finra arbitration

Scott Silver Presents “How to Win an Alternative Investment Case” at the 2014 American Association of Justice Annual Convention

August 1, 2014 | Silver Law Group

Scott Silver, Managing Partner of Silver Law Group, is the current co-chair of the Securities and Financial Fraud group of the American Association of Justice (“AAJ”). On July 28, 2014, during the 2014 AAJ Annual Convention in Baltimore, Maryland, Scott gave a well-received presentation titled “How to Win an Alternative Investment Case.” AAJ, also known as the Association of Trial Lawyers of America, is the world’s largest trial bar and promotes justice and fairness for injured persons and safeguards victims’ rights.

The theme of the presentation focused on the rise of Alternative Investment or Product cases over the last several years. Driven by its desire to replace commissions lost as investors realize stocks and bonds can be traded at discount firms for less than ten dollars a trade, Wall Street has introduced many new Alternatives to investors. However, many of the new, complex Alternatives can be riddled with fees, conflicts of interest, and are frequently more speculative than marketed by the firms. Several recent FINRA arbitration claims focus on products which lose substantially all of their value in a short time. FINRA has seen a rise in arbitration claims where multiple investors all seek damages relating to the same Alternative Investments or Product and where one or more of the asserted claims center around allegations regarding the widespread mismarketing or defective development of a specific investment.

Alternative Investments which have been the subject of recent FINRA claims include:

FINRA Fines Merrill Lynch $8 Million and Orders it to Repay Over $89 Million to Retirement Accounts for Overcharging for Mutual Funds

June 18, 2014 | Silver Law Group

The Financial Industry Regulatory Authority (FINRA) announced a fine against Merrill Lynch, Pierce, Fenner & Smith, Inc. for $8 million for charging excessive mutual fund sales charges for retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to damaged customers on top of $64 million Merrill Lynch has already compensated damaged investors. According to the FINRA decision, mutual funds offer several classes of shares, each with different sales charges and fees and many mutual funds waive their initial charges for retirement accounts. However, Merrill Lynch failed to pass these savings on to the investors.

Merrill Lynch’s retail platform frequently offered such discounts to retirement plan accounts and disclosed those waivers in their prospectuses. However, Merrill Lynch failed to frequently pass these savings on to the investors including retirement accounts. Accordingly, about 41,000 small business retirement plan accounts, and approximately 6,800 charities and 403(b) retirement accounts available to ministers and employees of public schools, either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. Incredibly, in 2006, Merrill Lynch learned its small business retirement plan customers were overpaying, but continued to sell them more costly shares and failed to report the issue to FINRA for more than five years.

If you believe your portfolio was improperly managed or was charged excessive fees or costs, Silver Law Group will analyze your portfolio at no charge. Additionally, if you have questions about your legal rights, or have been the victim of investment fraud, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (800) 975-4345.

Connecticut Securities Regulator Seeks to Bar Meyers Associates from Selling Securities in Connecticut

April 16, 2014 | Silver Law Group

If the Connecticut Department of Banking (the “Department”) has its way, Meyers Associates and its owner, Bruce Meyers, will be barred from selling securities in Connecticut. A February 2014 Order to Cease and Desist issued by the Department, charges Meyers Associates and Bruce Meyers (“Respondents”) with numerous violations of Connecticut securities laws. The Order states the Department’s intent to fine Respondents and revoke their registration to sell securities in Connecticut.

The present charges against Respondents stem from a 2012 examination by the Department, out of which the Department claims to have discovered multiple violations of the Connecticut Uniform Securities Act and FINRA rules. Notably, the Department alleges that Respondents failed to properly supervise employees with known disciplinary histories, violated an order from the Vermont securities regulator, and failed to completely respond to both the Department’s and FINRA’s requests for information and documents.

In seeking fines and revocation of Respondents’ licenses, the Department cites to Meyers Associates’ history of run-ins with the Department over allegations that it employed unregistered agents, offered and sold unregistered securities, engaged in fraud in connection with the sale of securities, engaged in dishonest and unethical practices, violated FINRA conduct rules, and failed to enforce and maintain adequate supervisory procedures. FINRA’s BrokerCheck report for Meyers Associates shows 14 final regulatory events, two pending regulatory events, and nine final arbitrations.

