Securities Lawyer Blog | Victim of Fraud?

Archive for March 2012

Mar/12

28

US DISTRICT COURT ENTERS ORDER AMENDING FINAL AGAINST AGILE GROUP FOUNDER AND HEAD PORTFOLIO MANAGER

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THE FOLLOWING IS AN ARTICLE FROM THE SEC’S WEBSITE:

“The U.S. Securities and Exchange Commission announced today that the United States District Court for the District of Colorado entered an Order amending a February 11, 2011 Final Judgment wherein Greenberg, without admitting or denying the Commission’s allegations, consented to the entry of a Final Judgment that enjoined him from violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-2, 206(4)-7, and 206(4)-8 thereunder. Greenberg was the former Chief Executive Officer and majority owner of registered investment adviser Tactical Allocation Services LLC (TAS) and the founder and head portfolio manager for a registered investment adviser wholly-owned by TAS, Agile Group LLC (Agile Group). The Final Judgment also found that Greenberg was liable for disgorgement of $3,941,185, plus prejudgment interest, but based on his financial condition waived payment of all but $330,000 of that amount and, in addition, required Greenberg to surrender his interests in certain Agile Group hedge funds. The Final Judgment imposed no penalty based on Greenberg’s financial condition and prohibited Greenberg from seeking reimbursement for the money and fund interests he was disgorging. Greenberg paid the $330,000 and those funds were distributed to Agile investors under a Court approved equitable distribution plan.

On January 31, 2012, the Commission moved for an order requiring Greenberg to pay the unpaid portion of his disgorgement, pre- and post-judgment interest thereon, and a maximum civil penalty, alleging that Greenberg’s statement of financial condition on which the Final Judgment was based was incomplete. The Order, to which Greenberg stipulated, finds Greenberg liable for disgorgement of $3,998,145, representing the unpaid portion of the amount ordered to be disgorged in the Final Judgment (original $4,328,145 judgment comprised of $3,941,185 in disgorgement and $386,960 in prejudgment interest, offset by the $330,000 Greenberg paid on January 24, 2011). It further orders Greenberg to pay a civil penalty in the amount of $3,941,185, and post-judgment interest through February 29, 2012 of $130,480.03. The Order further imposes a freeze on Greenberg’s assets.

According to the SEC’s original complaint in this matter, extensive losses were suffered by affiliated hedge funds managed and recommended by Greenberg, including the Agile Safety Fund, the Agile Safety Fund International, and the Agile Safety Variable Fund (collectively Agile hedge funds). The Agile hedge funds were marketed and managed by affiliated investment advisers Agile Group and TAS. The Commission’s complaint alleged that Greenberg negligently misrepresented the safety, suitability, and diversification of the Agile hedge funds to TAS clients, in many cases conservative investors in or near retirement. Further, the complaint alleged that Greenberg made inadequate disclosure concerning advisory fees; failed to implement adequate compliance policies and procedures; failed to properly supervise his subordinate investment advisers; and failed to provide account statements and annual reports to his clients.”

END OF SEC’S ARTICLE

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide.
For a free consultation with an attorney, please call 888-760-6552, or visit our website at: www.securitieslawyer.com.

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Mar/12

27

FEDERAL COURT IMPOSES $2.5 MILLION CIVIL PENALTY AGAINST INVESTMENT ADVISER ROBERT GLENN BARD AND VISION SPECIALIST GROUP, LLC

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The following article appeared on the SEC’s website:

“The Securities and Exchange Commission announced that on February 2, 2012, United States District Judge William C. Caldwell of the United States District Court for the Middle District of Pennsylvania entered an order imposing a $2,500,000 civil penalty jointly and severally against defendants Robert Glenn Bard and Vision Specialist Group, LLC. In an earlier order on November 10, 2011, the Court found that defendants made false statements to thirty-three of their investment advisory clients on 146 separate occasions about what type of securities and holdings they had, where the assets were, and the value of the assets, and that they charged at least one client excessive fees. In assessing the penalty, the Court found that the egregiousness of defendants’ behavior, the recurrent nature of the conduct, the lack of cooperation with authorities, defendants’ degree of scienter, and the risk of loss created by defendants’ actions all weighed in favor of imposing a substantial penalty.

