Churning and Excessive Trading by Brokers

They say that everything old at some point becomes new again.  That seems to be especially true with cases concerning churning and excessive trading by stock brokers.  A form of fraud that seemed to reach its pinnacle in the 1970s and 1980s has made a resurgence and we have helped investors with many of such claims over the past year.

Excessive trading is a violation of many different rules, but is primarily in violation of the FINRA suitability rule.  FINRA Rule 2111 states that trades must be quantitatively suitable.  Section .05 of Rule 2111 requires that a series of recommendations “even if suitable in isolation, are not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile” and that to define excessive trading factors such as turnover rate and in-and-out trading may provide a basis for finding a violation of quantitative suitability.  Active trading greatly increases the risk of a portfolio and is considered by FINRA to be a high risk activity.  See NTM 00-62 (describing active trading as extremely high risk even when cost per trade is low)

Excessive trading can be presumed by a high annualized turnover rate.  Annualized turnover rate of six or more is generally presumed to reflect excessive trading.   In re Rizek, SEC Admin. Proc. File 3-9041, pgs. 20-21, ( The courts which  have addressed this issue  have indicated that   an  annual  turnover  rate  in  excess  of  six  reflects  excessive trading and citing cases where a turnover of three was excessive. ).  The level of trading can be excessive and unsuitable for even speculative investors.  In re Murphy, SEC admin. Proc. File 3-14609, pg. 21 (level of trading deemed excessive depends on objectives and tolerance, turnover of 6 presumed excessive, and turnover rate of 22 is definitely inconsistent level of risk for even high-risk investors seeking speculation).

Another indication of excessive trading is multiple round-trip transactions for the same option series, meaning that Murphy sold and bought back the same option series repeatedly.  Murphy at 21.  This is supported by fact that the use of in-and-out trading also support excessive trading under FINRA Rule 2111.  Rule 2111 .05(c).

Please contact us if you believe that you have been a victim of excessive trading.

Wells Fargo Advisor Losses

Wells FargoWe are investigating investment losses of individuals investing with Wells Fargo Advisors.   Wells Fargo recently received notice from FINRA that it would be the subject of an investigation concerning its procedures as to money laundering.  While this may the result of the actions at a single branch, the investigation appears focused on the procedures for the entire firm.  In 2010, Wachovia Corp., which was acquired by Wells Fargo in 2008, paid $160 million to settle federal charges that it had laundered Mexican drug money.

The failure to appropriately supervise a brokerage to prevent money laundering can impact investors in many different ways.  Such failures can be indicative of larger supervisory failures of a brokerage over its brokers.  A lack of supervision can lead to all types of securities fraud.  Further, enforcement of anti-laundering rules can often reveal Ponzi and Ponzi-like schemes since the rules seek to detect transactions in a broker’s accounts that are inconsistent with normal trading activity.

If you have questions about your Wells Fargo account, we are willing to review your potential matter in a free consultation.

Information concerning this post was obtained from the following source:


FINRA Punishing Brokers for Unsuitable Trades


FINRA punishes brokers for making unsuitable trade recommendations to investors, but investors likely need a private attorney to recover the losses with such brokers.  Please call us at 303-300-5022 for more information.  Below are recent actions by FINRA concerning brokers who have been punished for making unsuitable trades:

FINRA suspended Kyle Back, a securities broker in Blacklick, Ohio, for five months for unsuitable trades he recommended for his investors’ accounts.  Without admitting or denying the findings, Back consented to the suspension and to the entry of findings that he engaged in “a pattern of unsuitable short-term trading of mutual fund and front-loaded unit investment trust (UIT) transactions.”

Mr. Back recommended the purchase of mutual fund and UITs and the subsequent sale of these products within a year of purchase. Both are front-loaded products (the mutual funds were A shares)  intended to be held long term.  The front end load means that there are significant costs up front that are lost if the investments are traded quickly.

As the release from FINRA has stated, “Within the accounts, the mutual fund share positions sold within a year of purchase resulted in a net loss to customers of $4,849. Similarly, the UIT positions sold within a year of purchase resulted in a net loss to the customers of $117,457.” While the investors were losing money, the investments were benefitting Back.  The transactions resulted in approximately $46,718 in commissions to Back. Back failed have a reasonable basis to believe that the short-term trading of these front-loaded products were suitable for customers.

