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Broker Barred by FINRA for Excessive Trading in Client IRA Accounts

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Released March 2017

Richard Gomez (CRD #4727721, Jackson Heights, New York) submitted an AWC in which he was suspended from association with any FINRA member in any capacity for one year.  In light of Gomez’s financial status, no monetary sanction has been imposed. Without admitting or denying the findings, Gomez consented to the sanction and to the entry of findings that he engaged in several types of misconduct in the Individual Retirement Accounts (IRAs) of three of his member firm’s customers. The findings stated that without obtaining prior written authorization from two of these customers—who are husband and wife and senior investors—and without the firm’s acceptance of the customers’ IRAs as discretionary accounts, Gomez effected discretionary trades in these customers’ IRAs. Gomez failed to discuss the trades with the customers on the dates of the transactions. The findings also stated that Gomez’s trading in these accounts was excessive. The turnover and cost-to-equity ratios far exceeded the thresholds indicating excessive trading. Further, the strategy was inconsistent with the investment objective of capital preservation and a moderate to moderately aggressive risk tolerance that the customers expected for their respective IRAs. Nevertheless, Gomez’s trading in these IRAs resulted in losses of approximately $213,000 for the customers and generated approximately $483,400 in commissions.

The findings also included that Gomez executed transactions in a third customer’s IRA, who is also a senior investor, that were part of a qualitatively unsuitable trading strategy. The transactions that Gomez effected in this customer’s IRA resulted in market losses, and commissions and fees totaling nearly $30,000. The customer learned that Gomez was not implementing the trading strategy that they had agreed upon when he began to receive trade confirmations in the mail. The customer immediately complained to Gomez and the firm, and instructed Gomez to stop effecting any transactions in his IRA. Gomez’s trading in this customer’s IRA was unsuitable for the customer because the investment strategy in the IRA was inconsistent with the customer’s expectations and his directions to Gomez regarding the strategy that Gomez promised to implement in the account. The investment strategy was also inconsistent with the customer’s moderately aggressive risk tolerance and growth investment objectives, which were reflected in the customer’s new account documents for the firm. Instead, the strategy concentrated the customer’s assets in a single security at a time, so a negative performance in the security would have drastic effects on the IRA value. Gomez also effected transactions in the customer’s IRA without his authorization, knowledge or consent.

FINRA found that as a result of the customer’s complaint regarding his trading activity in his IRA, Gomez executed an agreement in which he agreed to repay to the customer, in an installment plan, the commissions of $9,186 generated from Gomez’s trading in his IRA. Gomez proposed the dates and amounts for repayment that were incorporated in the agreement. However, Gomez never intended to honor the terms of the agreement. Without providing any explanation, Gomez failed to make the first required payment. Gomez also failed to make subsequent payments, despite repeated promises to the customer and the firm’s management that he would do so. On at least two occasions, the firm withheld Gomez’s commission payments in order to make partial payments to the customer. By the agreement’s deadline for Gomez to fulfill his obligations pursuant to the agreement, the customer had received approximately a third of the amount due to him under the agreement, largely through the firm’s intervention. By that point, Gomez had resigned from the firm, had ceased to make any payments under the agreement, and had stopped responding in any way to the customer’s requests for payment. Gomez did not have any reasonable justification or excuse for his failure to comply with the agreement. The suspension is in effect from February 6, 2017, through February 5, 2018. (FINRA Case #2014039358003)

Source: FINRA, Financial Industry Regulatory Authority, Inc. 2017
Full Disciplinary Reports Available to the public at: www.finra.org

money

NOTICE TO UPS EMPLOYEES/SHAREHOLDERS: Klayman & Toskes, P.A. Files $1,000,000 FINRA Arbitration Claim on Behalf of Retired UPS Employee for Losses Suffered as a result of Merrill Lynch’s Unsuitable Recommendation to Invest in Rampart Strategy

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NEW YORK, March 13, 2017 (GLOBE NEWSWIRE) — The securities arbitration law firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, has filed a $1,000,000 FINRA arbitration claim [FINRA Case No. 17-00599] on behalf of retired United Parcel Service (“UPS”) (NYSE: UPS) employee for losses suffered as a result of Merrill Lynch’s unsuitable recommendation to invest in Rampart Strategy.

