Articles Posted in Brokerage Firms In The News

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Steven Larson of Nisswa, Minnesota was named as a Respondent in a Financial Industry Regulatory Authority (FINRA) complaint that alleges he made “numerous misstatements or omissions of material facts concerning the present values and safety of church bonds.” These “church” bonds were issued by religious organizations to build, upgrade, or better church property and cannot be used directly to generate revenue.

Mr. Larson has been associated with FINRA since 1993 as a broker dealer and has been registered with Oakbridge Financial Services, Inc. (Oakbridge) since August 2011. FINRA alleges that between May 2013 and March 2015, while associated with Oakbridge, Mr. Larson made a series of false statements and material omissions of fact, both to his customers and to FINRA.

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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.

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Leonard Goldberg of Rancho Mirage, California submitted an offer of settlement to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for an alleged mutual fund “switching” scheme. In June 1986, the NYSE fined Mr. Goldberg $25,000 and suspended him for misconduct similar to these FINRA allegations. Mr. Goldberg acted as a GSR, GSP and OP for FINRA member firm Newport Coast Securities Inc. (Newport) from October 22, 2010 through his termination in November 2014 for failing to follow procedures.

FINRA investigators found that from August 2007 through August 2014, while associated with Newport and J.P. Turner & Company, LLP, Mr. Goldberg caused over $123,600 in losses to five customers in connection with 300 mutual fund and Exchange Traded Fund (ETF) transactions that netted him $77,900 in ill-gotten gains. FINRA alleged that over the five year period, Mr. Goldberg engaged in a practice of fraudulent and unsuitable short term switches of Class A mutual funds in client accounts.

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Scott Muirhead of Jacksonville, Florida 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 provide documents and information as requested by FINRA staff. Mr. Muirhead first became associated with a FINRA member firm in April 2006. Mr. Muirhead was registered with four other FINRA member firms as a GSR before joining Merrill Lynch, Pierce, Fenner & Smith, Inc. in March 2014.

During the course of an investigation into allegations that Mr. Muirhead engaged in unapproved private securities transactions and misused customer funds, FINRA requested that Mr. Muirhead provide documents and information, in correspondence with FINRA Rule 8210, by February 12, 2016. Mr. Muirhead acknowledged that he received FINRA’s request and that he would not provide the requested documents and information at any time.

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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.

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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.

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PNC Investments LLC (PNC) of Pittsburgh, Pennsylvania submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for allegedly disadvantaging customers in sales of mutual fund shares. PNC has been a FINRA member since December 2003 and has over 1,982 branch offices throughout the U.S.

FINRA found that from at least July 1, 2009, PNC disadvantaged certain retirement plan customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge. There are typically three classes of mutual fund shares: A, B, and C; all with different sales charges, management fees and other terms and conditions. Class A shares generally have the highest initial sales charge and Class B and C shares typically do not carry a front-end sales charge but have significantly higher distribution and service fees and may be subject to a contingent deferred sales charge. Continue reading →

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Robert W. Baird & Co. Inc. (Baird) of Milwaukee, Wisconsin submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for allegedly taking advantage of certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge. Baird has been a FINRA member since 1971 and has over 140 branch offices throughout the U.S.

In May 2015, Baird self-reported to FINRA that many eligible customers had not received available sales charge waivers. Baird estimated that since July 1, 2009, approximately 1,400 accounts purchased mutual fund shares for which an available sales charge waiver was not applied. Baird estimated that clients were overcharged approximately $1.8 million since July 2009 due to its supervisory failures.  Continue reading →

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World Equity Group, Inc. (WEG) of Arlington Heights, Illinois submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for alleged supervisory failures in connection with excessive equity securities trading. WEG, a FINRA member since 1992, has been the subject of similar FINRA disciplinary actions. According to FINRA, between 2009 and 2012, WEG failed to detect and prevent excessive trading, also known in the securities industry as “churning.”  Churning is excessive trading in client accounts by a stockbroker to generate commissions. Churning is an illegal activity that violates SEC and FINRA rules. During the relevant time period (2009 through 2012), FINRA alleged that WEG’s supervisory failures led to an ongoing practice of churning. FINRA found a pattern of excessive unsuitable trades in WEG customer accounts, therein violating NASD Rules 3010, 3310, 2310, 2110, and FINRA Rule 2010.

It is the responsibility of the investment advisor and his/her associated member firm to ensure clients are treated fairly and not taken advantage of. Firm representatives are required to recommend investment strategies that comply with multiple criteria regarding an individual including investment objectives, financial status and age. Excessive trading is a violation of FINRA Rules as it generally disadvantages the customer in order for the broker to generate additional commissions.

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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.

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