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

 (FINRA Case #2010022499001)

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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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Washington, D.C., Aug. 13, 2010 — Today, the Securities and Exchange Commission, Financial Industry Regulatory Authority (FINRA) and North American Securities Administrators Association (NASAA) 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 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.

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.”

Nearly 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.

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.”

FINRA Executive Vice President and head of Sales Practice, Susan Axelrod, 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.

It is noted that 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.

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In an article from bloomberg.com, Jodie Shenn and Zeke Faux write that Wall Street banks are creating the “next investment bubble” by selling opaque and unregulated structured notes to investors hunting for yield, according to Christopher Whalen, managing director of Institutional Risk Analytics.

By using the same “loophole” that allowed over-the-counter sales of collateralized debt obligations and auction-rate securities, firms are pitching illiquid structured notes whose value is partly derived from bets on interest rates, Whalen wrote today in a report.

Whalen, who predicted in March 2007 the collapse of the mortgage-backed securities market, said that these structured notes “promise enhanced yields that go well into double digits” and “often come with only minimal disclosure.”

“The only trouble is that the firms originating these ersatz securities, as with the case of auction-rate municipal securities, have no obligation to make markets in these OTC structured assets or even show clients a low-ball bid,” Whalen wrote.

The dealers say they buy the securities back from investors, providing liquidity, according to Keith Styrcula, chairman of the Structured Products Association, a trade group that organizes industry conferences. The products are used by sophisticated investors to make tailored bets, he said.

“While it’s true that firms make clear in the prospectuses that they are under no legal obligation to provide liquidity, they have provided it over the last two decades without a single hiccup,” Styrcula said today in a telephone interview.

Based on ‘Nothing’

The structured notes, which are derivatives packaged with bonds, are sold to accredited buyers in private deals and to the public in trades reported to the Securities and Exchange Commission. Sales of the securities to individual investors in the U.S. rose 72 percent from a year ago to $29.6 billion through July, according to StructuredRetailProducts.com, a database used by the industry.

“Even as the big banks make a public show for the media of implementing the new Dodd-Frank law with respect to limits on own account trading and spinning off private equity investments, these same firms are busily creating the next investment bubble on Wall Street — this time focused on structured assets based upon corporate debt, Treasury bonds or nothing at all — that is, pure derivatives,” Whalen wrote.

Hedge Funds

The financial regulatory reform legislation known as the Dodd-Frank Act, signed by President Barack Obama on July 21, prohibits banks from engaging in proprietary trading and limits investments in private-equity funds.

Individual investors, who “love the higher yields” on structured notes, will lose money when benchmark interest rates climb, according to Whalen.

“We already know of two hedge funds that are being established specifically to buy this crap from distressed retail investors as and when rates start to rise,” said Whalen, a former Federal Reserve Bank of New York official and co-founder of the Torrance, California-based research firm.

This article was from bloomberg.com.

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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Florida –On August 4, 2010 the Florida Office of Financial Regulation (OFR)released the 2010 list of most commonly used cons or traps investors should avoid.  Regulators found as the impact of the financial crisis continues along Main Street, investors seeking to jump-start their investment portfolios are most vulnerable and need to be wary of these popular scams.

• Exchange-Traded Funds (ETFs). While ETFs resemble mutual funds in many respects, some, such as leveraged and inverse ETFs, may contain hidden traps and complexities, and may consist of highly leveraged bundles of exotic financial instruments, including options and other derivatives. Given their potential for volatility, leveraged ETFs may not be suitable for most retail investors. These types of ETFs are primarily designed for short-term trading (such as day-trading), and not for buy-and-hold strategies. Also be aware that some ETFs are thinly traded and may not always be liquid.

• Foreign Exchange Trading Schemes. Currency trading and foreign exchange (forex) trading schemes can be particularly harmful to unsuspecting investors. Trading in foreign currencies requires resources far beyond the capacity of most individual investors. Promoters profit by charging high commissions or selling investment strategies assuming that trades are actually made.  In some instances, salesmen and promoters who claim to have complex algorithms or propriety software programs which allow them to beat the market are actually just running Ponzi schemes. Too often, state regulators have encountered situations where there are no trades; the money is simply stolen.

• Gold and Precious Metals. High gold prices have trapped some investors in gold bullion scams in which a seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor when it gains in value. In many instances the gold does not exist. Investors have also been harmed by promoters pitching investment pools in precious metal commodities and gold mines.

• Green Schemes. Investment opportunities tied to the development of new energy-efficient “green” technologies are increasingly popular with investors and scammers alike. Scammers also exploit headlines to cash in on unsuspecting investors, whether from investments related to the clean-up of the Gulf of Mexico oil spill or the rising national interest in environmental innovations tied to “clean” energy, such as wind energy, wave energy, carbon credits and other alternative energy financing.

