Securities Fraud Blog | Find out if your broker is liable for your losses

CAT | FINRA

Apr/11

12

Boca Raton Broker, James Robert Riolo, Barred by FINRA

James Robert Riolo (CRD #2609419, Registered Principal, Boca Raton, Florida)

 submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Riolo consented to the described sanction and to the entry of findings that he referred customers of his member firm to entities controlled by his relative, who was purportedly engaging in trading off-exchange foreign currency (forex) contracts, but in fact was running a fraudulent scheme. The findings stated that the customers invested more than $3.3 million with one entity, and for referring these customers, Riolo received more than $960,000 from his relative. The findings also stated that both entities were fraudulent schemes and Riolo’s relative was subsequently convicted and sentenced in court for his fraudulent activities.The findings also included that customers that Riolo referred lost a combined amount of over $120,000. FINRA found that in referring these customers to his cousin and receiving compensation, Riolo engaged in an outside business activity, but did not provide written notice or receive approval from his firm. FINRA also found that Riolo falsely stated in signed monthly compliance questionnaires that he was not engaging in any outside business activity. In addition, FINRA determined that Riolo failed to respond to FINRA requests for information and documents.

 This information was obtained on FINRA’s website.

 
If you feel you have been an alleged victim of  James Robert Riolo, or have become of victim of a similar situation, please call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visitwww.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.
 

 (FINRA Case #2010022499001)

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Attorney Lars Soreide has recently been contacted by investors who have placed their money in unlisted REITs (Real Estate Investment Trusts), particularly, but not limited to, Behringer Harvard REIT. An unlisted REIT is a real estate investment trust that is not traded on the national stock exchanges. Unlisted, or non-traded, REITS differ from listed REITs in that they are not traded in an open market. Non-traded REITs are sold to investors who hold the product until the end of an investment term.

Behringer Harvard REIT, and other non-traded REITs, have their value set by the  companies which sell them. A listed, or public, REIT is valued daily on the market in which it is traded. A non-traded REIT’s value is determined by the staff of the REIT, or a consultant paid for by the REIT.  This can be seen as a conflict of interest in the standard valuation procedure of a non-traded REIT.

 Allegedly, many customers were not made aware of the restrictions of these products and financial advisors failed to make the true risks of these investments known to retail investors who suffered the losses. Also, the broker’s fees make it very advantageous to the broker at roughly a 15% commission.

If you feel you have been an alleged victim of  Behringer Harvard REIT, or have become of victim of a similar situation with an unlisted REIT, please call a 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  the Financial Industry Regulatory Authority.

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Apr/11

12

UBS Ordered by FINRA to Pay Out $10.75M to Clients

Article after article has been written recently about the UBS Financial fine from FINRA.  In an April 11, 2011, article in InvestmentNews.com we get even further insight into the situation from Liz Skinner’s article.  Ms. Skinner wites that UBS Financial Services Inc. has agreed to pay $10.75 million in fines and restitution to settle Finra allegations that its advisers misled clients about the “principal protection” feature of a Lehman Brothers Holdings Inc. bond product sold a few months before that firm filed for bankruptcy.

FINRA or the Financial Industry Regulatory Authority Inc. said some UBS advisers didn’t understand the complexity of the 100% Principal-Protection notes that Lehman issued and failed to tell investors they were unsecured obligations. From March to June 2008, UBS Financial advertised the notes as if the principal was guaranteed as long as customers held the product to maturity, the self-regulator said. The principal isn’t guaranteed under a default.

It is widely known that Lehman Brothers filed for bankruptcy protection in September, 2008.

FINRA said that the structured notes also were “unsuitable” for some customers who purchased them, including those with “moderate” and “conservative” risk profiles.“In cases, UBS’ financial advisors did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer’s credit risk so investors would understand the magnitude of the potential losses,” Brad Bennett, Finra’s enforcement chief, said in a statement.

“UBS is pleased to have resolved this FINRA matter, under which UBS is required to reimburse a limited number of investors who purchased certain Lehman principal protection notes during a discrete 3 1/2 month period of time,” UBS said in a statement. “The significant majority of UBS’s Lehman structured product sales were conducted properly and any client losses were the direct result of the unprecedented and unexpected failure of Lehman Brothers in 2008, which affected all Lehman investors.”

The InvestmentNews.com article reinforces that UBS has agreed to pay $2.5 million in fines and return $8.25 million to customers to settle the case. It neither admitted nor denied the charges.

