Tag Archives: FINRA

Investment Professionals, Inc. (IPI)

If you have suffered investment losses with Investment Professionals, Inc. (IPI) and believe that it may be due to mismanagement, please call 1-866-817-0201 for a free and confidential attorney consultation.

Invest photo 2IPI has recently agreed to pay a fine to the Massachusetts Attorney General for violations of the suitability rule.  This rule requires a financial adviser to not recommend investments that are of a higher risk than an investor either wants or is financially able to take.  The allegations were that IPI was recommending risky investments to seniors who could not afford to take such risks. Though the action was brought by Massachusetts, the systemic nature is a good indication that such violations are occurring in other states as well.

IPI’s business model is based upon partnering with community banks so that the bank’s existing depository customers can be used to provide revenue to IPI and additional revenue to the bank. Though IPI is based in San Antonio, Texas, it engages in such partnerships around the country.

Networking agreements between IPI and their bank partners reveal a referral program where bank employees of its partner banks refer bank customers to IPI financial advisers for monetary incentives. In exchange for allowing IPI representatives convenient access to bank customers, IPI’ s bank partners receive “rent,” or commonly referred as a kickback, which is a percentage of the sales that IPI representatives earn from selling products at bank branches.

While IPI and their bank partners profit from their networking arrangements, the pervasive sales culture emphasizing and rewarding the volume of production at the expense of compliance with policies and procedures, suitability, and oversight means that certain senior citizen bank customers have been harmed .

As identified in the regulatory complaint, IPI has partnered with the following. banks and credit union in Massachusetts: Eastern Bank, Mutual Bank, East Boston Savings Bank, Edgartown National Bank, The Cooperative Bank, and Homefield Credit Union.  Between January 2014 and June 2016, the top ten IPI representatives working out of Massachusetts community banks received approximately 2,208 customer referals. Approximately forty-five percent ( 45%) of these bank referrals to IPI financial were referrals of semor citizens, those individuals aged 65 or older. Approximately fourteen percent (14 %) of those referred invested in market-linked certificates of deposit (“MLCDs”) and approximately thirty-nine percent (39%) invested in annuities. Eastern Bank, is IPI’s largest partner in Massachusetts. Eight of the top ten highest producing IPI representatives in the stat work at Eastern Bank branches.

IPI’s aggressive sales contests exist against a backdrop of lax supervision from offices located in Texas and Kentucky that management personal at IPI identified as “not adequate.” Although IPI’s own policies and procedures prohibit “activities that are designed to reward sales for a particular financial product or family of products” and prohibit activities that “would only serve as a luxury” to representatives, in 2016 IPI rewarded the top ten percent of the previous year’s highest-producing representatives with a trip to Turks and Caicos. In 2015, IPI held a sales contest approved by IPI’ s President and CEO whereby representatives who achieved sales of products up to $150,000.  This served as motivation to put seniors in inappropriate investments.

Kris Etter of IMS Securities

If you have suffered investment losses with Kris Etter of IMS Securities, particularly if you suffered losses in UDF, please call 1-866-817-0201 for a free consultation with an attorney.  We have suit filed against IMS and are currently investigating whether other claims may exist.

It is believed that Etter had an undisclosed conflict of interest in his recommendations of UDF.  Upon information and belief, Mr. Kris Etter sold a substantial amount of UDF to his clients and is the son of Todd Etter.  Todd Etter is the Chairman of UDF IV, one of the top officers of the company.  Mr. Todd Etter also serves as Chairman of the general partner of UDF I and UDF II and Executive Vice President of the general partner of UDF III.  This creates a substantial conflict of interest in UDF recommendations by Kris Etter.

Kris Etter and IMS also failed to properly investigate UDF before recommending it, likely because of the Etter conflict and the heightened commission paid by UDF.  IMS is one of the top four leading sellers of UDF IV in the United States.

