Archives for Securities Broker Misconduct

FINRA Sanctions MetLife Securities, Inc. $25 Million for Negligent Misrepresentations and Omissions in Connection With Variable Annuity Replacements

The Financial Industry Regulatory Authority (FINRA) announced recently that it has fined MetLife Securities, Inc. (MSI) $20 million and ordered it to pay $5 million to customers for making negligent material misrepresentations and omissions on variable annuity replacement applications for tens of thousands of customers. FINRA alleged that each misrepresentation and omission propounded by MSI made the replacement appear more beneficial to the customer, even though the recommended variable annuities were typically more expensive than customers’ existing variable annuity. According to FINRA, MSI’s variable annuity replacement business constituted a substantial portion of its business, generating at least $152 million in gross dealer commission for the firm over a six-year period.

FINRA advises that replacing one variable annuity with another involves a comparison of the complex features of each security. Accordingly, variable annuity replacements are subject to regulatory requirements to ensure a firm and its registered representatives compare costs and guarantees that are complete and accurate.

FINRA found that from 2009 through 2014, MSI misrepresented or omitted at least one material fact relating to the costs and guarantees of customers’ existing variable annuity contracts in 72 percent of the 35,500 variable annuity replacement applications the firm approved, based on a sample of randomly selected transactions. Examples from FINRA’s review found that:

• MSI represented to customers that their existing variable annuity was more expensive than the recommended variable annuity, when in fact, the existing variable annuity was less expensive;
• MSI failed to disclose to customers that the proposed variable annuity replacement would reduce or eliminate important features in their existing variable annuity, such as accrued death benefits, guaranteed income benefits, and a guaranteed fixed interest account rider; and,
• MSI understated the value of customers’ existing death benefits in disclosures.

According to Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, “Variable annuities are complex and expensive products that are routinely pitched to vulnerable investors as a key component of their retirement planning. Firms engaging in this business must ensure that the information on the costs and benefits of these products provided to customers is accurate, and that their registered representatives are sufficiently trained to understand and explain the risks and complex features of what they are selling. These obligations take on even greater importance when a significant part of a firm’s marketing effort involves switching customers out of existing annuities.”

FINRA also found that MSI failed to ensure that its registered representatives obtained and assessed accurate information concerning the recommended VA replacements, and did not adequately train its registered representatives to compare the relative costs and guarantees involved in replacing one variable annuity with another. According to FINRA MSI’s principals did not consider the relative costs and guarantees of the proposed transactions. FINRA alleged that MSI principals ultimately approved 99.79 percent of variable annuity replacement applications submitted to them for review, even though nearly three quarters of those applications contained materially inaccurate information.

FINRA further found that MSI failed to supervise sales of the GMIB rider, the firm’s bestselling feature for its variable annuities. The rider was marketed to customers (many of whom were already holding MetLife annuities) as a means of providing a guaranteed future income stream. The GMIB rider is complex and expensive—annual fees during the relevant period ranged from 1 percent to 1.5 percent of the variable annuities notional income base value. FINRA found that a frequently cited reason for MSI’s recommendation of variable annuity replacements was to allow a customer to purchase the GMIB rider on the new variable annuity contract. Nevertheless, MSI failed to provide registered representatives and principals with reasonable guidance or training about the cost and features of the rider.

In addition, FINRA found that since at least 2009, MSI customers have received misleading quarterly account statements that understate the total charges and fees incurred on certain variable annuity contracts. Typically, the quarterly account statements misrepresented that the total fees and charges were $0.00 when, in fact, the customer has paid a substantial amount in fees and charges.

If you have suffered investment losses as a result of investing with MetLife Securities, contact the Law Offices of Place & Hanley, LLC to discuss your legal options. The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide. If you have lost money as a result of your broker’s or brokerage firm’s recommendations, you may be entitled to recover your investment losses. Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.

Categories: Securities Broker Misconduct.

SEC Charges Wells Fargo With Fraud in 38 Studios Bond Offering

The Securities and Exchange Commission recently announced that it had charged a Rhode Island agency and its bond underwriter Wells Fargo Securities with defrauding investors in a municipal bond offering to finance startup video game company 38 Studios. 

The Rhode Island Economic Development Corporation (RIEDC, now called the Rhode Island Commerce Corporation) issued $75 million in bonds for the 38 Studios project as part of a state government program intended to spur economic development and increase employment opportunities by loaning bond proceeds to private companies.