According to K&T, the investigation focuses on Merrill Lynch’s sales practices for customers who acquired UPS stock through UPS’ Employee Stock Purchase Plan or Managers Incentive Program and were advised by Merrill Lynch to implement a covered call strategy on their concentrated UPS stock position through Merrill Lynch’s Rampart Strategy.

Securities attorney Steven D. Toskes from K&T explains, “The covered call strategy implemented by Merrill Lynch through Rampart was unsuitable since the strike price of the call option was either too close to the current share price of UPS or below the then current price.  Mr. Toskes continues, “The close proximity of the share price and strike price of UPS virtually ensured that the stock would get called away or it would be very expensive to buy back the option.  Our client accumulated low cost basis stock during the 29 years they worked for UPS and did not want to have their stock ‘called away’ and trigger a large capital gains tax.”

K&T continues to represent UPS employees who invested in the Rampart Strategy against Merrill Lynch for FINRA sales practice violations, including unsuitable recommendations, misrepresentations and omissions of material facts and failure to supervise.  Investors who have information about the sales practices of brokerage firms and their financial advisors are encouraged to contact Lawrence L. Klayman, Esq. or Steven D. Toskes, Esq. of Klayman & Toskes at (888) 997-9956, or visit our website at www.nasd-law.com.

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FINRA Barred Broker for Private Securities Transactions Related to Unregistered Bonds

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Released February 2017

 

Thomas Joseph Vilord (CRD #4261608, Sewell, New Jersey) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Vilord consented to the sanction and to the entry of findings that he participated in undisclosed private securities transactions involving more than $347,500 in unregistered corporate debenture notes sold to customers of his member firm. The findings stated that Vilord assisted these customers in making the investments by, among other things, preparing transaction paperwork and providing the customers with information about the company issuing the notes. Vilord did not give prior notice, oral or written, to his firm that he would be participating in the offering. The findings also stated that Vilord lacked a reasonable basis to recommend the notes because he failed to conduct adequate due diligence on the offering. Vilord’s knowledge of the company was limited to his conversations with the company’s owner, information contained on the company’s website and Google searches. Although Vilord was familiar with some sources of the company’s revenue, he did not know actual revenue and debt amounts, and failed to review the company’s financial statements. The findings also included that Vilord willfully failed to timely disclose customer complaints related to the sales on his Form U4 and made false statements about one complaint in a Form U4 filing. FINRA found that Vilord provided false statements regarding the same complaint in his written response to FINRA’s request for information and documents concerning the offering and a customer’s complaint. (FINRA Case #2013037385001)

 

Source: FINRA, Financial Industry Regulatory Authority, Inc. 2017
Full Disciplinary Reports Available to the public at: www.finra.org

Wall Street Bull - Medium

Klayman & Toskes, P.A. Comments on President Trump’s Executive Orders Targeting DOL Retirement Advice Rule and Dodd-Frank Wall Street Reform

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New York, NY – February 3, 2017 – The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, comments on President Trump’s executive orders targeting the Department of Labor’s (“DOL”) retirement advice rule and Dodd-Frank Wall Street Reform.  President Donald Trump will be signing executive orders today instructing the DOL to halt implementation of its retirement advice rule and review Dodd-Frank Wall Street Reform.

The DOL’s retirement advice rule, also known as the fiduciary rule, was issued in 2016 by former president Barack Obama’s administration and is scheduled to take effect in April 2017. The DOL’s rule was created to reduce potential conflicts among financial advisers who provide retirement advice to their clients.  Under the rule, financial advisors are required to act in their client’s best interest, or as fiduciaries, when providing investment advice to their clients regarding individual retirement accounts and 401K plans.

According to founding partner of K&T, Lawrence L. Klayman, “The DOL rule establishes a fiduciary duty for all retirement accounts, with a provision for certain transactions, including variable annuities and equity-indexed annuities which provide for a ‘Best Interest Contract’ exemption.  President Trump’s executive order seeks to undermine and potentially eliminate the safeguards contemplated by the DOL’s rule, which was implemented to protect investors.”  Mr. Klayman continues, “Trump’s actions today seek to roll back all the progress that was made since the financial crisis, and is terrible news for investors.”

