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Archive for September 2011

Sep/11

14

Capital Financial Services Inc to Pay $200K to Settle FINRA Allegations it Sold Unsuitable Private Placements

Comments off · Posted by Securities Lawyer in FINRA

Bruce Kelly writes in a Sept. 13th, 2011, article in InvestmentNews.com that a broker-dealer who sold millions of dollars of failed private placements reached a $200,000 settlement with the Financial Industry Regulatory Authority Inc. last month, with the money going to the investors.

In a Finra letter of acceptance, waiver and consent, Capital Financial Services Inc. of Minot, N.D., “failed to have reasonable grounds to believe that private placements offered by Medical Capital Holdings Inc. and Provident Royalties LLC, pursuant to Regulation D, were suitable for any customer.”

Capital Financial Services Inc., also “failed to conduct adequate due diligence” on the two series of offerings and to put in place a supervisory system to achieve compliance when selling the private placements, according to the Finra letter. The firm has 332 affiliated registered representatives. John Carlson is the firm’s president.

The InvestmentNews.com article goes on to say that Capital Financial has recently drawn attention for its due-diligence policies. In April, the Securities and Exchange Commission alleged that Capital Financial’s due diligence on Provident Royalties private placements fell short, and the firm “never conducted independent verification of any of the offering materials provided by Provident.” The status of that case is still pending, according to the firm’s profile on Finra’s BrokerCheck system.

Those potential problems, according to Finra, included a custodian’s refusing to hold the MedCap notes, a clearing firm’s valuing the notes at zero on client account statements; the firm’s receiving two third-party due-diligence reports that highlighted Medical Capital’s recent failure to pay interest and a communication from a another third-party due-diligence analyst who indicated that MedCap executives weren’t allowing the analyst access to all its records.

Kelly writes that according to the SEC, the firm’s brokers sold $63 million of Provident Royalties preferred stock from 2006 to 2009. The Finra action focuses on 36 Capital Financial brokers who sold $11.8 million of MedCap notes in 2008 and 2009, allegedly after several “red flags” were raised about those notes.

Also stated was another alleged shortcoming of Capital Financial, was its failure to look at the financial records of Medical Capital and Provident Royalties. The firm “never obtained financial information about MedCap and its offerings from independent sources, such as audited financial statements,” according to the Finra letter, which uses similar language regarding sales of Provident Royalties.

By Sept. 1, the firm was to pay $80,000 to the court-appointed receiver for Medical Capital and $120,000 to the court-appointed receiver for Provident Royalties.

The firm consented to the Finra action without admitting to or denying its findings.

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you feel you have become a victim of Capital Financial Services, Inc., call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

 

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Sep/11

13

Laeroc Real Estate Fund Issues Cash Call, Foreclosure Threatened

Comments off · Posted by Securities Lawyer in FINRA

In an article from InvestmentNews.com, Bruce Kelly writes that after avoiding the pitfalls of disastrous Regulation D deals during the past decade, Commonwealth Financial Network and LPL Financial LLC, are contending with potential fallout from a real estate private placement that faces pressure from its creditors.

The financial advisers from both Commonwealth and LPL sold the fund in question, the Laeroc 2005-2006 Income Fund LP, which wants to raise another $12 million to $15 million to pay off — at a steep discount — $49 million of debt.

The InvestmentNews.com article said that Laeroc Partners Inc., a real estate investor that focuses on Los Angeles and other parts of Southern California, in June issued a “cash call” notice to investors who bought the Laeroc 2005-2006 Income Fund.

The fund’s lenders have said that they will foreclose by the end of the year on a shopping center in Sacramento, Calif., if the fresh cash isn’t paid, according to the notice. The Laeroc fund has paid more than $180 million to buy eight properties and owes $105 million in mortgage debt. It wasn’t clear how much of the Laeroc 2005-2006 Income Fund Commonwealth and LPL brokers sold.

