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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

 

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FINRA Fines Broker $219,000 for Private Placement Violations

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Thomas Edward Brenner Jr. (CRD #1489233, Orrville, Ohio) submitted an AWC in which he was assessed a deferred fine of $30,000, suspended from association with any FINRA member in any capacity for 16 months, and ordered to pay deferred disgorgement of commissions of $189,000, plus interest. Without admitting or denying the findings, Brenner consented to the sanctions and to the entry of findings that he engaged in two separate private placements which were rife with supervisory and substantive violations.  The findings stated that in soliciting customers to purchase a private placement offering, Brenner provided customers with a private placement memorandum (PPM) for the offering and a program summary, the latter of which provided a brief summary of the offering. Both the PPM and the program summary contained several statements that claimed or implied that the investments were secured, or suggested a level of safety in the investments or reliability in forecasting returns by investors.

The findings also stated that in soliciting investors for another offering, Brenner provided each investor with an application form, a subscription agreement, a promissory note and an executive summary generally describing the offering. At various times while Brenner was soliciting investors in this offering, a founder of the offering told Brenner that a PPM was forthcoming. But, the PPM was not completed until after FINRA’s investigation of the offering began and well after Brenner had ceased soliciting investors. Hence, the PPM

was not provided to investors. By distributing a variety of documents to investors in each offering, Brenner negligently made untrue statements of material facts or omitted to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, and made statements which were not fair and balanced, and were misleading, exaggerated and unwarranted.

The findings also included that Brenner’s member firm’s WSPs designated him as the principal responsible for ensuring compliance with all procedures relating to private placements, including the due diligence requirements. Brenner, however, was not aware that he was the designated principal under the WSPs and did not have any experience in supervising private placements. Despite the express references in the firm’s WSPs to due diligence requirements for private placements, neither Brenner nor anyone else at the firm conducted the diligence the firm’s WSPs required. Brenner assumed that another principal of the firm had conducted the due diligence of one of the offerings. However, that principal was unaware of the offering and did not conduct any due diligence. Brenner’s review of the offering was limited to talking with the offering’s founder and discussing its business plan with a few people in the medical or pharmaceutical industries for the purpose of understanding the market demand for the self-owned toxicology laboratories.

The suspension is in effect from August 15, 2016, through December 14, 2017.

(FINRA Case #2015046056403)

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

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NOTICE TO CURRENT AND FORMER WELLS FARGO EMPLOYEES AND CUSTOMERS – Klayman & Tokses, P.A. Continues to Investigate Wells Fargo Cross Selling Incentive Programs Following Regulatory Probes

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New York, NY – November 4, 2016 — The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, continues to inv estigate Wells Fargo (NYSE:WFC) and its broker dealer, Wells Fargo Advisors, for potential Financial Industry Regulatory Authority (FINRA) sales practice violations from its“cross selling” incentive  programs.  Yesterday, Wells Fargo reported in its SEC 10-Q filing, “the United States Department of Justice and the United States Securities and Exchange Commission, and state attorneys general and prosecutors’ offices, as well as Congressional committees, have undertaken formal or informal inquiries, investigations or examinations arising out of certain sales practices of the Company that were the subject of settlements” with regulators for $185 million on September 8, 2016.

The federal probes conducted by the SEC and other regulators is followed by Wells Fargo’s reported increase in reserves for potential litigation losses to $1.7 billion.  According to K&T founder, Lawrence L. Klayman, Esq. “Wells Fargo’s legal problems are focused on sales practices from cross selling incentive programs that violated financial industry rules and regulations.”  Mr. Klayman emphasizes, “Our firm is investigating potential sales practice violations which placed current and former employees, as well as customers of Wells Fargo in harm’s way.  Wells Fargo failed to meet its obligations to promote an ethical workplace which placed the Company’s pursuit of profits before their customers’ best interests.  Wells Fargo failed to supervise the ‘cross selling’ activities which violated financial industry rules and regulations.”