FINRA Arbitration Panel Orders UBS to Pay $5.3 Million for Misleading a Financial Advisor and his Clients about a Proprietary Product Tied to Lehman Brothers

April 15, 2014 | Silver Law Group

A former UBS broker recently won a FINRA arbitration claim against UBS Financial Services for misleading him and his clients about the risks associated with structured notes tied to Lehman Brothers Holdings, which suffered significant losses in 2008. Silver Law Group primarily represents investors in claims against UBS and other brokerage firms. However, this award deserves attention because it highlights a fundamental flaw in Wall Street’s business model. UBS created a system to use its sales force to sell millions of dollars in Lehman Brothers debt. However, faced with undesirable evidence of Lehman’s financial problems, UBS knowingly chose to not inform its financial advisors or retail clients about the problems. Put differently, this was a “top down” problem because the misconduct was by UBS senior management. We are seeing the same set of facts in claims by investors against UBS in Puerto Rico, where UBS senior management served as the biggest supporters of proprietary UBS bond funds and UBS placed no restrictions on financial advisors or on the concentration levels in a customer’s portfolio.

The FINRA arbitration panel awarded $4 Million in compensatory damages, $1 Million in punitive damages and $335,000 in attorneys’ fees and costs, specifically finding UBS had “deliberately prevented the distribution of material information about Lehman Brothers sinking financial condition and continued to recommend the sale of Lehman Brothers [Notes] despite clear evidence of the company’s rapid decline.” The panel also ordered that the 39 complaints filed against this broker be erased from his record.

The backdrop leading to this award is eerily similar to what is happening today at UBS in Puerto Rico (“UBS-PR”). UBS-PR aggressively pushed the sale of closed-end bond funds (CEFs) involving Puerto Rican debt which were proprietary to UBS. UBS allegedly misled the majority of its brokers and clients concerning the risks associated with CEFs. UBS is also alleged to have withheld negative information about the CEFs from its brokers and its clients, thereby preventing a full understanding of Puerto Rico’s deteriorating economy and the effects that decline would have on the leveraged and illiquid CEFs. Could it be that the majority of UBS-PR brokers who now find themselves facing numerous customer complaints were simply following the instructions given by UBS and doing what they were trained to do—sell UBS recommended products?

CFTC Shuts Down another Florida Ponzi Scheme

April 7, 2014 | Silver Law Group

In March 2014, the U.S. Commodity Futures Trading Commission (CFTC) obtained a supplemental Federal Court Order against Queen Shoals Consultants, LLC (“QSC”) and others to jointly pay in excess of five million dollars in penalties for defrauding customers in a currency or Forex trading scheme. None of the Defendants were registered with the National Futures Association or the CFTC. The Judge initially entered a permanent injunction finding that the Defendants defrauded customers in the Forex scheme and ordered the Defendants to pay restitution, amongst other sanctions.

According to a Court Order, a website “lured customers by claiming QSC and others had a ‘vast background in financial services’ with over 20 years of experience in financial services and a staff of experts ready to assist customers.” In truth, the Defendants were not experienced Forex traders and any promises or guarantees about profits were not true. In fact, there were no Forex accounts and the investors were the victim of a Ponzi scheme.

If you have been the victim of a Forex or commodities trading scheme and would like to discuss your legal rights, contact the Silver Law Group. We represent investors on a contingency fee basis in FINRA arbitration, NFA arbitration and state or federal court. Please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (855) 755-4799.

FINRA Revises Brokerage Firm’s Supervisory Rules

April 7, 2014 | Silver Law Group

FINRA rules establish the core supervisory system procedures which all broker-dealers must follow to protect investors. A broker-dealer or other FINRA member may be sanctioned by FINRA for violating these rules and an investor may bring a FINRA arbitration claim against a brokerage firm for failing to properly supervise a financial advisor or for failing to have in place a reasonable supervisory system in compliance with these rules. Although the systems may be different from one brokerage firm to another, the FINRA code establishes the minimum systems which must be addressed. FINRA Rule 3110 has been revised to address supervision requirements by all FINRA members. These rules codify rules addressing written supervisory procedures, designation of supervisory principals and customer complaints. The rule was published in FINRA Notice to Members 14-10 and can be viewed on FINRA’s website.

