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FINRA Sanctions Four Firms $9.1 Million for Stockbroker Fraud (Part 1)

Who was Sanctioned for Stockbroker Fraud?

On May 1, 2012 the Financial Industry Regulatory Authority (FINRA) sanctioned Citigroup Global Markets, Inc; Morgan Stanley & Co., LLC; UBS Financial Services; and Wells Fargo Advisors, LLC  more than $9.1 million for stockbroker fraud. FINRA says it sanctioned the firms for selling “leveraged and inverse exchange-traded funds (ETFs) without reasonable supervision and for not having a reasonable basis for recommending the securities.” Of the sanctioned funds, $7.3 million was  for fines and $1.8 for restitution to certain customers who made unsuitable leveraged and inverse ETF purchases based on bad advice due to the firm’s failure “to conduct adequate due diligence regarding the risks and features of the ETFs.“ [1]

FINRA’s Stockbroker Fraud Sanctions Break Down

The negligence displayed by the four firms is a form of stockbroker fraud called misinformation. Misinformation for any reason will lead a client to make a decision they would not otherwise have made if they had known the true risks and features of the investment. FINRA distributed the sanctions on the four companies like this:

  1. Wells Fargo to pay $2.1 million in fines and $641,489 in restitution.
  2. Citigroup to pay $2 million in fines and $146,431 in restitution.
  3. Morgan Stanley to pay $1.75 million in fines and $604,584 in restitution.
  4. UBS to pay $1.5 million in fines and $431,488 in restitution.

FINRA Comments on Stockbroker Fraud

How did the firms commit stockbroker fraud though neglect? Executive Vice President and Chief of Enforcement for FINRA, Brad Bennett, said “”The added complexity of leveraged and inverse exchange-traded products makes it essential that brokerage firms have an adequate understanding of the products and sufficiently train their sales force before the products are offered to retail customers. Firms must conduct reasonable due diligence and ensure that their representatives have an understanding of these products.”

Next on Stockbroker Fraud

Next in this news series on the most recent FINRA sanctions, we’ll talk about how the complexities of ETF’s, a type of UIT, may have contributed to the misconduct.
If you are not getting anywhere with resolving your investment disputes, believe you are the victim of stockbroker fraud or just need help discussing your options with the securities arbitration process, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP
AT (813) 443-5249

[1] http://www.finra.org/Newsroom/NewsReleases/2012/P126123

Stockbroker Fraud: FINRA Warnings on Non-Trade REITs (Part 4)

Stockbroker Fraud, Non-Trade REITs and Extra Risks

Last time, we talked about an abundance of hidden fees on non-trade REITs making it easy to commit stockbroker fraud and, at least, eating up your dividends and principal. Today I’d like to finish with a couple more high-risk factors involved with non-trade REITs. Look out for:

  • Investment properties not being specified. Many non-trade REITs start out as blind pools, where no exact property is specified for purchase. Others may mention only part of the properties the REIT plans to purchase or may mention properties in different stages of acquisition which have not yet been acquired. This takes away your ability to assess the assets of the REIT before you invest. When you cannot research an REIT’s assets, you are going on blind trust in a broker or a firm, making you a ripe target for stockbroker fraud. Always ask what percentage of your non-trade REIT’s properties have been specified and what percentage has been fully acquired.
  • Diversification can be more limited than you think. As a class, REITs can help you diversify your portfolio, however, investing in only one REIT, even if it’s in different phases of the same REIT, is just putting all of your eggs back into one single higher risk basket.
  • There are individual risks for each different type of property. Understand the risks of the specific type of real estate your REIT holds and how it leverages to acquire assets. Make sure you carefully discuss specific risks with your broker and carefully study the prospectus.

