The Financial Industry Regulatory Authority (“FINRA”) announced this week it will more formally scrutinize how brokerage firm’s culture affects compliance risk management pratices.
Among the cultural aspects FINRA will assess are whether compliance is valued at the firm and there is no tolerance for violations; whether the firm aggressively targets potential compliance problems; whether senior management serves as good role models and whether there are rogue “sub-cultures” that may not confirm to the rules.
In many firms, compliance is viewed as a necessary evil. Compliance is not an income generating department and is tolerated and vilified in varying degrees. This new focus from FINRA puts the compliance function, and firm’s attitudes toward compliance, front and center and requires member firms to develop, implement and highlight a good compliance system and a firm culture that values compliance.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
The Securities and Exchange Commission (“SEC”) charged Wells Fargo adviser Donald Toomer with helping a client operate a $13 million “pump and dump” scheme. Toomer was an an independent financial advisor with Wells Fargo’s FiNet. Last week, the SEC charged another individual, Samuel DelPresto, and his business with originating the scheme to manipulate the price of four stocks: BioNeutral Group (BONU); NXT Nutritionals Holdings (NXTH); Mesa Energy Holdings, (MSEH); and ClearLite Holdings, (CLRH).
DelPresto and a business partner, who is not named in the SEC complaint, organized reverse mergers of financially distressed companies with a shell company whose stock DelPresto and his business partner controlled, according to court documents.
DelPresto would jack up the stock price through manipulative trading and paid promotional campaigns and then sell their own shares, according to authorities.
The SEC says DelPresto, 47, recruited Toomer, 42, to buy the stocks in his clients’ portfolios in exchange for kickbacks up to 10% of the total shares he had his clients buy. Toomer’s purchases of the stock on behalf of his clients helped inflate the price, according to authorities.
The influx of cash also helped DelPresto fund his efforts, including promotional campaigns for the stock, authorities say.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
J.P. Morgan Securities agreed to pay $4 million to settle charges by the SEC that it mislead clients about how its brokers were compensated, according to the SEC.
The SEC charged J.P. Morgan falsely stated on its private banking website and in marketing materials that its advisors were compensated was “based on our client’s performance; no one is paid on commission”. The SEC, however, charged that following its investigation, it learned that, in fact, J.P. Morgan did NOT compensate its advisors based on client performance but paid them a salary plus a discretionary bonus based on other factors, including commissions and fees generated from the account activity.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information, contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
The Financial Industry Regulatory Authority FINRA ordered investment bank Cantor Fitzgerald & Co. to pay $7.3 million in sanctions for allegedly selling billions of unregistered microcap shares and having inadequate supervisory policies and anti-money laundering programs in place. Two executives at the firm also were suspended and fined.
According to Finra, Cantor Fitzgerald failed to have an efficient system to determine whether microcap securities were registered with the Securities and Exchange Commission, therefore bypassing potential red flags. As a result, the firm sold billions of unregistered shares between March 2011 and September 2012 without “adequate review and due diligence,” the regulator charge in its press release.
Cantor Fitzgerald neither admitted nor denied the charges but consented to the regulator’s fines of $6 million and an ordered disgorgement of about $1.3 million in commissions, plus interest.
Jarred Kessler, executive managing director of equity capital markets, was suspended for three months in a principal capacity and fined $35,000 for supervisory failures while equity trader Joseph Ludovico was suspended in all capacities for two months and fined $25,000. Mr. Kessler failed to respond to red flags that the system was insufficient and Mr. Ludovico was the broker of record for the sales of the shares, the press release states.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
As Cetera Financial Group’s parent, RCS Capital, implodes under the weight of accounting irregularities and increasing regulatory scrutiny, many Cetera advisors are considering whether to stay the course or jump ship on Cetera completely. Industry recruiters say they are speaking to more and more Cetera advisors who feel they must make a decision and soon.
RCS Capital, also known as RCAP, is furiously trying to reinvent itself after suffering one publicity nightmare after another resulting from accounting scandals and increased regulatory investigations. RCS recently sold off its non-adviser assets, and is working with investment bank Lazard Freres to raise capital and restructure the firm. RCS has laid off 200 employees and its stock recently traded at 31 cents, down from a high of $12 just one year ago.
RCAP has a new CEO, Larry Roth, who is tasked with the unenviable task of turning around the scandal plagued company.
Cetera is one of the largest independent broker-dealers, with 9,500 registered reps. Recently, a group of 28 advisors with $500 million of assets under management left Investors Capital Corp., a Cetera firm, and joyed Voya Financial Advisors, Inc.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
LPL Financial announced this week it was doing more belt-tightening and has eliminated 70 jobs and is delaying salary increases for employees for at least 6 months.
LPL’s CEO, Mark Cassidy, announced in October to investors that the firm intended to keep a sharp eye on growth of expenses during 2016 and to launch a $500 million share buy-back.
These cost saving measures no doubt are at the behest of, and part of an effort by Marcato Capital, the hedge fund that purchased a 6.3% stake in LPL, to improve the bottom line. After all, hedge funds don’t make huge investments in companies to have them stay lax on the bottom line.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
New Jersey based Comprehensive Asset Management and Servicing, Inc. has agreed to pay FINRA a $475,000 fine to settle allegations that the firm failed to reasonably supervise the sales by its representatives of variable annuity products. FINRA charged that between 2008 and 2012, the firm “failed to establish, maintain and enforce a supervisory system and procedures reasonably designed to supervise variable annuity transactions”.
