TAG | FINRA brokercheck
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In an article from InvestmentNews.com, May 29, 2011, Bruce Kelly writes that Neal Smalbach was fired by a broker-dealer in 2008 for selling securities while he was unregistered, an infraction that got him suspended by the Financial Industry Regulatory Authority Inc. (FINRA) for six months, according to the organization’s BrokerCheck system. It was the second time that a securities firm had let him go. Though he no longer had a securities license, Mr. Smalbach still had a license to sell insurance, and made good use of it — at least for himself, authorities said.
Kelly writes that on April 29, Mr. Smalbach was arrested in Florida by the Pinellas County sheriff and charged with one count of insurance fraud and one count of organized fraud. Each count carries a maximum of five years in prison, along with a potential $5,000 fine. The charges of insurance fraud against Mr. Smalbach, who also has 37 pending customer disputes from his time as a broker, according to BrokerCheck, highlight a persistent problem in the investment advice business:
Registered representatives who permanently or temporarily lose their license to sell stocks, bonds and mutual funds often retain a license to sell insurance.
Although state agencies that regulate insurance agents and securities brokers try to work together to keep an eye on brokers who get fired from either side of the industry, regulators are sometimes limited in their authority because of a lack of information sharing about reps and agents, observers said.
A common criticism among registered reps is that insurance agents who lose a license to sell securities products often sell equity-indexed annuities, an insurance product that is nonetheless marketed as an investment that can compete with a mutual fund or variable annuity.
“It’s been an issue, and still is, among states,” said Joseph Borg, director of the Alabama Securities Commission. “If you’ve been kicked out of one end of the financial markets, you probably don’t need to be in another.”
According to the InvestmentNews.com article, Mr. Smalbach, 48, was selling mortgage insurance policies that promise to pay the balance of a policyholder’s mortgage in the event that he or she dies, according to Jeremy Powers, an assistant state attorney in Florida’s Fifth Judicial Circuit. But instead of mortgage insurance, Mr. Smalbach’s clients were, in fact, sold whole-life policies that were worth no more than $20,000.
“Somebody who’s had the level of problems that [Mr.] Smalbach appears to have had would create a risk for consumers,” Mr. Powers said. “The activities alleged in this case are pretty serious and had the potential to create multiple hundreds of thousands of dollars in victim losses.”
Smalbach, whose sales practices were profiled last month by the St. Petersburg (Fla.) Times, serve as a backdrop to efforts by lawmakers in Washington and regulators across the country to create a single fiduciary standard for investment advisers, registered reps and insurance agents. This year, a law went into effect in Florida that gives the state’s Department of Financial Services the power to revoke an insurance agent’s license immediately if the agent has his or her securities license revoked.
“Fraud is fraud,” said Nina Ashley, a department spokeswoman.
Kelly reminds us that when confronted with a broker whose securities license had been pulled — but who maintained an insurance license — regulators’ hands are, at times, tied. To take actions against a broker’s insurance license, Ms. Ashley said a specific insurance violation has to be found. “That didn’t always exist,” she said.
Florida already has used the new law to revoke the insurance license of a broker who misrepresented information when selling securities to a senior citizen, Ms. Ashley said. In February, the Florida Office of Financial Regulation permanently barred Jeffrey Donner on charges that he failed to disclose to clients that their accounts would automatically be billed advisory fees of 30% annualized, according to a statement from the agency. Approximately $40,000 in management fees were deducted from clients’ accounts. While Mr. Donner neither admitted nor denied the findings, Florida regulators revoked his insurance license this month according to the InvestmentNews.com article.
THEY ARE FINDING LOOPHOLES
We’ve learned that Mr. Smalbach, however, still has a license to sell insurance products such as life and health policies, and variable annuities, according to the Florida Department of Financial Services’ website.
The broker in question exploited another loophole in the law when he sold stock in a firm called Transfer Technology International Corp., whose shares are currently listed at less than a penny a share. At least a dozen elderly investors, some in their 80s and 90s, bought nearly $1 million of the stock from Mr. Smalbach, according to the St. Petersburg Times. Although he didn’t have a securities license, Mr. Smalbach was an employee of Transfer Technology and could sell shares in the company to accredited investors legally, the newspaper reported.
THEY ARE SMOOTH OPERATORS
Bruce Kelly writes that one longtime client of Mr. Smalbach who invested in the Wesley Chapel, Fla.-based company was Bob Fox, 78, of Sebring, Fla. A client of Mr. Smalbach’s for over a decade, Mr. Fox said he has lost $100,000 in his Transfer Technology investment.
“He was a really smooth talker,” Mr. Fox said, adding that Mr. Smalbach often hurried him through paperwork when buying an investment.
Mr. Smalbach’s former accountant, Robert Ferreira, corroborated Mr. Fox’s statement said the ex-broker often rushed clients through the process of buying investment products, including variable annuities.
“His method was to say, “Sign here, fill in this and that — I’m in a hurry and will fill in the rest at the office,’” Mr. Ferreira said.
If you or a family member have purchased policies through Neal Smalbach or other brokers and experienced a similar situation, contact an insurance fraud attorney for a free consultation on how to potentially recover your investment losses. To speak with an attorney, call 888-760-6552, or visit stockmarketlawsuit.com.