This case arises out of allegations by the Commission in a complaint filed on July 30, 2009, that defendant Bard, an investment adviser, and his solely-owned company Vision Specialist Group, LLC, had violated the federal securities laws through fraudulent misrepresentations regarding client investments, account performance and advisory fees, the creation of false client account statements, and forgery of client documents. On November 10, 2011, the Court granted the Commission’s motion for summary judgment. The Court found Bard and Vision Specialist liable for violations of § 17(a) of the Securities Act of 1933, § 10(b) of the Exchange Act of 1934, and Rule 10b-5 thereunder, and §§ 206(1) and 206(2) of the Investment Advisers Act of 1940. In that order, the Court also entered permanent injunctions against the defendants for violations of those provisions, and held the defendants jointly and severally liable for disgorgement of $450,000, plus prejudgment interest in an amount to be determined.”

THIS ENDS THE SEC’S ARTICLE.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.

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

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Mar/12

22

Spartan Securities Group, Clearwater, FL, Censured and Fined by FINRA

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The following information is from FINRA’s website under “Disciplinary Actions, March, 2012:
 
Spartan Securities Group, LTD (CRD #104478, Clearwater, Florida)
 
submitted a Letterof Acceptance, Waiver and Consent in which the firm was censured, fined $52,500 and required to revise its WSPs regarding its supervisory system, procedures and qualifications;order handling; best execution; anti-intimidation/coordination; trade reporting; short sale transactions; other trading rules; OATS; books and records; the Sub-Penny Rule; and review for compliance of incoming, outgoing and internal electronic communications.
 
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it executed short sale transactions in reportable securities and failed to report each of the transactions to the FNTRF with the correct symbol indicating whether the transaction was a short sale or a short sale exempt transaction and reported some short sales as long to the FNTRF. The findings stated that the firm failed to report to the FNTRF the correct symbol indicating the capacity in which it executed transactions in reportable securities; incorrectly reported transactions to the FNTRF, failed to report a transaction to the FNTRF, reported transactions which it was not required to report to the FNTRF, incorrectly reported reports to the FNTRF, and failed to submit a cancellation for two reports to the FNTRF. The findings also stated that the firm transmitted reports to OATS that contained inaccurate, incomplete, or improperly formatted data.
 
The findings also included that the firm, on numerous occasions, accepted a short sale order in an equity security from another person, or effected a short sale in an equity security for its own account, without borrowing the security, or entering into a bona fide arrangement to borrow the security; or having reasonable grounds to believe that the security could be borrowed so that it could be delivered on the date delivery is due; and documenting compliance with SEC Rule 203(b)(1) of Regulation SHO. FINRA found that the firm failed to disclose the reported price, the markup/markdown or the correct markup/markdown,and/or the market maker status on customer confirmations.
 
FINRA also found that the firm failed to provide an order memorandum or a proprietary ledger, failed to provide a customer account statement, failed to provide a complete customer order memorandum, and in other instances failed to document the correct time of entry, time of execution, execution price, and/or terms and conditions on the customer order memorandum.
 
In addition, FINRA determined that the firm’s supervisory system did not provide for supervision reasonably designed to achieve compliance with applicable securities laws, regulations and/or FINRA rules addressing supervisory system, procedures and qualifications; order handling; anti-intimidation/coordination; trade reporting; short sale transactions; other trading rules; OATS; books and records; the Sub-Penny Rule; and review for compliance of incoming, outgoing and internal electronic communications.
 
Moreover, FINRA found that the firm failed to provide documentary evidence during one month that it performed the supervisory reviews set forth in its WSPs concerning supervisory system, procedures and qualifications; order handling; best execution; antiintimidation/coordination; trade reporting; other trading rules; OATS; and review for compliance of incoming, outgoing, and internal electronic communications.
(FINRA Case #2009017008302)
 
The information from FINRA’s website has ended.
 
Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide.
For a free consultation with an attorney, please call 888-760-6552, or visit our website at: www.securitieslawyer.com.

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Mar/12

21

Davie, Florida, Brokerage and Broker Fined and Suspended by FINRA

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The following information was obtained on FINRA’s website’s ‘Disciplinary Actions, March, 2012.”
 
Council (NAC) imposed the sanctions following appeal of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that Beloyan, acting on the firm’s behalf, drafted and distributed emails in which he recommended the purchase of securities, and those recommendations were unbalanced, misleading, included material misrepresentations and omitted material facts.
 
The findings stated that Beloyan and the firm failed to review one of the companies’ current financial statements before recommending the purchase of its stock in emails.
The suspension was in effect from February 27, 2012, through March 9, 2012.
 
(FINRA Case #2005001988201)
 
The information from FINRA’s website has ended.
 
Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide.
For a free consultation with an attorney, please call 888-760-6552, or visit our website at: www.securitieslawyer.com.

