Selling Away by Kevin Hobbs of PFS
PFS Investments broker Kevin Hobbs inappropriately invested clients in accounts away from PFS, a selling away violation. This is the allegation of regulators in a suit that resulted in Hobbs being barred from the securities industry. PFS may also have exposure because brokerage firms are required to supervise their broker’s investment activities, even activities away from the firm.
The regulatory matter originated from allegations in a customer suit disclosed by PFS in a regulatory disclosure. FINRA Rule 8210(a)(1) states that FINRA, a regulator overseeing brokers, may require a broker to provide information in writing with respect to any matter involved in a FINRA regulatory investigation. Providing false information to FINRA in connection to with an investigation violates FINRA Rules.
On October 18, 2022, in connection with FINRA’s investigation into the selling away, the regulator asked him to identify all individuals for whom he had effected a securities transaction in an account other than at PFS Investments. Hobbs provided an inaccurate response to the FINRA request that failed to identify at least one other individual whose account he had traded away from PFS Investments. This false response was enough to warrant a resolution where Hobbs would be barred from the securities industry.
The more serious charge of selling away was not resolved due to the settlement on the lesser issue. FINRA Rule 3280(b) prohibits a broker from selling investments away from the broker’s employing firm. A broker may not participate in any manner in a private securities transaction unless, prior to participating, the broker provides notice to his employing firm describing the trade. FINRA Rule 3280(e)
From April 2020 to at least November 2020, Hobbs participated in private securities transactions “away” from PFS when he effected numerous trades in at least three individuals’ third-party brokerage accounts. Hobbs never sought nor received PFS’s permission to participate in any of these private securities transactions.
Even without the approval of PFS, PFS can still be held responsible for failing to detect trades its broker made away from the firm. As a controlling entity PFS is responsible for the securities law violations of those individuals that in directly or indirectly control. The duty that brokerage firms have to supervise the actions of their representatives who invest away is well-established. The NASD first discussed the issue in NASD NTM 94-44 and later elaborated in NASD NTM 96-33. The NASD and now FINRA have held that this duty creates the obligation to review trades, conduct surprise examinations and take other reasonable supervisory steps to protect the investments of the clients. The broker-dealer must supervise the participation of its representatives and associate persons in the advisory “as if the transaction were executed on behalf of the [broker-dealer].” NASD NTM 96-33.
The brokerage firms have the ability to control all actions of their representatives, including off-book or selling away transactions, and they are required to have specific supervisory procedures to prevent selling away. Martin v. Shearson Lehman Hutton, 986 F.2d 242 (5th Cir. 1993); Stat-Tech Liquidating Trust v. Fenster, 981 F. Supp. 1325 (D. Colo. 1997). They also have the right to discipline the representative for violations of the supervisory provisions. Id.
Selling away is fraud against the investor. A broker chooses to sell away as a way to circumvent supervision into his trades. There is little reason to sell away other than to commit fraud. As such, selling away is considered to be a highly suspect and fraudulent act.
Hobbs had a history of these actions and this gave notice of his fraud. He had multiple suits alleging wrongdoing going back to 2002. Selling away complaints go back at least to 2021.
We have significant experience in the handling of selling away cases. Please contact us for more information.
Morgan Stanley’s Fernando Silva Barred
Regulators barred Morgan Stanley broker Fernando Silva from the securities industry on December 6, 2022. FINRA, the Financial Industry Regulatory Authority, the regulatory agency that oversees securities brokerages, entered into a settlement with Mr. Silva to reach this punishment. The FINRA investigation started after Morgan Stanley reported to the regulator that Silva had misappropriated client funds. FINRA filed suit against Silva, an Arizona securities broker in 2022.
This settlement happened after Silva’s relatively short relationship with Morgan Stanley. Though the relationship was short, Morgan Stanley is ultimately responsible for losses occurring due to Silva’s actions.
From August 2021 through September 2022, Silva was registered with FINRA as a General Securities Representative (“securities broker”) through an association with Morgan Stanley. On September 23, 2022, Morgan Stanley filed a
Uniform Termination Notice for Securities Industry Registration (Form U5). A Form U5 is the form a brokerage is required to file with regulators when one of its brokers is discharged. The Form U5, written and submitted by Morgan Stanley, stated that Morgan Stanley had “concerns that Silva had misappropriated client funds.”
FINRA Rule 8210(a)(1) states that FINRA shall have the right to require a “[securities broker] to provide information orally, in writing, or electronically . . . with respect to any matter involved in [a FINRA] investigation.” FINRA Rule 8210(c) provides that “[n]o [securities broker or brokerage] shall fail to provide information . . . or to permit an inspection and copying of books, records, or accounts pursuant to this Rule.”
