pro players are so susceptible to fraudulent investment schemes, think about it: usually from humble backgrounds, pro players suddenly become very rich, spend quickly, invest poorly, and lack the experience and expertise to evaluate complex financial products.

According to the report on Yahoo sports, athletes who bought the dubious Success Trade notes include Jared Odrick of the Miami Dolphins, Brandon Knight of the Detroit Pistons, Adewale Ogunleye of the Chicago Bears, former Washington Redskin Clinton Portis, the 49ers’ Vernon Davis, and Browns cornerback Joe Haden. Those close to the case expect this list to grow as other players who held the Success Trade notes lawyer up and file complaints with the Financial Regulatory Industry (FINRA). Meanwhile, Mr. Brahmbhatt, who most recently worked for investment adviser firm, Jade Private Wealth Management LLC, has been banned by FINRA.

While the life and means of pro ballplayers may seem distant and out of all proportion to ordinary investors, the lesson here is the same. Bad brokers, as Mr. Brahmbhatt certainly appears to be, are everywhere, and they can and will get over on anyone. The best way to protect yourself against broker misconduct and investment fraud is to practice a form of financial self-defense. For tips and techniques on how to do this, please download our free guide.

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

Investor Alert: Closed-end Funds

Every so often when they’ve been presented with a large number of recent regulatory or disciplinary cases involving a specific type of investment, the financial industry watchdog, FINRA, will issue an “Investor Alert” that serves to heighten awareness among investors. Well, the other day, FINRA came out with a new alert about something called “closed-end funds.” Like with alt mutual funds, which FINRA has also issued a recent alert about, the presence of the word “fund” in “closed-end funds” seems to throw novice investors for a loop: they tend to immediately think of that old investment standby, mutual funds. And while traditional mutual funds and closed-end funds do have a lot in common, the differences are what’s crucial here.

By Dave Dugdale from Superior, USA (Analyzing Financial Data  Uploaded by Ainali) [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

What’s a “closed-end fund”?

According to the FINRA notice, a closed-end fund is “a type of investment company that pools money from investors to buy securities. Closed-end funds are similar to mutual funds in that they professionally manage portfolios of stocks, bonds or other investments (including illiquid securities). Unlike mutual funds, which continuously sell newly issued shares and redeem outstanding shares, most closed-end funds offer a fixed number of shares in an initial public offering (IPO) that are then traded on an exchange.” Hence the term “closed-end.”

Another major difference between traditional mutual funds and closed-end mutual funds is that the latter pay off in distributions rather than returns. Difficulty distinguishing between the two has apparently been wreaking havoc on investors, who hear/read 6% distribution and want to jump in.

Here below, we’ve put together a few key characteristics of closed-end funds based on FINRA’s alert that you need to know before you purchase shares in one:

1. Like traditional mutual funds, closed-end funds charge annual fees and expenses.

2. Both mutual funds and closed-end funds use leverage which can magnify gains and losses.

3. Closed-end funds can hold a greater percentage of illiquid investments in their portfolios than can mutual funds.

4. In certain cases, the distributions of a closed-end fund can include a return of principal. That means the monies may come from the fund’s assets. Which means that there can be significant risk involved.

For more information, including the six questions FINRA suggested you ask before investing in a closed-end fund, click here to view their Investor Alert.

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

Naming Names: FINRA's October 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 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 highlights from each report. Specifically, we’re looking for schemes or abuses that might be more far-reaching than the individual cases brought through FINRA. In other words, we name names here because we hope to raise awareness out there among investors about certain brokers and products that might otherwise go unnoticed. Without further ado, here you go:

Creative Commons, Wikipedia

James Robinson, President and CCO of Vermont-based broker-dealer Middlebury Securities, LLC, got himself fined handsomely and suspended from FINRA for allegedly misusing, through a registered representative, $200,000 in escrowed customers’ funds during a private offering that raised more than $5 million. Middlebury Securities was also censured and fined $325,000 for allegedly failing to supervise transactions and accounting related to this private offering deal.

Read more here.