If you feel you have been an alleged victim of  UBS Financial Services Inc, or have become of victim of a similar situation, please call a 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  the Financial Industry Regulatory Authority.

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WASHINGTON — It was announced today in an article on FINRA’s website that The Financial Industry Regulatory Authority (FINRA) has fined UBS Financial Services, Inc., $2.5 million, and required UBS to pay $8.25 million in restitution for omissions and statements made that effectively misled some investors regarding the “principal protection” feature of 100% Principal-Protection Notes (PPNs) Lehman Brothers Holdings Inc. issued prior to its September 2008 bankruptcy filing.

 The article describes PPNs as fixed-income security structured products with a bond and an option component that promise a minimum return equal to the investor’s initial investment. 

It was noted that from March to June 2008 as the credit crisis worsened, UBS advertised and some UBS financial advisors described the structured notes as principal-protected investments and failed to emphasize they were unsecured obligations of Lehman Brothers, which eventually filed for bankruptcy in September 2008.

 FINRA announced in it’s findings that UBS:

  • failed to emphasize adequately to some investors that the principal protection feature of the Lehman-issued PPNs was subject to issuer credit risk;
  • did not properly advise UBS financial advisors of the potential effect of the widening of credit default swap spreads on Lehman’s financial strength, or provide them with proper guidance on the use of that information with clients;
  • failed to establish an adequate supervisory system for the sale of the Lehman-issued PPNs, and failed to provide sufficient training and written supervisory policies and procedures;
  • did not adequately analyze the suitability of sales of the Lehman-issued PPNs to certain UBS customers;
  • created and used advertising materials that had the effect of misleading some customers about specific characteristics of PPNs

The article goes on to say that FINRA found that some of UBS’ financial advisors did not understand the product, including the limitations of the “protection” feature. Consequently, certain financial advisors communicated incorrect information to their customers. Also, certain advertising materials had the effect of misleading customers regarding the characteristics and risks of the PPNs, including the nature, scope and limitations of the 100% Principal-Protection Notes. The materials suggested that a return of principal was guaranteed if customers held the product to maturity; however, UBS did not adequately address the importance that credit risk could result in loss of principal.

Also, Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “This matter underscores a firm’s need to be clear and comprehensive in disclosing risks of the structured products it sells to retail investors. In cases, UBS’ financial advisors did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer’s credit risk so investors would understand the magnitude of the potential losses.”

UBS’s suitability procedures were also lacking. UBS did not have risk profile requirements for certain PPNs; therefore, the PPNs were sold to some investors for whom the product was not suitable, including investors with “moderate” and “conservative” risk profiles. Moreover, these particular investors were more likely to rely on UBS’ representations about the “100% principal protection” feature of Lehman PPNs because of their risk averse investment objectives.

 In settling this matter, UBS neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

If you feel you have been an alleged victim of  UBS Financial Services Inc, or have become of victim of a similar situation, please call a 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  the Financial Industry Regulatory Authority.

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Apr/11

11

Stuart Phillip Miller Sanctioned by FINRA

Stuart Phillip Miller (CRD #4851567, Registered Representative, San Diego, California)

 

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000 and suspended from association with any FINRA member in any capacity for one year. The fine must be paid either immediately upon Miller’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Miller consented to the described sanctions and to the entry of findings that he and another individual were trainees in a member firm’s professional development program and formed a partnership through which they jointly solicited and handled customer accounts as well as splitting any production credits that either generated. The findings stated that as part of their efforts to attract clients, Miller and the individual created a spreadsheet that set a model fund portfolio that they either presented to potential customers during meetings or sent by email or mail to prospective customers. The findings also stated that Miller and the individual sent a version of their model fund portfolio that included a mix of conservative and risky securities along with a chart of history of returns the individual securities and overall portfolio earned; Miller and the individual, in some communications with potential customers, misrepresented that this was a portfolio that they managed and that the stated returns were their returns. The findings also included that neither Miller nor the individual sought or received a firm supervisor’s prior approval for the use of the model fund portfolio or permission of its dissemination, nor was the model portfolio’s spreadsheet filed with FINRA’s Advertising Regulation Department, within 10 business days after first dissemination of the material as required.

FINRA found that the model fund portfolios did not include any information regarding the risks associated with the funds, and the chart did not include a sound basis for the performance evaluation for each of the securities included in the portfolio. FINRA also found that the model portfolio failed to identify or to display in a prominent fashion Miller’s and the other individual’s association with their firm. In addition, FINRA determined that Miller had his assistant type up a stop transfer letter and he forged the customer’s signature on the letter meant to prevent the customer from transferring his account to another firm. Moreover, FINRA found that Miller admitted to his branch manager that he had forged the stop transfer request and the firm immediately terminated Miller’s employment.