The bottom fell out for UDF when it was revealed in December 2015 to be a Ponzi scheme. The offices were raided by the FBI, received a Wells notice, unable to release quarterly reports and was ultimately delisted for a time. Reasonable investigation into the investment of other financial firms revealed that the illegitimacy of the investment. Had IMS done sufficient due diligence it would have likewise discovered that the investment was not suitable for any investor. Instead, IMS and Etter turned a blind eye to the problems of UDF and instead focused on the profits that it was receiving from this high commission product.

The individual ultimately in charge of all IMS offices is the CEO of IMS, Jackie Wadsworth.  Ms. Wadsworth has seven customer complaints naming her for insufficient supervision of representatives under her oversight. These complaints largely concern the inappropriate recommendation by her representatives of unsuitable variable annuity and REIT investments, just like the investments sold clients of Kris Etter and IMS.

As reported in Investmentnews.com in August 2016, the balance sheet of IMS is tilted heavily toward high-commission products like variable annuities and non-traded REITs. Approximately 86% of its revenue of IMS in 2015 came from commissions from such products.

Binary options recovery scams

The Financial Industry Regulatory Authority (FINRA), in a press release on March 16, 2017 warned investors against companies or persons that approach victims of binary options fraud claiming that, for an up-front fee, they can help them recover the sums invested or the losses incurred on unlawfully operating trading platforms.  Investors should verify that they are dealing with a licensed attorney or regulator prior to engaging in such recovery efforts.

As stated in the release by FINRA, binary options are inherently risky all-or-nothing propositions. When a binary option expires, it either makes a pre-specified amount of money, or nothing at all, in which case the investor loses his or her entire investment.  These options may be fraudulent and sold on illegitimate securities boards, but participation in such options may open an investor to further victimization.

FINRAAfter an individual has participated in such investment activity, fraudulent individuals obtain investor information from the illegitimate boards selling the options and then calls the investors, and can further be spotted with the following hallmarks during the :

  • urgent correspondence and high-pressure calls that specifically refer to your binary options accounts;
  • claims that the caller is with, or acting at the behest of, U.S. government agencies; and
  • subsequent correspondence with official-looking documents that make it look as if money is available, and can be recovered for a fee.

FINRA cautions investors that some of these offers may be fraudulent because it is often very difficult to track down the person or group that has scammed them.

“Following a significant loss, investors may be anxious to get back at least some of their money. This can leave them vulnerable to follow-up frauds that add to existing losses with devastating financial consequences,” said Gerri Walsh, FINRA’s Senior Vice President of Investor Education.

The FINRA release can be found at the following link.

Losses with First Financial Equity (FFEC)

If you have suffered investment losses with First Financial Equity Corp. (“FFEC”) please call for a free consultation with an attorney at 1-866-817-0201.  Recent actions of FINRA, the financial industry regulator, indicate that investors may have been harmed by the actions of this firm.

FFEC and its chief compliance officer entered into a settlement with FINRA regulators  on March 8, 2017 concerning the lapses in supervision.  The alleged lapses allowed a variety of different fraudulent activity to occur throughout FFEC and in particular the Scottsdale, Arizona branch.  FINRA asserted that the chief supervisor of FFEC, the chief compliance officer, had not adequately supervised and that the firm did not have adequate supervisory procedures.

The most obvious result of the lack of supervision is the 26 customer complaints of broker John Schooler.  These complaints, many of which evolved into arbitration lawsuits, involved his inappropriate trades in oil & gas investments and TIC investments.

One issue alleged to be a result of the inadequate supervision is the sale of unsuitable ETFs.  Unsuitable securities are those which are not consistent with the wants and needs of an investor.  Usually, an investment is unsuitable if it puts at risk funds not earmarked for risk, or otherwise is inconsistent with who the client is as an investor.

In the case of FFEC, its brokers recommended and invested its customers in aggressive ETFs, including leveraged and inverse ETFs.  Such investments are known to be high risk, yet the brokers recommended the investments to individuals who did not express a desire for high risk investments.  Worse, many of these investments were purchased by the FFEC brokers for accounts where the brokers were given discretion and not given the required supervisory review.

