Category Archives: Featured Investigations

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NOTICE TO UBS PUERTO RICO CUSTOMERS: Klayman & Toskes and Carlo Law Offices File $15 Million FINRA Claim Against UBS for Concentration in Puerto Rico Government Bonds and Closed-End Bond Funds in the Wake of Puerto Rico’s Bankruptcy Filing

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San Juan, Puerto Rico.  May 5, 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 FINRA claim against UBS Financial Services Incorporated of Puerto Rico and UBS Financial Services, Inc. (NYSE: UBS) (collectively “UBS”) for $15 million.  The claim has been filed in the wake of Puerto Rico’s recent bankruptcy filing, which is the largest in U.S. Municipal history. According to the Claim, the Claimant entrusted his retirement assets to UBS with an investment objective of current income and capital preservation.  Contrary to these objectives, UBS concentrated his account in Puerto Rico Government Bonds (“PRGBs”) and its proprietary Puerto Rico closed-end bond funds (“UBS PR CEBFs”), which are leveraged with UBS Bank USA Loans.

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 his risk tolerance. However, the over concentration in these PRGBs and UBS PR CEBFs resulted in excessive risks, which were exacerbated by the use of UBS’ Bank Loans.  UBS failed to disclose to Claimant the risks associated with over concentrating his account in these securities.  Ultimately, the Claimant suffered losses which were precipitated by margin calls since his illiquid securities were utilized as collateral.

The sole purpose of this release is to investigate, on behalf of our clients, the sales practices of UBS in connection with unsuitable investment recommendations provided to their customers. Current and former customers of UBS who have information relating to the investment advice provided by UBS related to Puerto PRGBs and UBS PR CEBFs, are encouraged to contact Steven D. Toskes of Klayman & Toskes or Osvaldo Carlo of Carlo Law Offices, at (787)268-6444, or visit our website: www.sueubspuertorico.com.

FINRA Bars Broker for Excessive Trading in Elderly Customer Accounts

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Released April 2017

Matthew Christopher Maczko (CRD #1888519, Downers Grove, Illinois) submitted an AWC in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Maczko consented to the sanction and to the entry of findings that he engaged in excessive trading in an elderly customer’s accounts. The findings stated that Maczko effectively controlled these accounts, which had an average aggregate value of $3 million. Maczko’s transactions in these accounts generated approximately $581,650 in commissions, $84,270 in other fees, and approximately $397,000 in trading losses. This level of trading was unsuitable for the customer given her investment profile, including her age, risk tolerance and income needs. The findings also stated that Maczko provided inaccurate and misleading testimony to FINRA. Maczko testified that he had not spoken with two customers since his termination earlier that month. However, a review of Maczko’s telephone records revealed that he had in fact spoken with these customers by telephone several times after his termination.

(FINRA Case #2016050430201)

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

Department of Labor Fiduciary 60-Day Rule Delays Financial Industry Crunch Time

By | Business Development Companies, Featured Investigations, News, Non-Traded REITs, Non-Traded Securities | No Comments

The new Department of Labor (DOL) Fiduciary Rule that was enacted and scheduled to begin this month on April 10th has been postponed 60 days to June 9th.  Brokerage Firms and Financial Advisors are responsible for compliance with the rules as they are now written.  Keeping in mind that the requirements may be modified or eliminated based on the what happens during the 60-day delay. Klayman & Toskes, P.A. is monitoring the developments and will keep investors posted and provide further updates as they become available.

Best Interest Contract (BIC)

Brokerage firms and financial advisors who recommend investment of retirement funds into investment and insurance products that provide commission-based compensation are subject to Best Interest Contract disclosure requirements.  The BIC requires the disclosure of compensation to the client and the acknowledgement of the Fiduciary Standards, which are met through the recommended investment.

Fiduciary Standards

Under the current DOL Fiduciary Rule, brokerage firms and financial advisors are considered Fiduciaries for all retirement accounts.  Accordingly, the following fiduciary standards must be met:

Avoid Conflicts of Interest

This primarily refers to receiving Commissions on brokerage accounts or compensation paid by Product Vendors.  The BIC allows the payment of commissions to brokerage firms and financial advisors but requires that all other aspects of the fiduciary standards are followed.

Advice Must Be in Client’s Best Interest

A written explanation and proof of “client’s best interest” will be required for every transaction.

Give Prudent Advice

Financial advice must be prudent and suitable based on the clients’ risk tolerance, in the clients’ best interest, have reasonable expenses and pay no more than reasonable compensation.

The DOL Fiduciary Rule recommends two tiers of investments when giving advice on retirement accounts. The second Tier of investments will be prohibited in retirement accounts unless an exception is provided.  The prohibited investments include, Illiquid and difficult to value securities, such as:

About Klayman & Toskes, P.A.

Klayman & Toskes, P.A. is dedicated to the protection of investor rights and the recovery of investment losses in retirement accounts that are the result of violations of FINRA sales practice rule and regulations.