The sole purpose of this release is in furtherance of our investigation into Wells Fargo’s sales practices related to “cross-selling” efforts which may include; unsuitable recommendationsbreach of fiduciary dutymisrepresentations and omissions of material facts and a failure to supervise.   Current and former Wells Fargo employees and customers who have information about the sales practices of Wells Fargo and Wells Fargo Advisors 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.

SEC Whistleblowers

Individuals, including current or former employees with non-public information regarding Wells Fargo and Wells Fargo Advisors sales practices related to cross selling programs should consider the SEC Whistleblower Program. Under the SEC Whistleblower program, whistleblowers who provide unique information that results in an SEC enforcement action with sanctions exceeding $1 million, and awards can range from 10 percent to 30 percent of the money collected in a case.

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.

 

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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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NOTICE TO WELLS FARGO AND MORGAN STANLEY CLIENTS – Klayman & Toskes, P.A. Investigates Cross Selling Incentive Programs Following FINRA Targeted Examination Letter to Brokerage Industry

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New York, NY – October 31, 2016 — The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, has opened an industry-wide investigation of brokerage firms into potential Financial Industry Regulatory Authority (FINRA) sales practice violations of “cross selling” incentive programs following targeted examination letter to member firms.  According to FINRA, the Targeted Examination Letter sent is designed to review “cross selling programs” used by brokerage firms for FINRA sales practice rules and regulations.  This investigation follows regulatory actions against Wells Fargo (NYSE:WFC) and Morgan Stanley (NYSE:MS) for “cross selling” programs which violated securities industry regulations.

The FINRA investigation includes requests for information from member firms concerning incentives paid to brokerage firm employees to “promote bank products of the affiliate or parent company (“affiliate/parent”) to broker-dealer retail customers through referrals or direct sales.”  FINRA’s request for information covers the time period of January 1, 2011, through September 30, 2016 for member firms, with a November 30th deadline to comply with request.  According to K&T founder, Lawrence L. Klayman, Esq. “Our investigation focuses on whether brokerage firms violated investor rights in the pursuit of corporate profits.”  Mr. Klayman explains, “Investors may have sustained damages due to brokerage firms’ failure to supervise the ‘cross selling’ activities of their employees and financial advisors, and those brokerage firms should be held responsible.”

The sole purpose of this release is to determine whether Wells Fargo, Morgan Stanley, or other brokerage firms violated FINRA sales practice rules related to “cross-selling” efforts which may include; unsuitable recommendations, breach of fiduciary duty, misrepresentations and omissions of material facts and a 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 Raymond Gentile, Esq. of Klayman & Toskes at (888) 997-9956, or visit our website at www.nasd-law.com.

FINRA Submits Rule to SEC to Protect Against Elderly Financial Fraud

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The Financial Industry Regulatory Authority (FINRA) has submitted new rule changes for the Securities Exchange Commission (SEC) to approve which is designed to help prevent elder financial fraud.  The proposed rule changes will require brokerage firms to “make reasonable efforts” to obtain contact information for “trusted” individuals who are designated by elderly account holders.  The “trusted” individuals, such as close friends and family members, would be contacted by brokerage firms in the event of suspicious activities related to an elderly person’s investment accounts.  In a recent press release, FINRA proposed changes that would allow brokerage firms to place a temporary hold on suspicious disbursements and alert “trusted” contact persons about the hold on account recent activities.  This change would allow elderly investors the benefit of inquiries from family members to investigate whether unscrupulous individuals may have defrauded them.  Currently, there are no provisions that allow brokerage firms to contact non-account holders or to place a temporary hold on fund withdrawals which have been flagged for suspicious activities.

FINRA proposed plan changes include providing space for a “trusted” individual’s contact information on new account application templates, which brokerage firms can use on a voluntary basis.  The proposed rule changes submitted to the SEC occurs roughly three months after Congress approved legislation that grants immunity to brokerage firms and financial advisors for reporting elder financial fraud.

Klayman & Toskes, P.A. represents elderly investors that are victims of financial fraud who suffer damages from violations of FINRA sales practice rules and regulations related to misappropriation of funds,  misrepresentations and omissions of material facts, conflicts of interest, unsuitable investment advice and brokerage firms’ failure to supervise its financial advisors.  Klayman & Toskes, P.A. is dedicated to the protection of the rights of elderly investors and their families.