MML Investor Services, LLC, based in Springfield, Massachusetts, was censured, fined, and ordered to pay almost $800,000 for allegedly failing to supervise its registered representatives (brokers) “in connection with their unapproved sale of certain private securities.” As a result of this failure to supervise its brokers, many of MML’s investors were allegedly sold unauthorized promissory notes from an issuer, ICI, who turned out to be running a multi-million dollar Ponzi scheme.

Read more here.

Gregory Jerome Ptasienski Osborn, a broker with Middlebury Securities and based in Ridgewood, NJ, is the subject of a complaint alleging that he “willfully made fraudulent misrepresentations and omissions of material facts in connection with the sale of securities in private offerings, conducted on behalf of issuers, and raised approximately $5.09 million from investors through the sale of the issuers’ offerings.” Osborn also allegedly received around $100,000 in commissions related to the offerings.

Read more here.

Michael Eugene French, a broker formerly with Wells Fargo Advisors, was fined $25,000 and suspended from FINRA for allegedly recommending and trading non-traditional ETFs in an elderly couple’s accounts who were relying on their portfolio to provide for their retirement.

Read more here.

Karen Yvonne Geiger of broker-dealer Wall Street Strategies, Incorporated was fined and suspended from FINRA for 30 days for recommending and selling more than $200,000 in illiquid and high-risk investments to an elderly couple who had no business holding these products.

Read more here.

Jeffrey Griffin, Jr. of Jersey-based National Securities Corporation was barred from FINRA for allegedly having created his own limited liability company, Tricep Trading, then used it to solicit investors’ money so he could day-trade ETFs.

Read more here.

Anthony Manaia of brokerage firm, Intervest International Equities Corporation, was fined more than $50,000 and suspended from FINRA for allegedly making “negligent misrepresentations and omissions of material fact in a cover letter and in email communications to customers in connection with investments in private placements.” His customers’ investments in the private placement, known as MedCap VI (issued by Medical Capital Holdings, Inc.), totalled around $1.35 million.

Read more here.

There’s plenty more where that came from. If you’d like to read the entire FINRA Disciplinary Action Report, click here.

If you or anyone 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 or use our contact form to the right.

Bad Broker Fast-Track to Disbarment

It’s hard being top dog. And FINRA (Financial Industry Regulatory Authority), the securities industry top watchdog, has the unenviable task of balancing the complex interests of smoothly-functioning capitalism (aka, Wall Street) with the duty to protect ordinary investors (read: Main Street) from sharks and frauds of every conceivable description. After recent reports that FINRA was allowing an alarmingly high number of financial advisors to expunge records of customers complaints and disciplinary actions from their history as archived in FINRA’s BrokerCheck, the agency has bounced back with some more uplifting news for retail investors.

FINRA's Bad Broker Fast-Track

Without much fanfare, FINRA has launched a “fast-track” into their disciplinary process that will seek to identify, investigate, and punish brokers whose checkered past indicates they are of particular risk to investors. These fast-tracked brokers will have, as FINRA put it, “an extensive disciplinary history with numerous substantive complaints.” As a result, once their cases come up for review by FINRA, they will suffer increased scrutiny throughout the examination and disciplinary process as well as the better-coordinated wrath of FINRA’s three internal branches: member regulation, enforcement, and fraud detection.

Photo by See-ming Lee, Creative Commons

Fast-Track a Win For Retail Investors

Evidently, FINRA decided to launch the “fast-track” program after noticing that half of all its ongoing investigations involved fraud on behalf of individual brokers. In other words, the agency realized that there was a small number of very bad apples spoiling the bunch. At any rate, the change is welcome news for investors and the attorneys who represent them, since it means that if you happen to get swindled by an especially bad broker, you’ve got a decent chance of having your case expedited by FINRA, thus speeding up the process of recovering your money.

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.

Hedge Funds Charge Through the Backdoor with Alt Mutual Funds

Well, it looks like the masters of the universe on Wall Street haven’t quite learned their lesson… Are we surprised? Given the historic proportions of the impact and damages inflicted by the truly epic financial collapse of 2008, um, yeah…!  

