Over three years ago, on October 20, 2015, Credit Suisse abruptly announced it was exiting the U.S. wealth management business and closing its U.S. private banking group. At the time, Credit Suisse had over 300 registered brokers in its U.S. private banking unit. Rather than close the business or sell the division, however, Credit Suisse entered into an “exclusive recruiting arrangement” with Wells Fargo, ostensibly “to provide relationship managers to transition to Wells Fargo’s brokerage business, Wells Fargo Advisors”. At the time, Credit Suisse issued a press release announcing, “we have taken the decision to transition our current Private Banking brokerage business model”, explaining in a press release “the economics for Credit Suisse do not yet meet profitability criteria and, therefore, cannot achieve optimal returns for our shareholders relative to our alternatives”. Reading between the lines, Credit Suisse’s foray into the U.S. private wealth management business never got the traction the firm anticipated and was a money losing proposition.
So, what was the “exclusive recruiting arrangement” with Wells Fargo? Simply stated, Credit Suisse allowed Wells Fargo to “cherry pick” the brokers it wanted from the Credit Suisse minions and take on those producers worth taking who were willing to work under the Wells Fargo platform and name. And, to ameliorate the pain of shutting down, Wells Fargo even agreed to pay CS a recruiting payment for each former CS broker who successfully transitioned to Wells Fargo. Some moved to Wells Fargo; many did not. Of course, it was only a few years later that the Wells Fargo name became indelibly tarnished and trashed when it was revealed the firm had opened hundreds and thousands of accounts, credit cards, loans and other banking facilities without the approval or knowledge of the customers for whom those accounts were opened. So, many of the former Credit Suisse brokers who did transition to Wells Fargo soon regretted their choice.
The major financial consequence for those brokers who chose not do transition to Wells Fargo, or who were not invited to the party, was the loss of their non-vested deferred compensation. One of the ways the former Credit Suisse brokers were compensated, a method used by most of the major wire-houses, was to take a portion of the brokers’ compensation and pay it as deferred compensation, earned down the road. Many of the Credit Suisse brokers had accumulated a substantial amount of non-vested deferred compensation; compensation earned but not yet vested for many reasons, primarily the fact the brokers had not worked long enough at Credit Suisse to have that deferred comp actually vest. Of course, by essentially shutting its doors and letting its 275 brokers know they had to move to Wells Fargo or another firm since CS was shutting its doors, Credit Suisse guaranteed that non-vested deferred compensation would never vest.
The Credit Suisse Deferred Compensation plans had a number of names including the ISWAP Share Award; the PB USA Equity Share Award, the Growth Phantom Share Award; and the PB RM Contingent Capital Award. All different named plans but all essentially the same. Each of the plans provided the financial adviser would forfeit any unvested plan benefits if he or she resigned from Credit Suisse before being at the firm the required number of years to actually vest those benefits.
By closing its business, however, and allowing its brokers to “transition” to Wells Fargo, Credit Suisse effectively and completely prevented those brokers who had earned, but as yet unvested deferred compensation from ever having that deferred comp vest. Credit Suisse, in turn, took the position that if a former Credit Suisse broker left CS to join another firm, that rep had resigned and forfeited what was estimated to be in totality over $300 million of accumulated, earned but as yet unvested deferred compensation. Understandably, many of the brokers who had worked for, and earned that deferred compensation felt ripped off. And they were! So, what happened over the past three years and what can a former Credit Suisse broker do about that loss?
After Credit Suisse announced the shut down, and brokers who had accumulated earned but as yet unvested deferred compensation realized they would never be paid that money, a former CS broker, Christopher Laver, found a well-known class action firm that initiated a class action in Federal Court in San Francisco on behalf of him and all other similarly situated CS former brokers who, like Laver, lost all of their earned but unvested deferred compensation. CS, in turn, moved to dismiss the class action successfully arguing that Laver, like all of his fellow former CS brokers, had agreed to arbitrate any and all claims against CS in mandatory FINRA arbitration and not in court and not by way of a class action.