The Best Help with Stockbroker Fraud

If you are not getting anywhere with resolving your investment disputes, believe you are the victim of stockbroker fraud or just need help discussing your options with the securities arbitration process, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP
AT (813) 443-5249

[1] http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/REITS/P124232

Stockbroker Fraud: FINRA’s Warning on Non-Trade REITs (Part 3)

Stockbroker Fraud, Non-Trade REITs and Tax Consequences

If you are caught investing in an REIT that is actually a stockbroker fraud, you could loose much more than your investment. Distributions for REITs are subject to different tax rates based on where the capital comes from. To recap on parts 1 and 2 of this blog, non-trade REITs may take capital for distributions from sources other than accumulated earnings and profits. Borrowing to cover distributions, making an REIT look more profitable than it really is, is one of the many alternate sources of funds that may be used to provide regular distributions to investors. Some of the differences in tax rates include but are not limited to:

  • Distributions from accrued earnings and profits are taxed as ordinary income instead of being taxed as qualified dividends with a 15% tax cap.
  • If some of your distribution come from a return of your capital, that portion is not taxable until your investment is sold or liquidated.

Your best bet is to speak with a tax advisor about all of the details of the investment your are considering before investing.

Stockbroker Fraud, Non-Trade RIETs and Hidden Fees

The fees from non-trade REITs that make stockbroker fraud so lucrative can quickly become an expensive loss, above and beyond you original investment. Front end fees usually have two parts:

  • Selling compensation and expenses, which cannot exceed 10% of the investment amount.
  • “Issuer Costs”, or additional offering and organizational costs, which are paid from offering proceeds.

Florida state regulatory guidelines place a cap on these fees, saying both fees cannot equal more than 15% of the investment. That means, on an investment of $10,000.00, only $8,500.00 of that investment actually went to the purchase of shares, removing $1,500.00 of your hard earned cash in fees. Usually, fees for exchange-traded REITs are around 7%. So, with an exchange-traded REIT, your fees would be roughly $700.00 for the same investment.

Next on REIT Stockbroker Fraud

Next in this on-going series, we’ll take a look at some final issues with non-trade REITs that can lend themselves to stockbroker fraud. If you are not getting anywhere with resolving your investment disputes and need help to discuss your options with the securities arbitration process, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP
AT (813) 443-5249

[1] http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/REITS/P124232

Stockbroker Fraud: FINRA’s Warning on Non-Trade REITs (cont)

Non-Trade REITs and a Stockbroker Fraud’s Easy Money

In today’s blog, we are going to dig deeper into stockbroker fraud and FINRA’s warnings on non-trade REITs.

  1. Problem with Non-Trade REITs: Seemingly attractive periodic distributions may be based on borrowed funds or a return of the investor’s principal, hiding an actual loss of value. There are no guarantees you will receive a distribution and your distributions may exceed the operating cash flow of the organization you’ve invested with. Distributions are at the sole discretion of the REIT’s Board of Directors. They can be suspended, or halted all together. These payments may be comprised of money from several different sources. In many newer programs, the cash for these distributions comes from investor capitol or borrowing. This is all cash that did not come from the property itself. Of course, if the property were generating revenue, they wouldn’t have to borrow against it to pay dividends and keep current investors from realizing there is a problem. Some REITs allow borrowing up to 100% of the property’s net assets. Leveraging can put the company at much greater risk of devaluation and default, making it difficult to liquidate your shares, as well as negatively effect distributions.
  2. Solution: You can research how much debt the property has incurred, or how heavily it is leveraged. First, read the REIT’s borrowing policies in it’s prospectus, then use the SEC’s EDGAR database of company filings to see how heavily leveraged it is, as well as how it finances distribution. [1]

Next on REIT Stockbroker Fraud

In this on-going series, we’ll take a look at REITs, stockbroker fraud and the tax consequences to you. If you are not getting anywhere with resolving your investment disputes and need help to discuss your options with thesecurities arbitration process, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP

AT (813) 443-5249

[1] http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/REITS/P124232

 

Stockbroker Fraud: FINRA’s warning on Non-Traded REITs

securities litigation, civil litigation, securities mediation, stock broker fraudNon-Trade REITs Make Stockbroker Fraud a Snap

There’s been a rocky road and loss of faith in the stock market for a while now. With interest rates at an all time low, investors are looking for a better return on their investment. One of those higher yield investments is the real estate investment trust (REIT). There are two types of REIT, the publicly registered exchange traded REIT and the publicly registered non-traded REIT. While investing in a non-exchange REIT does not guarantee you will end up the victim of investment fraud, there is a lot of room for stockbroker fraud to occur.