According to the SEC’s complaint filed in federal district court in Providence:

  • The RIEDC loaned $50 million in bond proceeds to 38 Studios.  Remaining proceeds were used to pay related bond offering expenses and establish a reserve fund and a capitalized interest fund.
  • The loan and, in turn, bond investors would be repaid from revenues generated by video games that 38 Studios planned to develop.
  • The bond offering document produced by the RIEDC and Wells Fargo failed to disclose to investors that 38 Studios had conveyed it needed at least $75 million in funding to produce a particular video game.
  • Therefore, investors weren’t fully informed when deciding to purchase the bonds that 38 Studios faced a funding shortfall even with the loan proceeds and could not develop the video game without additional sources of financing.
  • When 38 Studios was later unable to obtain additional financing, the video game didn’t materialize and the company defaulted on the loan.

The SEC also charged Wells Fargo’s lead banker on the deal, Peter M. Cannava, and two then-RIEDC executives Keith W. Stokes and James Michael Saul with aiding and abetting the fraud.  Stokes and Saul agreed to settle the charges without admitting or denying the allegations and must each pay a $25,000 penalty.  They are prohibited from participating in any future municipal securities offerings.  The SEC’s litigation continues against Cannava, Wells Fargo, and RIEDC.

The SEC’s complaint further alleges that Wells Fargo and Cannava misled investors in an additional way in bond offering materials:

  • Wells Fargo disclosed its bond offering compensation as a share of the placement agent fee plus a $50,000 payment from 38 Studios.  No other fees or compensation to Wells Fargo were disclosed, and the bond placement agreement stated that no other money was anticipated.
  • Investors weren’t informed that Wells Fargo had a side deal with 38 Studios that enabled the firm to receive nearly double the amount of compensation disclosed in offering documents.
  • This additional compensation, totaling $400,000 and paid from bond proceeds, created a conflict of interest that Wells Fargo should have disclosed to bond investors.
  • Cannava was responsible for Wells Fargo’s failure to disclose its additional fees.

The SEC’s complaint charges the RIEDC and Wells Fargo with violations of Sections 17(a)(2) and (a)(3) of the Securities Act of 1933, and charges Stokes, Saul, and Cannava with aiding and abetting those violations.  Wells Fargo also is charged with violations of Section 15B(c)(1) of the Securities Exchange Act of 1934 and Rules G-17 and G-32 of the Municipal Securities Rulemaking Board (MSRB).  Cannava is charged with aiding and abetting those violations.

In a separate administrative proceeding, the RIEDC’s financial advisor for the bond offering – First Southwest Company LLC – agreed to settle charges that it violated MSRB rules by failing to document in writing the scope of the services the firm was providing in the bond offering until seven months after the financial advisory relationship began.  Without admitting or denying the findings, First Southwest agreed to pay disgorgement of $120,000, prejudgment interest of $22,400, and a penalty of $50,000.

If you have suffered investment losses as a result of your broker’s or brokerage firm’s misconduct, contact the Law Offices of Place & Hanley, LLC to discuss your legal options. The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide. If you have lost money as a result of your broker’s recommendations, you may be entitled to recover your investment losses. Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.

 

Categories: Broker Investigations, Investor Protection, Securities Broker Misconduct, Securities Fraud, and Securities Investigations.

Study Shows 7% of Financial Advisors are Disciplined for Misconduct

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Investment News reported that a new working paper by business school professors at the University of Chicago and University of Minnesota found that 7% of financial advisers have been disciplined for misconduct that ranges from putting clients in unsuitable investments to trading on client accounts without permission. That’s a troubling mark for an industry that relies on the trust of clients. And some large, well-regarded firms have misconduct records that far exceed the average. Nearly 20% of financial advisers at Oppenheimer & Co., with more than 2,000 advisers counted in the study, have misconduct records, according to the new paper.

“It’s everywhere, not just small firms. It is pervasive,” said Amit Seru, a finance professor at the University of Chicago’s Booth School of Business and a co-author of “The Market for Financial Adviser Misconduct.”

Seru considers the study to be conservative in measuring misconduct. The paper homed in on just six of 23 categories of disclosure in the BrokerCheck database considered “indicative of adviser misconduct.” The database is overseen by the Financial Industry Regulatory Authority, or FINRA, the industry’s self-regulatory organization. The study counted as misconduct disclosures about an “investment-related arbitration or civil suit … that resulted in an arbitration or civil judgment for the customer,” as well as formal proceedings by regulators “for a violation of investment-related rules,” among other alleged infractions.

