Tag Archives: unsuitable securities

Rights for Lisa Lowi Investors

Lisa Lowi has been sued 35 times  over the past three years for recommending unsuitable investments to her investors at Janney Montgomery Scott and RBC Capital Markets.  Unsuitable investments are investments that carry more risk than an investor is willing to take, such moderate to high risk investments for a retired investor.  Lowi has recently been barred from the securities industry from failing to comply with a regulatory investigation into her offering unsuitable investments.  If you are an investor of Lowi’s please call toll-free at 1-866-817-0201 for a free consultation with an attorney

In 2017, FINRA, the regulator that oversees securities brokers, was conducting an investigation of Lowi in connection with customer complaints and arbitration claims alleging, among other things, unsuitable trading.

On September 7, 2017, FINRA staff sent Lowi’s attorney a written request for testimony concerning the unsuitable securities allegations. As stated in Lowi’s attorney’s email to FINRA staff on October 11, 2017, and by this agreement, Lowi acknowledges that she received FINRA’s request and simply decided not appear for on-the-record testimony.  This is viewed as conceding the violation.

FINRA Rules require that brokers subject to FINRA’s jurisdiction provide information, documents and testimony as part of a FINRA investigation. FINRA rules provide that “[a broker] in the conduct of its business shall observe high standards of commercial honor and just and equitable principles of trade.” By refusing to appear for on-the-record testimony as requested pursuant to FINRA Rule 8210, Lowi violates FINRA Rules 8210 and 2010.

Jeffrey Pederson PC is a private attorney protecting the rights of investors and recovering investment losses nationwide.

Wells Fargo Losses

If you suffered losses with Wells Fargo in ETP investments or other investments that you understood to have only low to moderate risk, please call 1-866-817-0201 for a free and confidential consultation with an attorney.

Wells FargoFINRA, the regulator that oversees securities brokerages, ordered Wells Fargo on Monday to pay investors $3.4 million after its advisers recommended “unsuitable” investments known as volatility-linked products that were “highly likely to lose value over time.”

Wells Fargo pushed its investors into these investments, volatility-linked ETPs, as hedges, to protect against a market downturn. In fact, these investments are unsuitable for such a strategy.  The investment are, in reality, “short-term trading products that degrade significantly over time,” regulators said, and “should not be used as part of a long-term buy-and-hold” strategy.  The recommendation of such unsuitable investments is a form of negligence, and could be seen as reckless enough to be considered fraud.

Volatility-linked ETPs are complex products that most investors do not understand and, as such, they rely upon their adviser, who should be a trained professional, to understand.   Certain Wells Fargo representatives mistakenly believed that the products could be used as a long-term hedge on their customers’ equity positions to help safeguard against a downturn in the market. In fact, volatility-linked ETPs are generally short-term trading products that degrade significantly over time and should not be used as part of a long-term buy-and-hold investment strategy.

FINRA issued Regulatory Notice 17-32 shortly after announcing the settlement with Wells Fargo to remind firms of their sales practice obligations relating to these products. Wells Fargo had previously been on notice to provide heightened supervision of complex products such as ETPs in Regulatory Notice 12-03, and were advised, along with all other brokerages, to assess the reasonableness of their own practices and supervision of these products.

FINRA found, “Wells Fargo failed to implement a reasonable system to supervise solicited sales of these products during the relevant time period.”  The complete news release of the FINRA action can be found at the following link.

Loss Recovery from H. Beck

Investors with H. Beck may have grounds for recovery for investment losses in ETFs and other investments.

H. Beck recently consented to a settlement with regulators.  The settlement stated that from at least July 2008 until June 2013, H. Beck failed to properly supervise the sale of nontraditional ETFs and failed to properly supervise the recommendations made by its financial advisors. As a result, H. Beck violated NASD Rules 2310, 3010(a) through (b), and 2110, and FINRA Rules 2111, 3110(a)-(b), and 2010.

Between 2008 and 2011, H. Beck’s financial advisor James Dresselaers recommended to the Firm’s customer, EB, investments in several nontraditional exchange-traded funds (“ETFs”) and stocks issued by companies in the metals and mining sector. These recommendations were unsuitable for EB, a professional athlete with no investment experience, a moderate risk tolerance, and an investment objective of long-term growth. EB suffered losses of more than $1.1 million on these investments.

NASD Rule 3010(a)-(b) and FINRA Rule 3110(a)-(b) require every investment brokerage to establish and maintain a system and procedures to supervise the activities of its financial advisors that is reasonably designed to achieve compliance with securities laws and regulations and applicable NASD/FINRA rules.