A violation of FINRA Rule 8210 is also a violation of FINRA Rule 2010, which requires securities brokers to “observe high standards of commercial honor and just and equitable principles of trade” in the conduct of their business.
On October 14, 2022, FINRA sent a request to Silva for the production of information and documents pursuant to FINRA Rule 8210. Silva failed to provide a response to that request. On November 1, 2022, FINRA sent a second request to Silva for the production of information and documents. As stated in email correspondence to FINRA on November 14, 2022, and by this agreement, Silva acknowledges that he received FINRA’s requests and will not produce the information or documents requested. By refusing to produce the information or documents as requested pursuant to FINRA Rule 8210, Silva violated FINRA Rules 8210 and 2010.
Please contact us if you have information or have suffered losses due to Fernando Silva.
Paulson Investment Co. and Steepener Notes
Please call 303-300-5022 or toll-free at 844-253-5858 if you were a Paulson Investment client a sold a steepener or other variable interest rate investment. Our firm handles complaints concerning such unsuitable investments. We were previously featured in Bloomberg concerning the issue.
Paulson Investments recently entered into a regulatory settlement with the Financial Industry Regulatory Authority (FINRA). FINRA is the regulatory organization under the oversight of the Securities and Exchange Commission (SEC) that regulates securities brokerages. FINRA brought a claim and ultimately settled with Paulson over the inappropriate sale of variable interest rate structured products (VSRPs). The investments were sold to moderate risk and growth investors despite the investment being a high-risk, speculative investment. The settlement included a fine and a censor.
As stated in FINRA’s announcement, VRSPs are a category of complex structured products that initially pay interest at a fixed rate. The rate is an above-market “teaser” rate for a short period of time, typically one year. Then it switches to a floating interest rate that is based on a reference index (like the S&P 500). VRSPs typically have long maturities, generally between 10 and 30 years.
A “steepener” is one type of VRSP that pays a high teaser interest rate, usually between
8% and 10% for the first year, and then resets to a floating interest rate the steepness of the yield curve. The “Yield Curve” is the spread between two indexes. Commonly the spread between the 30-Year Constant Maturity Swap (CMS) rate and 2-Year CMS rate are used. Because the spread between longer- and shorter-term interest rates can become equal or inverse, referred to as “flattening”, investors holding steepeners can earn little or zero interest for years and the value of the investment plummets.
Federal regulations require that securities brokers only recommend suitable investments to their investors. This means that investments identified as speculative investments cannot be recommended to investors looking for income, growth, moderate or conservative risk.
If your were sold such a VSRP investment, such as a steepener or similar product, please call for a free and confidential consultation. We represent investors in such disputes nationwide.
SEC: L Bond Inappropriate for Investors
The SEC, the Securities and Exchange Commission, states that broker sales of the GWG L Bond are inappropriate for most investors in a recently filed complaint. Regulation Best Interest (BI) and/or the FINRA suitability rule require that financial advisors recommend this high-risk investment only to the most seasoned investors. Both rules also require that the advisor not make overly aggressive recommendations. Likewise, both prohibit recommendations based upon the advisor’s self interests. If your financial advisor recommended GWG L Bond you may be entitled to recovery of your losses. Please call 303-300-5022.
In the Complaint file June 15, 2022, the SEC identifies the L Bonds are inappropriate for the average investor. The Complaint states, “L Bonds were corporate bonds offered […] were high risk, illiquid, and only suitable for customers with substantial financial resources.”
The SEC states that the sale of L Bonds violated federal securities laws in many instances. “These recommendations violated Regulation Best Interest in several ways. Regulation Best Interest requires that a [financial advisor] act in the best interest of a retail customer when making a recommendation of a securities transaction (“Reg BI’s Best Interest Obligation”).”
Western International Securities is the focus of the current SEC investigation. The brokerage, however, is just one of many brokerages across the country that sold the GWG L Bond.
Federal regulations prohibit sales to investors who are not retired and looking to speculate. Regulation BI, under the SEC’s analysis, greatly limits who an advisor can recommend the L Bonds.
The SEC reiterates this in the Complaint. Advisors cannot recommend L Bonds to investors with “moderate-conservative or moderate risk tolerances, investment objectives that did not include speculation, limited investment experience, limited liquid net worth, and/or they were retired.”
Financial Advisors knew that the L Bond were inappropriate. The relatively large commissions offered for the sale of the L Bonds made many financial advisors sell the L Bonds anyway.
