Articles Posted in Brokerage Firms In The News

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The Securities and Exchange Commission (SEC) has fined 13 brokerage firms, including Charles Schwab, J.P. Morgan, Oppenheimer, TD Ameritrade, and UBS Financial, for violating a rule that is meant to protect investors from improper sales of high-risk Puerto Rican municipal bonds. The fines range from $54,000 to $130,000.

The SEC sanctions are the first under the Municipal Securities Rulemaking Board (MSRB) Rule G-15(f), which establishes the minimum denomination requirement for the sales of municipal bonds. The minimum denomination amounts are the least amount of a given municipal bond that a broker dealer is permitted to sell to an investor in one transaction. The more risky the bond, the higher the minimum. This is meant to ensure that the bond investments are suited to the appropriate investor. Continue reading →

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The Financial Industry Regulatory Authority (FINRA) has fined Merrill Lynch $6 million for Regulation SHO (Reg SHO) violations and failures to supervise. According to FINRA’s announcement on October 27, 2014, it censured and fined Merrill Lynch Professional Clearing Corp. (Merrill Lynch PRO) $3.5 million for violating Reg SHO, which is an SEC rule governing short sales and aimed at preventing abusive naked short selling. Additionally, FINRA also censured and fined Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch) $2.5 million for inadequate supervisory practices.

According to FINRA, from September 2008 through July 2012, Merrill Lynch PRO failed to take action to close out certain fail-to-deliver positions, as required under Reg SHO. Further, Merrill Lynch PRO did not have appropriate systems and procedures in place to address the Reg SHO close-out requirements during most of the time period. Continue reading →

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The Securities and Exchange Commission (SEC) has charged Wells Fargo Advisors with failing to maintain adequate controls in order to prevent one of its employees from using confidential customer information to engage in insider trading. Additionally, the SEC charged Wells Fargo Advisors with producing an altered document in a compliance review of the broker’s trading activities. This case, in which Wells Fargo has agreed to the monetary penalty of $5 million, is the first time the SEC has charged a brokerage firm for its failure to protect a customer’s confidential information, an important ruling at a time when many peoples’ personal information is reportedly being compromised due to computer hacking.

According to the SEC’s order, a Wells Fargo broker received confidential information from a customer that Burger King was being acquired by private equity firm 3G Capital Partners. The broker, Waldyr Da Silva Prado Neto (Prado), then used that confidential information to enact trades ahead of the public announcement. The SEC has also charged Prado with insider trading, freezing his assets to prevent any transfers of the ill-gotten profits, alleged to be $175,000.

The SEC’s order goes on to state that multiple groups responsible for compliance or supervision at Wells Fargo were told of the broker’s misuse of customer information, but failed to act. According to Andrew J. Ceresney, Director of the SEC’s Enforcement Division, “When investors entrust private information to their stockbrokers or investment advisors, they have the right to expect that it will not be exploited.” Wells Fargo admitted to the SEC’s findings and agreed to pay the $5 million penalty.

Section 15(g) of the Securities Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940 require broker-dealers and investments advisers to establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of material nonpublic information. Brokerage firms like Wells Fargo Advisors have a legal duty to protect their customers’ confidential information and to supervise their brokers to ensure compliance and prevent violations of the rules and regulations of the securities industry.

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This arbitration arises from a series of unsuitable recommendations by a Merrill Lynch financial advisor for the Claimant to purchase and hold overconcentrated, leveraged Puerto Rico bonds in a Merrill Lynch account. As a result of Merrill Lynch and its employee, the Claimant suffered substantial investment losses.

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Melville, New York-based Brookville Capital Partners LLC (Brookville Capital) and the firm’s president, Anthony F. Lodati, were named in a Financial Industry Regulatory Authority (FINRA) complaint alleging that the firm and Mr. Lodati defrauded investors in connection with a private placement offering. According to the complaint, Brookville Capital and Mr. Lodati solicited customers to invest in a private placement offering that failed to disclose material facts about an individual involved in the offering. Anthony Lodati allegedly learned that the individual, who had effected transactions on behalf of the private placement, had been fined by the Securities and Exchange Commission (SEC) for securities fraud and had been convicted of a felony by the state of Florida. The FINRA complaint alleges that Mr. Lodati failed to inform any of the potential investors of the individual’s involvement. Moreover, the private placement memorandum (PPM) allegedly made no mention of the individual or of his regulatory or criminal background.

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This arbitration arises out of a Santander stockbroker’s unsuitable investment decision with regard to the Claimants’ Santander investment account which was reinvested and overconcentrated in Puerto Rico, resulting in the Claimants suffering substantial monetary losses.

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The Securities and Exchange Commission (SEC) has charged hedge fund advisory firm Weston Capital Asset Management LLC (Weston Capital), of West Palm Beach, FL, and its founder and president, Albert Hallac, for allegedly shifting money from one investment to another without informing investors and investing contrary to the hedge fund’s stated investment strategy. The SEC complaint states that Albert Hallac, with the assistance of Weston Capital’s former general counsel Keith Wellner, allegedly drained over $17 million from a hedge fund they managed, Wimbledon Fund SPC Class TT Segregated Portfolio (TT Portfolio) and transferred the funds to Swartz IP Services Group, Inc. (Swartz IP), a consulting and investment firm.

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Salomon Whitney LLC of Farmingdale, New York consented to, but did not admit to or deny, the described sanctions and to the entry of the Financial Industry Regulatory Authority’s (FINRA) findings that it failed to establish a supervisory system with regard to the sale of non-traditional exchange-traded funds (ETFs), including leveraged, inverse and inverse-leveraged ETFs. FINRA’s findings stated that despite the risks involved with holding non-traditional ETFs for longer time periods, numerous Moloney Securities customers held the ETFs for extended periods. Some even allegedly held the ETFs for several months. FINRA found that Moloney Securities failed to adequately train its registered representatives and supervisors with respect to the features, characteristics, and the risks involved with non-traditional ETFs, especially the risks associated with longer-term holds of the ETFs. According to FINRA, Salomon Whitney made unsuitable ETF recommendations and failed to conduct an adequate suitability analysis of the non-traditional ETFs before offering them to its customers. Consequently, Salomon Whitney was censured and fined $30,000.

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Ricky Eugene Bell, a former Fayetteville, North Carolina-based registered representative with Cape Fear Securities, Inc., was named a respondent in a Financial Industry Regulatory Authority (FINRA) complaint alleging that he solicited firm customers to invest in an outside “lending program.” Mr. Bell allegedly offered the investment opportunity to his “select customers and closest friends,” according to the FINRA complaint. The complaint alleges that Mr. Bell received a total of approximately $247,500 from customer investments and that he also borrowed approximately $19,650 from firm customers without permission or firm approval.

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Moloney Securities Co, Inc. of Manchester, Missouri consented to, but did not admit to or deny, the described sanctions and to the entry of the Financial Industry Regulatory Authority’s (FINRA) findings that it failed to establish a supervisory system with regard to the sale of non-traditional exchange-traded funds (ETFs). According to FINRA, Moloney Securities permitted its representatives to recommend and sell non-traditional ETFs to customers even though the firm neglected to provide its supervisors or its representatives with training or guidance as to whether these complex and risky investments were suitable for the investors. FINRA’s findings stated that Moloney Securities neither utilized nor made available to supervisory personnel reports or other tools to monitor length of time the ETFs were held or the losses which occurred in those hold positions. Consequently, Moloney Securities was censured and fined $20,000.

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