BrokerCheck Expanded by SEC

September 3rd, 2010

Regulatory Notice 10-34

SEC Approves Changes to Expand the Information Released Through BrokerCheck and Establish a Process to Dispute (or Update) Information Disclosed Through BrokerCheck; Effective Date—Historic Complaints and Dispute Process: August 23, 2010; Effective Date—Disclosure Period and Permanently Available Information: November 6, 2010

Executive Summary

It was announced on FINRA’s website that the SEC approved amendments to FINRA Rule 8312, which governs the release of information through BrokerCheck. The amendments:

 (1) make publicly available in BrokerCheck all historic customer complaints that became non-reportable after the implementation of Web CRD;

 (2) permanently make publicly available in BrokerCheck information about former associated persons of a member firm, as reported to CRD on a uniform registration form if they were (a) convicted of or pled guilty or no contest to certain crimes; (b) subject to a civil injunction involving investment-related activity or found in a civil court to have been involved in a violation of investment-related statutes or regulations; or (c) named as a respondent or defendant in an arbitration or civil litigation in which they were alleged to have committed a sales practice violation, and which resulted in an award or civil judgment against them;

 (3) expand the BrokerCheck disclosure period for former associated persons of a member firm to 10 years from two years; and 

(4) codify FINRA’s current process for disputing the accuracy of (or updating) information disclosed through BrokerCheck.

 FINRA added that the amendments involving the public availability of historic customer complaints and the process for disputing the accuracy of information disclosed through BrokerCheck become effective on August 23, 2010. The effective date for the amendments pertaining to the expansion of the disclosure period for former associated persons and the permanent public availability of certain information about former associated persons of a member firm is November 6, 2010.

This information was obtained from FINRA’s website.

Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and securities losses.  Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

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Dallas Man Found Guilty in $485 Million Investment Scheme

September 1st, 2010

SHERMAN, Texas –  It was reported September 1, 2001, in the North Texas eNews from an article by the US Department of Justice, that a 35-year-old Dallas man has pleaded guilty for his role in a multi-million dollar oil and gas scheme in the Eastern District of Texas, announced U.S. Attorney John M. Bales today.

 Joseph Blimline, it was announced, pleaded guilty to an Information charging him with conspiring to defraud investors in an oil and gas scheme that involved over $485 million and 7,700 investors throughout the United States.  Blimline  also pleaded guilty to defrauding investors in a second oil and gas scheme based in the state of Michigan that involved over $50 million obtained from investors.  He entered his pleas today before U.S. Magistrate Judge Amos Mazzant.

U.S. Attorney Bales highlighted the nature of the fraud scheme, “Victims from across the country relied upon the representations made in the scheme before investing their hard-earned money into what they believed to be a vibrant opportunity.  Investment fraud is, at its core, a betrayal of trust by one person to another.  We will be relentless in our pursuit of those individuals responsible for abusing the trust of others in order to obtain criminal profits.”

Beginning in September of 2006, Blimline and other individuals, operating as representatives of Provident Royalties, made materially false representations and failed to disclose material facts to their investors in order to induce the investors into providing payments to Provident.  Among these false representations were statements that funds invested would be used only for the oil and gas project for which those funds were raised; among the omissions of material fact were the facts that Blimline was a control person over Provident, Blimline received millions of dollars of unsecured loans, Blimline had been previously charged with securities fraud violations by the state of Michigan, and that funds from investors in one oil and gas project were being used to pay individuals who invested in previous oil and projects.

The report added that in the second scheme, according to information presented in court, between November 2003 and December 2005, Blimline and other individuals falsely promised inflated rates of return in order to obtain payments from investors, which they then used to make payments to previous investors.

This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force.

It is noted that President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Joseph Blimline faces up to 20 years in federal prison on each of the two conspiracy charges.  A sentencing date has not been set.

The US Department of Justice reports that this case is being investigated by the FBI and is being prosecuted by Assistant U.S. Attorney Shamoil Shipchandler.

This information was reported in the North Texas eNews.