About Klayman & Toskes, P.A.

Klayman & Toskes, P.A. is a leading national securities law firm practices areas include 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. Klayman & Toskes, P.A. has office locations in California, Florida, New York and Puerto Rico.

 

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SEC Bars LPL Financial advisor, Paul Lebel for Churning Client Mutual Fund Investments

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On October 18, 2016, the Securities Exchange Commission (SEC) barred LPL Financial advisor, Paul Lebel for churning and excessively trading mutual funds in customer accounts for the sole purpose of his own personal enrichment.   The excessive trading, also known as “churning” occurred during the period from 2008 to 2014, “during his employment with LPL, he defrauded four customers by churning several of their accounts,” according to the SEC administrative proceeding.

According to the SEC which imposed Remedial Sanctions and a Cease and Desist Order which was a Paul Lebel. “In particular, Lebel exercised de facto control over these customers’ accounts and excessively traded mutual fund shares which carry large front-end load fees (A shares). Lebel’s excessive trading was inconsistent with the customers’ investment objectives, and willfully disregarded the customer s’ interest.”

The SEC complaint alleged, “Lebel’s excessive trading was inconsistent with the customers’ investment objectives, and willfully disregarded the customers’ interest.” The SEC stated, “In light of Lebel’s customers investment objectives, were fraudulent, made to the detriment of Lebel’s customers, and without justification other than the generation of commissions for Lebel.”

Mr. Lebel excessively traded A Share mutual funds, designed to be long-term, buy-and-hold investments, which generated $50,000 in commissions.  As a part of the settlement with regulators, Paul Lebel will pay $56,500 as part of the settlement.

Klayman &Toskes, P.A. represents investors for brokerage firms violations of FINRA sales practice rules which may include; excessive trading, mutual fund switching, unsuitable recommendations, breach of fiduciary duty, misrepresentations and omissions of material facts and a failure to supervise.   Investors who have information about the sales practices of Wells Fargo Advisors and their financial advisors are encouraged to contact Lawrence L. Klayman, Esq. or Raymond Gentile, Esq. of Klayman & Toskes 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.

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NOTICE TO WELLS FARGO BROKERAGE CUSTOMERS — The Securities Arbitration Law Firm of Klayman & Toskes, P.A. Continues Wells Fargo Advisors Investigation — California AG Issues Search Warrant

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New York, NY — October 21, 2016 — The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, continues to investigate Wells Fargo Advisors for potential Financial Industry Regulatory Authority (FINRA) sales practice violations following California’s Attorney General Office search warrant which seeks bank customer records, as reported by the Los Angeles Times.  According to public records there is probable cause that Wells Fargo (NYSE:WFC) violated two laws which are felony offenses, fraudulent impersonation and fraudulent use of personal information. The information sought by the warrant concerns Wells Fargo’s fraudulently opened customer accounts through “cross-selling” efforts that resulted in a recent $185 million settlement reached with Los Angeles County and federal regulators.

According to the Wells Fargo’s 3Q 2016 Quarterly Supplement, “cross-selling” referrals from Retail Banking to Wells Fargo Advisors resulted in excess of $1 billion in new deposits and $677 million in net income for the Wealth and Investment Management business lines which includes Wells Fargo Advisors, The Private Bank, Abbot Downing, Wells Fargo Institutional Retirement and Trust, and Wells Fargo Asset Management.  Securities attorney, Lawrence L. Klayman, Esq., “Wells Fargo’s ability to supervise its employees, including their financial advisors, has been brought into question.  The CEO, Robert G. Stumpf, has abruptly resigned, which seems to indicate that the Board recognizes the need to address the company’s culture that encouraged the opening of thousands of fraudulent accounts.”   Mr. Klayman further explains, “Our investigation is focused on whether Wells Fargo prudently managed customer accounts that were opened by the firm.  In some instances, Wells Fargo Advisors and its parent Wells Fargo bank may have failed to supervise the ‘cross-selling’ activities of their employees and could be responsible for any damages.”