Reg D Difficulties

Many small to midsize independent broker-dealers became embroiled in the fallout from Reg D private placements after the Securities and Exchange Commission charged two sponsors, Medical Capital Holdings Inc. and Provident Royalties LLC, with fraud in 2009.

Leading independent firms such as Commonwealth and LPL sidestepped the toxic products, of which brokers sold $2.7 billion. About half of investors’ principal was wiped out in those two deals, and the steep legal costs associated with client arbitration claims and settlements have pushed dozens of independent broker-dealers to close or be sold.

Kelly writes that industry executives noted that real estate deals, including nontraded real estate investment trusts, which raised money and bought properties from 2006 to 2009, are struggling.

Laeroc Partners has at least $650 million in assets and has created 14 funds, according to its website. Founded in Manhattan Beach, Calif., in 1986, at first it was a workout specialist for distressed real estate.

In 1993, the company began offering income and equity funds, according to the website.

Kelly adds, Joseph Kuo, a spokesman for LPL, said that the firm’s reps and clients “have successfully avoided the most difficult product-related issues associated with the financial crisis.”

“The challenges currently faced by the Laeroc fund are driven by market forces resulting from the 2008 credit crisis and the stress to the commercial-real-estate markets from the ensuing recession,” he said, adding that the firm will keep a close watch as Laeroc works to address the issue.

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you feel you have become a victim of the Laeroc real estate fund by Commonweath Financial Network or LPL Financial, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

 

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Sep/11

12

Wedbush and Former Broker Ordered to Pay Investor $2.9M by FINRA

Comments off · Posted by Securities Lawyer in FINRA

A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered Wedbush Securities and one of its former brokers to pay $2.9 million in damages and fees to an elderly investor who allegedly fell victim to a faulty investment scheme. The founder Edward Wedbush, and broker Debbie Michelle Saleh were ordered to pay $2,865,885 in damages. The victim of this securities case, Rick Cooper, continued working with Debbie Michelle Saleh, who previously served as his mother’s broker, after she moved to Wedbush from Wachovia Securities LLC in 2004, stated Lorie Konish in an August 31, 2011, article in On Wall Street.

Cooper’s attorney alleges, Saleh sent him false monthly account statements while conducting unauthorized transactions and forging Cooper’s signature. That allegedly included buying unsuitable variable annuities products and selling them, then subsequently buying more unsuitable products.

Konish writes that while Saleh profited from fees and commissions from those transactions, funds in Cooper’s accounts ultimately dwindled to less than a third of the $1.86 million displayed in account statements.

It was noted in a strongly worded Aug. 26 decision, the FINRA arbitration panel concluded that Saleh intentionally misrepresented information about Cooper’s investments while making unauthorized redemptions or withdrawals.

“The panel determined that Respondent Saleh’s conduct was premeditated, egregious and unconscionable and part of a plan or scheme to defraud her customers,” the FINRA panel wrote in its decision. “Respondent Saleh’s conduct certainly borders on criminal misconduct, if not actually elevating her actions to actual criminal misconduct.”

Wedbush fought against the charges in the arbitration, arguing that the variable annuities sold to Cooper were suitable and that the firm’s supervision was adequate.

That supervision was not good enough, Cooper’s lawyer said, as the firm did not promptly respond to a Dec. 2007 letter from the Securities and Exchange Commission following an investigation on Saleh.

Saleh stepped down from her post at Wedbush in March, 2009. She was permanently barred from serving in the securities industry by FINRA in August, 2009. Her registration records show that she has also previously been named in other cases involving annuities she sold to customers.

The On Wall Street article reports that the $2.9 million award includes special damages for emotional distress, including $500,000 to be paid by Saleh, $300,000 by Wedbush and $200,000 by Wedbush Securities founder and President Edward Wedbush.

Including interest, the total award totals more than $3 million.