Silver Law Group Urges FINRA to Lift the Stay of all Puerto Rico Arbitration Claims

March 28, 2014 | Silver Law Group

In February 2014, Bond Buyer magazine featured a story about Silver Law Group’s representation of many Puerto Rico investors in FINRA arbitration claims against UBS of Puerto Rico for losses in leveraged bond funds. The article concluded by highlighting Silver Law Group Managing Partner Scott Silver’s concerns that FINRA was not equipped to handle the large number of claims which could easily be anticipated against UBS for selling this complex alternative investment which lost more than 60 percent of its value last fall.

Last week, FINRA finally took public action to address the issue by recognizing the problem and temporarily halting all claims against UBS Puerto Rico while FINRA creates a protocol to administer the cases. Silver Law Group urges FINRA to quickly address these issues and avoid unnecessary delay.

FINRA and the securities industry force investors to arbitrate all disputes with a broker-dealer through an arbitration clause in the customer agreement. However, FINRA arbitration is promoted as a fast, inexpensive process for deciding disputes. Many investors are now frustrated by a system which cannot administratively manage their claims. Investors have suggested, amongst other solutions:

FINRA Fines LPL Financial Over Alternative Investments

March 26, 2014 | Silver Law Group

LPL Financial, the self-proclaimed “nation’s largest independent broker-dealer” was recently fined $950,000 by securities regulator FINRA for allegedly failing to supervise its brokers that sold alternative investments. In a letter of Acceptance, Waiver and Consent (“AWC”), signed March 24, 2014, LPL Financial (“LPL”) settled FINRA’s charges that it failed to implement an adequate supervisory system for the sale of alternative investments.

FINRA’s complaint focuses on LPL’s failure to have a suitable system in place to identify and determine whether purchases of alternative investments, such as equipment leasing programs, real estate limited partnerships, hedge funds, and managed futures, caused its customers’ accounts to be unsuitably concentrated in these types of investments. The allegations further state that LPL’s three-tiered supervisory system had deficiencies at each tier that allowed its customers to become overconcentrated in alternative investments from January 1, 2008 through July 1, 2012.

Alternative investments are complex, high-commission, investments frequently sold by investment banks as an alternative to investing in the stock market. The Securities and Exchange Commission issued a press release in 2014 to remind financial advisors of the compliance requirements related to the recommendation of alternative investments to investors. Despite this, few retail investors are advised that alternative investments can be illiquid, speculative, and rife with conflicts of interest. Unfortunately for investors, the $950,000 fine will not be paid to the victims. Instead, investors who have been damaged may pursue FINRA arbitration claims to recover damages.

SEC Investor Bulletin Educates Investors About Impact of Fees on Portfolio Values

March 24, 2014 | Silver Law Group

The Securities Exchange Commission (SEC), Investor Bulletin on fees and expenses reminds investors about the effect fees on investment accounts can have on a portfolio over the long run. According to the SEC Investor Bulletin, “These fees may seem small, but over time they can have a major impact on your investment portfolio.” The SEC’s Office of Investor Education illustrates the effects through the use of a graph. In the hypothetical example, a $100,000 portfolio is assumed to grow 4% annually with annual fees of 0.25%, 0.50% and 1.00% that are deducted over a 20-year period. The differences between the account values at the end of period show a $30,000 disparity in portfolio values between the portfolios with 1.00% and 0.25% in annual fees deducted from the respective portfolios. This simplistic example should make investors wary about the fees they are paying, whether disclosed or not, these fees can greatly diminish any retirement nest egg.

The SEC Investor Bulletin urges investors to “get informed” by reviewing account statements, confirmations and investment prospectuses to become better informed. The bulletin also provides helpful questions investors should ask their financial advisors before investing:

What are all the fees relating to this account?

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.”