Specifically, FINRA alleged the firm in some cases failed to obtain customer information such as age, investment experience and objectives. The firm also did not implement controls so the annuity applications were forwarded promptly to a principal for approval, and also failed to ensure all prospective purchasers received a prospectus.
FINRA also is in the process of seeking a steep fine from MetLife, Inc., the largest U.S. insurer, for its violations relating to the sale of variable annuities.
Annuities are high-commission products that are very complex and not appropriate for most investors. Annuities traditionally have been the subject of many allegations of abuse and fraud.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
This week FINRA hit the retail brokerage arm of Fidelity Investments with a $1 million fine and sanction for failing to detect and protect is clients, mostly seniors, from a fraud perpetuated by a woman who posed as a Fidelity broker for 8 years. From 2006 to 2013 Lisa A. Lewis posed as a Fidelity broker. She used personal information from a number of mostly elderly customers if her former firm to open accounts in their names at Fidelity and have all correspondence and communications sent to her, not the clients.
Ms. Lewis then stole more than $1 million from the customers, according to FINRA. In June 2014, Ms. Lewis pleaded guilty to wire fraud and is now serving a jail sentence.
The Financial Industry Regulatory Authority Inc. found that Fidelity failed to detect Ms. Lewis’ fraud due to lax supervisory controls. FINRA then fined Fidelity Brokerage Services $500,000 and ordered the firm to pay $530,000 in restitution. The firm neither admitted nor denied the charges.
FINRA Fidelity failed to react to “red flags” regarding the accounts Ms. Lewis set up, such as the fact that the unrelated accounts shared common email or postal addresses or phone numbers with Ms. Lewis. The firm also missed unusual money movements in the accounts.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
As we reported previously, Credit Suisse has decided to exit the retail U.S. brokerage market and has been in discussions with Wells Fargo to transition Credit Suisse brokers to Wells Fargo where they can have access to and sell CS products. It seemed like a “win-win” for both Credit Suisse and Wells Fargo. The only problem, however, is no one bothered to ask the soon-to-be former Credit Suisse brokers where they wanted to move their books of business. Turns out many of them prefer UBS over Wells Fargo. Therein lies the problem, according to Credit Suisse.
After more than 70 Credit Suisse brokers spurned the offer to join Wells Fargo and, instead, opted to join UBS, Credit Suisse decided to fight back and brought a raiding claim against UBS before FINRA, the Financial Industry Regulatory Authority. The only problem is, however, Credit Suisse may not have a leg to stand on. After announcing it was going to exit the retail securities business in the U.S., and inviting its brokers to consider switching to Wells Fargo (without their vested, deferred comp which, of course, would be forfeited and revert- you guessed it, Credit Suisse), many of the affected Credit Suisse brokers decided they didn’t want to move to Wells Fargo and they started to transition to UBS in droves.
Among the many reasons why a CS broker would prefer to move to another international powerhouse like UBS is the onerous 13-year employment requirement, far longer than the industry norm, that Wells Fargo wanted to hit them with. Closer to indentured servitude than free market signing arrangements. Additionally Credit Suisse advisors have misgivings regarding the Wells’ brand and capabilities to serve their well-heeled clientele more used to an international financial institution than a U.S. bank based brokerage firm. The UBS offering offered a more standard contract coupled with a 175% upfront bonus, which recruiters note is very generous.
Including those leaving for UBS, Credit Suisse has lost about a third of its 270 advisors since announcing the deal, according to On Wall Street reporting and people familiar with the departures.
According to Erwin Shustak, Esq. of Shustak Reynolds & Partners, p.c., who has been involved in many raiding and transition fights over the years, once Credit Suisse decided to exit the U.S. retail brokerage business, it has no legal basis for a raiding claim. According to Shustak, “How can you raid a brokerage firm which already has announced to its brokers, and the world, that it is leaving the entire business? You can’t. Any arbitration panel will most likely just throw this case out once they have all of the facts”. “The real reason for the suit is to scare the remaining brokers into going to Wells Fargo, which is in CS’ best interest” he added.
Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors. For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com
JP Morgan announced that it will pay over $300 million to settle SEC charges that it failed to disclose to its clients that it had a pattern and preference for encouraging its clients to invest in JP Morgan’s own investment products. JP Morgan is the largest bank in the U.S. measured by asset size.
According to the SEC, two of JP Morgan’s wealth advisor subsidiaries and its nationally chartered bank failed to disclose to clients that it preferred to have them invest in JP Morgan-sponsored hedge and mutual funds between 2008 and 2013. In other words, JP Morgan never disclosed to clients, as it was steering them into its own funds which would yield much more in fees and commissions, that it had an inherent conflict of interest. The settlement involved almost $270 million in penalties and disgorgement to the SEC and almost $40 million to settle a companion action by the U.S. Commodity Futures Trading Commission.
“Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving,” Andrew J. Ceresney, director of the SEC Enforcement Division, said in a statement. “These J.P. Morgan subsidiaries failed to disclose that they preferred to invest client money in firm-managed mutual funds and hedge funds, and clients were denied all the facts to determine why investment decisions were being made by their investment advisers.”
Shustak Reynolds & Partners, P.C. has handled many cases for investors whose brokerage firms and banks have breached their fiduciary duties owed to the investors. We are happy to speak with any affected JP Morgan clients. Shustak Reynolds & Partners, P.C. has extensive expertise and experience in the areas of securities, financial services and business law. For more information contact Erwin J. Shustak, Esq, t 619.696.9500 or via email at [email protected].