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you feel you have become a victim of stock/securities loss, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Sep/11

9

Soreide Law Group Wins FINRA Award in Favor of Heirs Recovering 100% Against Morgan Stanley Smith Barney

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Soreide Law Group, PLLC, was notified by FINRA today that the clients they represented against Morgan Stanley Smith Barney, LLC (“MSSB”)  were awarded 100% of compensatory damages, in addition to expert fees, pre-judgment interest, and costs.
 
In a published FINRA award, case number 10-02604, Attorney Lars Soreide, recovered for his clients, who were the heirs and trustees to their late father’s estate, 100% of the damages caused by MSSB for not allowing their clients to roll over their late father’s minimum distribution back into his 401K which resulted in unnecessary tax consequences.  This case offers precedential value for future FINRA arbitrations that relate to unnecessary tax consequences incurred by brokerage firm’s negligent or non compliant policies or procedures that result in unnecessary tax consequences to their clients.
 
The Claimants, who were acting in their capacities as trustees, were improperly barred from rolling over their late father’s IRA distribution. The Claimants argued that a trustee upon death, steps into the shoes of the decedent, and can do for the decedent everything the decedent could have done if alive.  As authority for this proposition, Claimant’s attorney Lars Soreide, cited Gunther v. United States, 573 F. Supp. 126 – United States District Court, W.D. Michigan (1982).  Claimants’ expert witness was Gary Sellari of Divine Blaclock Martin and Sellari and all expert witness fees were awarded back to Claimants in addition to pre-judgment interest dating back to Nov., 2009.
 
For more information on Lars Soreide, Soreide Law Group, PLLC, this case, or other securities related claims please visit http://www.securitieslawyer.com or call 888-760-6552. Soreide Law Group, PLLC, representing investors nationwide.

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Sep/11

8

STIFEL, NICOLAUS AND FORMER EXECUTIVE CHARGED BY SEC WITH FRAUD IN SALE OF INVESTMENTS TO WISCONSIN SCHOOL DISTRICTS

Comments off · Posted by Securities Lawyer in FINRA

In a report from the United States Securities and Exchange Commission’s website, it was announced on August 10, 2011, the SEC charged Stifel, Nicolaus & Co., Inc., a St. Louis-based broker-dealer, and former Stifel Senior Vice President David W. Noack with defrauding five Wisconsin school districts by selling them unsuitably risky and complex investments funded largely with borrowed money.

The report goes on to say that the complaint was filed in the U.S. District Court for the Eastern District of Wisconsin, and the SEC’s complaint alleges that Stifel and Noack created a proprietary program to help the school districts fund retiree benefits by investing in notes linked to the performance of synthetic collateralized debt obligations (CDOs). The school districts established trusts that invested $200 million in three transactions from June to December 2006, paid for largely with borrowed funds. According to the SEC’s complaint, Stifel and Noack misrepresented the risk of the investments and failed to disclose material facts to the school districts. In the end, the investments were a complete failure, but generated significant fees for Stifel and Noack.

According to the SEC’s complaint, the five school districts are the Kenosha Unified School District, Kimberly Area School District, School District of Waukesha, West Allis-West Milwaukee School District, and Whitefish Bay School District. The SEC alleges that Stifel and Noack made sweeping assurances to the school districts, misrepresenting that it would take “15 Enrons” – a catastrophic, overnight collapse – for the investments to fail. They also misrepresented that 30 of the 105 companies in the portfolio would have to default and that 100 of the top 800 companies in the world would have to fail before the school districts would suffer a loss of their principal.

Among material facts that Stifel and Noack failed to disclose, the SEC alleges, were the portfolio in the first transaction performing poorly from the outset, credit rating agencies placing 10 percent of the portfolio on negative watch within 36 days of closing, and certain CDO providers expressing concerns about the risks of Stifel’s proprietary program and declining to participate in it.