Regulations require advisors understand the risks of the L Bond. Regulation BI requires the performing of due diligence to understand the risks of an investment. Advisors stating that they did not know of the risk have no excuse.
We represent numerous individuals concerning the GWG L Bonds. Please call for and free and confidential consultation.
IFP Inappropriate Sale of GWG Bonds
We are interested in speaking to investors of IFP that were sold GWG bonds for potentially inappropriate reasons. The SEC has opened an investigation of IFP’s sales of GWG’s L-Bond in light of the SEC’s Regulation Best Interest. Call 303-300-5022.
Advisors recommending investments that are high risk due to heightened commission is a violation of securities laws. GWG bonds are and have always been a highly risky investment. Additionally, alternative investments such as GWG pay an advisor a very high commission to recommend and sell the investment. This creates an inappropriate incentive to advisors to sell the GWG bonds.
A firm has a duty to evaluate the risk of the investments it sells. The investigation also concerns the research into the risk, which should have disclosed at all relevant times that GWG was a highly speculative investment.
IFP asserts that the questions raised by the SEC are true not just for IFP but also a large number of other brokerage and advisory firms. However, the SEC seems to be keenly focused on the sale of GWG by IFP.
It’s not clear how much in GWG bonds IFP advisers sold. GWG Holdings issued $1.6 billion of L bonds, which are backed by life settlements, and more than 140 broker-dealers had agreements to sell the bonds. It’s also unclear what the bonds are worth, but we strongly believe that the bonds are worthless.
The Law Offices of Jeffrey Pederson represents multiple investors concerning losses with GWG. Please call for a free and confidential consultation.
ETFs from Pursche Kaplan Sterling
Please call 303-300-5022 if you have been sold a leveraged or inverse ETFs by brokers at Pursche Kaplan Sterling.
Leveraged ETFs are ETFs with returns based upon some underlying multiplier of a commodity or index (2x S&P, 3x Gold, 2x Russell 2000, etc.). Inverse ETFs are ETFs with returns inverse to a commodity or index. Both are unsuitable for almost all retail investors. Regulators have prohibited the holding of such investments for more than one day even for those sophisticated investors such products are suitable. This is because the investment resets each evening and this can cause extreme volatility in the investments.
One brokerage firm accused of selling these inappropriate ETFs to retail investors is Pursche Kaplan Sterling (“PKS”). Massachusetts regulators recently brought civil claims against PKS.
The regulator alleges PKS failed to review the suitability of thousands of leveraged exchange-traded fund (“leveraged ETF”) transactions. PKS brokers executed the transactions in the accounts of their investors. Investors often holding leveraged ETF positions for periods in excess of one-year experienced significant losses.
PKS brokers also did this in a fiduciary capacity. These brokers were not just securities brokers but registered investment adviser representatives (“RIAs”). RIAs have heightened fiduciary responsibilities beyond those of securities brokers.
PKS had a duty to supervise the advisors at the higher fiduciary level. Once a brokerage like PKS approves a agent to act as a dually-registered RIAs, the brokerage has specific supervisory requirements it must fulfill. In particular, a brokerage must record private securities transactions of these dually registered RIAs on its books and records and supervise activity in the affected accounts as if it were the broker’s own. The brokerage must also follow other fiduciary requirements. This includes full disclosure and warning investors to exit an investment.
Investors should call for a free and confidential evaluation to learn if they are entitled to recovery for the sale of unsuitable investments. Jeffrey Pederson has helped investors across the country recover losses in unsuitable investments for 20 years. Most representations done on a contingency basis.
Investigation into Everbridge Losses
In December 2021, Everbridge (EVBG) lost approximately half of its value. This highly speculative investment is only for investors willing to take the highest level of risk. If you are not such an investor, and recommended this investment by your advisor, please call 1-303-300-5022.
We are currently investigating the circumstances surrounding the fall of EVBG. While the popular refrain is that the losses were unexpected due to the abrupt resignation of CEO David Meredith, we believe that issues with this investment were known prior to the resignation.
The volatility of Everbridge was known to be a speculative option for investment. This company built assets faster than its revenue growth. Some external analysts even saw extreme financial distress in the finances of EVBG to the extent that they opined imminent bankruptcy.
Additionally, we believe that the internal research of the broker-dealers originally recommending Everbridge will reveal problems at EVBG. The advisors never revealed and disregarded these issues until the abrupt resignation of Meredith.
As such, we are looking to speak to investors to investigate our suspicions. We are currently only looking at brokerage firms recommending this investment to moderate or conservative investors. If you were recommended EVBG please contact us at the number above.
