Unsuitable Investment Advice

Silver Law Group Investigates FINRA-Barred Broker Thomas Buck

July 30, 2015 | Silver Law Group

Silver Law Group is investigating Indiana-based stockbroker Thomas Buck, who earlier this week was barred by the Financial Industry Regulatory Authority (FINRA) from associating with any FINRA member firm and was accused by FINRA of improperly charging customers and engaging in unauthorized trading. Mr. Buck, a former top broker for Bank of America Merrill Lynch from 1981 until early-2015, was most recently employed by RBC Wealth Management.

According to FINRA, Buck oversaw $1.3 billion in assets while at Merrill Lynch, which made him Merrill’s top broker in Indiana. Buck is alleged to have almost exclusively steered his clients into using commission-based accounts since at least 2009 despite the fact that it would have been less expensive for the clients to remain in fee-based accounts. In addition, Buck is believed to have placed trades on behalf of clients without obtaining proper authorizations, something that is prohibited under FINRA standards.

“He at times unilaterally placed trades in customer accounts without getting the customers’ acquiescence in advance, or even after placing the trade,” FINRA wrote. “In other instances, customers explicitly or implicitly allowed him to place trades in their account without prior discussion. Buck did not obtain written authorization to do so from either the customers or Merrill Lynch.”

FINRA Suspends James Edward Rooney Jr. for Unauthorized Transactions

January 28, 2015 | Silver Law Group

James Edward Rooney Jr., of Carrollton, Texas, was fined by FINRA a total of $75,000, suspended from association with any FINRA member in any capacity for a total of two years and was suspended in any supervisory capacity for 18 months. FINRA alleges that Rooney engaged in private securities transactions involving installment contracts without providing prior written notice his member firm. The findings stated that Rooney recommended the installment contract to his client without a reasonable basis for believing it to be a suitable investment. Rooney allegedly did not conduct a reasonable investigation into the company offering the installment plan contracts or the contracts themselves. Rooney sold the product expecting to receive a commission. The findings also stated that Rooney made negligent misrepresentations of material fact to the customer. Although Rooney may not have known that his representations regarding the organization and the features of the contract were false, a simple investigation would have uncovered numerous red flags. Rooney also presented oversimplified, incomplete and misleading sales materials to his customer when soliciting the installment contract. The findings also included that Rooney failed to adequately supervise other registered representative’s sales of the installment contracts. (FINRA Case #2009019042402)

If you invested money with James Edward Rooney Jr., you may be entitled to recover some of your investment losses. Please call our securities law firm toll free at (800) 975-4345 to speak to an attorney to find out how we may be able to help you recover some of your investment losses through FINRA arbitration.

Stephen Eldridge Ridgely, II Barred from Securities Industry

January 16, 2015 | Silver Law Group

Silver Law Group is investigating Stephen Eldridge Ridgely, II who was suspended by FINRA for failing to respond to FINRA requests for information.

Mr. Ridgely was registered with Ameriprise Financial Services, Inc.’s Plantation, Florida office from September 2012 through March 2014. Prior to that time, he was registered with Merrill Lynch’s Coral Springs, Florida office.

According to Mr. Ridgely’s BrokerCheck Report, he was the subject of a FINRA arbitration claim alleging unauthorized transactions which settled in August 2014. In November 2013, Merrill Lynch settled another claim involving Mr. Ridgely for $745,000 relating to claims alleging unauthorized trading, unsuitable investments and excessive trading.

Chapin Davis Settles Claims Relating to Structured Notes

January 16, 2015 | Silver Law Group

Chapin Davis, Inc., of Baltimore, Maryland, submitted an AWC in which the firm was censured and fined by FINRA $35,000. Without admitting or denying the findings, Chapin Davis agreed to the sanctions and to the findings in connection with the sale of structured products, the firm’s supervisory system and WSPs were inadequate. The findings stated that the firm sold approximately $24.5 million in structured notes and Federal Deposit Insurance Corporation (FDIC) insured structured certificates of deposit (CDs) to retail customers. The firm did not have a system or WSPs for evaluating and conducting due diligence on the products, including determining risks and suitability issues, as applicable, and for approving the products. The firm offered limited training on the products, and its WSPs did not specifically address the products or provide guidance or restrictions unique to the products, including assessment or consideration of customer-specific suitability, as applicable. In addition, the firm did not sufficiently review transactions in the products, including monitoring of accounts for overconcentration of the products. (FINRA Case #2012030601701)

Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Silver Law Group is Investigating NSM Securities, Inc.