FINRA rules require that financial advisors only recommend investments to suitable investors.  So if an investment poses too much risk, or possesses other characteristics that are inconsistent with the wants and needs of the investor, it is a violation to recommend that investment to such an investor.  This is commonly referred to as a “suitability” violation.

This is not the first time H. Beck has been penalized by regulators over non-traditional investments.  In March 2015, H. Beck was censured and fined $425,000 for failing to properly supervise the sale of unit investment trusts (UITs), failing to properly supervise the preparation of account reports sent to investors, and failing to enforce its own written supervisory procedures relating to financial advisors’ outside email accounts, which is a significant protection against fraud. Dresselaers also has a history of customer disputes.   This is concerning since Dresselaers is listed as the top executive at H. Beck.

Such regulatory findings and prior disputes evidence wide-spread supervisory problems at H. Beck and support private claims by investors.

Morgan Stanley $13 Mil. UIT Sanctions

The Financial Industry Regulatory Authority (FINRA) announced today, September 25, 2017, that it has sanctioned Morgan Stanley Smith Barney LLC approximately $13 million for UIT violations by its advisors and for failing to supervise its advisors’ short-term trades of unit investment trusts (UITs).

A UIT is an investment vehicle similar to a mutual fund but with some key differences.  It is an investment company that offers units in a portfolio of securities; however, unlike a mutual fund, it terminates on a specific maturity date. UITs impose a variety of charges, including a deferred sales charge and a creation and development fee, that can total approximately 3.95 percent for a typical 24-month UIT. This can be a significant cost.  A registered representative, or advisor, who repeatedly recommends that a customer sell a UIT position before the maturity date and then “rolls over” those funds into a new UIT, an action that can also be described as “churning,” causes the customer to incur increased and unnecessary sale charges over time.

FINRA found such actions in thousands of customer accounts. FINRA further found that Morgan Stanley failed to adequately supervise advisor sales of UITs by providing insufficient guidance to supervisors regarding how they should review such transactions to detect improper short-term UIT trading, failing to implement an adequate system to detect and deter such abuse, and failing to provide for supervisory review of rollovers prior to execution. Morgan Stanley also failed to conduct training for advisors specific to these UIT issues.

Susan Schroeder of FINRA said, “Due to the long-term nature of UITs, their structure, and upfront costs, short-term trading of UITs may be improper and raises suitability concerns. Firms must adequately supervise representatives’ sales of UITs –including providing sufficient training –and have in place a system to detect potentially unsuitable short-term UIT rollovers.”

In assessing sanctions, FINRA has recognized Morgan Stanley’s cooperation in having initiated a firmwide investigation that included, among other things, interviewing more than 65 firm personnel and the retention of an outside consultant to conduct a statistical analysis of UIT rollovers at the firm; identified customers affected and establishing a plan to provide remediation to those customers; and provided substantial assistance to FINRA in its investigation.

Investors of Paul Vincent Blum

If you suffered losses with Paul Vincent Blum, most recently a financial advisor with RBC, please call 1-866-817-0201.

In 2017, FINRA was conducting an investigation of Blum in connection with customer complaints and arbitration claims alleging, among other things, unsuitable trading. To date, Blum has approximately 23 customer complaints.  Many of the complaints concern his recommendation of energy sector investments to investors not wishing to speculate or unwilling to high levels of risk known to exist in the energy sector.  Many of these complaints were settled by Blum’s employers, including RBC.  He has also been accused of making misrepresentations concerning bonds, including the taxable nature of certain bonds.

On July 21,2017, FINRA staff sent Blum’s counsel a written request for on-the-record testimony pursuant to FINRA Rule 8210. As stated in Blum’s counsel’s email to FINRA of July 25,2017, Blum aclmowledges that he received FINRA’s request and will not appear for on-the-record testimony in front of FINRA. FINRA requires that persons subject to FINRA’s jurisdiction provide information, documents and testimony as part of a FINRA investigation.

As a result of the failure to cooperate in the regulatory investigation of FINRA, Blum has been barred from association with any FINRA member, which would include any and all securities brokerages in the United States.

Annuity Losses with Roger Zullo

LPLIf you suffered investment losses or stuck in a variable annuity, or other investment losses, as a result of Roger Zullo, formerly of LPL Financial, please call 1-866-817-0201.

On April 4, 2017, Zullo entered a Consent Order, a settlement, with the Massachusetts Securities Division resolving charges made in an administrative complaint by the state against Zullo and LPL.

The complaint alleged that Zullo, under the oversight of LPL, defrauded their clients, falsified client financial suitability profiles, and sold his customers unsuitable variable annuities. Pursuant to the Consent Order, without admitting or denying any allegations of fact or violations o flaw, he consented to a permanent bar from the securities industry in Massachusetts, a $40,000 administrative fine, and disgorgement of $1,875,348. Payment for disgorgement was waived due to Zullo’s circumstances, however, this does not preclude investors from retaining private attorneys to seek this recovery from LPL.