To ensure suitability, FFEC brokers were required to obtain sufficient information about their investors to evaluate the investments that would be suitable.  The settlement states that this was not done.

Another issue alleged to have been caused by the lack of supervision is churning/excessive trading.  This occurs any time trades are made which the costs and fees are of an amount that the trades benefit the adviser more than the investor.

Southeast Investments, N.C. and Frank Black

We represent investors and have successfully pursued Southeast Investments and Frank Black to judgment.  The arbitration resulted in a nearly full award of investment losses plus an award of attorney fees.  To speak to a lawyer for a free and confidential consultation about losses with Southeast or Black please call 1-866-817-0201.

Black and Southeast are in trouble again.   This time by FINRA regulators.  FINRA’s Department of Enforcement alleges that Respondent Southeast Investments, acting through Respondent Frank Harmon Black, and Black violated FINRA Rules 8210, 4511, and 2010 in the provision of false documents to FINRA and giving false testimony in a regulatory interview during an investigation into whether the Firm had conducted required inspections of branch offices.

One of the false documents was a list of 43 branch inspections Black claimed he performed, including the dates he purportedly conducted the inspections. Respondents also provided five false branch office inspection checklists that Black claimed he completed during the inspections. Enforcement also alleges that for more than five years Respondents failed to ensure that Southeast preserved all business-related emails by permitting registered representatives to use private email providers.

Under an “honor system” set up by Respondents, registered representatives were obligated to send copies of their emails to the Firm to review and retain. For this conduct, Southeast is charged by FINRA regulators, pursuant to FINRA documents, with willfully violating Section 17(a) ofthe Securities Exchange Act of 1934 and Exchange Act Rule 17a-4. Southeast and Black are also charged with violating NASD Rule 3110 and FINRA Rules 4511 and 2010.

The resulting penalty was just short of a quarter million dollars.  Frank Black was expelled from the securities industry.

The FINRA order can be found at the following link.

Jeffrey Pederson is a private attorney representing investors, having represented investors in FINRA arbitrations across the country.  Please call for a consultation if you have lost funds as a result of actions you suspect may be inappropriate.

 

Oil / Gas Investment and Tax Loss

Oil StockSome Energy, Oil and Gas investments can only legally be sold to a limited section of the investing public.  If you suffered losses we may be able to  help.  Contact us at 303-300-5022 or 1-866-817-0201 (toll-free) for a free consultation.

Oil and gas investors do not have to sit and watch their life savings diminish.  These investors have rights though many are unaware of the recourse they have for such losses.

Many investors have received high pressure sales of oil and gas investments.  Brokers and other investment professionals like to sell these types of investments because they usually pay a very high commission.  These commissions can be 10 to 20 times higher than the commission on your average stock sale.  The high commissions will often cause these individuals to ignore the rules in the sale of such investments. The two rules that are usually ignored are those concerning accreditation and suitability.

Oil and gas limited partnerships can generally only be sold to “accredited” investors.  Such investors are individuals whose liquid net worth, their net worth excluding their home, is in excess of $1 million. The second rule that is commonly violated in the sale of such investments is the suitability rule.  Oil and gas investments are known by investment professionals to generally be very high risk investments.  Investments need to be consistent with the level of risk that an investor is willing or able to take.  For example, a person approaching or in retirement or who cannot otherwise afford to take high levels of risk with their investments could not legally be offered an oil and gas investment.

Likewise, an individual who expresses a desire for conservative or moderate investments would not be a suitable investor. There are many other rules that can potentially be violated in the sale of oil and gas investments.

Problems exist not just with the investment losses, but also with the tax consequence of investing in these companies.  A detailed description is found in the following Link to Forbes.   In short, these investments are partnerships.  When debt is defaulted upon by a partnership, and the lender “writes off” the debt, the write off means that the owners (the investors) are taxed as if they received the amount written off as income.  Considering some limited partnerships defaulted on billions in loans, the tax obligation of investors is substantial.