If you are a victim of the alleged fraudulent schemes of  Joseph Blimline or Provident Royalties, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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Best Practices for Firms Serving Senior Investors Updated and Published by Securities Regualtors

August 27th, 2010

Washington, D.C., Aug. 13, 2010 — It was announced on the SEC’s website that the Securities and Exchange Commission, Financial Industry Regulatory Authority (FINRA) and North American Securities Administrators Association (NASAA) today updated a joint report that outlines practices being used by financial services firms to strengthen their policies and procedures for serving senior investors as they approach and begin retirement.

The report goes on to say that the SEC, FINRA and NASAA first published the report in 2008 to highlight proactive steps being taken by some financial services firms in serving senior customers. It was intended to assist the overall industry in enhancing compliance, supervisory and other practices related to older investors. The 2010 Addendum being released today summarizes additional practices now being used by financial services firms and securities professionals in serving senior investors.

Almost 40 million Americans are 65 or older, and this number is expected to more than double to 89 million by 2050. As a result of the economic downturn, many older investors find themselves with smaller nest eggs than they anticipated. Estimates show that total retirement assets decreased by $4.5 trillion (25 percent) from 2007 to the first quarter of 2009. In light of these demographic trends, securities regulators continue to view the protection of senior investors as a top priority.

Carlo di Florio, Director of the SEC’s Office of Compliance Inspections and Examinations, said, “Securities regulators are focused on ensuring a fair market for seniors where sales practices are responsible, the facts are clear, and products are suitable. This report helps firms understand increasing regulatory expectations and effective industry practices that better protect senior investors.”

The report adds that NASAA President Denise Voigt Crawford said, “Securities regulators continue to bring solid enforcement cases to protect our seniors from investment fraud and abuse. Strong regulation coupled with effective industry compliance, supervision and innovative senior-specific practices are essential toward ensuring that our growing population of senior investors is being treated fairly and responsibly by the financial services industry.”

Also, Susan Axelrod, FINRA Executive Vice President and head of Sales Practice, said, “Securities regulators are working to ensure that retiring baby boomers are properly served and protected. For that reason, we continue to encourage firms to adopt practices that result in the fair treatment of senior investors.”

The 2010 Addendum focuses on the following categories when describing the latest practices being used by firms and securities professionals when serving senior investors:

  • Communicating effectively with senior investors.
  • Training and educating firm employees on senior-specific issues.
  • Establishing an internal process for escalating issues and taking next steps.
  • Obtaining information at account opening.
  • Ensuring appropriateness of investments.
  • Conducting senior-focused supervision, surveillance and compliance reviews.

The securities regulators are sharing this updated information as useful suggestions for other securities firms and professionals to ensure that they serve senior investors in an ethical, respectful and informed manner. Financial services firms are urged to continue developing practices that will help them to better serve their senior customers.

This valuable information was obtained from the SEC’s website.

Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and securities losses.  Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.

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1861 Capital Management Funds Collapse

August 25th, 2010

The 1861 Capital Management Funds collapsed in February 2008, and  resulted in devastating losses to it’s investors.

Municipal bond arbitrage is considered a very complicated, risky investing strategy that involves trades of municipal bonds, short-term notes, and interest-rate derivatives. In recent years, a growing number of hedge funds, including 1861 Capital Management, began to employ municipal arbitrage, buying long-term municipal bonds that had slightly higher yields and pocketing the difference. The funds then hedged against large fluctuations in interest rates by essentially reversing that trade, using taxable securities. 

Municipal bond arbitrage also entails additional risks because in order to bolster returns, hedge funds must pile on the leverage.

So signs of trouble first appeared at the beginning of 2008, when municipal bond yields became hammered from the downturn in the markets. As a result, many hedge funds suddenly found themselves forced to liquidate their leveraged positions. 

These two facts – risk and leverage – that have become a bone of contention for many investors in municipal arbitrage hedge funds. As reported in a January 2009 study from the Securities Litigation and Consulting Group (SLCG) on the recent failure of leveraged municipal bond hedge funds, some 36 hedge funds – 1861 Capital Management among them – were marketed and sold to investors as “high yield, low-risk alternatives” to traditional municipal bond funds.

Nothing could have been further from the truth. All of the hedge funds featured in SLCG’s study contained considerably more risk than investors ever realized. They also produced significantly lower-than-expected returns. In the end, investors suffered to the tune of billions of dollars in losses.