• Oil & Gas Schemes. Regardless of the price at the pump, fraudulent energy promoters continue to capitalize both on interest in the commodity and on oil and gas as investment alternatives to the stock market. Oil and gas investments tend to be highly risky and unsuitable for traditional, smaller investors who cannot afford the risk. Securities investments offering profit participation in oil and gas ventures can be legitimate, but even when the underlying project is genuine, any revenues realized can be absorbed by high sales commissions paid to the promoter and dubious “expenses” skimmed off by the managing partner. Some promoters, many of whom have had past run-ins with regulators, have attempted to structure their “joint ventures” or “general partnerships” to avoid securities regulation and deprive investors of important protections.
 

• Affinity Fraud. Scam artists have found it lucrative to abuse membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Typical affinity groups include religious, ethnic, professional, educational, language, age and any other group with shared characteristics that allow investors to trust members of the group. Rather than trusting a person or company due to a common affiliation, investors should seek further information about the investment from an unbiased, independent source and review both the promises and risks.
• Undisclosed Conflicts of Interest. When obtaining investment advice about securities, investors need to know that not all advice is given with their best interest at heart. Some salespeople can receive lucrative commissions when they sell a product that is risky or inappropriate for an investor, but don’t have to disclose that financial incentive. Investors should demand that anyone giving advice or recommendations disclose how they are compensated.

• Private or Special Deals. Some investors encounter investment opportunities or deals couched as “private” or only for “special” clients. While securities laws do offer businesses the opportunity to raise capital by selling securities to a relatively small number of investors in a non-public offering, these securities are not subject to the same review as others. Many state securities regulators have seen continued or increased abuse of fraudulent private offerings made under federal exemptions or not regulated at all. Although properly used by many legitimate issuers, private offerings have become an attractive option for con artists looking to steal money from investors by promoting the special or private nature of these schemes and by making false and misleading representations.

• “Off the Books” Deals. “Off the books” sales are an increasingly common threat to investors. Be cautious if your broker offers an investment on the side instead of one sold through his or her employer. These “off books” investments may not only be illegal, but they can also be especially risky without the oversight and supervision of the broker’s employer.

• Unsolicited Online Pitches. Promoters of fraudulent investment schemes are moving beyond e-mail and turning to social media and online communities, such as Facebook, Twitter, Craigslist and YouTube to solicit unsuspecting investors. Some may use these sites to spread misinformation to artificially inflate the value of stock before selling in a “pump and dump” scheme. Others may promise high-yield, tax-free returns from investments in offshore markets. Once the money is sent to another country and is in someone else’s control, investors may not be able to get it back. In many cases, these offers turn out to be Ponzi schemes. Investors should approach any unsolicited investment opportunity with suspicion.

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In June, the SEC  froze the assets of a Virgin Islands-based man and charged him with running a $106 million Ponzi scam. Daniel Spitzer, of St. Thomas, claimed his many businesses never lost money and that one year they paid returns of 184.15 percent. But actually, the SEC says, he dished out $72 million as Ponzi payments and allegedly spent a lot on himself, including $900,000 in cash at the Wynn Las Vegas Casino.

According to the SEC’s complaint filed in U.S. District Court for the Northern District of Illinois, Spitzer conducted his fraudulent ponzi scheme, which involved 400 investors, from at least 2004 to the present. He only invested approximately $30 million of the more than $105 million he raised from investors. Of that amount, Spitzer used approximately $13.5 million to invest through an offshore entity via a bank account in the Netherlands Antilles. These investments, some of which were placed in a French financial institution, lost money and were subsequently liquidated. Spitzer used another $16 million to invest in money market funds that earned only a few thousand dollars. Spitzer liquidated these investments as well. After the investments were liquidated, the money was returned to Spitzer, and he used it to repay investors in Ponzi-like fashion. To cover up his scheme, Spitzer issued to his investors false Schedule K-1s that showed inflated returns and led them to believe that their investments were profitable.

Further, the SEC’s complaint alleges that Spitzer used offshore bank accounts to pay purported business expenses of his companies. Spitzer deposited investor funds into bank accounts at the National Bank of Anguilla and the First Bank of Puerto Rico, from which he paid more than $15 million in purported operating expenses and payments to himself and various sales agents. Spitzer also used more than $4.8 million to pay third-party business expenses.