If you have any questions, please feel free to give us a call.  These rules apply no matter if you invest in individual oil or gas investments or invest through a mutual fund or master limited partnership (MLP).

Common oil and gas investments we see recoverable losses include Linn Energy (“LINE” or “LNCO”) and more information can be found at www.jpedersonlaw.com/blog/linn-energy-losses/, Williams Companies (“WMB”), Penn West Petroleum (“PWE”), BP Prudhoe Bay Royalty Trust (“BPT”), Breitburn Energy Partners, LP (“BBEP”), Hawthorne, SandRidge Energy, Williams Ridgewood Energy, Apco, Atlas Energy, Midstates Petroleum, Peabody Energy, Resolute Energy, XXI Energy, Nobel, Permian Basin, and Breitling Energy.  Some of these losses may be recoverable by class action while others may require individual FINRA arbitration suits.

More information on SandRidge can be found at this link.

Oil Stock IIJeffrey Pederson is an attorney who works with investors to recover losses in FINRA arbitration and has represented investors in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut , Florida, Hawaii, Illinois, Indiana, Massachusetts, Montana, New Jersey, New Mexico, New York, North Carolina, Maryland, Minnesota, Missouri, Montana, North Dakota, Rhode Island, Texas, Utah, and Wyoming, in FINRA arbitration actions against securities brokerage firms for unsuitable investments.  Please call for a confidential and free consultation.

Vincent Bee Payne

On February 2, 2017, Vincent Bee Payne entered into an AWC with FINRA, the Financial Industry Regulatory Authority.  FINRA is the regulator that oversees financial advisers.

The FINRA allegations, which Payne neither admits or denies, are that he falsified signatures without permission on certain insurance documents and subscription agreements.  The actions took place in July and August 2014.

The actions were motivated, as alleged in the AWC, by an attempt to secure commissions and to prevent his employer from reassigning the accounts.  The signatures were for three different customers and were done without the consent of his customers.

Payne entered the securities industry in May 2012 as an Investment Company Products/ Variable Contracts Representative at Farmers Financial Solutions, LLC (“Farmers Financial”), where he remained registered until his termination in March 2015.

From January 2011 through March 2015, Payne also was appointed as an insurance agent with Farmers Insurance Group of Companies (“Farmers Insurance”), a Farmers Financial affiliate. Payne obtained his Series 6 (Investment Company and Variable Contracts Products Representative) and Series 63 (Uniform Securities Agent State Law) licenses on June 25,2012 and July 9,2012, respectively.

FINRA Rule 2010 requires that an advisor, such as Payne, in the conduct of his business, “shall observe high standards of commercial honor and just and equitable principles of trade.” Signing a customer’s name to a document without proper authority constitutes forgery, and forgery is inconsistent with this Rule

The FINRA AWC can be found at the following link.

Austin Morton

The Financial Industry Regulatory Authority charged Austin Morton, a former Edward Jones broker located in eastern Oklahoma, with the theft of $36,000 from an 83-year-old man with dementia.  It is alleged that this theft was motivated by outstanding gambling debts of Morton.

Wall Street photo 2Morton is alleged to have taken more than $22,000 that the elderly investor left in Morton’s car after the investor liquidated his retirement account.  The FINRA complaint asserts that in September 2016 the investor was in the car of Morton after having lunch with Morton.

A month later the Edward Jones broker filled out a signed blank check from the customer for another $22,000.  Morton defended the action saying that the transfer of funds to him was a loan and that the investor was a personal friend.  Part of the funds were asserted by the broker to be for medical expenses which are alleged to have never occurred.

The FINRA complaint states, “[I]n 2016 Morton incurred close to $130,000 in losses from Online [gambling site], the primary online horse racing wagering facility with which he placed bets at the time.”  The complaint goes on to say, “[I]n September 2016 alone, the month in which he committed his first act of conversion, Morton made 38 separate deposits into his Online [gambling] account, totaling more than $17,300.”