It is believed that UBS sold the following fixed income arbitrage funds: 1861 Capital Municipal Enterprise Domestic Fund, LP, 1861 Capital Municipal Enterprise Offshore Fund, Ltd., 1861 Capital Discovery Domestic Fund, LP, and 1861 Capital Discovery Offshore Fund, Ltd.

Other securities brokerage firms, including UBS, misrepresented the 1861 Capital Management Funds as safe and secure fixed income products that were particularly suitable for retirees and the elderly, and failed to adequately disclose the true speculative nature and substantial risks inherent in these investments.

Hedge funds like 1861 Capital Management and ASTA/MAT were marketed by many brokers to investors as high-yield, more conservative alternatives to money-market fund or traditional municipal bonds. In reality, this was far from the truth. Not only is leveraged municipal bond arbitrage at the opposite end of conservative, but it also can produce lower-than-expected returns for investors and bring considerably more risk.

If you are a victim of the alleged fraudulent schemes of  your agent or broker, in particular USB, regarding the ASTA/MAT, 1861 Capital collapse, or any fraudulent sale of hedge funds through any of its agents, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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California Firm Sanctioned by FINRA

August 23rd, 2010

It was announced by FINRA that Butler Muni, LLC (CRD #7389, San Ramon, California)

Waiver and Consent in which the firm was censured, fined $70,000, required to pay

$25,408, plus interest, in restitution to customers and required to revise its written

supervisory procedures regarding bid-wanted auctions. Without admitting or denying

the findings, the firm consented to the described sanctions and to the entry of findings

that, acting in the capacity of a broker’s broker, and in connection with the purchase

and sale of municipal securities, it did not inform the selling broker-dealer of a higher

bid the highest bidding broker-dealer submitted in bid-wanted auctions. The findings

stated that the firm’s conduct deprived the selling broker-dealers of receiving a higher

sale price and, as a result, the firm failed to deal fairly with its customers. The findings

also stated that the firm’s supervisory system did not provide for supervision

reasonably designed to achieve compliance with applicable securities laws, regulations

and Municipal Securities Rulemaking Board (MSRB) rules concerning bid-wanted auctions.

 

 

(FINRA Case #2006007537201)

This information was obtained from FINRA’s website.

 

If you feel you have become an alleged victim of  Butler Muni, LLC, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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Firm Fined, Individual Sanctioned by FINRA

August 23rd, 2010

It was announced on FINRA’s website that Investscape, Inc. (CRD® 

#39992, West Bloomfield, Michigan) and Richard

Michael Lim (CRD #2094646, Registered Principal, Howell, Michigan)

submitted a Letter of Acceptance, Waiver and Consent in which the firm

was censured, fined $7,000 and fined $17,500, jointly and severally with

Lim. Lim was suspended from association with any FINRA member in any

supervisory capacity for one month. Without admitting or denying the

findings, the firm and Lim consented to the described sanctions and to the

entry of findings that the firm, acting through Lim, failed to inspect branch

offices even though it had been previously warned in a Letter of Caution

that branch offices needed to be inspected on a regular basis. The findings

stated that the firm’s written procedures failed to identify locations that

regularly conducted the business of effecting securities transactions by

soliciting new accounts as branch offices, and failed to address the firm’s

requirement to conduct internal inspections of these offices. The findings

also stated that the firm, through Lim, failed to preserve emails in nonrewritable,

non-erasable format; failed to provide FINRA with notifications

of its use of electronic storage media; failed to provide FINRA with a letter

from a third party describing the third party’s undertakings regarding the

firm’s electronic storage media as specified by Securities and Exchange

Commission (SEC) Rule 17a-4; and failed to evidence the review of all

incoming and outgoing email communications with customers.

The suspension was in effect from May 17, 2010, through June 16, 2010.

(FINRA Case #2008011737101)

This information was obtained from FINRA’s website

If you feel you have become an alleged victim of  Investscape, Inc., or Richard Michael Lim, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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FINRA Expells Firm and Sanctions Individual

August 22nd, 2010
 
CMG Institutional Trading, LLC (CRD® #47264, Chicago, Illinois) and Shawn Derrick Baldwin (CRD #4281564, Registered Principal, Chicago, Illinois).
 