Alt Mutual Funds Take Up Where Derivatives Left Off

Creative Commons by CollegeDegrees360

For most of us ordinary mortals, all the hand-wringing that followed the collapse of our banking and mortgage system over too-complex financial products like derivatives and collateralized debt is still fairly fresh in our minds. Unfortunately, the allure of complexity and the money that tends to flock in its direction appears irresistible to bankers and ordinary investors alike. Enter the new and almost impenetrable darling of the investment world: alternative mutual funds.

According to Morningstar, the leading independent investment research agency, billions of dollars have recently found their way into these funds in effort to further diversify portfolios against market volatility. Currently, total assets in alt mutual funds hovers at around $234 billion. Just this year, around 55 new alt funds were introduced to market, bringing the total to 400 or so.

Not Your Grandfather's Mutual Fund

Alternative mutual funds may share the same last part of the name of traditional “mutual funds,” but don’t be deceived: these are not your grandfather’s (or even your father’s) mutual funds. Alt funds contain far more exotic strategies and asset mixes than their traditional counterparts, including hedging and leveraging through derivatives and short-selling. And while a thoughtful and well-balanced mix of holdings and strategies may sound like just the thing to counteract market volatility, these funds may conceal risks and fees that the unsophisticated and sophisticated investors alike may not be fully aware of. For more on alt mutual funds, click here.

Swimming with the Sharks

Creative Commons by Hermanus Backpackers

At any rate, it seems that part of the increasing popularity of alt funds lies in the entrance of certain massive hedge funds--entrance through the back door, that is--into the retail investment market. It was only a matter of time before these sharks figured out a way to bait ordinary investors. But that doesn’t change the fact that the products they are pushing out to market are hardly suitable for most investors--and barely understood by even the most well-versed professional investment advisors. There’s a reason why only accredited investors are permitted by law to invest in hedge funds: they’re unregulated and very, very risky. Thanks to alt mutual funds, however, it seems that hedge funds have found a nifty way out of their gilded regulatory ghetto. And while every product has its use, we reserve the right to worry over the arrival of yet another asset class that the vast majority of investors can scarcely grasp--and so soon after horrific consequences of the last incarnation of greed-meets-complexity put all in such a very deep, very dark hole.

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.

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.

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.

Tropical Storm: Puerto Rican Municipal Bonds

If you’ve been reading the news lately, you probably noticed the series of alarming stories on a certain major government in danger of default. This government has enormous pension obligations and has recently been suffering from very high jobless rates along with a shrinking economy. As a result, this government’s bonds have taken a serious hit--so serious, in fact, that it’s left the massive mutual funds that hold the bonds scrambling to dump them or to get loans to prevent them from having to sell. If you haven’t guessed what government we’re talking about yet, here’s another hint: their flag has a star and stripes. Another hint: It’s not The United States.

Ok, ok: it’s Puerto Rico. Pretty close!

Puerto Rican Municipal Bond Crisis

Creative Commons, Wikipedia

Recently, disturbing news that Puerto Rico’s government might lurch into default has sent the value of the S&P Municipal Bond Puerto Rico Index plummeting around 20%, or 19 points worse than the general S&P Muni Bond Index. In other words, these bonds have gone toxic.

Back in August and September, a number of major securities brokerage firms ordered thousands of brokers to stop selling Puerto Rican Muni Bonds to clients. After that came news that over the past ten years, financial services giant UBS had packaged and sold more than $10 billion of the bonds to individual investors, many of whom were allegedly urged by UBS to buy on the margin or on credit lines, increasing exposure. Now we learn that at least one major mutual fund, OppenheimerFunds, is so heavily-invested in the island-territory’s failing bonds that it’s taken a $2 billion line of credit from Citigroup to shore up its portfolio and, hopefully, weather the tropical financial storm. Meanwhile, scores of individual investors who find themselves holding Puerto Rican Municipal Bonds, whether directly or through mutual funds like Oppenheimer, must be wondering what all this means for them...

Weather the Storm or Run for Cover?

Creative Commons, Wikipedia

As much as we’d like to speculate on that, alas, we’re not qualified. But we continue to hope for the best. What we are qualified to do is to raise awareness among investors whose portfolios may contain the toxic Puerto Rican Muni Bonds. The recent drastic losses in value and general volatility of the Puerto Rican Munis effectively makes this product completely unsuitable for the conservative investors with moderate risk tolerances who traditionally hold them. If you’re one of these investors, it may be time to take action before it’s too late. If you’ve already lost your hard-earned money as a result of the island bonds, we suggest you contact an attorney now.