Finra charged Morton with both conversion of funds and an unrelated charge of engaging in undisclosed outside business activity. These are substantial charges that could result in a bar from the securities industry.

On his FINRA BrokerCheck record, a form of his CRD record, Morton denied his employer’s termination charges stating, “gentleman [the alleged victim] [is] a long time family friend,” and that the investor “was no longer a client,” the broker wrote.

A copy of the complaint can be found at the following link.

William P. Carlson of Elhert

On February 21, 2017, he Securities and Exchange Commission charged William P. Carlson, Jr., a Deerfield, IL investment advisor with misappropriating more than $900,000 from a client’s account through more than 40 unauthorized transactions.  Deerfield is in the Chicago-area.

The SEC alleges that Carlson, an investment advisor representative associated with the Ehlert Group in Lincolnshire, forged a client’s signature on checks and journal requests and caused checks to be issued from the client’s account to a third party who gave the proceeds to Carlson.

Carlson had discretionary authority to place trades in the victim’s accounts. Such trades, involving the purchase and sale of mutual fund shares, were supposed to be made pursuant to a model asset allocation portfolio selected by the client based on advice from Carlson. When requested by the client, Carlson could direct disbursement of funds held in the accounts to the client. In order to disburse funds held in the accounts for the benefit of a third party, the Broker-Dealer holding the funds required a written request signed by the client.

On at least sixteen different occasions from November 2012 to April 2014, Carlson directed that a check made payable to the client be issued from the client’s account, purportedly based on instructions Carlson had received from the client. The check amounts ranged from $6,500 to as much as $97,000, and collectively totaled $437,000.

In approximately June 2014, Carlson changed his method of making unauthorized withdrawals from the client’s account. Carlson began forging the vicitm’s signature on “Check and Journal Request” forms that directed the Broker-Dealer to make disbursements of funds held in the client’s account to a third party who was a friend of Carlson’s.

In March 2015, Carlson forged the vicitm’s signature on a letter of authorization and a notarized signature sample letter permitting the firm holding the funds to issue checks from the victim’s account to Carlson’s same friend, without the need for further check and journal requests that required additional client signatures.

Between approximately June 2014 and December 2016, through the use of these forged authorizations, Carlson caused at least 25 checks—ranging in amount from $10,000 to $35,000 and collectively totaling $474,000—to be issued from the client’s account to Carlson’s friend, who in turn gave the proceeds to Carlson.

The Complaint of the SEC can be found at the following link.

Joseph Henry Murphy, B. C. Zeigler, RBC

On February 16, 2017, Wisconsin broker Joseph Henry Murphy of B. C. Ziegler and Company and formerly of RBC entered into an AWC settlement with FINRA Regulators.

As identified in FINRA regulatory findings, on February 11, 2015 Murphy exercised discretion in 27 non-discretionary accounts of his customers, placing a total of 80 transactions.  In the days leading up to the trades, Murphy had conversations concerning these transactions with his clients and the clients gave the broker express verbal approval for these trades and his proposed strategy, but Murphy did not receive authorization from these customers on the same day that he executed the transactions.  This is in violation of FINRA rules that require contemporaneous authorization for trades in non-discretionary accounts.

On October 27, 2015 he then again exercised discretion in 20 non-discretionary accounts, placing a total of 32 trades. Once again, in the days leading up to the trades, Murphy discussed these transactions with the clients and they gave Murphy express verbal approval for these trades and his proposed strategy, but he did not receive authorization from these customers on the same day that he executed the transactions.

On December 22, 2015 Murphy made 11 mutual fund transactions for a single customer after a short telephonic discussion with that customer. In that discussion neither the specific mutual funds nor the specific amounts that would be invested were expressly identified, and Murphy used his discretion to make those transactions. Murphy did not obtain written authorization, which is required for an account to be discretionary, from any of the 48 customers to exercise discretion in their accounts and RBC, the employer of Murphy at the time, did not approve these accounts for discretionary trading.

For these actions, Murphy received a 10-day suspension and a $5000 fine.

A link to the AWC of FINRA is found here.