The action stems largely from variable annuity sales.  Zullo, allegedly, recommended variable annuities to elderly individuals.  Investment professionals have a legal duty to only recommend suitable investments.  Variable annuities are inherently unsuitable for seniors.  Not only do they lock-up the funds at a time when people need access to their funds, the investments pay the broker a very high commission.  This commission is for the sale of many aspects of the variable annuity that senior investors do not need.  These include tax deferral and life insurance.  When a broker makes a heightened commission for the sale of things that are unneeded, the broker puts his interests ahead of the investors, and that constitutes a form of fraud known as the sale of “unsuitable investments.”

Zullo first became registered with FINRA as an IR in September 1998. He maintained that registration through consecutive associations with two member firms between September 1988 and August 2004. From August 2004 through December 2016, he was registered as an Investment Representative with LPL.

In November 2004, Zullo also became registered as IP through his association with the Firm. Zullo maintained those registrations through his association with the Firm until December 2016. Zullo worked for the Firm as a broker-dealer agent and investment adviser representative in Wellesley, Massachusetts.

On January 10,2017, FINRA sent a request for information and documents pursuant to FINRA Rule 8210 to Zullo with a response date of January 24, 2017. Zullo, through his counsel, requested two extensions to the January 10 request. Pursuant to these requests, FINRA extended the response date to March 1,2017.

Zullo did not provide any documents or information to FINRA in response to the January 10 request. On March 2,2017, FINRA sent a second request for documents and information pursuant to FINRA Rule 8210 to Zullo with a response date of March 16, 2017. Zullo did not provide any documents or information to FINRA in response to the March 2 request.

The resulting FINRA punishment is a permanent bar from the securities industry.

Attention Investors of Kyle P. Harrington

Investors of Kyle Patrick Harrington may have recourse for their losses.  Please call 1-866-817-0201 for a free and confidential consultation.

Harrington has been alleged to have committed several forms of deceit in his dealings with investors and regulators in the last eight years.  This includes actions while employed at National Securities (NSC), Bannockburn Partners, Matrix Captial, First Allied, and Robert B. Ausdall.  He is currently a representative of Aurora Capital and also operates under the name of Harrington Capital Management.  Responsibility for the actions of Harrington fall not just on Harrington, but also on his employers.

The types of deceit alleged over the years include churning, creating of falsified documents, theft of investor funds, unsuitable investments, excessive trading, unauthorized purchases made in investor accounts, and other forms of misrepresentations and fraud.

Of all the allegations of deceit, the most recent is a civil suit filed by FINRA.   The FINRA suit involves a series of alleged deceptions by Kyle Harrington with the help of his assistant, Linda Milberger, to conceal Harrington’s alleged theft of customer funds and private securities transactions, securities transactions done outside of his firms’ fraud monitoring to put his investors in questionable investments.

Harrington is also alleged to have created false documents to submit to FINRA to conceal his misconduct not just from his employers, but also from regulators. For her part, Milberger falsified wire request forms which allowed Harrington’s conversion of customer funds, submitted those falsified wire request forms to her firm and another brokerage as if they were authentic records, and knowingly assisted Harrington in providing an altered bank statement to regulators.

In particular, in August 2012, Harrington convinced an investor to authorize a wire transfer to Harrington’s registered investment advisor firm for a purported investment. In fact, after the investor’s funds were wired to Harrington’s business checking account, Harrington took the investor’s funds without her knowledge or consent, and used it to pay his own business expenses.

When difficulties arose completing the $20,000 wire transfer from the investor’s account in August 2012, Harrington’s assistant, Milberger, altered the wire request form that the investor had signed without the investor’s knowledge or consent, on at least two occasions, in order to transfer all available cash out ofLD’s account to Harrington. Milberger submitted the altered wire request forms to her own firm and another broker dealer as iftheywere authentic, thereby causing those firms to maintain inaccurate books and records regarding the wire transfer.

In August 2012 and early 2013, Harrington also engaged in a series of private securities transactions with multiple individuals through which he sold over 300,000 shares of restricted stock he had purportedly received as compensation from a company named Islet Sciences, Inc. for approximately $276,000. Harrington failed to disclose these transactions, including his role as seller of the securities, to his employing firm or seek its prior approval of them.

Harrington not only failed to disclose his private securities transactions in Islet but he actively attempted to conceal them. Specifically, in July 2014, during a firm audit of his business, Harrington submitted falsified records to his firm mischaracterizing payments he had received for the sale of his Islet stock.