 

oil-energy-industry

Texas E&P Partners Expelled By FINRA for Misconduct Related to Chestnut Exploration Partners

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Released March 2017

Texas E&P Partners, Inc. fka Chestnut Exploration Partners, Inc. (CRD #127228 , Richardson, Texas) and Mark Allan Plummer (CRD #4608699 Richardson, Texas).

The firm was expelled from FINRA® membership. Plummer was barred from association with any FINRA member in any capacity and ordered to pay $ 513,961, plus interest, in restitution to customers. The sanctions were based on findings that Plummer misused customer funds by misusing the portion of a completion assessment (certain assessments that were levied on investors for prospective oil and gas well investments) attributable to a prospective well. The findings stated that Plummer collected funds for one purpose—well completion—following a vote by investors and did not use that portion of the funds pertaining to a prospective well for that purpose. Plummer never received permission to use that portion of the assessed funds for other purposes and to date has not repaid those funds to investors (except for settlement payments made to three investors). The findings also stated that the firm had insufficient written supervisory procedures (WSPs). The firm’s business involved acting as a placement agent in connection with investment offerings involving its affiliates, and its supervisory system failed to address conflicts of interest in such offerings.

The findings also included that the firm produced an altered document regarding prospective oil and gas investments to FINRA during its investigation. Plummer intentionally altered the document prior to providing it to FINRA. The firm’s chief compliance officer (CCO) had witnessed the alteration and nevertheless produced the document to FINRA without disclosing its falsity. Plummer acted unethically or in bad faith by falsifying, and thereby rendering misleading, the document that he knew the firm was going to provide to FINRA in connection with its investigation. Plummer also gave false and misleading testimony concerning the document at his FINRA on-the-record interview, and did so intentionally or, at a minimum, recklessly. The Hearing Panel determined that FINRA failed to prove that the firm and Plummer engaged in fraud and made misrepresentations and omissions in connection with the sale of joint venture interests, or that the firm improperly collected or misused customer funds or otherwise acted unethically. Accordingly, those charges were dismissed. (FINRA Case #2014040501801)

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

dice

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

misrepresentation-omission-material-facts

FINRA Barred Broker for Private Securities Transactions Related to Unregistered Bonds

By | Blog, Broker Misconduct, Featured Investigations, Private Placements, Regulator Disciplinary Actions | No Comments

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

SEC

NOTICE TO MORGAN STANLEY CLIENTS: Klayman & Toskes, P.A. Announces Investigation of Morgan Stanley Following $8 Million in SEC Fines for Exchange Traded Fund Violations

By | Exhanged Traded Funds, Featured Investigations, FINRA Sales Practice Violations, SEC Disciplinary Actions, Securities Arbitration | No Comments

New York, NY — February 21, 2017 – The Securities Arbitration Law Firm of Klayman & Toskes, P.A.,(K&T) www.nasd-law.com, announces an investigation into sales practice violations by Morgan Stanley (NYSE:MS) following $8 million in fines levied by the Securities Exchange Commission (SEC) related to Exchange Traded Funds (ETFs).

On February 14, 2017, the SEC imposed a Cease and Desist Order and Remedial Actions against Morgan Stanley for sales practice violations related to recommended investments in single-inverse ETFs for advisory clients in non-discretionary accounts.  According to Morgan Stanley compliance procedures, recommended investments in single-inverse ETFS had two requirements:

  • Advisory clients were required to sign Client Disclosure Notices which detailed the risks associated with the investment; and
  • Morgan Stanley supervisors were required to review the risky transactions for suitability based on client profile.

The SEC examination determined deficiencies were found in the supervisory procedures related to record keeping and the determination of “suitability” in advisory clients’ non-discretionary accounts.  No Client Disclosure Notices were signed for these risky transactions for nearly 44% of the non-discretionary advisory accounts at Morgan Stanley.  The supervisory review was considered “deficient or non-existent” for advisory clients who did not have a signed Client Disclosure Notice.

The sole purpose of this release is to investigate Morgan Stanley’s sales practices related to single-inverse exchange traded funds, which were supposed to be monitored on a daily basis and only considered suitable as a part of a hedging strategy. Morgan Stanley’s sales practice violations may include misrepresentations and omissions of material facts, conflicts of interest, unsuitable investment advice, and the failure to supervise financial advisor recommendations concerning these risky transactions. Current and former Morgan Stanley customers who have information about the firm’s sales practices 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.

About Klayman & Toskes, P.A.

K&T is a leading national securities law firm which practices exclusively in the field of securities arbitration and litigation, on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm represents high net-worth, ultra-high-net-worth, and institutional investors, such as non-profit organizations, unions, public and multi-employer pension funds. K&T has office locations in California, Florida, New York and Puerto Rico.

Destination:  http://nasd-law.com/notice-to-morgan-stanley-clients-klayman-toskes-p-a-announces-investigation-of-morgan-stanley-following-8-million-in-sec-fines-for-exchange-traded-fund-violations/

Contact:

Klayman & Toskes, P.A.

Lawrence L. Klayman, Esq.

Raymond Gentile, Esq.

Toll Free: (888)-997-9956

Email: info@nasd-law.com

 

wall-street

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.

 

nyse

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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