Also named defendants in the case were these Spitzer-connected companies: Kenzie Financial Management Inc. of St. Thomas; Kenzie Services LLC of Nevis; Draseena Funds Group Corp., an Illinois corporation with offices in Clearwater, Fla., and Stateline, Nev.; DN Management Co. LLC of Nevada; Aneesard Management LLC, also known as Nerium Management Co. LLC of Nevada; Nerium Management Co. of Illinois; Arrow Fund LLC of Nevada; Arrow Fund II LLC of Nevada; Conservium Fund LLC of Nevada; Nerium Currency Fund LP of Nevada; Senior Strength Q Fund LLC of Nevada; SSecurity Fund LLC of Nevada; Three Oaks Advanced Fund LLC of Nevada; Three Oaks Currency Fund LP of Nevada; Three Oaks Fund 25 LLC of Nevada; Three Oaks Senior Strength Fund LLC of Nevada; and USFirst Fund LLC of Nevada.

If you are a victim of the alleged fraudulent schemes of  Daniel Spitzer or any of his agents in the above named Spitzer-connected companies, 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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WASHINGTON — On July 22, 2010, the Financial Industry Regulatory Authority (FINRA) announced that it ordered SunTrust Investment Services, Inc. of Atlanta, GA, to pay $1.44 million to resolve charges related to unsuitable unit investment trust (UIT), closed-end fund (CEF) and mutual fund transactions. Of that amount, $900,000 is a fine that includes nearly $224,000 in disgorgement of commissions earned on the unsuitable trades. The remaining $540,000 represents restitution to 17 customers who incurred losses.

As part of this settlement, SunTrust must also review all UIT purchases and provide remediation to all eligible customers who did not receive the maximum sales charge discount.

“Firms must monitor for patterns of UIT and closed-end fund sales to ensure that such sales are suitable for the customer,” said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. “SunTrust failed to meet that obligation, which caused its customers, including elderly customers, to incur significant losses.”

It was reported that FINRA found that SunTrust, through two brokers in the firm’s Maryland Region, engaged in a pattern of unsuitable short-term UIT, CEF and mutual fund transactions in accounts of 17 customers, most of whom were elderly and/or disabled. The brokers also engaged in unsuitable margin transactions in the accounts of 10 of the 17 customers. In addition, FINRA found that SunTrust failed to ensure that eligible customers received the maximum sales charge discount on UIT purchases and lacked adequate systems and procedures for monitoring and supervising UIT, CEF and margin transactions.

FINRA previously sanctioned one of the individual brokers involved in this matter, David Bredenburg of Timonium, MD, permanently barring him from working in the securities industry. FINRA has filed a complaint against the second broker, charging him with numerous violations, including unsuitable recommendations, sales and use of margin; failure to provide maximum sales charge discounts on UIT transactions; and, engaging in discretionary trading in customer accounts without written authorization. FINRA also suspended the two brokers’ former supervisor, Donald Mattran of Bel Air, MD, for six months in any principal capacity and fined him $10,000.

FINRA found that between February 2004 and November 2006, SunTrust, through Bredenburg and, it is alleged, the second broker, recommended 294 unsuitable short-term UIT, CEF and mutual fund transactions in the accounts of 17 customers. The two brokers repeatedly recommended that the customers sell UITs and CEFs less than one year – and sometimes as soon as one month – after purchasing the securities at the broker’s recommendation, with little or no economic benefit to the customer.

FINRA further found that SunTrust, through the two brokers, recommended to 10 of those customers unsuitable purchases and sales of securities on margin – failing to adequately disclose the risks and costs of trading on margin and lacking a reasonable basis for their recommendations. As a result, the customers paid over $133,000 in margin interest.

FINRA also found that SunTrust lacked adequate systems and procedures to monitor UIT and CEF transactions and margin accounts, and to ensure that customers purchasing UITs received applicable sales charge discounts.

FINRA’s action barring Bredenburg found that between February 2004 and March 2009 – while he was registered first with SunTrust and later with Merrill Lynch – Bredenburg recommended at least 167 unsuitable short-term UIT and CEF transactions, including switches, to 13 customers who were elderly, retired or disabled and who had conservative to moderate investment profiles. He also recommended unsuitable transactions on margin and unsuitable variable annuity liquidations. FINRA further found that Bredenburg failed to disclose to customers the costs and fees associated with short-term CEF and UIT transactions, failed to ensure that customers received maximum sales charge discounts on UIT purchases and engaged in discretionary trading without prior written authorization.

Furthermore, FINRA found that between February 2004 and December 2005, Mattran and SunTrust approved each short-term transaction, including transactions placed using margin, and did not respond adequately to red flags suggesting that the transactions were unsuitable. For example, the trade blotter listed over 200 sales of UITs and CEFs among the 17 customers’ accounts and compliance reviews in August 2004 and April 2005 alerted Mattran and the firm to questionable short-term UIT and CEF transactions by both brokers.

