FINRA News - Law Offices of Robert Wayne Pearce

Jul 22, 2016

C. L. King named in FINRA Complaint For Allegedly Taking Advantage of Elderly

C. L. King & Associates, Inc. (CL King) of Albany, New York was named a Respondent in a Financial Industry Regulatory Authority (FINRA) complaint that alleges CL King assisted customers in a scheme to profit from the deaths of vulnerable, elderly and terminally ill patients. The complaint alleges that CL King failed to establish and maintain proper supervisory procedures and failed to recognize suspicious activity in regard to a death-put investment scheme. The FINRA investigators found that two CL King customers recruited terminally ill individuals by offering to pay them between $10,000 and $15,000 in exchange for their agreement to open a joint brokerage account. Between January 2012 and October 2013, CL King opened 36 accounts for its customers with individuals often signing agreements relinquishing their rights over, and responsibilities for, the assets in their accounts. Once the accounts were opened, the CL King customers used the joint accounts to purchase discounted corporate bonds, notes, and market-linked CDs (MLCDs) containing a survivor’s option or “death put,” which allowed the customers to redeem the investments for the full principal amount prior to maturity upon the death of a beneficial owner.

Jul 15, 2016

Former Wells Fargo Representative Suspended For Unsuitable Mutual Fund “Switching”

Brent Burgesser of Chandler, Arizona submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for allegedly executing unsuitable mutual fund switches in the accounts of three customers. Burgesser became registered in the securities industry in May 2000 as a General Securities Representative (GSR).From October 2008, through July 2012, Mr. Burgesses was an associated member with Wells Fargo Advisors, LLC. FINRA alleged that between January 2009 and May 2012, Mr. Burgesser effected 83 unsuitable mutual fund switches in the accounts of several customers, resulting in more than $63,700 in customer losses. Mutual fund “switching” is simply the process of transferring an investment from one fund to another, sometimes for good reason and other times to defraud clients. Some brokers attempt to effect numerous switches in client accounts in order to generate commissions. In the case of Mr. Burgesser, FINRA found that the former Wells Fargo representative generated approximately $109,500 in commissions for himself as a result of mutual fund “switching.”

Jul 13, 2016

New York Princor Investment Representative Fined and Suspended for Unsuitable Annuity Recommendations

Michael Taylor of Buffalo, New York was registered with FINRA as an Investment Company Products and Variable Contracts Limited Representative through Princor Financial Services Corporation (Princor) from 2010 until March 16, 2016. Mr. Taylor submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for allegedly failing to identify and submit seven variable annuity purchases as annuity replacements even though each was funded by the sale of another annuity. According to FINRA, from December 2010 through May 2011, Mr. Taylor “circumvented Princor’s compliance procedures by failing to identify and submit seven variable annuity purchases as annuity replacements even though each was funded by the sale of another annuity. In addition, Taylor provided inaccurate information on the annuity transaction documents further concealing that they were replacements.” This alleged conduct would be in violation of NASD Conduct Rule 3110 and FINRA Rule 2010.

Jul 11, 2016

Florida Wells Fargo Representative under Investigation for Converting Client Funds

Jeffrey Krupnick of Sarasota, Florida was named as a respondent in a Financial Industry Regulatory Authority (FINRA) complaint for allegedly converting a client’s funds for his own personal use. FINRA alleged that Mr. Krupnick, between January 2012 and November 2014, while registered with FINRA member firm Wells Fargo Advisors, LLC (Wells Fargo) converted approximately$143,000 from his half-brother, a Wells Fargo customer. FINRA alleged that due to over $50,000 in accumulated credit-card debt, Mr. Krupnick attempted to take advantage of his half-brother in a scheme to cover his losses. The FINRA investigators found that Mr. Krupnick opened several brokerage accounts for his half-brother for which he took control over and took funds from. FINRA alleged that Mr. Krupnick removed over $170,000 from 4 brokerage accounts he had created for his half-brother in October 2013. Furthermore, FINRA found that Mr. Krupnick named himself as the primary account holder on the joint accounts and assumed primary control over them even though he never contributed funds to the accounts and instead used the ill-gained funds to pay credit card bills, home payments, and other luxuries including a wedding in Hawaii.

Jul 1, 2016

J.P. Morgan Branch Fines Exceed $1 Million for Unsuitable Activity

J.P. Morgan Clearing Corp. (JPMCC) of Brooklyn, New York and J.P. Morgan Securities LLC (JPMS) of New York, New York submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for alleged unsuitable broker activity. The Suitability Rule (FINRA Rule 2011) is the most fundamental rule brokerage firms and associates must abide by in recommending investments to customers. Brokers must recommend appropriate investments given the customer’s objectives, financial condition, tax status, etc. This rule lays out the three main suitability obligations requiring brokers to (i) perform due diligence to understand the risks of an investment or investment strategy, and determine whether it is suitable for anyone, (ii) have a reasonable basis for believing the investment strategy is suitable for the particular customer based on that customer’s investment profile; and (iii) have a reasonable basis for believing that a series of securities transactions are not excessive (if the broker has control over the account). In the case of JPMCC and JPMS, FINRA found that JPMS failed to send letters to customer accounts confirming changes in their investment objectives.

