Margin and Securities-Based Loan Loss

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If your broker or advisor recommended that you take a loan secured by your securities or other savings, you may have legal recourse. This can be a recommendation to use margin or to otherwise take a loan secured by your investments. Such recommendations may be inappropriate. Please call 1-866-817-0201 for a free and confidential consultation with an attorney,

While historically low interest rates and relatively strong stock growth since 2009 gave some incentive for brokers to recommend loans to investors secured by account holdings, greater incentive came from the fees brokers collected for the loans.

These loans are now in jeopardy due to sharp drops in the U.S. stock market. Just as sharp drops in the housing market led to mass foreclosures in 2008 the sharp drops in the securities market is leading to liquidations of the saving of many of these borrowers of brokerage loans.

Borrowers, however, have rights and many of these loans have been made improperly. Brokers have duties to only recommend strategies that are consistent with an investors financial sophistication and tolerance for risk. Risking the life savings for a loan is a highly aggressive strategy and suitable for only the most sophisticated investors. Investors who were looking for moderate or safe strategies should not have been recommended such loans.

The brokerage lenders also have duties of good faith and fair dealings. Other safeguards exist under federal and FINRA, the Financial Industry Regulatory Authority, margin loan requirements.

The perils of such recommendations have always been known by financial professionals. In 2015, the Securities and Exchange Commission, the SEC, issued a warning about the rapid increase in lines of credit backed by securities. The SEC reported that one large brokerage firm increased the sale of such loans by 70% in just two years.

In 2014, Fortune magazine called securities based loans the “rich man’s subprime” in reference to the 2008 collapse of subprime loans. Unfortunately, brokerages expanded the market for securities-based lending beyond the rich in the years since 2014. The article described how such lending, often referred to as non-purpose lending, was exploding. The commissions were so great, Wells Fargo advisors referred to the commissions as the “13th month.”

Such lending was not limited to Wells Fargo. Firms known to have actively pushed such loans because of the extensive profits include Merrill Lynch, UBS, JP Morgan, Citi, and UBS. Fortune, in 2014, stated that Wall Street likes to push a “trend like this way past the bounds of logic and reason.”

Jeffrey Pederson has been representing investors, including margin and other loan, investors since 2002. Please call to discuss your options and potential legal recourse.

Gerald Dewes Loss Recovery

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If you were an investor of Gerald Dewes, call 1-866-817-0201 to discuss your legal rights as to loss recovery. All initial consultations are with an attorney and are free and confidential.

Gerald Dewes’ employer, Cadaret,Grant & Co., terminated his employment in November 2019. Termination was for selling investors shares of his own company, Elite Roasters. In March 2020, FINRA, the Financial Industry Regulatory Authority, expelled Dewes from the securities industry. Dewes had failed to cooperate with FINRA’s investigation of him and he failed to refute the charges against him.

The issue with selling Elite Roasters is that the investment was not approved by those supervising Dewes, his employing brokerage firm. Approval is needed so that the requisite due diligence investigation can be given the investment to assure that representations are correct concerning the investments’ assets, financing and other important factors. Brokers commonly sell unapproved investments so that the investment appears to have the backing of the brokerage firm but either is not a legitimate investment or would not withstand the scrutiny of a due diligence investigation by the brokerage. Such action is termed “selling away” and is a form of fraud.

Many Ponzi schemes start as simple selling away violations. A broker either wishes to promote the broker’s own business or is paid a heightened commission to sell investments in a friend’s business. These businesses do not have the due diligence review to assure that representations are accurate or that the venture is even solvent. When the business cannot meet expectations payments are made if the funds of new investors.

As a result, FINRA instituted a number of rules, including Rule 3270. This rule requires a broker to notify his employer of all outside business activity. The employer, in turn, is required to audit the broker and verify that all outside business activity is disclosed. The employer has a duty to supervise all investment sales even if the sales are of unapproved investments and outside the broker’s employment.

The employers of Dewes had other reasons to give heightened supervision. Dewes has had a variety of investor suits of which he has been the subject, and he has also been the subject of multiple tax liens. These past incidents of improper financial dealings should have served as a red flag.

We have handled a large number of selling away cases nationwide. Please call for an evaluation.

SSL Loss Recovery

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If you suffered losses in SSL, Sasol Spon ADR, and were not a speculative investor you may be entitled to loss recovery. Please call the Law Offices of Jeffrey Pederson at 1-866-817-0201 for a free and confidential consultation.