In June, 2018, the federal judge before whom the case was pending dismissed the class action against Credit Suisse Group AG ruling that Laver, and those he purported to represent, were bound by the agreement each of them signed to arbitrate employment-related disputes and could not bundle those claims together in a court class action.
But, Individual FINRA Arbitrations Have Been Successful-
Most lawyers know that class actions are great for lawyers; not so great for class members. We all have read the stories about the settled class actions where the lawyers get millions of dollars in fees, while each class member receives $1.99 or, worse, a coupon for free French fries (so long as the fries are purchased along with 10 Big Macs, only on a Monday and only between noon and 1 pm, or some nonsense like that). Well, the Credit Suisse class action never got anywhere, and nothing came of it.
But a number of brokers who turned to experienced FINRA lawyers have been very successful in recovering their lost deferred compensation. First, in November, 2018, former Credit Suisse broker Brian Chilton was awarded $844,621.00 in unvested, deferred compensation he lost when the firm notified him it was closing its operation.
The next month, November 2018, another former Credit Suisse employee, Nicolas Finn, was awarded $975,530.00 in lost deferred compensation by another FINRA panel for the same reasons Chilton got his award the month earlier. Two cases that went to hearings; two very good outcomes for the brokers.
The defense that Credit Suisse asserted in both cases- which failed each time- was an argument that the brokers were trying to recover the same dollars twice. Credit Suisse argued that the brokers ultimately went to work for other firms and received up-front recruiting loans or advances and, therefore, they already were compensated for the deferred comp they lost when they were forced to leave Credit Suisse. Obviously, neither FINRA arbitration panel found the argument very compelling.
In late January of this year, and facing substantial, individual claims from other, former CS brokers, Credit Suisse filed a court action to vacate the most successful win by former broker Finn. In the Finn case, Credit Suisse filed pleadings in New York State Supreme Court (where the Finn arbitration took place) seeking to vacate the award arguing the three arbitrators in the Finn case showed a “manifest disregard of the law” by refusing to reschedule a hearing to accommodate testimony from Philip Vasan, the former head of the Credit Suisse U.S. brokerage business and by prohibiting “evidence of [Finn’s] negotiations with potential employers”.
While that challenge has yet to be heard of determined, the fact is that it is extremely difficult to overturn a FINRA (or other) arbitration award. Credit Suisse did not challenge the Chilton award which was issued by a Boston based FINRA arbitration panel. Some observers have noted Credit Suisse’s recent effort to vacate the Finn award is intended to send a message to other former CS brokers that the firm will fight tooth and nail and make it expensive and difficult to collect. But that’s what good lawyers are for and many experienced attorneys know that a request to a panel to allow interest to accumulate on any arbitration award at a specified interest rate until paid more than makes up for any delay.
In California, interest on a broken promise (breach of contract) accrues at the statutory rate of 10% from the date of the breach until paid.
Our firm has extensive experience with intra-industry disputes and are interested in speaking to any former Credit Suisse brokers- or brokers from any other firm- who feel they have not been paid something they should have been by their former firms.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner [email protected], or call 800.496.5900 ext. 109.
The economic outlook for Asia Pacific remains strong, and the region continues as the most dynamic of the global economy. However, the region faces risks from a global tightening of financial conditions and a shift toward protectionist policies, particularly by the U.S. and the Trump Administration, which has pursued a confrontational, bi-lateral approach to trading agreements with countries in the region.
Fund Investment in the Asia Pacific Region
Sophisticated, world-wide investors require transparency and consistency to understand and compare investment opportunities, their fundamentals and risk exposure. The trend in Asia Pacific has been to passive and ETF, and away from active products since only objective and consistent analytics allow investors and managers to compare fund alternatives. The continuing growth of these passive products will continue to put downward pressure on fees as performance becomes more benchmarked and transparent.