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Mar/12

21

BROOKSTREET CEO ORDERED BY JUDGE TO PAY $10 MILLION PENALTY IN SEC CASE

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THE FOLLOWING ARTICLE WAS OBTAINED FROM THE SEC’S WEBSITE:

“On March 1, 2012, a federal judge ordered the former CEO of Brookstreet Securities Corp. to pay a maximum $10 million penalty in a securities fraud case related to the financial crisis.

In December of 2009, the U.S. Securities and Exchange Commission filed a civil injunctive action against Brookstreet Securities Corp. and Stanley C. Brooks, charging them with fraud for systematically selling risky mortgage-backed securities to customers with conservative investment goals. Brookstreet and Brooks developed a program through which the firm’s registered representatives sold particularly risky and illiquid types of Collateralized Mortgage Obligations (CMOs) to more than 1,000 seniors, retirees, and others for whom the securities were unsuitable. Brookstreet and Brooks continued to promote and sell the risky CMOs even after Brooks received numerous warnings that these were dangerous investments that could become worthless overnight. The fraud resulted in severe investor losses and eventually caused the firm to collapse.

On February 23, 2012, the Honorable David O. Carter entered an order granting summary judgment in favor of the Securities and Exchange Commission. He found Brookstreet and Brooks liable for violating Section 10(b) of the Securities Exchange Act of 1934 as well as Rule 10b-5. On March 1, 2012, the court entered a final judgment and ordered the financial penalty sought by the Securities and Exchange Commission. In addition to the $10,010,000 penalty, Brooks was ordered to pay $110,713.31 in disgorgement and prejudgment interest. The court’s judgment also enjoins both Brookstreet and Brooks from violating Section 10(b) of the Exchange Act as well as Rule 10b-5.”

THIS ENDS THE SEC’S ARTICLE.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.

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

 

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Mar/12

21

SEC Files Civil Action Against Senior Management of Thornburg Mortgage, Inc. for Alleged Fraudulent Overstatement of Thornburg’s Income

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If your stockbroker over concentrated your portfolio in Thornburgh stock, you should be aware that this article was posted on the SEC’s website:

“On March 13, 2012, the Securities and Exchange Commission filed securities fraud charges in the United States District Court for the District of New Mexico against Larry Goldstone, the former chief executive officer and president, Clarence Simmons, the former chief financial officer and senior executive vice-president, and Jane Starrett, the former chief accounting officer of Thornburg Mortgage, Inc. (“Thornburg”), currently TMST, Inc., for allegedly materially misrepresenting the financial condition and liquidity of Thornburg, formerly the country’s second largest independent mortgage company. Goldstone, Simmons, and Starrett reside in Santa Fe, New Mexico.

The Complaint alleges that Thornburg, through Goldstone, Simmons, and Starrett, fraudulently overstated its quarterly income by more than $420 million in its 2007 annual report filed with the Commission. As a result, the Complaint alleges that Thornburg fraudulently reported a profit rather than a loss for the quarter. According to the Complaint, in the two weeks leading to the filing of its annual report, Thornburg received more than $300 million in margin calls from its lenders that severely drained its liquidity. The Complaint further alleges that, unable to meet its margin calls on a timely basis, Thornburg violated three of its lending agreements, and received a reservation of rights letter from one lender in which the lender reserved its right to declare Thornburg in default at any time. Accordingly, the Complaint alleges that in the days before Thornburg filed its annual report, the collateral it used for its lending agreements, adjustable rate mortgage (“ARM”) securities, was subject to being seized and sold by its lenders. According to the Complaint, given the circumstances of Thornburg’s liquidity crisis, circumstances that were misrepresented to, and concealed from, the company’s auditor, Goldstone, Simmons, and Starrett each knew, or was reckless in not knowing, that Thornburg did not have the intent or ability to hold its ARM securities until maturity or until their value recovered in the market. The Complaint concludes that the individual defendants also knew, or were reckless in not knowing, that this meant Thornburg was required to recognize on its income statement approximately $428 million of losses associated with the company’s ARM securities, and that the proper accounting treatment for these securities would have resulted in Thornburg reporting a loss rather than a profit for the quarter.

The Complaint claims that, based on this conduct, the defendants violated or aided and abetted the violation of, or in the case of Goldstone and Simmons are liable as control persons under Section 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) for Thornburg’s violation of, Section 17(a) of the Securities Act of 1933, and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13b2-1, and 13b2-2 thereunder. The Complaint also claims that Goldstone and Simmons violated Rule 13a-14 of the Exchange Act. As part of this action, the Commission seeks against each of the defendants an injunction against future violations of the provisions set forth above, officer and director bars, and third tier civil money penalties.”