From its high in April 2019 of over $34 per share, SSL has lost over 90% of its value as of March 11, 2020. This is an investment that was not only highly speculative, but was known to be highly speculative. As a speculative investment, advisors and brokers cannot recommend or purchase such an investment for conservative, moderate or growth investors since such a purchase would be unsuitable.

Investment professionals have a duty to purchase only suitable investments. This obligations for brokers stems from FINRA, the Financial Industry Regulatory Authority, rules. For advisors, the act of purchasing unsuitable investments runs contrary to the fiduciary obligations of care and prudent investing.

SSL is an emerging markets investment. This, in and of itself, is a high-risk field. SSL has even higher risk than other emerging market investments. The investment holds some of the riskiest investments in the MSCI Emerging Markets Index.

While many firms may be looking to recover by means of a class action route, recovery from class actions may be small. We believe greater liability leading to greater recovery exists with those brokerage and advisory firms that allowed this speculative investment be sold to retail investors.

Legal Remedies for ETF Loss

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Call 1-866-817-0201 to speak to an attorney concerning legal remedies for ETF losses. Initial consultations are free and confidential.

If you have significant losses in leveraged or inverse ETFs or ETNs and you are not a sophisticated, day-trading investor, you may be entitled to legal remedies for your loss. Brokers and advisers have the obligation to recommend only suitable investments. The following investments are only suitable if your are speculative investor, and only then if the investment is held less than one day:

CREDIT SUISSE NASSAU X LINKS MONTHLY PAY 2X LEVERAGE (AMJL)

UBS AG LONDON ETRACS 2X MONTHLY LEVER S&P MLP (MLPZ)

DBX ETF TRUST DIREXION DAILY HOMEBUILDERS SUPP BULL3X (NAIL)

DIREXION SHARES ETF TRUST DAILY REGIONAL BKS BULL 3X SHS (DPST)

UBS AG LONDON ETRACS 2X MONTHLY LEVER LNG AL (MLPQ)

ProShares UltraPro QQQ ETF (TQQQ)

Direxion Daily S&P 500 Bull 3X Shares (SPXL)

Direxion Daily Gold Miners Bull 3X Shares (DUST)

ProShares UltraPro S&P 500 (UPRO)

ETRACS Monthly Pay 2x Leveraged S&P Dividend ETN (SDYL)

Invesco and ProShares QQQ derivations

FINRA, the regulator that oversees the actions of brokers, has stated that these investments are toxic for average investors. The investments reset every day. As a result, the investments compound in their losses and the nature of them can change drastically over the course of a few days. The following was stated by FINRA in NTM: 09-31:

“Exchange-traded funds (ETFs) that offer leverage or that are designed to perform inversely to the index or benchmark they track—or both—are growing in number and popularity. While such products may be useful in some sophisticated trading strategies, they are highly complex financial instruments that are typically designed to achieve their stated objectives on a daily basis. Due to the effects of compounding, their performance over longer periods of time can differ significantly from their stated daily objective. Therefore, inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”

The daily resetting can be devastating for an investor that hold these investments for more than one day. So a broker or advisor who recommends the investment and then allows the investment to sit more than 24 hours takes a legally impermissible chance with the savings of his/her investors.

The resetting can cause the investment to lose money even if the underlying index is stable or increasing. This is due to many factors including cost drags of compounding interest.

History has supported this. In February 2018 many inverse and leveraged ETF investors, for such investments tied to the VIX index, lost 80% to 100% of the value of these investments in the period of 48 hours.

The risk of these investments may not be something you know, but they are something your broker or advisor knew or should have known. If you suffered such losses please call 1-866-817-0201 for a free and confidential consultation.

UBS Yield Enhancement (YES) Losses

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If you sustained significant losses or were a conservative or moderate investor recommended the UBS Yield Enhancement System (YES), please call 1-866-817-0201 for a free and confidential consultation.

UBS brokers marketed the Yield Enhancement Strategy, or YES, to wealthy clients. During times of low market volatility the strategy generated positive returns, but it racked up losses in 2018 and 2020 when market gyrations picked up. Because the program used borrowed money, known as leverage, investors had to either add additional money when trades went south or sell their positions at a loss.

UBS limited participation in the program to investors with a net worth of $5 million but that does not mean the recommendation was suitable or that an appropriate percentage of an investor’s portfolio was invested in YES.

Investors seeking yield often seek a conservative income strategy. The yield strategy utilized by UBS in YES was highly speculative and always contained a high risk of loss.

Securities brokerages have a duty to recommend only suitable investments. This includes investments consistent with the objectives and risk tolerance of an investor. The wealth of an individual does not absolve a brokerage from making suitable recommendations.