Stockbroker Fraud and REITs – That’s How They Getchya!

There are several differences between non-traded and exchange REITs that make an enormous difference to investors and their assumed risk. Below is a list of the differences that can leave you open to stockbroker fraud.

  1. Shares of non-traded REITs do not trade on a national securities exchange and therefore are not liquid, often for periods of up to eight years or more. Many brokers are simply not forthcoming about that risk.
  2. Early redemption of shares is usually very limited, with enormously high fees for their sale that destroy your total return.
  3. Seemingly attractive periodic distributions may be based on borrowed funds or a return of the investor’s principal, hiding an actual loss of value. Dividends from REITs traded on national exchanges are usually derived solely from earnings, so it’s much harder for a broker or firm to hide a loss of market value.

Next on REIT Stockbroker Fraud Lane

In this on-going series, we’ll take a more in depth look at REITs, stockbroker fraud and why FINRA is so concerned for your investment safety. If you are not getting anywhere with resolving your investment disputes and need help to discuss your options with the securities arbitration process, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP AT (813) 443-5249

 

[1] http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/REITS/P124232

Securities Arbitration: Auction Misrepresentation

securities litigation, civil litigation, securities mediation, stock broker fraudMajor Companies Embroiled in Securities Arbitration Case

Stockbroker fraud is not just a crime perpetrated by small time con-artists. It is a large scale problem forcing investors to file more and more securities arbitration cases against major firms. Just because a firm is large or has a recognizable name does not mean you are safe! Regardless of a firm’s name or popularity, you must perform the type of research I have outlined in previous blogs with every single investment opportunity to protect yourself from stockbroker fraud.

Auction Rate Securities Fraud Brings Multiple Securities Arbitration Suits

With auction rate securities fraud, the key is misrepresentation. The broker may tell you that certain markets are cash equivalents or an alternative to money markets, easily liquidable on short notice without jeopardy to loss of your principle investment. The broker or firm fails to mention that your ability to sell these investments relies completely on whether or not the brokerage house wants to sell, as the brokerage firm can choose to stop participating in that market at any time, leaving you holding the bag on your investment and completely unable to sell. Furthermore, it is easy for the brokerage firm to artificially inflate the value of these types of investments, since the value of the investment is based solely on how much interest a firm can generate in the product through it’s own marketing campaign. The brokerage firms generate huge fees for underwriting and administering the auctions, When these types of markets have a slump, the firm may choose to continue to participate and allow you to sell your shares or cancel participation in the market. That is exactly what happened in 2008 when several large firms decided to cancel participation in auction rate markets they had formerly advertised, leaving a rash ofsecurities arbitration cases in the wake of their decision.

The Securities Fraud Auction Rate Problem

In 2008, the New York Sun reported on a case where at least four major firms, including but not limited to UBS, Merrill Lynch, Citigroup Smith Barney, Goldman Sachs were expected to address over $150 billion in securities arbitration claims when they failed to continue to support the auctions they had been underwriting. [1] FINRA is still investigating allegations that the firms did not fairly represent the risk of the investment to their clients.

The best help with stockbroker fraud

If you are not getting anywhere with possible stockbroker fraud and need help to discuss your options, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP AT (813) 443-5249.

[1]http://www.nysun.com/business/new-market-crisis-has-lawyers-funds-scrambling/72060/

Even Nuns Fall Victim to Securities Fraud

stockbroker fraud lawyer, Tampa firm corporate fraud, securities fraudThe Churning Securities Fraud

Churning is a type of securities fraud where a broker buys and sells securities with your account to excess, in order to generate commissions and fees. The broker or brokerage firm does this solely to increase the fees owed to them from your account, without any regard for you as a client or your investment objectives.