Asia Pacific investors increasingly seek exposure to other markets, especially the U.S, in a bid to increase diversified investing and minimize the effects of local and regional volatility. Equally, there has been a rise of inbound investing in China as global investors seek unique opportunities in its economy and a share of its huge domestic market.
Private wealth continues to grow across Asia-Pacific as its economies mature. In Australia and New Zealand, for example, retirement investing remains the driving force of investment management. Retirement investing will continue in the region, requiring more clarity and transparency and acceptable risk exposure as well as excellent client service.
Another factor that will impact fund offerings in the region are cross-border initiatives such as the Asia Region Funds Passport, a region-wide initiative led by Australia, New Zealand, Republic of Korea and Singapore. The Asia Region Funds Passport will provide a common framework to facilitate cross-border marketing of managed funds across participating economies in the region. This will encourage more cross-border marketing of funds; increased demand for clear comparisons of these funds and an objective, consistent framework of analytics for investors to gain exposure to equities in different countries while able to assess the fundamentals and risks of each investment.
Fund Distribution in Asia Pacific Region
Despite a growing demand for Asia Pacific focused funds, fund distribution in the region remains highly fragmented with no single channel having dominance in every market. In Hong Kong and China, retail banks dominate the sale of fund products, while securities firms have the bulk of market share in Korea. In Japan and Korea, household names such as Nomura and Samsung dominate the distribution landscape. In Australia, `wrap platforms’ or master trusts are largely sold through independent advisors. But there is also a significant and growing group of ‘self-managed’ investors.
Online platforms continue to lead the market in terms of service and innovation as consumers are attracted to the investment returns offered, as much as the ease and convenience of transacting with a brand they know and trust. This continued focus on returns, service and the customer experience will likely evolve into a `paradigm shift’ among asset managers, who will increasingly need to consider the customer experience as part of their investment offerings. Younger investors are used to online interfacing and expect excellent service and top technological innovation, so the “client experience” will continue to drive the market leaders.
The recent introduction of fund products sold through online platforms such as Alipay/Taobao has disrupted traditional distribution channels in China. Many reports note the high growth experienced by online distributors over the last 12 months, driven by the high yields offered by these funds, relative to other financial institutions. The real challenge for continued growth of online funds, however, will be the ability to offer more sophisticated products to a developing market. The ASEAN initiative, and others like it, will hasten the proliferation of cross-border fund offerings.
As the economies in the region grow and mature as a driving force, their governments place a high priority on trade and cooperative investment agreements, which are critical building blocks of international relations in the region. The challenge for the U.S. is to remain not only economically relevant but actively engaged in the region, or risk that other countries shape regional economic rules and ways that work against, not for, U.S. interests.
The Obama administration’s primary achievement in the region was the Trans-Pacific Partnership (TPP), often referred to as the “gold standard” free trade agreement, involving ten countries. However, President Trump’s decision to withdraw from the TPP and pursue a trade policy based on bilateral “bargaining” may reduce the U.S. role in the region and its ability to influence regional economic alliances and rules in beneficial ways.
Shustak Reynolds & Partners, P.C. is an active member of IR Global, a multi-disciplinary professional services network that provides advice to companies and individuals across 155+ jurisdictions.
It is every registered person’s nightmare. You receive a letter from a FINRA office notifying you that you are the subject of a FINRA investigation. The letter may, or may not come from the FINRA office in your district. In fact, most of them are sent from examiners in FINRA’s Washington or Maryland offices. Typically the letter identifies a large number of documents, and questions, that the FINRA examiner wants and gives you no more than a few days to respond. And, of yes, the letter typically advises you that your presence is required, also on very short notice, for an on-the-record interview at a FINRA office on the other side of the country. You panic, your heart rate doubles, sweat forms on your brow. What do you do?
First and foremost, you need to at least consult with counsel experienced with FINRA generally and FINRA investigations specifically. Your license is your and your family’s meal ticket. This is not a time to turn to your brother-in-law or your hairdresser’s best friend’s cousin once removed, neither of whom have ever dealt with FINRA let alone know what the acronym stands for. You need counsel right away who knows the ins and outs of FINRA investigations. You may only need a short consultation to understand your rights and obligations. Or you may need more substantial legal help. Either way, dealing with FINRA, which can pull your securities license or, worse, bar you from the securities industry for life, is not a time to rely on amateurs.