FINRA has further has called into question the suitability of complex investments used in accounts of unsophisticated investors. YES was highly complicated and utilized a system that only the most sophisticated investors would understand.

Jeffrey Pederson is an attorney located in Denver, Colorado who has represented investors nationwide in suitability suits against securities brokers and brokerages. Representations are generally on a contingency basis.

Virgin Galactic (SPCE) Losses

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Virgin Galactic (SPCE) has been recommended and sold to moderate and conservative investors in violation of FINRA and SEC regulations. These regulations require that brokers and advisors only make investment recommendations consistent with the objectives and risk tolerance of an investor. SPCE has always been an extremely risky investment.

SPCE saw its value pushed by analysts such as Morgan Stanley, who had given it an oversize price target. The stock proceeded to gain 200%. The stock crashed to Earth when Morgan Stanley reversed its analysis.

Recovering investment losses through FINRA is a specialty skill few attorneys possess.

Unfortunately, smaller investors who should have never been invested in SPCE are the ones paying the price. Many investors will blame themselves for not timing the market better; however, investment suitability is not about time timing but whether the investor should have been in the investment at all. Even if an investment had or did increase in value, risky investments are not suitable for moderate investors because such investments have the substantial potential for such volatility.

Recommending such an investment to a moderate or conservative investor creates liability on the part of the broker or advisor. Such violation of industry regulations can be both negligence and fraud.

If you have lost principal in the SPCE or other speculative investments despite being a moderate to conservative investor please give us a call at 866-817-0201. You need to retain an attorney that understands the FINRA arbitration process which is different than the litigation process. Jeffrey Pederson is an attorney that has helped investors recover millions through FINRA.

Kari Bracy – Future Income Payments (FIP)

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Kari M. Bracy, formerly of NY Life, recently lost her securities license rather than cooperate in an investigation into her sale of unapproved investments in future income payment streams. These investments are alleged to be part of an elaborate Ponzi scheme. Our firm represents individuals in such suits and other Ponzi-type frauds. Call 1-866-817-0201 for a free and confidential consultation.

On December 30, 2019, in connection with an investigation by the regulator FINRA, the Financial Industry Regulatory Authority, of Bracy’s sale of a Future Income Payments, LLC’s (“FIP”) structured cash flow investment comprised of pension streams, FINRA staff sent a request to Bracy directing her to appear for on-the-record testimony on January 16, 2020 pursuant to FINRA Rules. On December 31, 2019, Bracy acknowledged during a telephone call with FINRA staff that she received request letter and did not intend to appear for testimony.

FINRA is the regulator that is charged by the Securities and Exchange Commission with the oversight of all securities brokers in the United States. The failure to cooperate led FINRA to bar Bracy from the securities industry.

FIP diverted new investor funds flowing into the business to fund payments to earlier investors in order to keep the scheme operational, which is the definition of a Ponzi scheme. When FIP ceased doing business in early 2018, investors were owed approximately $300 million.

This is not the first time Bracy has faced legal issues concerning these FIP investments. An investor initiated suit against NY Life concerning Bracy’s sale of these FIP investments in future income streams. The investor filed for arbitration with FINRA in July 2018.

That lawsuit, which alleged damages in the amount $142,000, settled for $80,000. The investor alleged that in December 2017 her investment in FIP, a private securities transaction, was misrepresented as a conservative and safe investment with a 7.5% annual return for ten (10) years. The FIP investment is not a conservative investment and was known to be highly aggressive and inappropriate for most, if not all, investors.

Paul Petrillo of Thrivent

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Paul W. Petrillo (“Petrillo”) of Thrivent Financial and Thrivent Investment Management (“Thrivent”) has been barred from the securities industry by the regulator FINRA, the Financial Industry Regulatory Authority. Allegations leading to the bar concern Petrillo’s execution of investor trades away from Thrivent and sales of private securities.

Between August 1, 2013 and April 2, 2017, Petrillo placed 333 orders to buy or sell securities, at his discretion, in twelve customers’ outside securities accounts without notifying Thrivent of his authority to do so or the executing firm of his association with Thrivent. Petrillo also opened a family trust securities account over which he had trading authority away from Thrivent in October 2013 but did not notify the Firm of the account’s existence. By virtue of this misconduct, he violated NASD and FINRA rules.

Regulatory rules prevent the use of outside accounts to conduct business because of the likelihood of fraud. When a trade is made by a broker at an outside brokerage account it prevents a brokerage from supervising the trade. There are very few reasons to make such a trade other than to avoid supervision.