The suspension is in effect from February 7, 2011, through February 6, 2012.

 

(FINRA Case #2009018219101)

 

 This information was obtained on FINRA’s website.

If you feel you have been a victim of these alleged fraudulent schemes of Stuart Phillip Miller, call a 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  the Financial Industry Regulatory Authority.

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Apr/11

11

FINRA Fines and Suspends Michael Joseph McCullough

 

Michael Joseph McCullough (CRD #2838632, Registered Representative, St. Paul, Minnesota)

 

 submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for 45 days. Without admitting or denying the findings, McCullough consented to the described sanctions and to the entry of findings that he devised a strategy for allowing customers who owned shares in his member firm’s Asset Strategy Mutual Fund to avoid tax liability for a capital-gains distribution and instead to realize a tax loss on their mutual fund holdings for the year. The findings stated that on McCullough’s recommendation, customers liquidated their holdings in the Asset Strategy Fund before the fund made a distribution. The findings also stated that at McCullough’s recommendation, the customers held the liquidation proceeds in cash for a brief period before reinvesting those moneys in other firm mutual funds. The findings also included that McCullough believed that it was necessary to structure the transaction this way to achieve the desired tax benefit.

 

 

FINRA found that the customers collectively paid $27,239 in sales charges on their new mutual-fund purchases, of which McCullough received $13,650 as commissions. FINRA also found that these sales charges largely—but not entirely—negated the tax benefit to each customers of avoiding capital-gains liability. In addition, FINRA determined that had the customers simply exchanged their Asset Strategy Fund shares for shares of other funds within the same family of funds, they would not have incurred any sales charges, and their net gain would have been substantially larger. Moreover, FINRA found that at the time of the transactions at issue, McCullough was unaware that the affected customers could have achieved the desired tax savings through a mutual fund exchange, while also avoiding any sales charges. Furthermore, FINRA found that although this information was readily available, McCullough neglected to review relevant IRS publications or to consult with anyone else at his firm about more cost-effective ways of achieving the desired tax benefits. The findings also stated that McCullough provided misleading information to his firm in a Purchase Account Service Request that he prepared in connection with each of the customers’ mutual-fund repurchases; McCullough answered “no” on each customer’s form as to whether the proceeds from the sale of another security were being used to open the account despite the fact that each customer’s purchase occurred within a matter of days of the customer’s liquidation, and in amounts either equal or nearly equal to the liquidation amounts.

The suspension is in effect from February 22, 2011, through April 7, 2011.

 

(FINRA Case#2009017951701)

 

 

If you feel you have been a victim of the alleged fraudulent schemes of Michael Joseph McCullough, call a 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  the Financial Industry Regulatory Authority. 

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Apr/11

11

Stanley Jerome Keyes Sanctioned by FINRA

 

 

Stanley Jerome Keyes (CRD #1211573, Registered Principal, Crowley, Louisiana)

 

submitteda n Offer of Settlement in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for three months. Without admitting or denying the allegations, Keyes consented to the described sanctions and to the entry of findings that he borrowed at least $214,000 from customers without disclosing such borrowings to his member firm, and used the loan proceeds to meet personal financial obligations. The findings stated that each loan was an undocumented personal loan and functioned like line of credit; Keyes would borrow an amount, repay a portion and then borrow additional funds. The findings also stated that Keyes repaid the outstanding balances owed to each of the customers but did not fully repay two customers until after he was terminated from his member firm and FINRA began its investigation. The findings also included that Keyes failed to disclose the existence of the initial loans or the subsequent borrowings from them to his firm contrary to firm policy forbidding registered representatives from borrowing funds from customers except under certain circumstances, none of which fit Keyes’ borrowing. FINRA found that Keyes was aware of the firm’s procedures, certified to the firm that he had received and read the firm’s policies and procedures, and understood that he was prohibited from borrowing money from customers. FINRA also found that Keyes falsely certified to the firm that he had not received checks from customers made payable to him, and had not borrowed money from customers.The suspension is in effect from February 22, 2011, through May 21, 2011.

(FINRA Case #2009017605101)

 This information was obtained on FINRA’s website.