The first point to be made in connection with FINRA investigations, is that FINRA has a great deal of power when it decides to investigate brokers, firms, records or conduct. FINRA’s power derives from FINRA Rule 8210. That rule states, in relevant part, that FINRA staff, in connection with an investigation, complaint, examination or other proceeding, may:
(1) require a member, person associated with a member, or any other person subject to FINRA’s jurisdiction to provide information orally, in writing, or electronically (if the requested information is, or is required to be, maintained in electronic form) and to testify at a location specified by FINRA staff, under oath or affirmation administered by a court reporter or a notary public if requested, with respect to any matter involved in the investigation, complaint, examination, or proceeding; and
(2) inspect and copy the books, records, and accounts of such member or person with respect to any matter involved in the investigation, complaint, examination, or proceeding that is in such member’s or person’s possession, custody or control.
Those are very broad rights. You can be compelled to appear for an on-the-record interview (sometimes known as a deposition) with a court reporter taking down everything you say. That examination can be anywhere in the country FINRA wants it to be, and getting to and from the examination, and the cost of travel and lodging, is at your expense. FINRA does not pay for those costs. FINRA also can inspect and copy any records it decides it want to inspect and copy. There is virtually no privilege and no grounds for objecting. This writer has been through many FINRA on-the-record interviews. For the most part, counsel is not allowed to ask questions; make objections or even obtain a copy of the transcript. FINRA has the ultimate discretion of whether it wants to allow, or deny, you or your counsel even a copy of the transcript. While we normally cooperate with FINRA and often have these interviews either at a local FINRA office, or via teleconference or videoconference, if you annoy the FINRA staff or you use counsel who rubs them the wrong way, they can insist you get on a plane and fly to wherever the investigative staff is located, all at your expense.
And the reason FINRA has such ultimate power is found in FINRA Rules 8210-C . Rule 8210-C simply states “No member or person shall fail to provide information or testimony or to permit an inspection and copying of books, records, or accounts pursuant to this Rule”. That’s it. Period. You are told you cannot refuse to provide information or testimony and you must permit FINRA to inspect and copy books, records or other documents. And to ensure that FINRA has the “strong-arm” power to compel testimony and obtain whatever documents it needs or requires, FINRA has the power to make non-compliance with a demand for testimony or documents an independent basis for suspending your from the securities business or barring you from the industry for life.
Unlike in court, where a party can “take it to the judge” if a subpoena is overbroad or unwarranted, in Finra-land, the only option is to refuse to produce, be sanctioned for violating Rule 8210 and then appeal to the Securities and Exchange Commission. The changes to Rule 8210 came about following the 2006 landmark enforcement case against Jay Alan Ochanpaugh, in which Finra’s predecessor, NASD, barred a rep for violating the rule because he failed to produce checks written by a church that he founded. NASD argued that he had “possession and control” of the checks because he was the church’s president and a signatory of the church’s bank account. NASD then argued that the checks were his “book, records and accounts,” subject to its Rule 8210. Mr. Ochanpaugh said he wasn’t required to produce the checks, because they belonged to a third party – the church – which wasn’t a broker-dealer. The SEC overturned the bar, finding that Rule 8210 had limits. For example, the rule might not apply to third-party documents or documents containing confidential third-party information unrelated to securities transactions, even if the documents were in the possession or control of a broker-dealer or rep. The SEC saw the Ochanpaugh case as an opportunity to order NASD to make a “fuller exploration of the appropriate scope of Rule 8210.”
This led NASD, now FINRA, to issue several amendments which only further strengthened its power. FINRA now can demand documents in the “possession, custody or control” of a firm or a rep, including documents owned by third parties. FINRA now can demand documents in the “possession, custody or control” of a firm or a rep, including documents owned by third parties.