December 3, 2014 | Silver Law Group

NSM Securities, Inc. (CRD #134357, West Palm Beach, Florida) and Niyukt Raghu Bhasin (CRD #2282048, Wellington, Florida) submitted an Offer of Settlement to FINRA in which NSM Securities (“NSM”) was expelled from FINRA membership. Bhasin was barred from association with any FINRA member in any capacity. NSM and Bhasin consented to the FINRA sanctions and that the firm, acting through and at the direction of its founder, owner, President and Chief Executive Officer (CEO) Bhasin, derived most of its revenue from actively and aggressively trading stocks in the commission-based accounts of its retail customers. This practice is frequently referred to as churning. Bhasin allegedly put his firm’s profits over the duties owed to its customers and chose not to enforce a supervisory system effective for the firm’s business. NSM, through Bhasin, failed to establish, maintain and enforce a system, including written supervisory procedures (WSPs), to supervise its core activity, an active and aggressive investment strategy. The firm, through Bhasin, failed to monitor for, detect and prevent churning, excessive trading, related violations of Regulation T, and unsuitable investment recommendations, and failed to adequately review e-mail, adequately handle customer complaints or place questionable brokers who were the subjects of multiple FINRA arbitrations or customer complaints and arbitrations on heightened supervision.

FINRA also stated that in implementing Bhasin’s active and aggressive trading strategy, and in order to generate commissions, the firm committed multiple margin violations and the related FINRA rules governing the extension of credit or margin. Specifically, the firm, acting through its brokers, made a practice of allowing customers to buy securities in cash accounts where the cost to buy the securities was met by the sale of the same securities, known as free-riding. All of these actions ultimately led to an environment which allowed brokers to churn customer accounts to make a profit for the firm. NSM specifically targeted Indian investors preying on sharing cultural similarities. This is frequently referred to as affinity fraud.

FINRA also found that the firm, through Bhasin, failed to institute adequate procedures for cold-calling prospective customers. As a result, the firm, through its brokers and other representatives, initiated telephone solicitations to persons whose numbers were on the firm’s do-not-call list and/or the national do-not-call list. (FINRA Case #2011027667402)

Merrill Lynch Hedge Fund Investors Offered Opportunity To Exit The Endowment Fund With Substantial Losses

March 7, 2014 | Silver Law Group

According to recent SEC filings, the Endowment Master Fund LP, has offered investors an exit strategy from the hedge fund offering a new fund through a Private Placement Memorandum (PPM) which will be used to liquidate the Fund. The Endowment Master Fund, LP was marketed heavily by Wall Street firms, including Merrill Lynch. The PPM describes the Offer as a like-kind exchange of investors’ pro-rata interest of the portfolio holdings into a new PMF Fund, LP. According to the SEC filings, dated February 20, 2014, “the PMF Fund, LP and the Endowment Master Fund, LP will be managed differently, with the PMF Fund, LP managed for purposes of orderly liquidation.”

For investors, the Offer provides little certainty because investors must choose whether to liquidate now without knowing the true value of the Fund which will be determined at a later date. `The Offer for the like-kind exchange expires March 19, 2014 which requires more than a leap of faith for investors in a hedge fund that has languished far behind the market returns. Investors must make an investment decision without knowledge of the value exchanged and how much will be realized during the liquidation period. According to the New York Times article, After Weak Returns, the Endowment Fund Limits Withdrawals, the hedge fund, “began to struggle in 2011, suffering losses of about 4.1 percent, after fees, compared with a gain of 2.5 percent by the S&P 500.”