Misconduct isn’t left unchecked by financial firms. About half of advisers found to have committed misconduct are fired — although 44% of advisers who leave a job due to misconduct are hired by another firm within a year, according to the paper. Many fired advisers end up moving to firms that have higher rates of misconduct than their previous employer did, and they become repeat offenders. “Prior offenders are five times as likely to engage in new misconduct as the average financial adviser,” the study found.

“This is eye-opening and suggests not only that some firms have a high tolerance for misconduct on the part of their employees, but that their very business model is to attract the broker who can generate high revenue at the cost of repetitive disciplinary violations,” said John Coffee, a professor at Columbia Law School in New York. “FINRA needs to focus on this.”

The first-of-its-kind study names names, listing 10 advisory firms with the highest misconduct rates, as well as those with the lowest.

(a)% of advisers who have been disciplined for misconduct
Rank Firm Misconduct Rate #Adviser
1 Oppenheimer & Co. 19.60% 2,275
2 First Allied Securities 17.72% 1,112
3 Wells Fargo Advisors 15.30% 1,797
4 UBS Financial Services 15.14% 12,175
5 Cetera Advisors 14.39% 1,432
6 Securities America 14.30% 2,546
7 National Planning Corp. 14.03% 1,760
8 Raymond James Financial Inc. 13.74% 5,495
9 Stifel Nicolaus & Co. 13.27% 4,008
10 Janney Montgomery Scott 13.27% 1,394
(b)% of advisers who have been disciplined for misconduct
If you have suffered investment losses as a result of your broker’s or brokerage firm’s misconduct, contact the Law Offices of Place & Hanley, LLC to discuss your legal options. The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide. If you have lost money as a result of your broker’s recommendations, you may be entitled to recover your investment losses. Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.
Categories: Securities Broker Misconduct.

FINRA fines and Suspends Daniel Edward Levin

Daniel Edward Levin (CRD #707280, Dallas, Texas) submitted an AWC in which he was assessed a deferred fine of $25,000, suspended from association with any FINRA member in any capacity for six months and required to requalify as a general securities representative by passing the Series 7 examination prior to associating with any FINRA member firm in that capacity following the six-month suspension. Without admitting or denying the findings, Levin consented to the sanctions and to the entry of findings that he hosted a weekly radio show during which he made statements that were unbalanced, promissory, misleading and/or lacked reasonable basis. The findings stated that Levin utilized the show to market his retirement planning business. During the shows, Levin repeatedly touted the benefits of investing in equity-indexed annuities (EIAs), although he did not mention
this product by name. Instead, Levin only generically described the positive features and characteristics of the EIAs that he was selling to his customers. Levin also made unwarranted performance projections without disclosing that they were dependent on the performance of an index.

Levin was associated with the following broker-dealers:

01/2014 – 08/2014 TITAN SECURITIES (CRD# 131392) – Dallas, TX
06/2012 – 09/2012 BERTHEL, FISHER & COMPANY FINANCIAL SERVICES, INC. (CRD# 13609) – DALLAS, TX
12/2004 – 06/2012 MILKIE/FERGUSON INVESTMENTS, INC. (CRD# 17606) – DALLAS, TX

The suspension is in effect from August 17, 2015, through February 16, 2016. (FINRA Case

If you have suffered investment losses as a result of your broker’s or brokerage firm’s misconduct, contact the Law Offices of Place & Hanley, LLC to discuss your legal options.  The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide.  If you have lost money as a result of your broker’s recommendations, you may be entitled to recover your investment losses.  Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.

Categories: Broker Fraud, Securities Broker Misconduct, and Securities Fraud.

FINRA Bars John Michael Kastelic Jr.

John Michael Kastelic Jr. (CRD #5836566, Hubertus, Wisconsin) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Kastelic consented to the sanction and to the entry of findings that he failed to respond to repeated FINRA requests for documents and information in connection with its investigation into allegations that he participated in a check-kiting scheme while associated with his member firm. (FINRA Case #2014043698901)

From 09/2010 – 12/2014 Kastelic was associated with WELLS FARGO FUNDS DISTRIBUTOR, LLC (CRD# 133366) of MENOMONEE FALLS, WI.

If you have suffered investment losses as a result of your broker’s or brokerage firm’s misconduct, contact the Law Offices of Place & Hanley, LLC to discuss your legal options.  The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide.  If you have lost money as a result of your broker’s recommendations, you may be entitled to recover your investment losses.  Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.