When you find yourself on the receiving end of a FINRA investigation letter requesting an interview and documents, we strongly urge you to contact counsel who deals with FINRA on a regular basis. The consequences are too serious otherwise.
Shustak Reynolds & Partners, P.C. focuses its practice on the securities industry and matters affecting broker-dealers, registered representatives and the financial services sector. For more information, contact Erwin J. Shustak, managing partner, at [email protected], or call 800.496.5900 for a free consultation.
Following the abrupt exit of Morgan Stanley and UBS from the Protocol for Broker Recruiting at the end of last year, financial advisers at the remaining wire-houses that still are part of the Protocol – essentially Wells Fargo and Merrill Lynch – are wondering how long their firms will remain as Protocol members. A recent case initiated by Merrill Lynch, however, may portend Merrill’s new approach to having its cake and eating it too!
While Merrill says it is standing by the Protocol, it sent a strong message that it also intends to vigorously go after brokers whom it believes are violating the terms of their non-solicitation agreements and contacting their former clients.
In April 2018, Merrill fired broker Jason Hostetler in for “conduct inconsistent with Firm standards regarding personal trading”. His colleague, Tina Marie Migge, resigned from Merrill several weeks later. Both had been with Merrill’s Canton, Ohio branch for the entirety of their careers. Merrill alleged, in the case it filed in July in federal court in the Northern District of Ohio, that the pair took confidential information and data and have been using it to solicit their former clients to join them at Stratos Wealth Advisers. Merrill alleged the pair breach their contracts, misappropriated trade secrets, and violated their duty of loyalty to Merrill. As part of that filing, Merrill asked the Court to issue a temporary restraining order blocking the pair from soliciting their former clients or from using or destroying any client info. Merrill alleges the duo oversaw $138 million of client assets and generated $1.15 in annual gross production from those clients. At the time of filing the complaint, Merrill alleged the pair had attempted to transfer accounts of 140 clients with $26.5 million in AUM.
The message that Merrill wants to send to its remaining brokers, loud and clear, is clearly stated in its complaint: “Not only is Merrill Lynch losing certain clients, and the revenues generated from those clients’ accounts, but other financial advisers will be induced to solicit clients when they transfer firms if they believe it gives them a competitive advantage and there are no repercussions for their actions”. The case obviously is as much about Hostetler and Migge soliciting former clients as it is about sending a message to remaining Merrill brokers that there will be “repercussions for their actions”.
The amazing thing about this case is that both Merrill and Stratos are members of the Broker Protocol! This was a Protocol to Protocol transition, the exact transition that the Broker Protocol is expressly intended to foster and protect! What is even more amazing is that Merrill, one of the early signatories to the Broker Protocol, makes no mention of the Protocol in its court filing! Obviously, Merrill, which agreed that specified categories of client information, including names, contact information and account titles could be taken by a departing broker making a transition from a Protocol to Protocol firm, has decided to either embrace, or ignore, the Protocol depending on whether its ox is being gored.
In the Complaint, Merrill alleges that Migge took with her several documents, alleged to be Merrill “trade secrets”, including a document she allegedly printed two days before she resigned titled “AllClientsandProspects.xls” and a 21-page document with client numbers, names and assets. This, however, is the very same information that a broker departing Merrill and moving to another Protocol firm (like Stratos) is permitted to take pursuant to the Protocol.
It is hard to reconcile Merrill’s position. On the one hand, it has been a member of the Broker Protocol for over 13 years and it actively recruits brokers from other Protocol firms, relying on the Protocol protection for those transitioning brokers to bring their client names and contact information to Merrill from their former firms. At the same time, however, when a broker is fired from Merrill, and deprived of the ability to follow the Protocol and leave a copy of his or her Protocol list, Merrill rushes into court seeking a TRO to prevent the former rep from contacting his or her clients and makes no mention of the Broker Protocol in its court filings.