 It was reported on the FINRA website that the firm was expelled from FINRA® membership and Baldwin was barred from association with any FINRA member in any capacity. The National Adjudicatory Council (NAC) imposed the sanctions following appeal of an Office of Hearing Officers (OHO) decision. The sanctions were based on findings that the firm, acting through Baldwin, participated in securities related activities without employing a qualified municipal securities principal; failed to timely file quarterly lists of issuers with which it engaged in a municipal securities business; and failed to adopt, maintain and enforce written supervisory procedures reasonably designed to ensure that the conduct of the broker and associated persons in municipal securities activities are in compliance with Municipal Securities and Rulemaking Board (MSRB) rules and that the procedures shall codify the broker’s supervisory system for ensuring compliance. The findings stated that the firm permitted Baldwin to engage in its securities business even though his registration was inactive because he had failed to complete a continuing education course. The findings also stated that the firm, acting through Baldwin, had an inadequate Anti-Money Laundering (AML) compliance program, in that it failed to verify customer identification information, conduct independent testing of its AML program, designate a person to transmit contact information to FINRA and to provide AML training for two years. The findings also included that the firm, acting through Baldwin, failed to timely create and maintain a business continuity plan and engaged in securities transactions without a qualified financial and operations principal (FINOP).  
 Also, FINRA found that the firm, acting through Baldwin, conducted a securities business while its net capital was below the required minimum; failed to prepare an accurate general ledger, trial balances and books and records; and failed to file an annual audit report and a quarterly Financial and Operational Combined Uniform Single (FOCUS that the firm and Baldwin failed to file an application for approval of a material change in its business operations even though it participated in an offering as an underwriter on a firm commitment basis, and disseminated sales literature that contained numerous inaccuracies and misrepresentations. 

  (FINRA Case #2006006890801) This information was obtained on the FINRA website. 

If you feel you have become an alleged victim of  CMG Institutional Trading, or Derrick Baldwin, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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HSBC Fined $375,000 by FINRA for Unsuitable Sales of Inverse Floating Rate CMOs to Retail Customers and Related Supervisory Failures

August 20th, 2010

WASHINGTON – On Thursday, Aug. 19, 2010, the Financial Industry Regulatory Authority (FINRA) announced that it has fined HSBC Securities (USA) Inc. $375,000 for recommending unsuitable sales of inverse floating rate Collateralized Mortgage Obligations (CMOs) to retail customers. HSBC failed to adequately supervise the suitability of the CMO sales and fully explain the risks of an inverse floating rate or other risky CMO investment to its customers.

It was announced that FINRA’s investigation found that HSBC recommended the sale of CMOs, including inverse floating rate CMOs, to its retail customers. As a result of HSBC not implementing an adequate supervisory system and procedures relating to the sale of inverse floating rate CMOs to retail customers, six of its brokers made 43 unsuitable sales of inverse floaters to retail customers who were unsophisticated investors and not suited for high-risk investments. In addition, HSBC’s procedures required a supervisor’s pre-approval of any sale in excess of $100,000; FINRA found that 25 of the 43 CMO sales were in amounts exceeding $100,000 and that in five of these instances, customers lost money in their inverse floating rate CMO investments. HSBC has paid these customers full restitution totaling $320,000.

 ”Firms must adequately train their brokers on all of the products that they are selling and must reasonably supervise them to ensure that every security recommended is suitable for the particular customer,” said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. “The losses incurred by HSBC’s customers likely would have been avoided had the firm sufficiently trained its brokers on the suitability and risks of inverse floating rate CMOs and reasonably supervised their brokers to ensure that they were making suitable recommendations.”

The term, CMO, is a fixed income security that pools mortgages and issues tranches with various characteristics and risks. CMOs make principal payments throughout the life of the security with the maturity date being the last date by which all of the principal must be returned. The timing of the return of principal payments can vary depending on interest rate changes.

It was noted that one of the more risky CMO tranches is the inverse floater, a type of tranche that pays an adjustable rate of interest that moves in the opposite direction from movements of an interest rate index, such as LIBOR. Since 1993, FINRA has advised firms that inverse floating rate CMOs “are only suitable for sophisticated investors with a high-risk profile.”

FINRA found that HSBC did not provide its brokers with sufficient guidance and training regarding the risks and suitability of CMOs. In particular, the firm did not inform its registered representatives that inverse floaters were only suitable for sophisticated investors with a high-risk profile. In addition, the firm did not provide its registered representatives with information regarding the risks associated with the specific inverse floaters that were available to be sold.