How did Nuns Become Involved in Securities Fraud?

Unfortunately, no one is immune to securities fraud. That’s why it is so important to research not only the registration of the broker, firm and securities you are considering investing in, but to research the complaint history of your proposed broker and brokerage firm. If that had been done, this story would have never taken place. So, here is the story from Forbes…

“In April 2010, the SEC initiated administrative proceedings against stockbroker Paul George Chironis, alleging that he churned two accounts owned by the Sisters of Charity — one account with money for the care of nuns in assisted-living facilities and a second account to support the nuns’ charitable endeavors.” [1]

Protecting Yourself Against Securities Fraud

There are two really disturbing things about this story to me, other than the fact that a shark got one over on a group of aged, sickly, community devoted nuns. First, it is common for confidence men (con artists) to look for large accounts, like retirement funds, to use to perpetrate securities fraud. The bigger the account, the easier it is to manipulate funds, skew reports and hide numbers as traditional standard risk losses. The second, this could have easily been avoided if the investors had properly researched the complaint history filed against stockbroker Paul George Chironis before investing with him.

In part two of this tragic story, I’ll go more into detail about Paul George Chironis’ history as a stockbroker and what you can do to research and protect yourself from this type of stockbroker fraud. Please, if you are not getting anywhere with resolving securities issues on your own, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP AT (813) 443-5249.

[1] http://www.forbes.com/sites/billsinger/2011/01/07/nuns-churning/

Investigate Before You Invest

In my last blog on securities arbitration, I promised to talk about how to investigate your broker or brokerage firm before you invest, and help save yourself from the need for securities litigation.

Step 1. Investigate the licensing of the broker and brokerage firm. Investigate the license of all parties involved before you consider if you’d like to invest. It doesn’t matter what payoff is promised. Don’t even waste your time listening to the pitch unless you have investigated their license. Securities litigation becomes necessary once a con-artist has swindled you. The name says it all. Con-artists make an art out of gaining your confidence. You need to know if those words are true before you hear the pitch on the investment. For license information on brokers, call your state’s securities regulator and FINRA (Financial Industry Regulatory Authority.) From these sources you can not only find out about licensing and registration, but also if a person or firm has a history of problems with regulators and complaints from investors. For information on investment advisers, read their registration forms. You can get their registration forms (Form ADV) online by visiting the SEC’s Investment Adviser Public Disclosure (IAPD) website. For the moment, only advisers that register electronically are catalogued in the IAPD’s database. Depending on the size of the advisor, you can also get copies of Form ADV that were not filed electronically from the investment adviser, your state securities regulator, or the SEC.

Step 2. Find out if the investment itself is registered. To find out if an investment is registered and avoid securities litigation, check it out using the SEC’s EDGAR database or call toll free at (800)732-0330. An investment being registered is not proof that the investment is legitimate. An investment not being registered isn’t necessarily a sign that the investment is illegitimate. There are companies that are exempt from registration for a myriad of reasons. However, when you check to see if a company is registered, it will tell you if they are exempt from registering. It is more risky to invest in a product when there is little to no information on it. It is easy for a broker or brokerage firm to manipulate prices or spread false information when there is no information available to prove otherwise. If an investment isn’t registered with the SEC, find out if it is registered with your state’s securities regulator.  If it isn’t registered with the SEC or your state, and it’s not exempt from registration, call or write your state’s securities regulator or the SEC immediately with all the details. You very well may have discovered a scam.

In my next blog, we’ll talk about the last three steps to investigating possible investment opportunities and help keep you out of the securities litigation process. Please, if you are not getting anywhere with resolving securities issues on your own, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP AT (813) 443-5249.

Securities Arbitration and Securities Litigation: How do I know if I need them? (Part 4)

Last time, in my blog about securities litigation, we discussed some information about securities mediation. Today, this Tampa lawyer and certified arbitrator would like to give some more details about securities arbitration and help see if the arbitration process may be right for you.