Categories: Broker Fraud, Broker Investigations, General, and Securities Broker Misconduct.

FINRA Bars Kenneth Enlo Crosser

Kenneth Enlo Crosser (CRD #4589397, Ottumwa, Iowa) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Crosser consented to the sanction and to the entry of findings that he refused to appear for FINRA-requested testimony during the course of an investigation into allegations that he was involved in the sale of structured settlement cash flow instruments
to investors without providing his member firm with prior written notice and receiving firm approval to engage in this activity. (FINRA Case #2013037328701).

Mr. Crosser also has two customer complaints.

Crosser was formerly registered with:

06/2013 – 10/2013 GIRARD SECURITIES, INC. (CRD# 18697) – OTTUMWA, IA
02/2012 – 06/2013 CAMBRIDGE INVESTMENT RESEARCH, INC. (CRD# 39543) – OTTUMWA, IA
02/2010 – 02/2012 ROYAL ALLIANCE ASSOCIATES, INC. (CRD# 23131) – OTTUMWA, IA
04/2003 – 02/2010 PROEQUITIES, INC. (CRD# 15708) – OTTUMWA, IA
If you have suffered investment losses as a result of your broker’s or brokerage firm’s misconduct, contact the Law Offices of Place & Hanley, LLC to discuss your legal options.  The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide.  If you have lost money as a result of your broker’s recommendations, you may be entitled to recover your investment losses.  Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.
Categories: Broker Investigations, Investor Protection, and Securities Broker Misconduct.

FINRA Fines and Suspends Kenneth Brannen

Kenneth Ray Brannen (CRD #1861189, Lakeland, Florida) submitted an AWC in which
he was assessed a deferred fine of $5,000, suspended from association with any FINRA
member in any capacity for 30 business days, and ordered to pay $1,600, plus interest, in
restitution to a customer. Without admitting or denying the findings, Brannen consented
to the sanctions and to the entry of findings that he borrowed $1,800 from his customer
without his member firm’s knowledge or approval. The findings stated that to date,
Brannen has repaid $200. The loan did not fall within any of the exceptions to the firm’s
policy prohibiting registered representatives from borrowing funds from any clients.
The suspension is in effect from September 8, 2015, through October 19, 2015. (FINRA Case
#2014040687301)

If you have suffered investment losses as a result of your broker’s or brokerage firm’s misconduct, contact the Law Offices of Place & Hanley, LLC to discuss your legal options.  The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide.  If you have lost money as a result of your broker’s recommendations, you may be entitled to recover your investment losses.  Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.

Categories: Broker Investigations, Florida Securities Attorneys, Investor Protection, and Securities Broker Misconduct.

What is Securities Arbitration?

Securities Arbitration is the process, which takes place following a dispute with a broker or dealer. Prior to arbitration, the investor has determined that the broker engaged in some form of wrongdoing, or otherwise negligent action that resulted in a loss. Depending on the amount of the claim, the investor may or may not have to appear before an arbitrator or group of arbitrators. Arbitration is an alternative to settling in court and is often the preferred method of dispute resolution because it is typically faster and less expensive.

While typically a contract between a firm and investor is what provides ground for arbitration, the absence of a contractual agreement does not mean that the dispute cannot be settled through arbitration. If the broker or firm is registered with the Financial Industry Regulatory Authority, they are bound to FINRAs procedural guidelines, which include the duty to participate in arbitration when a conflict arises.

Arbitration is NOT an investor complaint. If you want to make FINRA aware of any suspicious activity then you should file an investor complaint. Arbitration is similar to a court case, with formal proceedings but for the reasons stated above is a simpler and quicker alternative to litigation. If a claim is under $50,000 then the dispute can be settled through what is known as “Simplified Arbitration”. In this scenario, parties provide case materials, which are reviewed by an arbitrator; this does not require parties to appear in person. For cases involving larger sums, arbitration takes place in-person and is reviewed by a panel of up to 3 arbitrators.

To initiate an arbitration, the investor must submit what is known as a “Statement of Claim”. The statement of claim must be articulate and while there is no standardized format, following the format of a suit in court is effective. The statement of claim should include all the pertinent information that the arbitrator(s) need to make an intelligent decision. This included the nature of the dispute, any background information, dates, types of securities at hand, names of the parties involved, the kind of transactions that took place and the damages sought.