If you or anyone you know has suffered losses resulting from Puerto Rican Municipal Bonds or any other form of broker misconduct or investment fraud, please contact us toll-free immediately at 1-855-462-3330 for a free consultation.

Investor Threats: The Biggies

As long as there’s money to be made swindling unwitting investors, fraudsters and scam artists will always be around. That’s why we preach our mantra of keeping ever-vigilant about your investments, and remembering the old but reliable rule of thumb, “If it sounds too good to be true, it probably is.” Unfortunately, new scams or new variations on old scams are constantly popping up. That’s why we found the recent list, compiled by the North American Securities Administration Association (NASAA) so useful, and thought we should share it.

Creative Commons by Shaunak De

If you’ve never heard of the NASAA before, you’re probably not alone. Funnily enough, though, you’ve probably heard of the SEC (Securities and Exchange Commission), which is actually two decades younger than NASAA, and primarily operates on the federal level. The NASAA on the other is an association of state-level securities regulators appointed by their Governors or Secretaries of State, and they help protect Main Street investors as well as advise small business owners on securities compliance and best practices. At any rate, they recently put out a list of the 2013 Top 10 financial products and practices that threaten investors and small business owners. Here below are a few of the very biggest scams going that you really need to watch out for. If you’d like to check out the full list from NASAA, please click here.

5 of the Biggest Investor Threats

Private Offerings. Among the most common products or schemes misleading investors, Private placements offerings are highly illiquid, under-regulated, and generally unsuitable for ordinary investors. For more on private offerings, please click here. With the recent passage of the JOBS ACT, the NASAA expects to see a sharp rise in scams related to private offerings as a result of the ubiquity of advertising on the internet and in social media to unqualified and unwary investors.

Real Estate Investments. The subprime mortgage crisis and global financial crisis of 2008-2009 left a lot of distressed real estate on the market. And while there’s certainly still a multitude of good opportunity for brave investors in real estate funds, there’s also a tremendous amount of fraud being perpetrated in this particular sector. Most notably, non-traded real estate investment trusts (REITs) have, according to NSAA, been very popular with scam artists of late. For more on REITs and why they can be risky or even toxic investments for ordinary investors, please click here.

High-Yield Products and Ponzi Schemes. By now, mostly thanks to Bernie Madoff scam of historic proportions, Ponzi is a household word again. Unfortunately, people generally still don’t understand what to look out for when one comes creeping into their portfolio. Retail investors will often be seduced by promises of extraordinarily high-yields and quick returns, and before they know it, they find they’ve been fleeced out of a ton of hard-earned cash. As classic and well-known as Ponzi schemes are, they continue to take in huge numbers of investors. 

Affinity Fraud. Scamsters no that people tend to trust and, more importantly to them, open their wallets more readily for people with whom they perceive they share a common interest, whether it be religion, age, or background. Affinity fraud is more of a tactic than a scheme, since fraudsters who practice it use personal and emotional appeals to lure investors into Ponzi-like operations.

Self-Directed IRA Accounts. Now that investors are more and more running their own IRA accounts, scam artists have caught on and are using investors’ lack of expertise and experience to direct them into bogus ventures, including Ponzi schemes and alternative investments like private placements, startups, and real estate trusts. Since in self-directed accounts, investors cannot easily turn to a trusted financial advisor for advice on how credible a particular venture looks, fraudsters have a new and distinct advantage. 

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.

Stock Broker Insurance!

Creative Commons. Wikipedia.

Aside from the pleasure of seeing bad guys get their due through disciplinary action, it’s not often that we rejoice over news from financial industry watchdog, FINRA (Financial Industry Regulatory Authority). Although critical to strengthening our financial self-defense, generally FINRA’s announcements and investor alerts are pretty dry and/or gloomy. After all, it can be disheartening to read, time after time, about the incredible number of scams and fraudsters that are out there just looking for a patsy with a sizeable nest egg… Then comes the news this week that FINRA is considering requiring brokerage firms to carry “errors and omissions” insurance in order to cover payment of arbitration awards to investors. Hallelujah!