Additionally, Harrington has been the subject of nine actual or threatened investor lawsuits, multiple other regulatory investigations and employment terminations.  This information is contained in the CRD of Harrington.

David Lerner Associates REIT Investigation

David Lerner Associates agreed to pay a $650,000 fine for the sale of unsuitable REITs to its investors and other violations.  Very little of the fine will compensate investors for their losses.  Instead, investors suffering losses contact a private attorney.  For a free, confidential consultation, investors can call Jeffrey Pederson at 1-866-817-0201.

LandmarkThe non-traded REITs at issue in the regulatory action were REITs now known as Apple Hospitality REIT investments.  The offerings included are Apple 7, Apple 8 and Apple 9.

Suitability violations are for the recommending of investments that are too risky, complicated or volatile for an investor considering the investors objectives, risk tolerance and investment sophistication.  Non-traded REITs such as Apple are generally only suitable for only a limited slice of the investing public.  Investors, including those looking for either stability, income, low risk, preservation of capital or liquidity from this investment, were likely inappropriately sold this investment.

The agreement to settle the charges was in the form of a consent order entered into with New Jersey regulators.  Of the fine, $100,000 went to pay for costs and $50,000 was to pay for investor education programs.

More information on the fine and the regulatory action can be found at the following link.

Investigation – K.C. Ward, Craig David Dima

FINRA barred former K.C. Ward Financial registered representative Craig David Dima
for making unauthorized and unsuitable trades totaling approximately $15 million in a
73-year-old retiree’s account, and for misrepresenting the reasons for the trades to the
customer.  This was announced in FINRA’s May Disciplinary Report.

NYSE pic 1Susan Schroeder, FINRA Acting Head of Enforcement, said, “There is no place in this industry
for brokers who take advantage of elderly customers. Protecting senior investors from
predatory behavior such as unsuitable and unauthorized trading is part of our core mission
and will always be a priority for FINRA.”

FINRA found that on 11 occasions, Dima sold virtually all of the customer’s Colgate-
Palmolive stock, accumulated over 28 years of employment at the company, without the
customer’s permission. In fact, Dima sold the customer’s shares even after the customer
told Dima not to sell the stock, which she considered a valuable long-term investment
and reliable source of dividends.

When confronted by the customer about the sales, Dima misrepresented to her that they were caused by a “computer glitch” or a technical error. In connection with Dima’s unauthorized sales and subsequent repurchases of Colgate stock, Dima charged the customer more than $375,000 in mark-ups, mark-downs and fees and deprived the customer of substantial dividends had she held the Colgate shares as intended.

FINRA also found that Dima’s trading of the customer’s Colgate shares was unsuitable and
violated FINRA rules prohibiting excessive mark-ups and mark-downs.

Attention Investors of Voigt Cullen Kempson III

Pederson, PC is investigating the actions of V. Cullen Kempson III currently of American Portfolios and previously of Commonwealth Financial Network.   Kempson has previously settled charges of unauthorized trading in the account of a deceased investor and is currently facing felony weapons charges.  To speak to an attorney for a free and confidential consultation please call 1-866-817-0201.  

A recent settlement agreement Kempson enter into with FINRA regulators agrees to the 30-day suspension for making a large number of unauthorized trades in the account of an investor Kempson knew was deceased.  In the agreement, referred to as an AWC, Kempson neither admits nor denies fault.

The alleged facts are that in February 2007, A Kempson investor opened two investment Invest photo 2advisory accounts with Kempson at the Firm. At the time, the investor signed an agreement with the Firm granting Kempson discretionary trading authority, the ability to make securities trades without first contacting the investor.  A broker must contact an investor prior to the making of trades unless the broker has been granted authority by the investor in writing to make trades in an account.

On June 13, 2015, the investor passed away. Although Kempson was aware of the investor’s death since at least June 29,2015, Kempson did not inform his Firm of the investor’s death and continued to effect trades on a discretionary basis in the accounts.

Between June 29,2015 and April 5, 2016, Kempson effected a total of 40 trades in the deceased individual’s accounts.  FINRA Rule 2010 requires members to observe high standards of commercial honor and just and equitable principles of trade. After the investor passed away, Kempson had no written authority to conduct any trades in the investor’s accounts. FINRA charged that, by effecting 40 trades in a deceased customer’s accounts, Kempson violated FINRA Rule 2010.

Additionally, in February 2017, Kempson was charged on felony weapons charges for the unlawful possession of a weapon.  As stated in his CRD, he case is in front of the New Jersey Superior Court in Essex Vincinage.  He has asserted that he is not guilty.