If you feel you have been an alleged victim of  Stanley Jerome Keyes, or have become of victim of a similar situation, please call a 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  the Financial Industry Regulatory Authority.

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Apr/11

10

Firms that Sold TICs from DBSI

Broker-dealers that sold tenant in common exchanges from the now-bankrupt DBSI    Commissions generated  
Berthel Fisher & Co. $5,581,000
QA3 Financial Corp. $5,455,000
DeWaay Financial Network Inc. $3,632,000
The Private Consulting Group (Closed March 2009) $3,580,000
Questar Capital Corp. $2,128,000
AFA Financial Group Inc. (Closed in April 2010) $2,000,000
Investors Capital $1,648,000
G.A. Repple & Co. $1,525,000
Equity Services Inc. $1,348,000
KMS Financial Services Inc. $1,341,000
Alternative Wealth Strategies Inc. $1,120,000
First Montauk Securities Corp. (Closed December 2008) $1,113,000
J.P. Turner Co. LLC $898,000
CapWest Securities Inc. $774,000
Direct Capital Securities Inc. (Closed February 2010) $734,000
LaSalle St. Securities $685,000
GunnAllen Financial Inc. (Shut down March 2010) $661,000
Fintegra LLC $597,000
Steven L. Falk & Associates $581,000
Askar Corp. $578,000
American Independent Securities Group $524,000
Capital Financial Services $481,000
National Securities Corp. $454,000
Calton & Associates $435,000
Intermountain Financial Services Inc. $411,000
Advisory Group Equity Services Ltd. $410,000
Brecek & Young Advisors Inc. (Merged into Securities America Corp. in 2009) $383,000
Milestone Financial Services Inc.(Closed in October 2008) $373,000
Capital Analysts Inc. $339,000
Beneficial Investor Services (firm’s status as broker-dealer unclear) $322,000
Fox & Company Investments Inc. (Closed December 2008) $317,000
Private Asset Group Inc. (Closed in April 2010) $316,000
Alliance Affiliated Equity Corp. $304,000
Sigma Financial Corp. $279,000
OMNI Brokerage Inc. $271,000
K-One Investment Co. Inc. (Closed June 2009) $268,000
Empire Securities Corp. (Closed April 2010) $265,000
Burch and Company $260,000
Regent Capital Group Inc. $252,000
J.W. Cole Financial Inc. $244,000
Investment Security Corp. $236,000
Professional Asset Management Inc. $235,000
TransAm Securities Inc. $233,000
American Wealth Management Inc. $225,000
Axiom Capital $214,000
MCL Financial Group Inc. $210,000
Girard Securities Inc. $204,000
Pavek Investments $197,000
Philip Oleson (Registered rep affiliated with Independent Financial Group LLC) $195,000
Inlet Securities LLC $191,000
Cullum & Burks Securities Inc. (Shut down in May 2010) $189,000
Sammons Securities Co. LLC $186,000
Empire Financial Group Inc. (Closed November 2008) $185,000
Midpoint Financial Services Inc. (Closed December 2008) $168,000
Cambridge Investment Research Inc. $149,000
Regal Securities Inc. $135,000
Crews & Associates Inc. $130,000
Finance 500 Inc. $127,000
Ogilvie Security Advisors Corp. $123,000
NEXT Financial Group Inc. $121,000
Portfolio Advisors Alliance Inc. $120,000
American Portfolios Financial Services Inc. $116,000
Partnervest Securities Inc. $114,000
Partnervest Financial Group LLC (holding company for Partnervest Securities) $114,000
Great Northern Financial Securities Inc. (Closed in March 2006) $109,000
Harrison Douglas Inc. $108,000
The Street Inc. $105,000
Sterling Enterprises Group Inc. $88,000
Nations Financial Group Inc. $88,000
Intervest International Equities Corp. $79,000
Mid Atlantic Capital Corp. $75,000
Resource Horizons Group LLC $66,000
Basic Investors Inc. (Closed in October 2008) 64,000
Costa Financial Securities Inc. (Shut down February 2008) $62,000
Sanders Morris Harris Inc. $61,000
MICG Investment Management LLC (Shut down May 2010) $59,000
Merrimac Corporate Securities Inc. $58,000
Dawson James Securities Inc. $57,000
RP Capital LLC $51,000
Brewer Financial Services LLC $48,000
NFP Securities Inc. $45,000
Centaurus Financial Inc. $44,000
Courtlandt Financial Group Inc., securities offered through Courtlandt Securities Corp. $39,000
Independent Financial Group LLC $36,000
Capital Management Securities Inc. $35,000
Morgan Peabody Inc. (Closed October 2008) $33,000
CFD Investments Inc. $33,000
Money Concepts Capital Corp. $29,000
Notman Financial Group (affiliated with Berthell Fisher) $20,000
Capital Quest Securities Inc. $20,000
Charter Pacific Securities LLC (Closed October 2008) $19,000
NewBridge Securities Corp. $17,000
Great American Advisors Inc. $16,000
Okoboji Financial Services (Closed May 2010) $15,000
Miller Johnson Steichen Kinnard Inc. (Closed in January 2008) $15,000
Northland Securities Inc. $14,000
Mcginn Smith & Co. Inc. (Closed in August 2010) $11,000
Total $48,623,000