This concludes the SEC’s article.

If you lost money with Thornburg Mortgage, Inc. call securities fraud attorney Lars K. Soreide at Soreide Law Group at (888) 760-6552 or visit http://www.securitieslawyer.com.

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Mar/12

14

The ‘Golden Years’ May Not Be All That Golden for Senior Investors

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The financial industry has been anticipating this time in history ever since the Baby Boom generation began. There are more people who will be turning more money over to stockbrokers than at any other time in history. 

We have watched the abuse investors have taken. Take for example, the investors in Worldcom or Enron. They soon learned that things are not always as they seem. No where is that more true than in the financial and securities industry. For brokerage firms, each customer complaint is no more than a drop in the bucket – just another cost of doing business. For a Baby Boomer investor, that “drop” could be their entire retirement fund. 

The many fraudulent schemes of broker/dealers turn what should be the golden years into years of desperation. Baby Boomers who saved and invested to prepare for retirement, find themselves returning to find work in an economy that no longer values their worth. Their legacy instead goes from what they can leave to their children and grandchildren to whether to move in with their children or reduce their assets in order to qualify for a Medicaid eligible nursing home.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.

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

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Mar/12

14

“Why I Am Leaving Goldman Sachs”

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In a recent New York times article, Greg Smith writes about his experience with Goldman Sachs as an executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa. Here are some excerpts from his article that highlight Goldman Sachs intention to make money off their clients not for their clients.

By GREG SMITH New York Times article
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.
Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.
What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.
These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.
I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
End of article exerpts.
 
If you lost money with Goldman Sachs call securities fraud attorney Lars K. Soreide at Soreide Law Group at (888) 760-6552 or visit http://www.securitieslawyer.com.
 

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Mar/12

14

Finra’s Top Enforcement Actions

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In an article from InvestmentNews.com, we learn that enforcement actions and fines by the Financial Industry Regulatory Authority Inc., or Finra,  jumped sharply in 2011, with the latter rising to $68 million, from $45 million in 2010, a new study shows. Much of that surge came from penalties for improper advertising.
Finra filed 1,488 disciplinary actions in 2011, up from 1,310 cases in 2010, according to the annual Finra sanctions survey released on Monday. The number of brokers barred by Finra rose to 329 in 2011, from 288 in 2010. Here are eight top areas of enforcement, ranked by total fines.

1. Advertising

Finra Fines: $21.Million
Details: Sanctions involving advertising jumped from $4.75 million in 2010 to $21.1 million in 2011. The number of cases doubled in number to 45 in 2011. As in 2009 and 2010, a significant amount of the 2011 advertising fines ($9.5 million) related to the sale of ARS. In addition, nearly $8 million in fines stemmed from nine cases involving the use of allegedly misleading advertising materials on firm websites available to investors. This included advertisements for complex products and more traditional investments like annuities.

2. Short selling

Finra Fines: $16.8 million
Details: Short-selling cases generated $16.8 million in fines in 2011. In contrast, short selling was fifth on Sutherland’s list last year. The $16,8 million was a more than fourfold increase compared with the fines reported in 2010. This large increase was largely driven by a single $12 million fine imposed on a firm that allegedly violated Regulation SHO by failing to properly supervise millions of short sale orders that were mismarked and placed to the market without reasonable grounds to believe that the securities could be borrowed.

3. Auction rate securities

Finra Fines: $10 million
Details: ARS continued to be an important focus for Finra in 2011, as seven ARS cases resulted in nearly $10 million in fines. This was a substantial increase from 2010 when two ARS cases were reported that resulted in $1.75 million in total fines. Most of the 2011 cases concerned the alleged failure to disclose material facts to investors, often in advertising materials

4. Suitability

Finra Fines: $7.7 million
Details: Such cases led to $7.7 million in reported fines in 2011. The 106 cases that involved suitability in 2011 doubled the cases reported in 2009 and 2010. Similarly, the fines reported in suitability cases jumped from $3.75 million in 2010 to $7.7 million in 2011. Suitability has repeatedly landed on Sutherland’s list, placing fourth in 2010 and 2011 and second in 2008 and 2009.

5. Improper forms

Finra Fines: $6.6 million
Details:U4, U5, and Rule 3070 filings resulted in 91 Finra disciplinary actions and more than $6.6 million in reported fines in 2011 (compared to 67 cases and fines of $1.45 million in 2010). Although allegations concerning isolated problems with these regulatory filings often led to fines of $5,000 to $10,000, there were four 2011 cases where each firm was fined more than $600,000 for failing to report material information on Forms U4 and U5, including SEC investigations and customer settlements.