Jun 29, 2016

Tampa Firm Fined $175,000 and Ordered to Pay Over $400,000 in Restitution for Supervisory Failures

INVEST Financial Corporation (IFC) of Tampa, Florida submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement for the Financial Industry Regulatory Authority (FINRA) for alleged supervisory failures in connection with Unit Investment Trust (UIT) transactions with its customers. A UIT is generally a portfolio of redeemable securities (units) that can contain several different types of securities with a specified lifetime. The most common of these securities are stock and bond trusts. UITs are created with a definite life and are a fixed portfolio of securities. This makes UITs different from a mutual fund that allows its securities to be bought and sold in perpetuity. Sales charge discounts are often offered to customers who periodically reinvest in a UIT which is also known as a rollover. The UIT sponsor can also offer “breakpoints” which distribute sales charge discounts depending on the amount invested.

Jun 24, 2016

New York Brokerage Firm BGC Submits AWC to FINRA in Connection with Reporting

BGC Financial L.P. (BGC) of New York submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Regulation for the Financial Industry Regulatory Authority (FINRA) for an alleged “pattern or practice” of late reporting and failing to report transactions to regulators. BGC became associated with FINRA in July 1987 and has faced 15 regulatory events since its formation. Between August 31, 2012 and January 21, 2015, BGC submitted five AWC’s in relation to SEC Rule 17a-3 and FINRA Rule 6730(a) which “prescribes minimum standards for the creation, retention and preservation of records applicable to broker-dealer.” From January 2015 to March 2015, FINRA’s Department of Regulation reviewed BGC’s reporting to the Trade Reporting and Compliance Engine (TRACE) and found that BGC failed to report 100 transactions of TRACE-eligible Securitized Products within 15 minutes of their execution.

Jun 16, 2016

Investor Alert – FINRA is Scrutinizing Variable Annuity Sales and You Should Too!

The Financial Industry Regulatory Authority (FINRA) is scrutinizing the sales of variable annuities, noting that they are complex products typically marketed to seniors. This follows a record fine of $25 million FINRA slammed MetLife Securities, Inc. (MetLife) with for negligent misrepresentations and omissions of fact regarding the costs and guarantees relating to variable annuities and variable annuity replacements. At a recent Insured Retirement Institute (IRI) conference, FINRA associate vice president and enforcement chief counsel James Day stated that variable annuities “… are at the sweet spot of complex products marketed to retirees and people about to retire.” Also noted at the IRI conference as a specific area of FINRA’s scrutiny were L-share variable annuities. These products offer increased liquidity and a shorter surrender-penalty period, typically three years rather than seven.

Jun 13, 2016

FINRA Hits Oppenheimer with a $2.9 Million Fine for Failure to Supervise ETF Sales

Oppenheimer & Co., Inc. (Oppenheimer) has been hit with a fine of $2.25 million and ordered to pay restitution to affected customers of over $716,000 for failing to supervise the unsuitable sales of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs). According to FINRA, Oppenheimer failed to enforce its own policies with respect to the solicitation and recommendation of ETFs by its registered representatives. Although Oppenheimer put ETF-related policies in place in 2009 (in response to FINRA Regulatory Notice 09-31), its representatives continued to solicit customers and to execute non-traditional ETF transactions despite the customers not meeting Oppenheimer’s criteria for suitability, e.g. having liquid assets of more than $500,000. FINRA’s findings state that Oppenheimer representatives carried out more than 30,000 ETF transactions, totaling approximately $1.7 billion during the relevant time period.

May 18, 2016

Watch Out Investors—FINRA May Not Be Protecting You from Unscrupulous Brokers

Investors often hire a financial advisor to manage their money professionally because they lack the knowledge themselves and trust that their advisor will act in their best interest and uphold the industry rules and regulations set forth by the Financial Industry Regulatory Authority (FINRA), lest they be disciplined or even barred from the financial industry. Unfortunately, as Senator Elizabeth Warren (D-Mass) writes in a letter she and Sen. Tom Cotton (R-Ark) sent to the chairman of FINRA, Richard G. Ketchum, “…FINRA is not doing nearly enough to fulfill its investor protection mission.” A recent study of data from FINRA’s BrokerCheck database, conducted by the National Bureau of Economic Research (NBER), concluded that financial advisor misconduct is “broader than a few heavily publicized scandals” and that “one in thirteen financial advisers have a misconduct-related disclosure on their record” (See http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2739170). Financial advisor misconduct disclosures include such things as bribery, forgery, and fraud. The NBER study noted that only about half of the advisors who committed misconduct lost their job and 44% of those obtained a job at a different broker dealer within one year. One of the more disturbing findings of the NBER study is that approximately one-third of all financial advisors with misconduct records are repeat offenders.