During the relevant time period, HSBC did not advise its registered persons that they were required to offer written educational material to their customers before they sold them CMOs. Although HSBC provided its brokers with a CMO brochure, the brokers did not offer the brochure to every CMO investor, nor did they know that they were required to give the materials to all potential CMO investors before selling them a CMO. Moreover, the brochures did not comply with FINRA’s content standards. In particular, the brochure failed to discuss inverse floaters and failed to include a section on risks associated with purchasing CMOs.

FINRA also found that HSBC failed to comply with a FINRA rule, adopted in November 2003, which requires firms to offer certain educational materials before the sale of a CMO to any person, other than an institutional investor. The educational materials must include, among other things, the characteristics and risks of CMOs, in general, and the specific characteristics and risks associated with the different tranches of a CMO.

In concluding this settlement, HSBC Securities neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

This information was obtained from FINRA’s website.

If you feel you have become an alleged victim of HSBC Securities or any other firm that recommended unsuitable sales of inverse floating rate Collateralized Mortgage Obligations (CMOs), call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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FINRA Announces Merrill Lynch to Pay More Than $2.5 Million Related to UIT Sales Charge Discount Failures

August 18th, 2010

WASHINGTON — It was announced today that the Financial Industry Regulatory Authority (FINRA) has fined Merrill Lynch $500,000 for failing to provide sales charge discounts to customers on eligible purchases of Unit Investment Trusts (UITs). FINRA also found that Merrill Lynch failed to have an adequate supervisory system in place to ensure customers received appropriate UIT discounts. The firm also agreed to provide remediation of more than $2 million to affected customers.

 ”Firms have been on notice since at least 2004 that they must develop and implement procedures to ensure customers receive appropriate sales charge discounts for UIT investments,” said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. “In this case, it was critical for the firm to ensure that its brokers were diligent in providing sales charge discounts to which customers were entitled. This failure resulted in increased investment costs to Merrill’s customers.”

 A UIT is a type of investment company that offers redeemable units, of a generally fixed portfolio of securities, that terminate on a specific date. UIT sponsors generally offer sales charge discounts to investors, known as “breakpoint discounts” and “rollover and exchange discounts.”

A breakpoint discount is a reduced sales charge based on the dollar amount of the purchase – the higher the amount the greater the discount. Breakpoints generally function as a sliding reduction in the sales charge percentage available for purchases, usually beginning at $25,000 or $50,000 (or the corresponding number of units).

 A rollover or exchange discount is a reduced sales charge that is offered to investors who use the termination or redemption proceeds from one UIT to purchase another UIT.

 It was noted that on March 31, 2004, FINRA issued a Regulatory Notice to firms titled, Unit Investment Trust Sales. The Notice reminds broker-dealers that they should develop and implement procedures to ensure customers receive appropriate sales charge discounts for UITs.

Also, prior to May 2008, however, Merrill Lynch’s written supervisory procedures had little to no information or guidance regarding UIT sales charge discounts. Even after the firm established procedures addressing UIT sales charge discounts, the procedures were inaccurate and conflicting.

 Merrill Lynch also approved for distribution, and for use in client presentations, inaccurate and misleading UIT sales literature. The presentation discussed sales charge discounts, but led clients to believe that they were only entitled to a discount if they used UIT proceeds to purchase a new UIT offered by the same sponsor.

Merrill Lynch’s procedures lacked substantive guidelines, instructions, policies or steps for brokers or their supervisors to follow to determine if a customer’s UIT purchase qualified for and received a sales charge discount. As a result of its defective procedures, between October 2006 and June 2008, the firm failed to appropriately apply discounts on rollover and breakpoint purchases resulting in customers being overcharged on their UIT purchases.

 As part of the settlement, Merrill Lynch is providing restitution to all customers who were overcharged when purchasing UITs through the firm, from January 2006 to the present. Merrill Lynch settled this matter without admitting or denying the allegations, but consented to the entry of FINRA’s findings.

This information was obtained from FINRA’s website.

If you feel you have become a victim of the alleged overpricing of Merrill Lynch’s UITs, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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