6. Mutual funds

Finra Fines: $5.1 million
Details: After yielding the most fines in both 2008 and 2009, fines involving mutual funds dropped dramatically in 2010. There were only 12 such cases in 2010, and only $1.3 million in fines. In comparison, mutual fund cases generated more than $104 million and $95 million in fines in 2005 and 2006. Although the $5.1 million in 2011 fines is only a fraction of these earlier numbers, it is a big increase from 2010’s figures. The number of mutual fund cases (55) and total amount of fines more than quadrupled during the past year compared to 2010.

7. Municipal securities

Finra Fines: $3.7 million
Details: In Finra’s Feb. 8, 2011 Regulatory and Examination Priorities Letter, it emphasized that member firms need to understand the municipal securities they sell and corresponding regulatory requirements. The SRO’s Jan. 31, 2012 edition of this letter reminded firms that they must ensure that any muni bonds sold are suitable for customers. Finra’s 2011 enforcement reflected a growing concern about munis, as the number of cases reported jumped 81% in 2011. The amount of fines reported in 2011 ($3.7 million) more than doubled the $1.5 million imposed in 2010.

8. Electronic communications

Finra Fines: $3.6 million
Details:The total amount of fines stemming from alleged violations concerning electronic communications has now decreased for three consecutive years. After yielding about $4 million in fines in both 2009 and 2010, these cases resulted in only $3.6 million in fines in 2011. Still, the number of cases actually grew from 34 reported in 2010 to 57 in 2011.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Mar/12

12

Finra Fines and Enforcement Actions are Up

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In a March 12th., 2012, article in InvestmentNews.com, Mark Schoeff, Jr., writes that enforcement actions and fines by the Financial Industry Regulatory Authority Inc. or Finra, jumped sharply in 2011, with the latter rising to $68 million, from $45 million in 2010, a new study shows. The greatest proportion of that figure was penalties for improper advertising.

In 2011, Finra filed 1,488 disciplinary actions, up from 1,310 cases in 2010, according to the Finra sanctions survey released on Monday by Sutherland Asbill & Brennan LLP. The number of brokers barred by Finra rose to 329 in 2011, from 288 in 2010.

Schoeff writes that last year was the third in a row in which Finra substantially boosted enforcement activity, according to the report. The crackdown reflected Finra’s effort to ensure that investor rip-offs, such as the multibillion-dollar Ponzi schemes perpetrated by R. Allen Stanford and Bernard Madoff, don’t happen again, according to one of the study’s authors.

We learn that Finra’s chief enforcement officer said the numbers show that the regulator is achieving good production from its staff. The 1,488 cases were pursued by about 320 enforcement professionals.

“What makes me most proud of it is that we’re getting through that caseload,” said Brad Bennett, Finra executive vice president. “We’re bringing a lot of cases where the market meets the investor.”

The biggest enforcement increase was registered in advertising, according to the Sutherland report, with sanctions zooming to $21.1 million in 2011, from $4.75 million in 2010. Within this area, Finra has been zeroing in on inaccurate or fraudulent internal communications.

“If for example, firms are telling their representatives internally that products are not risky, [Finra is concerned that] representatives will turn around and make these claims to investors,” Mr. Rubin said.

Fines also were increased substantially for short selling and auction rate securities cases. In both areas, however, the pipeline may start to slow down.

The InvestmentNews.com article says that fines more than doubled from 2010 to 2011 — $3.75 million to $7.7 million — for suitability violations. The number of cases filed also doubled — from 53 to 106. A new suitability rule, which is due to be finalized this summer, will help Finra maintain pressure on brokers to offer only products that fit a customer’s investment needs, timeline and risk appetite.

“We anticipate this will continue to be a hot area for Finra,” Mr. Rubin said. “The new rule gives Finra additional ammunition.”

Schoeff adds that Finra is looking not just at whether complex structured investments are suitable for a customer but also whether they are reasonably suited for the market.

“If you see products being sold by people who don’t understand them to people who don’t understand them, that’s a supervision and suitability problem,” Mr. Bennett said. “That is a common theme that will underline product cases coming out this year.”

Finra also is placing an emphasis on microcap and private-placement offerings, as well as ensuring that firms do the basics — such as internal compliance — the right way.

“The cost of doing business incorrectly has to be greater than the cost of doing business correctly, or you give a competitive advantage to a non-compliant firm,” Mr. Bennett said.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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