On February 24, 2014, a Thomson Reuters article underscores the effects of the substantial hedge fund costs on the Funds dismal performance, “Even for investors who stay with the fund, there will be high costs. They will not be permitted to ask for any money back this year. They will also be charged a 1 percent management fee and a 1 percent servicing fee. On top of that there will be the fund’s underlying managers’ 1.3 percent management fee and a 16 percent of profits as an incentive fee.” The article points to the hedge fund underperformance in 2013, “with the fund earning only 2.08 percent last year, dramatically trailing the Standard & Poor’s 32 percent gain.” For Merrill Lynch customer’s, “If investors accessed the Endowment Fund through Merrill Lynch they will have paid as much as a 2.5 percent upfront charge.”

Securities Industry Watchdog Issues Investor Tips For Variable Annuities

March 4, 2014 | Silver Law Group

Be prepared, the Securities Exchange Commission (SEC) warns investors, “to ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you.“ Investor education is the key to making informed investment decisions, but what questions should be asked? Investors must rely on their advisors because the variable annuity prospectus, frequently 100-plus pages, or more, is convoluted and not easily understood by the Average investor. The SEC recently issued an Investor Tip: Variable Annuities, What You Should Know publication to provide direction for investors.

Variable annuity contracts are considered by many investors complex which leads to their reliance upon the financial advisor who recommends the investment. The terms of the contract which investors should be familiar include:

surrender period;

Bond Buyer Magazine Highlights Silver Law Group’s FINRA Arbitration Claims Against UBS For Puerto Rico Investors

February 13, 2014 | Silver Law Group

UBS Financial Services of Puerto Rico has come under the scrutiny of a leading bond market commentator, The Bond Buyer in yesterday’s article titled, UBS Puerto Rico Faces Surge in Arbitration Claims. Standard & Poor’s, Moody’s and Fitch’s credit ratings agencies downgraded Puerto Rico’s general obligation bonds to junk bond status, which is below the investment grade status given to most U.S. municipal bonds. The downgrade was predicted by UBS Financial Services’ (UBS) recent report Municipal Brief: Puerto Rico Credit & Market Update dated January 29, 2104. This prediction came long after UBS Financial Services of Puerto Rico branch offices mobilized its sales force with a targeted marketing campaign to sell the UBS Puerto Rico Family of Funds to investors. A market revelation that is too late for those Puerto Rico investors’ whose portfolios are now heavily laden with UBS’ proprietary closed-end funds geographically concentrated in Puerto Rico bonds.

As mentioned in our previous blog post, “The removal of Puerto Rico municipal bonds from the universe of ‘investment grade’ municipal bonds could potentially result in increased sell orders from municipal bond portfolio managers driving prices lower.” Further price declines in Puerto Rico municipal bonds has already occurred and the effects for many UBS closed-end funds, including UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds, has been an average drop in many of the funds’ net asset values (NAV) of another 5% since the announced credit ratings downgrades.

Scott L. Silver, managing partner of Silver Law Group, has brought clarity to many Puerto Rico investors who have contacted his law firm. These investors have a better understanding of the Financial Industry Regulatory Authority (FINRA) securities arbitration process. The bond buyer reported, “his firm has filed about three dozen claims for FINRA arbitration in the past several weeks.” According to the Bond Buyer interview Mr. Silver pointed out that FINRA “rules require dealers to supervise the activities in customer accounts” and said “his clients’ losses may be attributed to a failure by UBS to supervise their financial advisors.”

What Solutions Exist for Puerto Rico Investors in Puerto Rico Municipal Bonds After Credit Rating Downgrades For General Obligation Bonds to Junk Status?