Likewise, Matthew John Davis, a stockbroker from Murrieta, California, was barred from association with any stockbrokerage firm.  Without admitting or denying the findings, Davis consented to the sanction and to the entry of findings that he refused to appear for FINRA on-the record testimony regarding allegations that he engaged in misconduct in several customer accounts, including conversion, misrepresentation of customer holdings and account values, forgery of account related documents, discretionary and/or unauthorized trading, efforts to settle a customer complaint away from his member firm, and unsuitable recommendations.


JP Morgan Broker Theft

Invest photo 2FINRA has charged two JP Morgan  brokers involved in theft from their investors in the past few months.   If you have had your funds handled by either of these individuals of JP Morgan please call us at 303-300-5022.

Luciano Andres Battioli was accused of forging withdrawal slips from customer accounts.   FINRA alleged that Battioli then used the funds improperly by using them to pay credit card bills of his father.  Mr. Battioli was ultimately banned from the securities industry.

More recently, FINRA has accused Nancy Sue Hogan of similar misdeeds.  The accusations include the issuing of ATM cards for the accounts of her investors and then using these cards to withdraw money for her own purchases.  Ms. Hogan, who was a representative trainee at the time, resigned from JP Morgan and did not contest the FINRA allegations against her.

Recovery of Infinex Investments Losses

investingstockphoto 1We are a firm that specializes in representing investors in the recovery of investment losses.  We are currently investigating Infinex Investments.  If you have suffer losses with Infinex please contact us for more information.

Meriden, Connecticut-based Infinex Investments, Inc. was  by FINRA and fined $75,000 for its faulty review of  nontraditional ETFs. It was also ordered to pay $287,171.75 in restitution to customers.

FINRA stated that Infinex committed due diligence and suitability violations.  Infinex brokers recommended nontraditional ETFs to customers without having performed reasonable due diligence so that they understood the ETFs’ risks and features, and Infinex also failed to ensure that such ETFs were not sold in customer-specific circumstances that made them unsuitable — such as to customers with low risk tolerance or conservative investment objectives.

More information can be found at the following link:




Complaints Against Newport Coast Securities

We are currently investigating all customer complaints against Newport Coast Securities Inc.  Monday, as reported in “Financial Advisor,”, FINRA filed churning charges against five brokers formerly associated with Newport Coast Securities Inc.

Included in the FINRA charge were Newport Coast and two former supervisors at the firm, Marc Arena and Roman Luckey.

Finra alleges that from September 2008 through May 2013, brokers Douglas Leone, Andre LaBarbera, David Levy, Antonio Costanzo and Donald Bartelt churned the accounts of 24 customers, using margin and risky securities to generate huge commissions, wiping out most of the customers’ capital in the process.

The brokers, firm and supervisors all caused more than $1 million in damage to investors, Finra alleges.

If you have had an account with Newport where a significant number of trades has been placed, or if you have any other customer complaint, please call us at 303-300-5022.  We handle cases nationwide against securities brokerage firms and would be interested in speaking to you.

Marijuana Investment Fraud

The Securities and Exchange Commission issued an alert on May 16, 2014 warning investors of potential fraud in investments in marijuana-based companies.  “Fraudsters follow headlines  [...] and recent law changes [in Colorado concerning marijuana] has created new opportunities for penny stock fraud,” stated the SEC.

The SEC recently halted trading in Colorado-based cannabis cultivation system maker FusionPharm Inc. related penny stock in the past two months.  Questions had arisen concerning assets, revenues, financial statements, business transactions and financial condition disclosures.  Other suspended companies include Cannabusiness Group, Inc., (CBGI), GrowLife, Inc., (PHOT), Advanced Cannabis Solutions, Inc. (CANN), and Petrotech Oil and Gas, Inc. which had previously stated that it would be venturing into the pot industry.                      

If you have suffered losses in marijuana investments, you need an attorney licensed in Colorado with experience in handling securities suits.  Jeffrey Pederson is a Colorado licensed attorney who has successfully represented hundreds of investors.  Contact him for a free consultation on your matter by calling 303-300-5022.

Information in this post is derived from the following: ;

Rigged Securities Markets

A 60 Minutes interview with Michael Lewis recently revealed how millions of investors are being secretly being defrauded by front-running actions of banks and brokerages.   Below is an excerpt of Lewis explaining how he believes that the markets are “rigged”:

Steve Kroft: What’s the headline here?

Michael Lewis: Stock market’s rigged. The United States stock market, the most iconic market in global capitalism is rigged.

Steve Kroft: By whom?

Michael Lewis: By a combination of these stock exchanges, the big Wall Street banks and high-frequency traders.

Steve Kroft: Who are the victims?

Michael Lewis: Everybody who has an investment in the stock market.