If you don’t immediately share our excitement, you may not be aware of what great news this potentially is for investors. Consider this:

In 2011, $51 million or 11 percent of FINRA arbitration awards had not been paid to investors.

Creative Commons. Dan Moyle.

That’s a lot of money. It’s money investors like you or someone you know lost to crooked brokers and brokerage firms. It’s money a FINRA arbitration panel felt they were owed. And it’s money they may never see. All because many of the rinky-dink, fly-by-night brokerage that are the subject of disciplinary action and considerable fines by FINRA end up filing for bankruptcy and going out of business instead of paying the awards. It’s far too easy to fold up and skip town for most of these bad apples than to pay up.

Forcing FINRA registered brokerages to carry errors and omissions insurance, on the other hand, could change all that; since presumably no brokerage would be able to offer financial advisory services to investors without carrying the insurance. And that would mean in turn that when they screw up or defraud you, you won’t have to worry about the company vanishing into thin air--and your award in damages vanishing with it.

We’ll keep you posted on FINRA’s progress, but it’s genuinely good and hopeful news for investors who are too often two-time losers, once when they get scammed by a brokerage house; and again, when they win arbitration but find out there’s no firm left to foot the bill.

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.

Bad Boy Broker and the FINRA Rap Sheet

Creative Commons. Photo by Mike Licht

Bad Boy Broker Generates Buzz

You may have already seen the attention-grabbing headlines related to that rare phenomenon: a somewhat sexy and scandalous financial advisor misconduct news story… “Broker ‘Invested’ $600K in Guns, Tattoos, and Bikes!” Check out the New York Post’s coverage by clicking here. At any rate, yes, this story broke a few days ago, and it seems to be generating some buzz in traditional and new media outlets, mostly for the wrong reasons. The press just loves to pillory the bad boys of Wall Street, especially when their bad behavior makes for a singularly sensational headline. What we found interesting about this story however is not how exceptional it is, but how, when you take away the guns, and the tattoos, and the motorcycles, ordinary it is. As we’ve posted fairly recently, FINRA faces a constant battle against rogue brokers who do all kinds of crazy and illegal things with other people’s money. George Carris’ alleged exploits are just some of the more colorful in a litany of scams and fraud perpetrated by crooked financial advisers every day on unsuspecting investors.  But get this…

We’ve Seen the Name Carris Before Somewhere…

A few weeks ago, we named the names of numerous brokers and brokerage firms who were the subject of disciplinary action by FINRA over the summer. We thought we might help raise awareness out there among retail investors by circulating the names of these alleged offenders. After all, for every one investor who takes legal action against a shifty broker, there are ten more out there who don’t--or worse, who are totally unaware they’ve been victimized in the first place. If you scan down that list of names, you’ll come across a firm by the name of John Carris Investments LLC. The firm came under fire by FINRA for what appears to be a highly complex and manipulative “intentional prearranged trading scheme.” The individual brokers mentioned in the FINRA action are Jason Barter, Andrey Tkatchenko, and, guess who… George Carris. The same George Carris who allegedly bought $600K in Guns, Tattoos, and Bikes! Read more here.

Headlines Are Fun, But FINRA’s BrokerCheck Is Forever

It’s FINRA’s job not only to police the securities industry in general and brokers in particular, but to keep detailed records on various infractions and disciplinary actions taken against financial advisors and brokerage firms. You can access these records, and run a quick search on any FINRA registered broker, via FINRA’s incredibly useful search tool called BrokerCheck. It’s inside the database underlying BrokerCheck where, once the media frenzy over the Bad Boy Broker settles down and once FINRA completes its investigation of Carris, that a record of just how much of a bad boy he really is will live on in perpetuity. Sensationalism sells newspapers and draws clicks, but BrokerCheck could save you from the next scam artist or wild child pretending to have your best interest in mind while he or she blows all your hard-earned savings. In other words, much like tattoos, the rap sheet you can get from crossing FINRA is also forever.