February 10, 2014 | Silver Law Group

The Standard & Poor’s and Moody’s credit ratings agencies downgraded Puerto Rico’s general obligation bonds to BB+ and Ba2, respectively, which is below the investment grade status given to most U.S. municipal bonds. The downgrade had been prognosticated by many brokerage firm research analysts, including UBS Financial Services (UBS) over the last several weeks. UBS Financial Services’ recent report Municipal Brief: Puerto Rico Credit & Market Update dated January 29, 2104, predicted downgrade and additional problems for Puerto Rico Municipal Bond Investors. The reported sentiments of UBS Wealth Management research analysts Thomas McLoughlin and Kristin Stephens are clear, “The probability of a downgrade of the Commonwealth’s GO and related bond ratings by all three ratings agencies into the non-investment grade category by the end of the fiscal year (30 June 2014) is high. Given the myriad obstacles facing Puerto Rico, we believe that at least one rating agency will take such an action within the next 30 days.” UBS research opinions were also consistent with recent moves by S&P Dow Jones Indices which oversees the methodology used for constructing the S&P National Municipal Bond Indices that are used by investors to track the performance of municipal bonds issued throughout the U.S.

On December 20, 2013, S&P Dow Jones Indices announced the removal of U.S. territories, including Puerto Rico, from the S&P Municipal Bond “investment grade indices.” According to S&P Dow Indices, the removal of Puerto Rico municipal bonds as a component from the U.S. National Municipal Bond Market indices was due to dissimilarities between the “performance and characteristics” between the U.S. territories, including Puerto Rico, and the universe of “investment grade” municipal bonds issued by states and municipalities throughout the country. These changes were originally to be made on a gradual basis through March 2014. On January 8, 2014, S&P Dow Jones Indices hastened the removal of U.S. territories, including Puerto Rico municipal bonds, from S&P National AMT-Free and S&P AMT-Free Municipal Series Indices which was now effective January 2014 month end.

The removal of Puerto Rico municipal bonds from the universe of “investment grade” municipal bonds could potentially result in increased sell orders from municipal bond portfolio managers driving prices lower. Selling pressure from municipal bond portfolios including large mutual funds that hold Puerto Rico municipal bonds could be required because of fund-imposed “investment grade” mandates or money manager negative sentiment about the Puerto Rican economy. UBS Puerto Rico Family of Funds, including UBS Puerto Rico Fixed Income Funds and UBS Puerto Rico Investors Tax Free Funds, that are leveraged 50% against an underlying portfolio of Puerto Rico municipal bonds which may soon face lower prices. The effects of leverage on further price declines could be disastrous for closed-end funds that are illiquid and non-traded.

Why Are Financial Advisors Clueless About Risks of Leveraged & Inverse ETFs: The Stifel Nicolaus Story

January 17, 2014 | Silver Law Group

The Stifel Nicolaus & Company story about financial advisors’ lack of training and supervision concerning exchange traded funds (ETFs) is not much different than other Wall Street giants, including Morgan Stanley, UBS, Citigroup and Wells Fargo who were fined for similar violations. On December 17, 2013 Stifel Nicolaus & Company agreed to a Letter of Acceptance, Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA) and fined $1 million for violation of FINRA rules related to the sale of non-traditional ETFs to retail investors. FINRA determined in the AWC violations related to a failure to supervise the unsuitable investment advice provided by its financial advisors to retail investors.

Non-traditional exchange traded funds are investments designed to achieve investment returns that are a multiple (leveraged) of an underlying benchmark or the inverse (negative correlation) to an underlying benchmark. The leveraged or inverse ETFs are designed to track an underlying basket of securities, indexes, currencies or commodities. In order to achieve these investment results derivatives, swaps and futures contracts must be used which makes non-traditional ETFs complex investments rarely understood by the financial advisors who recommend them.

Non-traditional ETFs use derivatives, swaps and futures contracts to accomplish the intended performance objectives and requires a daily reset of the portfolio holdings which results in a tracking error over time. In other words, most non-traditional ETFs are only managed to meet the investment objectives on a daily basis. Due to the tracking errors over time and the effects of leverage, the performance of an ETF can differ greatly from the performance of the underlying basket of securities, indexes, currencies or commodities. According to a FINRA regulatory notice, “While the customer-specific suitability analysis depends on the investor’s particular circumstances, inverse and leveraged ETFs typically are not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.” For buy-and-hold investors, non-traditional exchange traded fund investments have experienced investment results much different from the projections made by their financial advisors.