FINRA found that between August 2008 and February 2009, while registered with Merrill Lynch, Bredenburg accessed a customer’s Merrill Lynch brokerage account through the internet and, without the customer’s knowledge, transferred funds from the customer’s account to pay Bredenburg’s personal expenses, including mortgage, car loan and credit cards. Merrill Lynch has compensated firm customers affected by Bredenburg’s misconduct.

In concluding these settlements, SunTrust, Bredenburg and Mattran neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. FINRA’s charges against the second broker alleged to be involved are pending.

 This information was obtained from the FINRA website.

If you have invested into UTI’s and have had significant losses or if you feel you are a victim of the alleged fraudulent schemes of  David Bredenburg, Donald Mattran, or SunTrust Investment Services, Inc, 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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Washington, D.C. —It was announced July 16, 2010, that the Securities and Exchange Commission’s division that reviews public company filings is creating three specialized offices to enhance its disclosure review and policy operations.

“These changes will help us focus our resources more sharply on critically important institutions and financial products so we can stay ahead of the curve and better protect investors,” said Meredith Cross, Director of the SEC’s Division of Corporation Finance.

The new offices in the Division of Corporation Finance will focus on large financial institutions, asset-backed securities and other structured products, and securities offering trends.

The three new offices are:

• A disclosure review office that will expand the Division’s enhanced reviews of large financial services companies.
• An office focused exclusively on disclosure reviews and policy-making for asset-backed securities and other structured finance products.
• An office that will review new securities products and capital markets trends and develop recommendations for changes to enhance investor protection in securities offerings.

Enhanced Reviews of Large and Financially Significant Companies

Ever since late 2008, the Division has been conducting continuous real-time reviews of the periodic reports filed by some of the largest bank holding companies and other large financial institutions. Through its new financial services review office, the Division will be able to increase the number of institutions subject to these reviews, concentrate staff expertise, and develop new review techniques to further strengthen its review program. The new office also will facilitate sharing information about the firms it reviews with others throughout the agency involved in regulatory oversight of these firms.

ABS and Other Structured Finance Products

It was announced that this new office will review disclosures in asset-backed securities and other structured finance products and monitor their impact on the markets. The office will also lead rulemaking and interpretive activities related to structured products.

Capital Market Trends

This new office will evaluate trends in securities offerings and capital markets to determine whether rules and regulations are keeping pace and working effectively. The office also will conduct market research and selectively review securities offering documents and coordinate the Division’s consideration of new products.

This 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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WASHINGTON — July 15, 2010–The Financial Industry Regulatory Authority (FINRA) warned investors today about Internet-based Ponzi schemes called high-yield investment programs (HYIPs), which purport to offer returns of 20, 30, 100 percent or more per day. HYIPs are unregistered investments sold by unlicensed individuals using sophisticated-looking websites.

 As noted in FINRA’s article, the con artists behind HYIPs are experts at using social media — including YouTube, Twitter and Facebook — to lure investors and create the illusion of social consensus that these investments are legitimate, but investors should know that HYIPs are just Internet-based scams.

As FINRA’s investor alert HYIPS–Hazardous to Your Investment Portfolio points out, many HYIPs have a worldwide reach: the recently exposed Pathway to Prosperity scheme allegedly defrauded over 40,000 investors in over 120 countries of $70 million. The Federal Bureau of Investigation has reported that the number of new HYIP investigations during fiscal year 2009 increased more than 100 percent over fiscal year 2008. In order to help combat this growing online fraud, FINRA will be using search engine advertising to direct online investors searching for HYIPS to today’s Investor Alert.

 ”HYIPs are old-fashioned Ponzi schemes dressed up for a Web 2.0 world. Some of these schemes encourage people to bring in new victims, while others entice investors to ‘ride the Ponzi’ by attempting to get in and get out before the scheme collapses,” said FINRA Senior Vice President John Gannon. “By using Google AdWords, we are hoping to reach anyone searching the Internet for HYIPs before they fall into the hands of con artists.”

The FINRA article goes on to say that HYIPs display multiple signs of fraud, including the promise of extraordinarily high returns. For example, the Genius Fund HYIP at one time promised 36 to 40 percent daily, with two-day yields of 106 percent. Many of the con artists behind HYIPs use existing investors to keep their Ponzi schemes growing by paying current investors “referral bonuses” of up to 25 percent for bringing in new recruits.

 This information was posted on 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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