Western International Securities Censured for Engaging in Multiclass Mutual Fund Abuse

Western International Securities in Pasadena, California submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which the firm was censured for allegedly engaging in Multiclass Mutual Fund Abuse and failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to ensure that eligible customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. As a result, Western International Securities violated NASD Conduct Rule 3010, FINRA Rule 3110, and FINRA Rule 2010. Since November 1995, Western International Securities (Western) has been a member firm of FINRA and holds 177 branch offices. According to the FINRA findings, Western had certain customers who were eligible for waiver of the initial sales charge associated with Class A shares.  Instead, Western sold them Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. The FINRA findings stated that 40 of Western’s customers purchased mutual fund shares for which the waiver was not applied and were overcharged by approximately $305,000. In addition to the FINRA findings, Western allegedly failed to notify, train, and assist its financial advisors regarding the mutual fund sales charge waivers.

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Broker-Dealer Ross, Sinclaire & Associates Fined for Failing to Disclose Information

Ross, Sinclaire & Associated in Cincinnati, Ohio submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which they were censured and fined $200,000 for allegedly failing to disclose information in violation of FINRA Rule 2010 by acting in contravention of Section 17(a)(2) of the Securities Act of 1933 (“Securities Act”). Since November 1989, Ross, Sinclaire & Associates (Ross Sinclaire) has been a regional broker-dealer that performs municipal underwritings and other services. In April 2014, Ross Sinclaire entered into an agreement as the exclusive placement agent to raise $3.5 million for a film tax credit finance company through a private placement of notes from seven investors. According to the FINRA findings, Ross Sinclaire failed to disclose certain material facts assisting with the preparation and circulation of a Confidential Information Memorandum (“CIM”) for the notes. The findings stated that in addition to the 2% commission Ross Sinclaire would receive, they would also receive a certain percentage of profits on the sale of tax credits. However, Ross Sinclaire allegedly failed to disclose that they would be receiving half of the revenues the Tax Credit Lender anticipated earning from the completion and that one of their registered representatives was Vice President of the issuer. In addition to the FINRA findings, Ross Sinclaire allegedly failed to disclose information regarding a Private Placement Memorandum (“PPM”) for bonds to finance the construction of a community recreation center that would have been important material for investors in deciding whether to invest in the bonds.

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Park Avenue Securities Censured for Engaging in Multiclass Mutual Fund Abuse

Park Avenue Securities in New York, New York, submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which the firm was censured for allegedly engaging in multiclass mutual fund abuse and failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to ensure that customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. As a result, Park Avenue violated NASD Conduct Rule 3010, FINRA Rule 3110, and FINRA Rule 2010. Since 1999, Park Avenue Securities (Park Avenue) has been a member firm of FINRA with 45 branch offices. According to the FINRA findings, Park Avenue had certain investors that were eligible for waiver of the initial sales charge associated with Class A shares.  Instead, Park Avenue sold them Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. The FINRA findings stated that 264 of Park Avenue’s customers who purchased mutual fund shares were overcharged by approximately $560,170. The findings also stated that Park Avenue allegedly failed to notify, train, and assist its financial advisors regarding the mutual fund sales charge waivers. In addition, Park Avenue determined that they had failed to provide these charge waivers after FINRA sent a targeted examination letter for them to review its applicable sales as part of a Mutual Fund Fee Waiver Sweep.

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Dakota Securities International Expelled & Former Owner Bruce Martin Zipper Barred for Misconduct

Dakota Securities International (Dakota) and Bruce Martin Zipper (Mr. Zipper) appealed a National Adjudicatory Council (NAC) decision to the Securities and Exchange Commission (SEC). The Hearing Panel imposed three expulsions on Dakota for allegedly failing to maintain accurate books and records, failing to supervise, and allowing Mr. Zipper to associate with them and engage in activities requiring registration while suspended. The Hearing Panel also imposed two bars on Mr. Zipper for associating with Dakota and engaging in the particular activities while suspended and intentionally misidentifying the representative of record on customer transactions. In 2004, Mr. Zipper founded Dakota and was the majority owner until January 2018, when he sold his ownership. According to the NAC findings, Mr. Zipper executed then later tried to withdraw from an AWC that was final and non-appealable due to his failure to disclose three unsatisfied judgments on his Form U4. The findings stated that FINRA informed Mr. Zipper of his suspension, and during his absence he allegedly arranged for Dakota to continue operations without him for the three months. During the same period, Dakota did not restrict Mr. Zipper’s access to the firm’s email system or to the firm’s trading system in which he engaged and recommended transactions while suspended. In addition to the NAC findings, Mr. Zipper admitted that he intentionally misidentified the representative of record on hundreds of trades caused Dakota to maintain inaccurate books and records. Dakota Securities International was expelled from FINRA membership and Mr. Zipper was barred from association with any FINRA member in all capacities.

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CV Brokerage Inc. Censured and Fined for Misconduct

CV Brokerage in Williamstown, New Jersey submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which the firm was censured and fined $100,000 for allegedly failing to establish and maintain a supervisory system, and written supervisory procedures (WSPs) reasonably designed to achieve compliance with applicable FINRA rules regarding the participation of Firm-registered representatives in private securities transactions in violation of FINRA Rules 3110(a) and (b), 3280, and 2010. According to the FINRA findings, a General Securities Principal with CV Brokerage, engaged in outside business activities and unapproved private securities transactions (PSTs). The FINRA findings stated that the representative formed an investment fund away from CV Brokerage and received substantial compensation from the transactions between multiple financial institutions and exchanges. During the same period, the WSPs permitted the representative to supervise her own compliance with the PSTs.  CV Brokerage could have hired other principals to review or disapprove her participation in the PSTs but failed to do so.  In addition, CV Brokerage allegedly failed to supervise the representatives participation in the PSTs, failed to supervise the securities trading conducted by the investment fund as if it was executed by the firm and failed to record the securities transactions for the fund on the Firm’s books and records.