This information was obtained from an article in InvestmentNews.com

If you feel you have been an alleged victim of these broker-dealers that sold TICs from DBSI, call a 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  the Financial Industry Regulatory Authority.

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Apr/11

10

Broker-Dealers that Sold Provident Royalties Private Placements

 Firm name   Total sales   Total commission paid to BD  
Advisory Group Equity Services Ltd. $110,000 $70,650
AFA Financial Group LLC $2,455,000 $456,150
American Portfolios Financial Services Inc. $585,000 $66,650
Asset Management Strategies LLC $220,000 $2,250
Ausdal Financial Partners Inc. $100,000 $2,250
Barron Moore Inc. $250,000 $96,750
Boogie Investment Group Inc. $410,000 $110,150
Brookstone Securities Inc. $460,000 $76,500
Callaway Financial Services Inc. - $22,500
Calton & Associates Inc. $300,000 $40,750
Capital Financial Services Inc. $33,655,000 $5,510,725
CapWest Securities Inc. $21,745,000 $3,058,700
Chester Harris & Co. $340,000 $297,500
Community Bankers Securities LLC $2,780,000 $355,950
Crescent Securities Group - $9,375
David Harris & Co. Inc. $850,000 $94,000
DeWaay Financial Network LLC $850,000 $134,525
Eagle One Investments LLC $360,000 $42,500
Empire Financial Group Inc. $2,750,000 $234,200
Empire Securities Corp. $205,000 -
E-Planning.com Securities Inc. $3,765,000 $483,925
First Allied Securities Inc. $380,000 $11,250
Gk Securities LLC $50,000 -
Grant Bettingen Inc. $215,000 $19,350
GunnAllen Financial Inc. $22,255,000 -
Harrison Douglas Inc. $1,830,000 $569,900
Independent Financial Group $495,000 -
INVEST Financial Corp. $100,000 -
Investlinc Securities LLC $2,095,000 $183,275
Investors Capital Corp. $3,400,000 $427,975
J.P. Turner & Co. LLC $11,600,000 -
Jesup & Lamont Securities Corp. $100,000 $13,500
Kaiser & Co. $100,000 $160,650
Lighthouse Capital Corp. $250,000 $33,750
Main Street Securities LLC $205,000 $45,450
Matheson Securities LLC $100,000 $37,800
Milkie Ferguson Investments Inc. $4,145,000 $480,350
Morrow Wealth Management $30,000 -
National Securities Corp. $3,665,000 $437,250
Newbridge Securities Corp. $25,000 $15,750
NEXT Financial Group Inc. $33,485,000 $3,190,200
Okoboji Financial Services Inc, $21,910,000 $2,261,225
Private Asset Group Inc. $2,015,000 $204,150
Provident Asset Management $50,000 -
QA3 Financial Corp. $32,585,000 $6,974,450
Questar Capital Corp. $250,000 $24,125
Securian Financial Services Inc. $50,000 -
Securities America Inc. $17,995,000 $3,723,475
Securities Network LLC $215,000 $89,550
SII Investments Inc. $100,000 -
Sterling Enterprises Group Inc. $100,000 $13,000
Summit Brokerage Services Inc. $560,000 $81,000
Unaffiliated Broker-Dealer $150,000 -
United Equity Securities LLC $660,000 $173,200
United Securities Alliance Inc. $550,000 $401,850
Waterford Investor Services Inc. - $2,250
Wedbush Morgan Securities Inc. $325,000 -
WestPark Capital Inc. $785,000 $114,250
WFP Securities Corp. $6,755,000 $1,286,775
Williams Financial Group Inc. $175,000 -
Workman Securities Corp. $9,045,000 $1,239,025
  $250,990,000 $33,380,775

 

Source: U.S. Bankruptcy court filings, Northern District of Texas, case # 09-33886

Obtained from InvestmentNews.com

If you feel you have been an alleged victim of these broker-dealers and were sold Provident Royalties private placements, call a 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  the Financial Industry Regulatory Authority.