Michael Lewis is not talking about the stock market that you see on television every day. That ceased to be the center of U.S. financial activity years ago, and exists today mostly as a photo op. This is the stock market that Lewis is talking about; the one where most of the trades take place now, inside hundreds of thousands of these black boxes located at more than 60 public and private exchanges, where billions of dollars in stock change hands every day with little or no public documentation. The trades are being made by thousands of robot computers, programmed to buy and sell every stock on the market at speeds 100 times faster than you can blink an eye. A system so complex, it’s all but invisible.

Michael Lewis: If it wasn’t complicated, it wouldn’t be allowed to happen. The complexity disguises what is happening. If it’s so complicated you can’t understand it, then you can’t question it.

Steve Kroft: And this is all being done by computers?

Michael Lewis: All being done by computers. It’s too fast to be done by humans. Humans have been completely removed from the marketplace.

“Fast” is the operative word. Machines with secret programs are now trading stocks in tiny fractions of a second, way too fast to be seen or recorded on a stock ticker or computer screen. Faster than the market itself. High-frequency traders, big Wall Street firms and stock exchanges have spent billions to gain an advantage of a millisecond for themselves and their customers, just to get a peek at stock market prices and orders a flash before everyone else, along with the opportunity to act on it.

Michael Lewis: The insiders are able to move faster than you. They’re able to see your order and play it against other orders in ways that you don’t understand. They’re able to front run your order.

Steve Kroft: What do you mean front run?

Michael Lewis: Means they’re able to identify your desire to, to buy shares in Microsoft and buy ‘em in front of you and sell ‘em back to you at a higher price. It all happens in infinitesimally small periods of time. There’s speed advantage that the faster traders have is milliseconds, some of it is fractions of milliseconds. But it”s enough for them to identify what you’re gonna do and do it before you do it at your expense.

Steve Kroft: So it drives the price up.

Michael Lewis: So it drives the price up, and in turn you pay a higher price.

FINRA BrokerCheck CRD Flawed

NYSE pic 1FINRA (the “Financial Industry Regulatory Authority”) the March 7,  2014 Wall Street Journal points out what many industry insiders have known for a long time: FINRA routinely “strips” important information from BrokerCheck, the publically available CRD system concerning broker records.

While an experienced attorney can find the full information concerning a broker through various means, most investors only have BrokerCheck.  The FINRA BrokerCheck system is the first line of defense for most investors.  BrokerCheck is supposed to give investors all information on a broker that might serve as a “red flag” about a broker’s propensity to commit fraud.  This leaves the system seriously flawed for those relying upon it.

The information FINRA omits includes information concerning personal bankruptcies and criminal charges.  The Journal reports that there are as many as 1600 stockbrokers in the United State that are not revealing such items on their publically available records.  The list of offenses that the Journal found to not be disclosed include hit-and-run, habitual substance abuse and assault.

Many investors are surprised when defrauded by a broker with a clean BrokerCheck CRD.  An experienced attorney can often obtain regulatory documents showing that the broker’s propensity to defraud was not unknown to the brokerage.  If you have been such a victim, please call 303-300-5022.




Variable Annuity Fraud

We help investors who believe that they are victims of variable annuity fraud.  Variable annuity fraud has always been a frequent trick of brokers looking to put their own interests ahead of their investors (often by selling to those approaching retirement which is generally an unsuitable recommendation).  The investments pay an extremely high commission and the investments are only suitable for a small section of the investing public.  This fraud hit a new low last week.

As reported in, the Securities and Exchange Commission Thursday, March 13, 2014, filed charges against a group of brokers in a scheme wherein investors used variable annuities to wager on the lives of the terminally ill.

The brokers in question were Michael A. Horowitz of Los Angeles and Moshe Marc Cohen of Brooklyn, N.Y.

The brokers allegedly obtained the personal health and identification data of the dying patients through fraud, marking them as annuitants on variable annuity contracts that he had marketed to wealthy clients, according to the SEC’s complaint.  Under false pretenses, the brokers allegedly received their employers’ approval to sell the annuities.  The motivation with this plan, as with most fraudulent sales of variable annuities was the commission.  Variable annuities pay as large of a commission as just about any investment product that you can purchase through a securities brokerage.  The brokers reaped approximately $1 million in commissions from their sale, the SEC claimed, with Mr. Horowitz obtaining more than $300,000 and Mr. Cohen became unjustly enriched to the tune of more than $700,000.

If you have lost money with these or any other brokers you believe may have defrauded or mismanaged you portfolio call 303-300-5022.