The Court has yet to issue a decision, but it sure seems like the keeper of the Thundering Herd believes the best gates on the corral are one way, meant to protect those on the way in, but hobbling those on the way out.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner shustak@shufirm.com, or call 800.496.5900 ext. 109.
In prior blogs, we wrote about the increasing movement of brokers and investment advisors from the remaining “wirehouses” (Morgan Stanley; UBS; Wells Fargo; Merrill Lynch) to one of many independent platforms.
Not only is that trend continuing, but the largest net loser of registered representatives is Wells Fargo, which has been the subject of many negative news articles about the breach of trust committed by Wells Fargo in opening accounts and credit cards that customers never authorized or even knew about. The fallout from all that negative news about Wells Fargo continues.
During 2018, year to date, of the 133 wirehouse advisors who left their firms to join a smaller, regional BD or RIA, approximately 60% have come from Wells Fargo alone. According to a study by On Wall Street, the exodus of brokers from Wells Fargo to regional firms 2018 year to date is nearly double the percentage for the first six months of 2017, when Wells Fargo departures represented just 33% of the 126 wirehouse advisors moving to smaller, regional firms.
The hiring announcements by regional firms indicate that regional firms’ draw is strong due to a shifting financial industry landscape that has tilted the playing field in their favor. One of the biggest changes has been the result of technology changes. Now, smaller firms are able to offer the same technology and back office support previously available only at the major wirehouses. Not unlike the changes that have affected many service industries, from law to accounting.
The second biggest reason is the flexibility and independence, as well as much higher payouts, offered by the regional firms that offer an advisor a better quality of life outside a major wirehouse.
During the same period of time, while almost 61% of the advisors making the shift from a wirehouse to a regional independent, UBS saw a shift of 11%; Morgan Stanley 8% and Merrill Lynch 20%. One of the reasons Morgan and UBS may have had so few departures to regional firms is that both Morgan and UBS exited the Broker Protocol at the end of 2017, essentially pulling up the drawbridge with very little notice and preventing advisors who may otherwise have wanted to leave those firms stuck without the ability to transition to another firm with the safe harbor benefit of the Broker Protocol. Wells Fargo, on the other hand, continues to be a party to the Broker Protocol making it much easier for Wells Fargo advisors to flee the firm under the safety net of the Protocol.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors, and businesses. For more information, contact Erwin J. Shustak, Managing Partner shustak@shufirm.com, or call 800.496.5900 ext. 109.
As a sign of just how serious FINRA considers failures by brokers to comply with their firm’s Outside Business Activity disclosure rules to be, consider this: Four of the 11 consent letters, by which a registered person agrees to a settlement with FINRA, that FINRA published last week on the FINRA website, involved violations of Rules 3270 and 3280, which require registered persons to receive written permission from their firms to engage in outside business and private securities transactions.
While many of these violations. that result in varying degrees of sanctions by FINRA, represent the crossing of a clear, bright line, some are not that clear or that bright. At one extreme is a typical case posted by FINRA. In one case, an ex-Morgan Stanley employee, Kenneth Jobson, agreed to a sanction order for buying 39.5% of a fuel service company and helping to run it despite written assurances to Morgan that he was neither an owner of the business nor spent any time running it. Moreover, during the same period, Jobson also bought a 21.7% interest in a customized mobile home manufacturer also without notifying the firm. A clear violation for which FINRA has little sympathy and for which there is not much of a defense. Morgan fired Jobson back in 2016 for not disclosing either of these outside business activities. FINRA reached a settlement agreement with Jobson which included a $5,000 fine and a three-month suspension from FINRA.
Some of the other situations, however, are not as clear. Asked at a recent FINRA annual conference whether the occasional rental of a vacation home rose to the level of an outside business activity that required firm approval versus a totally passive investment, FINRA Associate General Counsel Meredith Cordisco admitted there was “no clear answer”. FINRA deliberately does not spell out what is a “passive” investment to avoid creating loopholes. Its general position, however, is that the more time and involvement a broker spends on an outside activity, the more likely it will find the activity is not passive and should be disclosed to the firm, and the public, as an outside business activity.