Now that you’ve tried other dispute resolution techniques, it’s time to decide whether you want to file a claim to arbitrate. Securities arbitration may not be the best and most appropriate option for you. It really depends on your situation and objectives. If you choose to use, or are required by your agreement to use securities arbitration as opposed to civil litigation (a lawsuit), you should seriously consider hiring a Tampa lawyer for instruction and advice. Remember, the brokerage firm will most likely have a team of lawyers for consultation, so having a Tampa lawyer in your ball court will really help level the playing field.

Arbitrators like me, in general, do not have to be Tampa lawyers. They can be from any and all walks of life. They have been trained and approved, and act as arbitrators when selected to hear a case. Some arbitrators work in securities, but they could be doctors or homemakers or professional businessmen. The most important things about an arbitrator are that they be completely impartial and knowledgeable about the area of the dispute in your securities arbitration. A potential arbitrator will submit a personal profile to FINRA (the Financial Industry Regulatory Authority) detailing their knowledge of the securities industry and the concerns of an investor. If the securities arbitrator is accepted, their names go into a pool to be selected for any case matching their background. Arbitrators do not work for FINRA. They receive an honorarium from FINRA to recognize their service.

When deciding whether or not to file a securities arbitration claim, there is one factor that is vitally important to consider, up front. If your broker or brokerage firm goes out of business or files bankruptcy, you may not be able to recover your losses, even if the arbitrator or court rules in your favor. Over 80% of all unpaid awards involve a firm or individual that is no longer in business. That is why it is so important to investigate the disciplinary history of the broker and the firm you are considering investing with. I will write more on that investigation in future blogs so, stay tuned!

Please, if you are not getting anywhere with resolving securities issues on your own, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP AT (813) 443-5249.

Securities Arbitration and Securities Litigation: How do I know if I need them? (Part 3)

Our next stop on our tour of securities litigation is the mediator. The mediator’s role is to guide all involved parties towards your own solution by helping you to define the issues clearly and understand each other’s position. “ Unlike an arbitrator or a judge, the mediator has no authority to decide the settlement or even compel you to settle. The mediator’s “key to success” is to focus everyone involved on the real issues of settling–or the consequences of not settling. While the mediator may referee the negotiations–defining the terms and rules of where, when, and how negotiations will occur–he or she never determines the outcome of the settlement itself.” [1]

The mediator also helps all parties see the facts or the reality of the situation. Often times, participants in the securities mediation process are blinded by their own needs and desires. they choose not to see the weaknesses of there own case and choose not to see the strengths of the other parties case. There view of their case may also be tainted by string emotions. The mediator has the expertise to give each side an unbiased opinion of the strengths and weaknesses of their case, giving them a more clear and more fair picture of their individual situation.

Securities mediation has a high success rate. According to FINRA (the largest independent regulator for all securities firms doing business in the United States) professional mediation services have a settlement rate of about 80%. FiNRA explains “Mediation experts attribute this to the parties’ complete control over the process, costs, and outcome. If you feel good about the process, you will likely approach it with enthusiasm and good intentions. Approximately eight out of ten cases settle within a few weeks to a few months of the formal agreement to mediate–when everyone approaches the mediation table in earnest.

Even if your dispute was not fully settled by securities mediation, usually the mediation helps aid in communication, define the issues involved, diffuse emotions, and define area of agreement so that future dispute resolution processes, like securities arbitration, can become more effective and more likely to produce a settlement.

In part four of this blog on securities litigation, we’ll take a good look at possitives and pitfalls of securities arbitration. Please, if you are not getting anywhere with resolving securities issues on your own, call S. David Anton of Anton Legal Group!

S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitrations, giving him a unique perspective on his client’s cases.

FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP AT (813) 443-5249.

[1] http://www.finra.org/ArbitrationMediation/Parties/Overview/OverviewOfDisputeResolutionProcess/