The SEC also alleges that the heavy use of leverage and the structure of the synthetic CDOs exposed the school districts to a heightened risk of catastrophic loss. The investments steadily declined in value in 2007 and 2008 as the CDO portfolios suffered a series of downgrades. By 2010, the school districts learned that the second and third investments were a complete loss and that the lender had seized all of the trusts’ assets. The school districts suffered a complete loss of their investment and suffered credit rating downgrades for failing to provide additional funds to the trusts they established.

According to the SEC’s complaint, Stifel and Noack sold the school districts an unsuitable product that did not meet their investment needs. The school districts had no prior experience with investing in CDOs and related instruments. Stifel and Noack knew that the school districts lacked the requisite sophistication and experience to independently evaluate the risks of the investment, and knew that the school districts relied on Stifel and Noack’s recommendations. The school districts contributed $37.3 million toward the $200 million investment and borrowed the remaining $162.7 million.

Additionally, the SEC alleges that Stifel and Noack violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC also alleges that Stifel violated and Noack aided and abetted violations of Section 15(c)(1)(A) of the Securities Exchange Act of 1934. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

The SEC’s investigation is continuing.  This information was obtained from the SEC’s website.

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you feel you have become a victim of stock/securities loss, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Sep/11

8

Five Firms are Fined by FINRA almost $1M over High Fees

Comments off · Posted by Securities Lawyer in FINRA

In a September 7, 2011 article in InvestmentNews.com, Bruce Kelly writes that the Financial Industry Regulatory Authority Inc. (FINRA), living up to its warnings of this year, said today that it has fined several firms for overcharging for postage and handling.

The article states that in May, Finra chief executive Richard Ketchum warned an audience of brokerage executives at the self-regulator’s annual meeting in Washington that it was making inquires into firms’ overcharging clients.  Finra said it fined five firms a total of $910,000 for overcharging clients on handling transactions.

Mr. Ketchum earlier said: “We are taking a close look at excess charges for routine services, which some firms appear to be treating as an additional de facto commission. You can expect to see some enforcement activity in this area with respect to particularly egregious examples.”

Finra announced that the five firms were “understating the amount of total commissions charged to customers in trade confirmations and on fee schedules by mischaracterizing a portion of the commission charges as fees for handling services.”

The firms allegedly were using the practice to gouge clients, Finra said. “With respect to each of these firms, the handling fees were designed to serve as a source of additional transaction-based remuneration for the firm and thus were far in excess of the cost of the handling-related service the firms provided.”

InvestmentNews.com sites the five firms and respective fines as: Pointe Capital Inc. of Boca Raton, Fla., fined $300,000; John Thomas Financial of New York, $275,000; First Midwest Securities Inc. of Bloomington Ill., $150,000; A&F Financial Securities Inc. of Syosset, N.Y., $125,000; and Salomon Whitney LLC of Babylon Village, N.Y., $60,000.

Kelly writes that after Mr. Ketchum made his comments, brokerage executives said postage and handling fees charged by broker-dealers ranged from $3 or $4 to as high as $75 per transaction. Desperate for profits since the market collapse, some firms have been inflating postage and handling fees since late 2008, they said.

Finra said that, Pointe Capital charged a handling fee as high as $95 per trade, along with a commission. John Thomas charged as high as $75 per trade, and First Midwest charged as high as $99. A&F charged as high as $65 per trade, while Salomon Whitney charged as high as $69.

In settling Finra’s action, the firms agreed to implement corrective action to remedy the handling-fee-related violations, Finra said. In reaching the settlements, the firms neither admitted no denied the charges but consented to the entry of the findings.

Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member feel you have become a victim of stock/securities loss, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Sep/11

7

The SEC Announced $10 mill settlement with TD Ameritrade

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 Josh Funk, a business writer for the AP wrote that  TD Ameritrade has agreed to a $10 million settlement for failing to properly supervise representatives who misled investors about the safety of a money-market mutual fund that “broke the buck” in 2008, the Securities and Exchange Commission said.