President Trump’s executive order geared towards dismantling the 2010 Dodd-Frank Wall Street reform law is consistent with promises he made during his presidential campaign.  Mr. Klayman explains, “Dodd-Frank was the most significant regulatory overhaul of Wall Street in decades and this executive order is an attempt to eliminate the safeguards instituted after the financial crisis of 2007-2009, a crisis many investors still haven’t recovered from.”

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NOTICE TO UBS PUERTO RICO CUSTOMERS: Klayman & Toskes Files $8.5 Million Suit Against UBS as it Investigates Claims for Over-Concentration in Puerto Rico Government Bonds and Closed-End Bond Funds

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San Juan, Puerto Rico.  January 13, 2017 — The Securities Arbitration Law Firm of Klayman & Toskes, P.A., www.sueubspuertorico.com, together with Carlo Law Offices, P.S.C. located in Puerto Rico, announced today that they filed a claim against UBS Financial Services Incorporated of Puerto Rico and UBS Financial Services, Inc. (NYSE: UBS) (collectively “UBS”) for $8.5 million.  According to the Claim, the Claimant entrusted assets to UBS with the investment objective of capital preservation. However, UBS ultimately concentrated the account in Puerto Rico Government Bonds (“PRGBs”) and its proprietary Puerto Rico closed-end bond funds (“UBS PR CEBFs”), which are leveraged and concentrated in PRGBs.

UBS purchased and held for Claimant PRGBs and UBS PR CEBFs, both of which are closely tied to the performance of Puerto Rico’s economy. The Claimant believed the purchases were consistent with their low risk tolerance. However, the over concentration in these PRGBs and UBS PR CEBFs was fraught with excessive risk given the Claimant’s investment objective and risk tolerance. UBS failed to disclose to Claimant the risks associated with over concentrating the account in these securities.  Had this information and the true nature of the risk of the recommended allocation been known to Claimant or properly disclosed, he would not have invested his hard-earned assets in these products.

The sole purpose of this release is to investigate, on behalf of our clients, the sales practices of UBS in connection with investment recommendations provided to their customers. Current and former customers of UBS who have information relating the investment advice provided by the firm, are encouraged to contact Lawrence L. Klayman of Klayman & Toskes, or Lcdo. Osvaldo Carlo of Carlo Law Offices, at (787) 919-7325, or visit us on the web at www.sueubspuertorico.com.

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NOTICE TO WELLS FARGO BROKERAGE CLIENTS: Klayman & Toskes, P.A. Launches Investigation into Wells Fargo Advisors’ Envision Investment Analysis Tool, Following $1 Million FINRA Fine for Failing to Supervise Client Presentation Reports

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New York, NY  – December 16, 2016 — The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, has launched an investigation into Wells Fargo Advisors, a wholly-owned brokerage dealer of Wells Fargo (NYSE:WFC), for Financial Industry Regulatory Authority (FINRA) sales practice violations for failing to supervise client presentation reports, including those generated by the firm’s Envision investment analysis tool.

On December 5, FINRA accepted from Wells Fargo Advisors an Acceptance Waiver and Consent for $1 million in fines for “failing to establish a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations regarding the use and dissemination to customers of the [Wells Fargo Advisors’ client presentation report] Application”, which included assets “held away from the firms.”  According to FINRA, Wells Fargo Advisors’ “representatives were permitted to manually enter information regarding customers’ external accounts, assets and liabilities” into a centralized database maintained by the brokerage firm.  During the period from June 2009 and June 2015, more than 5 million reports were generated from the firm’s most popular client report system.

According to K&T, “Wells Fargo Advisors’ representatives who utilized Envision Presentation reports, in order to dispense financial advice may have violated FINRA sales practice rules and regulations.”  K&T is investigating potential sales practice violations from Wells Fargo Advisors’ use of the Envision Presentation report program, in conjunction with unsuitable investment strategies and recommendations.  Customers may have retired too early and/or taken undue risks with retirement plan proceeds as a result of unrealistic assumptions.  Wells Fargo Advisors may have failed to supervise the financial planning advice provided to its customers, while at the same time creating incentive programs for its advisors that encouraged behavior that was contrary to their customers’ best interest.