Following the statement of claim, the respondents must answer to the allegations. This must also be detailed and simple denial will not suffice. At this point in time the respondent can file a counter-claim against the investor or a 3rd party involved. Once the submission of facts from either side is received by FINRA, a hearing location is chosen. Before the hearing is a discover period, where documentation is provided and exchanged amongst parties involved and FINRA officials. This stage is a window of opportunity for the assertive attorney as it is the opportunity to obtain any and all relevant information from the other party prior to the hearing. Often, the persistence of a dedicated attorney during the prehearing discovery phase can result in a favorable verdict for their client.

The hearing itself is scheduled in advance and follows a similar format to a case in court. Witnesses are interviewed, cross-examined and evidence is produced. A series of questions are asked and there are multiple stages before the process is concluded. The arbitrators will determine what awards are served usually within 30 days of the last hearing. The award will include the basic facts of the dispute but does not have to provide justification or rationale behind the actual dollar amount awarded. The opportunity to appeal a decision exists on the state and federal level but it is rarely ever successful.

The Law Offices of Place & Hanley is a Naples, Florida based firm who have an extensive track record of successfully securing awards for their clients. The arbitration process is complex and difficult to navigate without the guidance and advocacy that skilled attorneys can provide. Place & Hanley offers a free case evaluation to determine the best course of action for you.

Categories: FINRA Arbitration, Florida Securities Attorneys, Securities Broker Misconduct, Securities Fraud, Securities Information, and Securities Investigations.

Derek Bembry Suspended by FINRA

Derek Josef Bembry formerly registered with Signator Investors, Inc. (CRD #5878656, Kansas City, Missouri) submitted an AWC in which he was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in any capacity for six months. Without admitting or denying the findings, Bembry consented to the sanctions and to the entry of findings that he failed to timely respond to FINRA’s requests for documents and information relating to disclosures made on his amended Uniform Termination Notice for Securities Industry Registration (Form U5) regarding a customer’s written complaint alleging that Bembry failed to disclose tax implications on a loan the customer took from his variable life policy.

If you have suffered investment losses as a result of your broker’s or brokerage firm’s misconduct, contact the Law Offices of Place & Hanley, LLC to discuss your legal options.  The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide.  If you have lost money as a result of your broker’s recommendations, you may be entitled to recover your investment losses.  Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.

Categories: Broker Fraud, Broker Investigations, FINRA Arbitration, Investor Protection, Securities Broker Misconduct, Securities Fraud, and Securities Investigations.

Braymen, Lambert and Noel Securities, Ltd. FINED by FINRA

Braymen, Lambert and Noel Securities, Ltd. (CRD® #124902, San Antonio, Texas) and Shannon Braymen (CRD #2099783, San Antonio, Texas) was censured and fined $70,000. Ms. Braymen was fined $20,000 and suspended from association with any FINRA member in any principal capacity for one month. Without admitting or denying the findings, the firm and Ms. Braymen consented to the sanctions and to the entry of findings that the firm, acting through Ms. Braymen, failed to supervise its private placement securities business and the activities of registered representatives located in two of its branch offices. The findings stated that the firm, acting through Ms. Braymen, failed to register those two branch office locations. The findings also stated that the firm, acting through Ms. Braymen, failed to conduct and/ or to adequately document several branch office inspections. Specifically, the firm inspected five branch offices, but failed to document the inspections. The firm’s documentation failed to document the testing and verification of its policies and procedures. In addition, the firm and Ms. Braymen failed to maintain a schedule for compliance inspections of its non-branch offices and had inadequate supervisory systems and written supervisory procedures (WSPs) regarding scheduling such inspections. The findings also included that the firm, acting through Ms. Braymen, failed to capture, review and retain certain email correspondence, and failed to enforce its WSPs regarding documenting reviews of other email correspondence. The suspension is in effect from September 21, 2015, through October 20, 2015. (FINRA Case #2011025610501)

If you have suffered investment losses as a result of your broker’s or brokerage firm’s misconduct, contact the Law Offices of Place & Hanley, LLC to discuss your legal options.  The Law Offices of Place & Hanley, LLC is dedicated to helping investors nationwide.  If you have lost money as a result of your broker’s recommendations, you may be entitled to recover your investment losses.  Contact our office toll free at (866) 318-4725 for a complimentary initial consultation.

Categories: Broker Fraud, FINRA Arbitration, Securities Broker Misconduct, and Securities Fraud.