For the last 20 years, the Law Offices of Jeffrey Pederson represents investors nationwide. Initial consultation is free, and all consultations are confidential.
Eric Carl Willer
If you invested with Eric Carl Willer of Fusion Analytics please call 303-300-5022.
From January 2017 to December 2018, Willer recommended that 13 potential investors purchase bonds in two private offerings without having a reasonable basis to believe that the bonds were suitable for any investor. This means that he did not conduct sufficient investigation into the investments to determine whether the investments were financial sound enough for any investor to invest into. Additionally, Willer negligently misrepresented and omitted important facts when he distributed offering documents to four potential investors that included misrepresentations and omissions, in violation of securities regulations.
In January 2017, Promoters of the bond engaged Willer to sell the bonds through Fusion. On its website and in press releases, the issuer of the bonds identified itself as a wholly-owned subsidiary of the company that was sanctioned in a prior SEC action which ordered the Promoter to cease and desist raising money for past securities violations. Promoter was among the issuer’s management and was the president of the parent company.
The bond offering was intended to raise $6 million of the necessary $7.75 million to build a power plant, which the issuer claimed would use clean energy technology patented by the company that was sanctioned by the SEC. Revenue from the power plant would be the only source of revenue to support payments to the bondholders. In late December 2018, the issuer commenced a second offering (Offering 2) to fund the same power plant as Offering 1. As Willer was aware, none of the issuer, its parent company, Promoter 1, or Promoter 2 had any experience building or operating a power plant.
Willer performed no investigation of the issuer or its management in connection with the offerings, other than reviewing offering documents prepared by the issuer. Furthermore, the offering documents Willer used and distributed to potential investors in the sale of the bonds contained multiple, significant misrepresentations that Willer failed to recognize.
The Financial Industry Regulatory Authority (FINRA) began investigating this matter in March of 2021. Willer agreed to a nine month suspension from the securities industry.
Churning at Fist Standard Financial
If you are or were an investor with First Standard Financial and believe First Standard churned your account, please call 303-300-5022. Initial consultations are free and confidential.
A supervisor with First Standard Financial has recently been suspended for two months and fined for failing to supervise churning activities First Standard Financial brokers. The regulator instituting this stipulated sanction is the Financial Industry Regulatory Authority (FINRA). FINRA regulates securities brokerage firms under the oversight of the SEC.
Between March 2018 and May 2019, the supervisor at First Standard failed to reasonably supervise a former First Standard broker who had, with a history of violations and was required to given heightened supervision, excessively and unsuitably traded the accounts of three investors. Excessive trades are commonly referred to as “churning.”
FINRA rules prohibit excessive trading in an investor’s account. To guard against this, FINRA rules require a brokerage to “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.” To comply with this FINRA rule, a firm’s supervisors must reasonably investigate “red flags,” or warning signals, of potential broker misconduct and take appropriate action when misconduct has occurred. First Standard Financial failed to institute such safeguards.
Not only did the broker have a history that should have required heightened supervision, the supervisor who was charged with monitoring the broker also had a history. An arbitration panel in 2016 found that this supervisor had committed violations himself while acting as a broker. These violations included churning.
This same supervisor also has a history of being associated with a number of brokerages that been expelled by regulators. These facts make the systematic failure to supervise churning at First Standard foreseeable.
Seijas of Wells Fargo Crypto Ponzi
James Seijas, a former Wells Fargo broker who was alleged to be part of part of a crypto Ponzi scheme has now been barred by the Financial Industry Regulatory Authority from associating with any FINRA member firms. If you have suffered such losses, please call 303-300-5022 for a free and confidential consultation.
The former Wells Fargo broker signed a FINRA letter of acceptance, waiver and consent on Oct. 22 in which he consented to the imposition of a bar against him by the industry self-regulating group. FINRA signed the letter on Tuesday and posted the letter on its website.
On March 24, 2020, Wells Fargo filed an amendment to Seijas’ regulatory form disclosing the details of his termination, “disclosing for the first time that Seijas had been named as a defendant in a lawsuit alleging that he had ‘misrepresented investments as part of a Ponzi scheme’.
FINRA, the regulator overseeing securities brokerages, investigated and brought suit, but Seija failed to defend the charges against him. On Sept. 29, 2021, in connection with its investigation concerning the termination description filed by Wells Fargo, FINRA sent a request to Seijas for on-the-record testimony, according to FINRA. Seijas acknowledged that he received FINRA’s request for documents as part of the investigation and would not appear or cooperate at any time.