Library - Law Offices of Robert Wayne Pearce

Robert W. Baird & Co. Agrees to Pay $2.1 Million in Restitution to Mutual Fund Customers

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.

Jul 4, 2016

World Equity Group Fined for Alleged Churning

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.

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 27, 2016

Miami Brokerage Firm CP Capital Securities Fined for Illegitimate Private Placement Offering

CP Capital Securities, Inc. (CP) of Miami, 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 maintain proper supervisory procedures in connection with private placement offerings. FINRA noted that CP had participated in several minimum contingency private placement offerings without “adequate supervisory procedures.” A private placement is generally an offering between only a select few investors in order to raise capital without registration. Private placement offerings must satisfy certain conditions to avoid registration with the Securities and Exchange Commission (SEC). CP’s failure to supervise those offerings put the exemptions in jeopardy.

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 17, 2016

The SEC Charges Software Executive and Three Friends with Insider Trading

The Securities and Exchange Commission (SEC) has brought insider trading charges against a former software executive, Christopher Salis, and his three close friends, Douglas Miller, Edward Miller and Barrett Biehl, who allegedly made over half a million dollars based upon an illegal tip regarding a corporate merger. According to the SEC complaint, Christopher Salis was a global vice president at SAP America, Inc. (SAP) when he became aware of plans for an upcoming SAP merger with Concur Technologies, Inc. (Concur). Salis allegedly tipped his close friend, Douglas Miller, who allegedly then passed on the tip to his brother, Edward Miller and another friend, Barrett Biehl. Douglas Miller and his brother, Edward, allegedly rushed to open brokerage accounts in order to quickly begin trading in securities of Concur based upon the tip from Mr. Salis. In total, the complaint notes that the tip from Mr. Salis yielded illicit trading profits of over $545,000 for Douglas and Edward Miller, Barrett Biehl, the Miller’s parents and another friend. The SEC complaint further alleges that Mr. Salis received at least $10,400 in kickbacks and his startup company later received nearly $80,000 from Mr. Miller and his family.

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.

Jun 10, 2016

SEC Charges Two California Men with Ponzi Scheme Targeting Middle-Class Investors

The Securities and Exchange Commission (SEC) has filed a Complaint against Jaswant “Jason” Gill and Javier Rios, both California residents, and their company, JSG Capital Investments, with operating a classic Ponzi scheme aimed at middle-class investors with promises of exclusive investment opportunities and guaranteed annual returns of up to 60%, according to the SEC’s press release. The SEC alleges that Mr. Gill and Mr. Rios, through their company JSG Capital Investments, raised approximately $10 million by catering to average retail investors and promising exorbitant returns by investing in hot pre-IPO stocks of well-known companies like Uber and Airbnb. According to the SEC Complaint, Mr. Gill and Mr. Rios used most of the investors’ funds to pay returns to earlier investors, in classic Ponzi scheme fashion. Further, the Complaint alleges that Mr. Gill and Mr. Rios personally pocketed at least $2.8 million of investors’ funds for their personal use, including excursions to Las Vegas casinos, gentlemen’s clubs, and professional sporting events.

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