 

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NOTICE TO MERRILL LYNCH PUERTO RICO BOND AND BOND FUND INVESTORS: Klayman & Toskes, P.A. Continues to Investigate FINRA Arbitration Claims against Merrill Lynch for its Margin Lending Practices Related to Concentrated Investments in Puerto Rico Bonds and Bond Funds

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San Juan, Puerto Rico–December 5, 2016.  The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, continues to investigate FINRA arbitration claims against Merrill Lynch, a subsidy of Bank of America, N.A. (NYSE:BAC), for its margin lending practices related to concentrated investments in Puerto Rico bonds and leveraged closed-end bond funds (CEBFs). The Financial Industry Regulatory Authority (FINRA) recently fined Merrill Lynch $6.25 million for failure to supervise the recommended use of borrowed funds to invest in securities. Additionally, Merrill Lynch agreed to “pay roughly $780,000 in restitution to 22 customers who had 75% or more of their assets invested in Puerto Rico bonds and funds and suffered huge losses trying to liquidate them to meet margin calls.”  K&T is currently investigating the sales practices of Merrill Lynch’s for violations related to unsuitable concentration in Puerto Rico bonds and leveraged CEBFs.

K&T’s investigation focuses on recommendations by Merrill Lynch to use loans secured by their Puerto Rico bonds and leveraged CEBFs. Recommendations to use borrowed funds to invest in Puerto Rico bonds and leveraged CEBFs resulted in undue risks for investors with moderate to conservative risk tolerances.  Merrill Lynch investors suffered greater losses and margin calls from the use of borrowed funds provided by their parent company, Bank of America, N.A.

The sole purpose of this release is to investigate sales practice violations by Merrill Lynch on behalf of our clients. The sales practice violations may include unsuitable investment recommendationsmargin calls, conflicts of interestmisrepresentations and omissions of material facts and a failure to supervise.   Merrill Lynch customers who have information about the sales practices of the firm related to concentrated investments in Puerto Rico bonds, CEBFs through borrowed funds provided by Bank of America, N.A. are encouraged to contact Lawrence L. Klayman, Esq. or Steven D. Toskes, Esq. of Klayman & Toskes, P.A.  at (787)-919-7325, or visit our website at www.perdidasenbonospr.com/en/.

Compliance_Rules

NOTICE TO MERRILL LYNCH CUSTOMERS – Klayman & Tokses, P.A. Announces Investigation into Merrill Lynch Loan Management Accounts in Light of FINRA Sanctions for $7 Million in Fines and Restitution Regarding US and Puerto Rico Clients

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New York, NY – December 1, 2016 — The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, announces an investigation into Merrill Lynch, a wholly owned brokerage firm of Bank of America (NYSE:BAC), for Financial Industry Regulatory Authority (FINRA) sales practice violations from its Loan Management Accounts (LMAs) following FINRA regulatory fines.  Yesterday, FINRA accepted from Merrill Lynch an Acceptance Waiver and Consent for $6.25 million in fines and approximately $780,000 in restitution to Puerto Rico customers, for inadequately supervising the use of Merrill Lynch loans for customer accounts.  According to FINRA, Merrill Lynch brokerage accounts received proceeds transferred from LMAs and purchased millions of dollars in securities, the majority being purchased on margin, within 14 days of the transfer.  FINRA concluded that these supervisory failures occurred from January 2010 to November 2014.

According to K&T founder, Lawrence L. Klayman, Esq. “The use of brokerage account assets as collateral for these loans greatly increased the risks assumed by Merrill Lynch customers.”    Mr. Klayman explains, “Our firm is investigating sales practice violations by Merrill Lynch for failure to supervise its financial advisors’ recommendations to customers concerning the use of LMA proceeds to purchase stock on margin.  Merrill Lynch’s advice to use margin loans signals a potential conflict of interest, which increased commissions for their financial advisors at the expense of customers who did not fully understand the risks associated with these loans.”

The sole purpose of this release is in furtherance of our investigation into Merrill Lynch’s sales practices related to Loan Management Accounts (LMAs) which may include violations for unsuitable recommendationsmargin abuse, breach of fiduciary dutymisrepresentations and omissions of material facts and a failure to supervise.   Current and former Merrill Lynch customers who have information about the sales practices of Bank of America and its brokerage firm, Merrill Lynch are encouraged to contact Lawrence L. Klayman, Esq. or Raymond Gentile, Esq. of Klayman & Toskes, P.A.  at (888) 997-9956, or visit our website at www.nasd-law.com.