The sole purpose of this release is to investigate whether Wells Fargo Advisors “cross-selling” efforts violated FINRA sales practice rules handling customer investment account including, unsuitable recommendations, breach of fiduciary duty, misrepresentations and omissions of material facts,  unauthorized transactions and a failure to supervise.   Current and former customers of Wells Fargo Advisors who have information about the sales practices of the investment firm or its financial advisors are encouraged to contact Lawrence L. Klayman, Esq. or Raymond Gentile, Esq. of Klayman & Toskes at (888) 997-9956, or visit our website at www.nasd-law.com.

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FINRA Sanctions Securities America for Not Offering Certain Clients Mutual Fund Discounts

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In September 2016, the Financial Industry Regulatory Authority (FINRA) sanctioned Securities America for Mutual Fund Sales Practice Violations.

Securities America, Inc. (CRD #10205, La Vista, Nebraska)

submitted an AWC in which the firm was censured and required to provide FINRA with a remediation plan to remediate eligible customers who qualified for, but did not receive, the applicable mutual fund sales-charge waiver. As part of this settlement, the firm agrees to pay restitution to eligible customers, which is estimated to total $1,541,419 (the amount eligible customers were overcharged, inclusive of interest). Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge. The findings stated that these eligible customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. These sales disadvantaged eligible customers by causing such customers to pay higher fees than they were actually required to pay. The findings also stated that the firm failed to reasonably supervise the application of sales-charge waivers to eligible mutual fund sales. The firm relied on its financial advisors to determine the applicability of sales-charge waivers, but failed to maintain adequate written policies or procedures to assist financial advisors in making this determination. In addition, the firm failed to adequately notify and train its financial advisors regarding the availability of mutual fund sales charge waivers for eligible customers. The firm also failed to adopt adequate controls to detect instances in which they did not provide sales-charge waivers to eligible customers in connection with their mutual fund purchases. As a result of the firm’s failure to apply available sales-charge waivers, the firm estimates that eligible customers were overcharged by approximately

$1,386,271 for mutual fund purchases made since July 1, 2009. (FINRA Case #2015047269801)

 

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

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Morgan Stanley Clients — The Securities Arbitration Law Firm of Klayman & Toskes, P.A. Opens Investigation into Morgan Stanley for Securities Violations Related to Solicitations for Portfolio Loan Accounts

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New York, NY — October 14, 2016 — The Securities Arbitration Law Firm of Klayman & Toskes, P.A. (“K&T”), www.nasd-law.com, has opened an investigation into potential Financial Industry Regulatory Authority (FINRA) sales practice violations by Morgan Stanley and its financial advisors after Morgan Stanley (NYSE:MS) was recently charged with “dishonest and unethical conduct” by the State of Massachusetts Securities Division, as reported by Reuters.  According to the Massachusetts Securities Division Complaint, Morgan Stanley was “running unethical sales contests to cross sell banking business to brokerage customers.”

K&T founder, Lawrence L. Klayman, Esq. comments, “Our investigation focuses on whether Morgan Stanley used high pressure sales tactics motivated solely by paid incentives and not the customer’s best interests.”  According to Massachusetts regulators, Morgan Stanley sponsored sales contests for opening Portfolio Account Loans that offered the following bonuses to employees; “$1,000.00 for 10 loans; $3,000.00 for 20 loans; and $5,000.00 for 30 loans.”  Mr. Klayman explains, “Morgan Stanley provided employee training to ‘overcome objections’ that customers might have about opening a loan account.  This training is inconsistent with the fiduciary duties Morgan Stanley owes its customers, instead customers should be warned about the risks of leverage.”

The sole purpose of this release is to investigate the sales practices of Morgan Stanley in connection with solicitations for portfolio loan accounts, which may include; margin abuse, unsuitable recommendations, breach of fiduciary duty, misrepresentations and omissions of material facts and a failure to supervise.   Investors who have information about the sales practices of Morgan Stanley and their financial advisors are encouraged to contact Lawrence L. Klayman, Esq. or Raymond Gentile, Esq. of Klayman & Toskes at (888) 997-9956, or visit our website at www.nasd-law.com.

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