Articles Posted in Brokerage Firms In The News

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. Continue Reading

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. Continue Reading

Summit Brokerage submitted a Letter of Acceptance, Waiver, and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which they failed to review its representatives business and enforce supervisory procedures violating FINRA Rules 3110 and 2010.

FINRA Rule 3110(b) requires each member firm to “establish, maintain, and enforce written procedures to supervise the types of business in which it engages and the activities of its associated persons that are reasonably designed to achieve compliance with applicable securities laws and regulations, and with the applicable FINRA rules.” FINRA Rule 3110(b)(4) requires, among other items, that firms have written procedures for the review of incoming and outgoing written (including electronic) correspondence, and that such reviews be conducted by a registered principal and evidenced in writing. Violations of FINRA Rule 3110 also are violations of FINRA Rule 2010. Continue Reading

Terry Lee McCoy of New Port Richey, Florida submitted a Letter of Acceptance, Waiver, and Consent (AWC) in which he was barred by the Financial Industry Regulatory Authority (FINRA) for allegedly failing to supervise his firms’ representatives in violation of NASD Rule 3010, MSRB Rule G-27, and FINRA Rule 2010.

In March 1999, Terry McCoy joined Morgan Stanley as a General Securities Principal and Municipal Securities Principal. According to FINRA, during the period from September 2011 through July 2012, McCoy was branch manager of Morgan Stanley’s Palm Harbor, Florida branch and was responsible for supervising the business and activities of all employees. FINRA stated that while under McCoy’s supervision, two of the firm’s registered representatives engaged in excessive and unsuitable trading and used discretion in 6 accounts of a 79-year-old customer with severe physical disabilities without his authorization. Due to the excessive trading, the account generated commissions of over $9 million.  FINRA also stated that McCoy failed to follow up on multiple red flags and failed to detect discretion in the accounts, despite his routine meetings with the customer. Continue Reading

Costa Mesa, California-based Accelerated Capital Group (Accelerated Capital) was named in a Financial Industry Regulatory Authority (FINRA) complaint alleging that the firm failed to establish and maintain a proper supervisory system to detect unsuitable, excessive, or unauthorized trading in customers’ accounts.  FINRA’s complaint goes on to make numerous allegations regarding failures in the firm’s supervisory system.

According to the FINRA complaint, Accelerated Capital Group failed to properly monitor, through its supervisory system and written supervisory procedures (WSPs), mutual fund switches, exchanges, and sales for suitability, and failed to appropriately identify or respond to red flags of broker misconduct.    The complaint also alleges that the firm’s supervisory procedures failed to ensure that customers understood the differences in fees among mutual fund products.  Further, FINRA’s complaint alleges that due to the inadequate supervisory systems, a registered representative was able to churn his customers’ accounts, allegedly resulting in customers sustaining more than $900,000 in trading losses and improper sales loads. Continue Reading

FSC Securities Corporation has been censured and fined $100,000 and ordered to pay restitution to affected customers of over $492,485.33 for failing to supervise the unsuitable sales of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs).

The Financial Industry Regulatory Authority (FINRA) found that FSC Securities, which is headquartered in Atlanta, Georgia, failed to establish and maintain an adequate supervisory system to ensure the suitability of its sales of non-traditional ETFs.  According to FINRA, FSC Securities executed approximately 6,500 purchases of the non-traditional ETFs, which were worth approximately $92 million and generated roughly $603,000 in commissions.   Continue Reading

Trident Partners Ltd. has submitted a Letter of Acceptance, Waiver, and Consent (AWC) in which it has been censured and fined $50,000 by the Financial Industry Regulatory Authority (FINRA) for failing to adequately supervise the sales and suitability of steepeners, a complex, structured product.

Trident Partners, headquartered in Woodbury, New York, was found by FINRA to have failed to establish, maintain, and enforce a supervisory system to ensure that recommendations for its sale of steepeners were suitable.  Steepeners are complex, structured products that are typically longer-term notes and certificates of deposit with maturities spanning from 10-30 years.  They are typically callable by the issuers after a short, pre-specified time.  They pay higher interest rates, but if the steepener is not called after a year, the rates can drop to as low as zero, earning no returns for the remainder of the term.  FINRA found that during the relevant period, steepeners were a significant part of Trident Partners’ business, with approximately 1,600 transactions and accounting for at least 10% of commissions generated.  Continue Reading

Roger Zullo, a former registered representative with LPL Financial LLC, has been barred by the Financial Industry Regulatory Authority (FINRA) for refusing to produce information and documents requested by FINRA in connection with an investigation into allegations of fraud, falsifying client suitability profiles and unsuitable variable annuity sales.  FINRA’s investigation arose from a complaint, and subsequent Consent Order, by the Massachusetts Securities Division against Mr. Zullo and LPL Financial.

FINRA began an investigation in January 2017 following allegations made in the complaint filed by the Massachusetts Securities Division.  That complaint alleged that Mr. Zullo, of Boston, Massachusetts, “fabricated the financial suitability profiles of numerous LPL clients, selling them scores of large, illiquid, unsuitable, high-commission variable annuities, at substantial upfront profits to himself and LPL.”  Further, the complaint alleged that Mr. Zullo prematurely switched out his clients’ existing annuities (which were also sold by Mr. Zullo), caused unnecessary surrender charges, and disregarded his clients’ investment profiles at an enormous profit to himself and LPL. The complaint states, “Over the course of three years, Zullo and LPL received more than $1,825,000 in variable annuity commissions alone; of this amount, more than $1,791,000, or 98%, represented commissions from the sale of the same annuity product, the Polaris Platinum III (B Shares) variable annuity.” Continue Reading

The Financial Industry Regulatory Authority (FINRA) announced today that it ordered Morgan Stanley Smith Barney LLC (Morgan Stanley) to pay $13 million in fines and restitution for failing to supervise the sales of unit investment trusts (UITs).

FINRA found that from January 2012 through June 2015, hundreds of Morgan Stanley brokers executed short-term UIT rollovers in thousands of customer accounts.  Further, FINRA found that Morgan Stanley failed to adequately supervise its representatives’ sales by failing to provide sufficient guidance or training to detect unsuitable short-term UIT trading.  Continue Reading

Cetera Advisors LLC has agreed to pay more than $628,000 in restitution to customers who were overcharged in certain mutual fund purchases.  According to the Financial Industry Regulatory Authority (FINRA), between July 1, 2009 and January 1, 2017, Cetera Advisors disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares of certain mutual funds without a front-end sales charge.  The customers were instead sold 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.

Cetera Advisors is headquartered in Denver, Colorado, with approximately 1,788 registered representatives and 961 branch offices.  According to the Letter of Acceptance, Waiver and Consent (AWC) submitted to FINRA, Cetera Advisors failed to reasonably supervise the application of the sales charge waivers to the eligible mutual fund sales, relying on its financial advisors to determine the applicability of sales charge waivers.  Further, Cetera Advisors allegedly failed to adequately notify and train its financial advisors regarding the availability of mutual fund sales charge waivers for eligible customers.  Without admitting or denying the findings, Cetera Advisors was censured, required to provide a remediation plan to FINRA, and agreed to pay restitution to eligible customers who were overcharged an estimated $628,040.  Continue Reading