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Apr/11

10

Reg D crackdown by FINRA

As a follow up to our posting from Finra, the following is an article by Bruce Kelly on April 7, 2011, in InvestmentNews.com dealing with the Finra Reg D crackdown. 

Kelly says that Finra has unleashed its first round of fines and sanctions against broker-dealers and executives from firms that sold private placements that have collapsed. In doing so, the industry’s self-regulator cited a lack of due diligence by both firms and executives in selling the high-risk products.

Finra, or the Financial Industry Regulatory Authority Inc. named two series of private placements, notes issued by Medical Capital Holdings Inc. and preferred stock from Provident Royalties LLC, as problematic. Finra imposed the sanctions against the firms and execs for failing to conduct a reasonable investigation of the sale of those products. In 2009, the Securities and Exchange Commission charged both those private-placement sponsors with fraud.

The largest fine — $700,000 — was levied on Workman Securities Corp., which was ordered to pay $700,000 in restitution to clients. InvestmentNews previoulsy reported that sanction.

Finra fined another broker-dealer, Askar Corp., $45,000 for failure to conduct due diligence of private placements from DBSI Inc., a failed real estate syndicator that is now in bankruptcy.

Kelly goes on to say that the firm generated $578,000 in commissions from sales of DBSI’s tenant-in-common exchanges, according to court documents All three products — Medical Capital notes, Provident stock and DBSI tenant-in-common exchanges — were wildly popular products sold by dozens of independent broker-dealers in the last decade. Some of the biggest sellers of the deals, QA3 Financial Corp., GunnAllen Financial Inc. and Okoboji Financial Services Inc., have since shut down, unable to bear the cost of lawsuits stemming from angry clients who bought the products.

Workman’s reps sold a little more than $9 million of Provident Royalties private placements, from last summer in the Northern District of Texas bankruptcy. The amount of Medical Capital notes the firm’s reps sold to investors is not known. Finra specified that the $700K is to go to Workman’s clients as restitution.

Finra’s series of actions,  focused on executives at broker-dealers failing to look into or investigate the private placements their firms sold. The regulator’s crackdown undoubtedly will hit a nerve with many small and midsize independent broker-dealers, many of whom claim they don’t have the resources to investigate the private placements they sell. Instead, the firms tend to rely on outside due diligence professionals, mostly attorneys, to examine and analyze the products. But those due diligence attorneys often take fees to write reports from the product sponsors. Much like sell-side research on Wall Street, the lawyers’ financial relationships with sponsors raises questions about potential conflicts of interest.

Private placements were high-commission products, typically offering reps and advisers a commission of 7% or 8%. Broker-dealers and the executives should have looked at the private-placement offerings much more closely, Brad Bennett, Finra executive vice president and chief of enforcement, noted in a statement.

“Senior officials at these firms failed to fulfill their responsibilities to customers by not conducting reasonable investigations of these unrelated offerings, especially in light of multiple red flags suggesting liquidity concerns, missed interest payments and defaults,” Mr. Bennett stated. “Finra will continue to look closely at sales of both affiliated and unaffiliated private placements to determine whether the selling firms fulfilled their responsibility to customers.”

Finra barred or suspended seven executives as part of its action. Each signed letters of acceptance, waiver and consent, and neither admitted nor denied the findings. The two broker-dealers also signed such letters.

David William Dube, owner of the defunct Peak Securities Corp., was barred.

Timothy Cullum, former CEO of now-defunct Cullum & Burks Securities Inc., was suspended for six months as a principal and fined $10,000. Steven Burks, former president of the B-D, received the same sanction.

Robert Vollbrecht, Workman’s former president, was barred as a principal and fined $10,000.

The InvestmentNew.com article goes on to say that in  addition, two former executives at Capital Financial Services Inc., Jeffrey Lindsey and Bradley Wells, were suspended as principals for six months and fined $10,000 each. Likewise, Jay Lynn Thacker, one-time chief compliance officer at Meadowbrook Securities LLC, which was formerly InvestLinc Securities LLC, was hit with the same suspension and fine.

If you feel you have been a victim of these alleged fraudulent schemes, call a 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  the Financial Industry Regulatory Authority.

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