In the three other OBA settlements last week, FINRA fined a former Principal Securities broker, John Krohn of Des Moines, Iowa, $10,000 and suspended him for three months for allegedly failing to disclose that he was an officer or director of four companies, including one that he co-owned with a wealthy customer that invested in early stage and distressed businesses. He also failed to advise his firm that he invested more than $7.9 million in 10 companies. Krohn is no longer registered as a broker or investment adviser. And another former Morgan Stanley broker, Morey Goldberg, agreed to a 45-day suspension and $10,000 fine for investing in four commercial real estate properties without providing “timely written notice” to his former firm.
The final of the four cases is a less obvious stumble by the broker, common when working with a relative in a family business. Carlos Velazquez, who worked at three firms in the four years he was registered with FINRA, agreed to an eight-month suspension and $10,000 fine for allegedly failing to disclose the full scope of his involvement as a secretary and “agent of record” for a tax preparation and bookkeeping company owned by his father.
We see many clients who, through design or neglect, fail to promptly and accurately disclose to their employing firms the nature, and extent, of these outside business activities. FINRA has developed a low threshold for seeking sanctions from brokers who violate their firms’ OBA disclosure rules. Not to mention that often, violation of a firm’s OBA policy results in an involuntary suspension from the employing firm. If FINRA has a low threshold for OBA reporting violations, so too do the member firms.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner shustak@shufirm.com, or call 800.496.5900 ext. 109.
Vikram Mansharamani, a lecturer at Harvard’s John Paulson School of Engineering and Applied Sciences, pointed to several “clues” that the economy is possibly ripe for a bubble crash.
First, the stock price of Sotheby’s, the well known art auction house. Sotheby’s stock price hit a high in 1989 when the Japanese buyers flooded the art market, paying record world prices for art. You may recall that was the height of the Japanese financial influence, which included the purchase of Rockefeller Center in Manhattan for a multi-billion dollar sum. The price was so high, in fact, and no one assumed the Japanese would default on their debt obligations, that the lenders did not even record the huge mortgage on the property to save on what would have been a record, hundreds of millions of just mortgage recording taxes!
According to Mansharamani, “when you hear of paintings selling for more than $100 million or higher, setting new world records, it’s time for caution. Overconfidence is running rampant”.
Skyscraper Construction is the second barometer. Companies tend to build big buildings in boom times and the boomier the times, the taller the buildings. The iconic Chrysler and Empire State Buildings in New York City, for example, were both under construction in 1929 when the market crashed. Another boom occurred in 1974, and included the construction of the Sears Tower and the World Trade Center, just before we entered a decade of deflation and stagnation. The Tapai 101 in Taiwan was started in 1999, just as semiconductors peaked.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner shustak@shufirm.com, or call 800.496.5900 ext. 109.
For a number of reasons, seniors are some of the most likely victims of financial and securities fraud. First, given their age and the fact that many senior lives alone, seniors tend to be more trusting than younger people. Seniors also tend to have significant amounts of liquid cash and are ripe for the targeting by fraudsters. Finally, many seniors make their own decisions about financial matters and do not often have the benefit of a trusted friend or adviser to let them know when they may be venturing into the world of scams, frauds and scamsters.
A recent study, however, indicates that the elderly who most often are the victims of financial fraud, often are victims of frauds perpetuated by family and close friends. Wells Fargo, which has a significant department that focuses on the needs of the elderly, recently released a report indicating that two-thirds of financial crimes against the elderly are committed by those who are closest to the victims, typically family and close friends.
According to the Wells Fargo study, nearly one in five Americans age 65 or older have been injured by elder financial abuse, and almost $36.5 billion (that’s with a B) is lost to financial exploitation of seniors by fraudsters, financial exploitation, and caregiver fraud. According to the survey, typical types of financial abuse of seniors include using their ATM cards and stealing checks to withdraw money from the victims’ bank accounts. Abuse by in-home caregivers can also range from keeping change when buying groceries, to falsifying time records and spending substantial time on the phone and internet doing personal and other business work.