Funk writes that TD Ameritrade Holding Corp. customers who still hold shares of Reserve Management Corp.’s Yield Plus Fund should receive 1.2 cents per share as part of the settlement.

The AP article goes on to say that the SEC said Ameritrade representatives failed to disclose the risks of the Yield Plus Fund and some representatives told investors the fund was as safe as cash even though it wasn’t guaranteed like a money-market fund. The Yield Plus Fund “broke the buck” in September 2008 when the value of its assets fell below the level needed to cover every dollar invested in the fund.

“It is critical that customers get accurate information about investment products, and broker-dealers must provide the training and supervision that enables their representatives to deliver this important guidance,” said Julie Lutz, associate director of the SEC’s Denver office. “TD Ameritrade failed to establish the policies and procedures necessary to reasonably supervise its employees and prevent these misrepresentations to investors.”

It was noted in the AP article that TD Ameritrade did not admit wrongdoing in the settlement. TD Ameritrade issued a three-paragraph statement about the settlement, but representatives of the Omaha-based company did not respond to questions about the settlement.

SEC said that thousands of TD Ameritrade customers continue to hold the majority of the Yield Plus Funds shares. Those people received about 95 percent of their original investments back after the fund liquidated its assets.

Funk adds that the problems in several of Reserve’s money-market mutual funds during the financial crisis led institutional investors to pull out cash and created fears about the safety of the $3.4 trillion in assets held in money-market funds. That sell-off prompted the federal government to announce a temporary program to guarantee money funds, should one of them break the buck again.

In the fall of 2008, Ameritrade said it would spend up to $55 million to help cover losses its customers suffered while investing in two troubled money-market mutual funds: Reserve Management Corp.’s Primary Fund and The International Liquidity Fund.

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member feel you have become a victim of stock/securities loss, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Sep/11

1

Texas Reps Could Lose Securities Licenses for Selling Life Settlement Notes

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In an InvestmentNews.com article, Darla Mercado writes that two registered representatives with Planmember Securities Corp. could lose their securities licenses in Texas and face fines of $100,000 each for the improper sale of life settlement notes.

The brokers, Jimmy Wayne Freeman Jr. and Kris Bradford Rhoden, were due to appear at the State Office of Administrative Hearings on Aug. 4 for a proceeding that will determine whether the men lose their securities registrations and have to pay the fines, according to the Texas State Securities Board.

The article says that the state regulators claim that between June 2008 and February 2009, Mr. Freeman and Mr. Rhoden sold note agreements that were supposedly backed by life insurance policies and guaranteed a 10% simple-interest return for five years.

The two reps allegedly also sold a so-called Immediate Income Investment Plan, which involved a five-year note that was purportedly backed by life insurance policies, plus a five-year, fixed biweekly income account.

The InvestmentNews.com article points out that both products were issued by National Life Settlements LLC, a now-defunct firm that was shut down by Texas securities cops in 2009 after selling $30 million in unregistered investments — phony promissory notes that were supposedly backed by life settlements — to teachers and state retirees.

Ms. Mercado writes that the men also failed to get permission from Planmember to perform an outside business activity before receiving an undisclosed amount in commissions for selling away, according to the brokers’ hearing notices. State regulators also charge that when Mr. Freeman and Mr. Rhoden sold the life settlement notes, they told Planmember on their compliance questionnaire that they did not offer or sell such products.

Mr. Freeman and Mr. Rhoden allegedly failed to comply with Planmember’s supervisory procedures, which barred private-securities transactions and required them to get prior written approval from the broker-dealer before participating in a securities transaction outside of the regular course of business, Texas securities regulators claim.

Finally, it was reported that the men failed to make a timely update of their U-4 forms to show that they were marketing the life settlement notes, and both used their personal e-mail accounts to communicate with Planmember clients about the investments, according to the hearing notices.

If you or a family member have become alleged victims of life insurance fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit securitieslawyer.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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