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Crown Capital Securities Fined for Failing to Establish and Maintain Supervisory Procedures

Crown Capital in Orange, California, submitted a Letter of Acceptance, Waiver, and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which the firm was censured and fined $75,000 for allegedly failing to establish and maintain a supervisory system, including written supervisory procedures, for reviewing and monitoring mutual fund switches conducted by representatives in violation of NASD Rule 3010(a), NASD Rule 3010(b), and FINRA Rule 2010. Crown Capital is a dually registered broker-dealer and investment advisor and has been a member of FINRA since July 5, 1999. According to the FINRA findings, Crown Capital had no supervisory mechanism in place and relied upon the registered representative to alert the firm of a mutual fund switch, which two representatives failed to do. The findings stated that one representative effected 61 short-term mutual fund switch transactions in a customer’s accounts which resulted in unnecessary front-end sales loads of between 3.75 and 5.75% with each new purchase and losses of approximately $5,000. During the same period, the other representative effected 49 Class A and two non-Class A short-term mutual fund switch transactions for four customers which also resulted in paid front-end sales loads of between 3.75 and 5.75% with each new purchase and losses of approximately $390,000. In addition to the findings, Crown Capital voluntarily compensated the customers who sustained losses due to the unsuitable recommendations, paying a total of approximately $395,000 in restitution.

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Wells Fargo Fined for Failing to Supervise Representative’s Excessive and Unsuitable Trading

Wells Fargo submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which they allegedly failed to supervise a registered representative who excessively and unsuitably traded in three trust accounts belonging to a senior customer in violation of NASD Rule 3010(a) and FINRA Rules 3110(a) and 2010. Between March 2012 and March 2016, a Wells Fargo registered representative placed more than 2,000 trades in three trust accounts belonging to an 88-year-old customer. According to the FINRA findings, Wells Fargo used a computer program to identify red flags of unsuitable trading using risk-based criteria and the written supervisory procedures required the Firm to conduct customer interviews to address these red flags. The findings stated the program flagged the accounts for high velocity 40 times in which Wells Fargo failed to address. As a result of the excessive trading, the customer paid at least $300,000 in commissions and other fees. Following its investigation, the Firm discharged the registered representative responsible for the accounts.

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Wells Fargo Advisors of St. Louis, Missouri Fined for Failing to Supervise

St. Louis, Missouri firm Wells Fargo Advisors, LLC issued a Letter of Acceptance, Waiver and Consent to the Financial Industry Regulatory Authority (FINRA) for allegedly failing to supervise one of their registered representatives. FINRA alleged that the former Wells Fargo Advisors representative “excessively traded equity positions” in the stocks of an elderly customer. FINRA found that this alleged broker misconduct continued until a firm program flagged the customer’s account. FINRA found that as a result of this misconduct the customer paid $300,000 in excess commissions and fees. The FINRA investigation concluded Wells Fargo Advisors violated NASD Rule 3010(a) and FINRA Rules 3110(a) and 2010 by failing to supervise a former registered representative who excessively traded equity positions in an account belonging to a senior customer. Without admitting or denying the FINRA findings, Wells Fargo Advisors consented to the FINRA findings and was censured and fined $175,000.

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NYLife Securities Censured and Fined for Misconduct

NYLife Securities submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which they allegedly failed to enforce its written supervisory procedures in violation of NASD Rule 3010(b) and FINRA Rule 3110(b), and consequently FINRA Rule 2010. NYLife Securities is a retail broker-dealer that has been a member of FINRA since 1970. According to the findings, NYLife failed to enforce it procedures for supervising the suitability of sales of higher risk mutual funds that were subject to volatility. According to those procedures, the firms representatives were required to reallocate or change risk tolerances and investment objectives for portfolios that were over-concentrated in higher risk securities. However, FINRA alleged that the firm did not seek the customers input to adjust the risk tolerances and investment objectives to accommodate sales of higher-risk mutual funds due partly to the workload of the reviewers and their supervisor, which prevented them from reasonably investigating each alert that Respondent’s automated surveillance generated. The findings stated that the adjustments permitted numerous customers to be over-concentrated in their portfolios, sustaining losses of $1.4 million.

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Recover Your GPB Capital Investment Losses!

Robert Wayne Pearce, P.A. is investigating and representing investors against brokerage firms and financial advisors who offered and sold securities issued by affiliates of GPB Capital.  GPB Capital Holdings, based out of New York, organized and manages the following nine private placements: GPB Automotive Portfolio, LP; GPB Cold Storage LP; GPB Holdings, LP;  GPB Holdings II, LP; GPB Holdings III, LP; GPB Holdings Qualified, LP; GPB NYC Development, LP;  and GPB Waste Management Fund, LP. GPB Capital’s two most significant investment funds are GPB Holdings II and GPB Automotive Portfolio.  These two funds have collectively paid brokers $100 million in commissions at a rate of 7.9%!  Over the last year, it has been the subject of a series of federal, state, and self-regulatory agency investigations and other bad news.  For example, in September 2018, Massachusetts Secretary of the Commonwealth, William Galvin, announced an investigation into 63 broker-dealer firms that sold private placements sponsored by GPB Capital Holdings. More recently, in July 2019, David Rosenberg, a former business partner and chief executive of Prime Automotive Group, filed a lawsuit against GPB Capital Holdings, alleging severe financial misconduct. According to a Boston Globe article, Rosenberg allegedly accused GPB Capital Holdings of running a Ponzi-like scheme, in which it used investor money to prop up the performance of the auto dealerships it owns, as well as to finance payments to other investors.

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