There are plenty of scams to trick the elderly into giving up personal information, money or property, including “government scams”, “granny scams”, prize and lottery winnings scams and sweetheart scams.
In government scams, fraudsters pose as government officials requiring their elderly victims to wire cash or use pre-paid debit or gift cards to pay bogus IRS tax bills. Or they may provide sham Medicare services at makeshift mobile clinics to bill insurance companies for unneeded and unnecessary procedures.
Playing on the emotions of elderly grandparents and parents, some fraudsters use emotion to falsely portray themselves as family members in trouble who need an immediate transfer of funds to return home from vacation, for example, telling the elderly that all their money was stolen or lost. In prize and sweepstakes fraud, the victim will receive a fake telemarketing call and be told he or she just won the lottery but must first pay taxes on the jackpot before claiming the prize – the prize that does not exist. And in sweetheart fraud, elders are conned into trusting a new “friend” they just met in person or through social media, with the false promise of love and companionship. The “romantic” new friend then swindles the victim out of money or property before disappearing.
Truly concerned family members need to realize that the elderly are high targets for financial fraud and ensure the elderly family member is properly advised against these and increasingly creative ways to part the elderly with their life savings.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner shustak@shufirm.com, or call 800.496.5900 ext. 109.
Beginning July 9, 2018, FINRA, the Financial Industry Regulatory Authority, will search public records to determine whether registered reps who move from one firm to another disclosed any prior bankruptcies, judgments or liens. The move is intended to help member firms comply with a 2015 Rule requiring firms to check individual brokers for those types of disclosure items not previously reported and disclosed.
FINRA will conduct a search of public records within 15 days of a new U4 being filed and will provide the results of that search to the member firm to aid them in their mandatory disclosures. Many believe this will not only ensure public disclosure of reportable items, but will reduce compliance costs for firms since the mandatory search work will now be done by FINRA.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner shustak@shufirm.com, or call 800.496.5900 ext. 109.
In an effort to locate and identify brokers who excessively trade their clients’ accounts to benefit themselves through excessive trading commissions to the detriment of their clients, FINRA announced a new proposal to widen the net to ensnare brokers who “churn” client accounts.
Under the proposal released April 20, FINRA, the Financial Industry Regulatory Authority, would no longer require a preliminary finding that a broker actually control a client’s account to find that the broker has churned it. Under current rules, a broker can only be found liable for churning only if the broker has discretion over the account.
In the regulatory notice, FINRA said that upon review, it determined that requiring broker control over the account places “a heavy and unnecessary burden on customers” when trying to prove excessive trading. “FINRA is concerned that the control element serves as an impediment to investor protection and an unwarranted defense to unscrupulous brokers,” the regulatory notice states.
The proposed rule targets situations where a customer is relying on the brokers’ guidance even though the broker does not have de facto control over the account and the actual customer must authorize and approve the buying and selling of investments in the account. The new rule, however, if adopted, would still require FINRA to demonstrate the transactions at issue were “excessive and unsuitable” based on the circumstances of a particular case.
FINRA and the SEC have been targeting churning of accounts in their examination priorities over the last few years. There actually are two kinds of churning they are focused on. The first, traditional churning which involves heavy buying and selling of securities for the primary purpose of generating commissions for the broker in a commission type account, and the second form of churning, known as reverse churning, which occurs when financial advisers put buy-and-hold clients into advisory accounts that charge an asset-based fee, which fees would greatly exceed the minimal commissions generated from a buy and hold account.
The proposal will be open for a public comment period that ends June 19. The SEC must approve Finra rule proposals before they become final.
Shustak Reynolds & Partners, P.C. regularly represents firms and individuals in SEC, FINRA, securities, investment, and financial services matters, including litigation, arbitration, enforcement and investigation matters. If you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