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FINRA Fines Broker for Excessive Commissions from Risky Trading Strategies

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Released November 2016

Lucas Dylan Lichtman (CRD #5542092, Nanuet, New York) submitted an Offer of Settlement in which he was assessed a deferred fine of $7,500 and suspended from association with any FINRA member in any capacity for nine months. Without admitting or denying the allegations, Lichtman consented to the sanctions and to the entry of findings that he made unsuitable recommendations of an active trading investment strategy to his customer. The findings stated that Lichtman recommended that his customer engage in the unsuitable active trading investment strategy, despite the fact that he failed to understand the risks of the investment strategy being recommended, or the impact the staggering commissions and fees generated by this active trading investment strategy would have on his customer’s account. Lichtman did not have any reasonable basis to recommend such a strategy to his customer. As a result of the recommendations Lichtman and other representatives of his member firm made, 15 customer accounts paid over $1 million in commissions and fees.

Additionally, Lichtman did not know how to calculate or even understand cost-to-equity ratios and turnover rates, which are standard industry metrics used to measure whether an account is being excessively traded. Lichtman did not understand the impact of trading and costs on his customer’s account and on the specific transactions recommended as part of an investment strategy. Lichtman did not conduct any due diligence into the active trading investment strategy he was recommending, and he never reviewed his customer’s account, either individually or collectively, to determine if the active trading investment strategy was successful or suitable for his customer. Lichtman failed to perform any analysis of the active trading investment strategy’s costs, risks, potential benefits, volatility, or likely performance in a variety of market and economic conditions. The active trading investment strategy Lichtman recommended was not in the customer’s best interest.

The suspension is in effect from October 3, 2016, through July 2, 2017. (FINRA Case #2014039091903)

Source: FINRA, Financial Industry Regulatory Authority, Inc. 2016
Full Disciplinary Reports Available to the public at: www.finra.org

 

Compliance-regulations

FINRA Fines Eight Firms a Total of $6.2 Million for Supervisory Failures Related to Variable Annuity L-Shares

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Released November 2, 2016

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined eight firms, including VOYA Financial Advisors, five broker-dealer subsidiaries of Cetera Financial Group, Kestra Investment Services, LLC, and FTB Advisors, Inc., a total of $6.2 million for failing to supervise sales of variable annuities (VAs). FINRA also ordered five of the firms to pay more than $6 million to customers who purchased L-share variable annuities with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.

FINRA imposed sanctions against the following firms.

FINRA ordered the firms to pay the following to investors.

  • Voya was ordered to pay at least $1.8 million to customers in this category.
  • Cetera Advisors Networks, First Allied, Summit Brokerage Services and VSR were collectively ordered to pay customers at least $4.5 million.

The L-share VAs at the heart of this action are complex investment products combining insurance and security features designed for short-term investors willing to pay higher fees in exchange for shorter surrender periods. L-shares also had the potential to pay greater compensation to the firms and registered representatives than more traditional share classes. Each of the firms in this action lacked an adequate system to supervise variable annuities with multiple share classes, and failed to provide its registered representatives and principals with reasonable guidance regarding the narrow class of customers for whom the costs and features of L-share variable annuities were suitable.

These failures were compounded by the fact that the short-surrender L-Shares were often sold with complex and expensive guaranteed income and withdrawal riders that provided benefits only over longer holding periods.

FINRA found that VOYA and four of the Cetera Group firms failed to identify “red flags” of broad patterns of potentially unsuitable sales of this product combination.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “The complexity and expense of variable annuities require exceptional diligence in the training and supervision of the representatives who sell them and of the sales themselves. When a firm cannot explain why a significant number of clients are paying up for the short-term flexibility of L-shares while at the same time buying riders that only have value over the long term, it is clear that these supervisory obligations are not being met.”

These actions also included additional violations by Voya, Cetera Advisors Networks, Cetera Financial Specialists and VSR for failure to monitor rates of variable annuity exchanges at their respective firms.

First Allied was further found to have failed in its supervision of the sale of structured products and non-traditional exchange-traded funds. Lastly, First Allied and Kestra permitted the use of consolidated statements by their registered representatives without proper oversight.

In settling these matters, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Source: FINRA, Financial Industry Regulatory Authority, Inc. 2016
Full Disciplinary Reports Available to the public at: www.finra.org

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