The sale of private securities is also of concern. Such securities are only suitable to a small section of the investing public and, as such, can only be sold to limited investors. These securities also have limited transparency and often need the review of a brokerage to confirm legitimacy. Heightened commissions of such investments make them attractive to brokers.

Petrillo also provided false information to regulators during the investigation. On September 19, 2018, FINRA asked Petrillo to identify any investor accounts in which he traded away from Thrivent, aside from one customer about whom FINRA already knew and in whose account Petrillo had previously admitted to trading. Petrillo deliberately failed to inform FINRA about 11 customer accounts in which he effected trades away from his firm. This was done despite rules requiring the disclosure of such accounts to FINRA. Petrillo’s response was therefore false.

Thrivent was aware of the Petrillo’s propensity to engage in such actions. In October 2017, Thrivent also entered into a settlement concerning the inappropriate use of discretion by Mr. Petrillo. Thrivent paid the investor $33,000 to settle such claims.

If you were an investor of Petrillo’s and believe he may have executed securities trades for you away from Thrivent, please call 1-866-817-0201. Consultations are free and confidential.

Gabe Hynes

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On December 16, 2019, in connection with a regulatory investigation by the Financial Industry Regulatory Authority (FINRA) of Gabriel W. “Gabe” Hynes’ sale of Future Income Payments, LLC’s structured cash flow investments comprised of pension streams, FINRA staff sent a request to Hynes for on-the-record testimony. Hynes acknowledged that he received FINRA’s request and will not appear, thus not contest, the allegations.

As a result, Hynes was barred from the securities industry by FINRA. This means that he can no longer act as a securities broker and must leave Kestra.

Hynes has previously had significant regulatory problems. In 2017, he consented to the sanctions in the form of a suspension and a $10,000 fine, and to the entry of findings that he purchased securities issued by privately-held companies costing a total of $90,000. The findings stated that these transactions were outside the regular course and scope of his employment with his member firm. As a result, Hynes was required to provide written notice to the firm before participating in them, but he failed to provide the firm with any notice. The findings also stated that Hynes opened an account at another member firm and maintained the account throughout his association with his firm.

His employer at the time, NY Life, allowed Hynes to resign when his involvement in these private and undisclosed securities transactions came to light. After leaving NY Life Gabe Hynes moved to Kestra.

Jeffrey Pederson is a private attorney that assists in the recovery of funds lost by brokers like Gabe Hynes. For a free consultation, please call 1-866-817-0201.

Attention Dennis Mehringer Investors

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If you were an investor with Dennis Mehringer call 1-866-817-0201 for a free and confidential consultation with a private attorney.

On October 18, 2019, the Financial Industry Regulatory Authority (FINRA) barred Mr. Mehringer from the securities industry when he failed to defend charges that he handled his investor accounts inappropriately.

Mehringer was previously named a defendant in a FINRA regulatory complaint, a legal action brought by the national regulatory body overseeing securities brokers, alleging that he made unsuitable recommendations that caused a customer to engage in excessively expensive short-term trading and intra-day switching of mutual fund Class A shares.

“Unsuitable” recommendations are recommendations of securities transactions or purchase of strategies that are inconsistent with the risk tolerance or investment objectives of an investor. They can also be when a broker makes trades with the objectives of increasing the broker’s commission. That is what happens with short-trading of mutual funds. The high commissions of mutual funds are repeatedly charged so that there is little to no chance for the investments to make a reasonable return. This is sometimes referred to as churning.

The FINRA complaint alleges that Mehringer repeatedly recommended, and caused the investor to engage in, short-term purchases and sales of 84 mutual fund Class A positions (involving the sale of shares within a year of purchasing them) in five of the customer’s accounts.

In 47 of the 84 purchase transactions, investors paid front-end sales loads ranging from four to five percent. All but 17 of these 84 mutual fund positions were held for less than six months, and approximately 35 of them were held for less than three months. Mehringer received $169,735 in commissions from the transactions. Mehringer recommended the short-term mutual fund trading and the intra-day mutual fund switching alleged above without reasonable grounds to believe that the recommendations were suitable for the investor.

Given the long-term nature of Class A mutual fund share investments, along with the costs and commissions incurred in connection with frequent trading and switching between the mutual funds and mutual fund families, Mehringer’s short-term trading was unsuitable for any customer. The complaint also alleges that Mehringer exercised discretion in the same customer’s accounts without obtaining the customer’s written authorization and his member firm’s approval to do so.

The actions of Mehringer are currently the subject of eleven arbitration suits brought by his investors against either him or his former employers.