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Workman’s Security Corporation, a broker-dealer that was a prominent seller of high-risk private placements that wound up going bust has almost wiped the slate clean of costly litigation that could have impaired the firm’s financial condition writes Bruce Kelly of Investmentnews in a February 14, 2011, article.
Workman’s reached an agreement with the Financial Industry Regulatory Authority Inc. this month to pay $700,000 for partial restitution to more than a dozen clients who had sued the firm over investments in Medical Capital Holdings Inc. and Provident Royalties LLC — two series of private placements that the Securities and Exchange Commission charged were fraudulent in 2009.
The Medical Capital and Provident deals were widely distributed by dozens of independent broker-dealers, some of which have shut down because they were unable to face the burden of litigation costs.
“Workman views this as a terrific resolution so it can move forward,” said Benjamin Skjold, partner at Skjold Barthel PA and attorney for Workman, which has 171 reps. The firm has “effectively” paid the $700,000 and now turns to face about a half dozen remaining individual securities arbitration claims from clients.
The insurance carrier for Workman’s, Catlin Specialty Insurance Co., has paid $2.3 million to clients who sued the firm, Mr. Skjold said, adding that the process of settlement and restitution took about a year. “We’ve worked diligently internally, with the insurance carrier and with Finra to get claims resolved,” he said.
Workman’s reps sold a little more than $9 million of Provident Royalties private placements, from last summer in the Northern District of Texas. The amount of Medical Capital notes the firm’s reps sold to investors is not known. According to Workman’s profile on Finra’s BrokerCheck system, the firm’s supervision and due diligence when selling Regulation D private placements had big holes.
“The firm failed to have reasonable grounds to believe that a private placement offered by an entity pursuant to Regulation D was suitable for any customer after the firm received red flags that the entity had financial issues and was not timely making interest payments,” Finra alleged. “The firm failed to enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulation and Finra rules in connection with the sale of the private placement offered by the entity pursuant to Regulation D. The firm failed to conduct adequate due diligence of the private placement offered by the entity pursuant to Regulation D.”
James Shorris, executive vice president and executive director of enforcement with Finra, noted that Regulation D private placements and non-traded real estate investment trusts are listed as the first and second areas of focus for Finra, in a meeting of brokerage executives this month in Phoenix.
Kelly goes on to say in the Investmentnews article that other broker-dealers have not fared well in settling the gusher of litigation that erupted after the SEC charged Medical Capital and Provident with fraud. On Friday, QA3 Financial Corp., another leading seller of Provident deals, submitted a request with Finra and the SEC to terminate it’s license as a broker-dealer (b-d). QA3 and its insurance carrier, also Catlin, had been sparring in court and exchange lawsuits in the past six months about the amount of coverage owed to the firm.
If you feel you have been a victim of the alleged broker-dealer private placement fraudulent schemes of Workman’s Securities Corp.,or any other broker-dealer, 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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Yesterday, Bruce Kelly’s article from InvestmentNews stated that National Securities Corp. is the latest broker-dealer to face disciplinary action from Finra over the sale of private placements gone bust.
According to National Securities’ profile on Finra’s BrokerCheck system, the firm received a Wells notice last month from the Financial Industry Regulatory Authority Inc. A Wells notice indicates that the regulator intends to bring an enforcement action against an individual or a firm.
Kelly goes on to say that National Securities reps sold investors about $3.7 million of notes issued by Provident Royalties LLC, according to the latter’s bankruptcy court filings. The Regulation D offering from Provident involved a series of oil and gas private placements that the Securities and Exchange Commission in 2009 claimed were fraudulent,Mark Roth, the firm’s general counsel for National Holdings Corp., the parent of National Securities, did not return phone calls Tuesday seeking comment.
In the Investment News article they say that National Securities received the Wells notice regarding violations of product suitability rules, e-mail supervision rules, and standards of commercial honor and principles-of-trade rules, according to the BrokerCheck report. The product mentioned in the report was a “private placement.”
The Finra officials have made broker-dealers’ sale of private placements that failed during the market collapse their No. 1 enforcement priority this year.
Broker-dealers have begun to feel the pinch. Workman Securities Corp. this month reached an agreement with Finra to pay $700,000 for partial restitution to more than a dozen clients who had sued the firm over investments in Medical Capital Holdings Inc. and Provident Royalties. Like Provident, the SEC charged Medical Capital with fraud in 2009.
In a meeting of brokerage executives this month in Phoenix, James Shorris, executive vice president and executive director of enforcement with Finra, said Reg D private placements and non-traded real estate investment trusts are listed as the first and second areas of focus for Finra, respectively.
If you feel you have been a victim of the alleged broker-dealer private placement fraudulent schemes of the brokerages listed above , National Securities Corp., Medical Capital Holdings, Workman’s Securities Corp.,or Provident Royalties,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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On New Years’ Eve, Securities America Inc. was dealt a costly legal blow when a Finra arbitration panel awarded almost $1.2 million in damages and legal fees to a client who sued the firm and a broker over the sale of private placements that regulators have alleged were fraudulent.
The award, from three Financial Industry Regulatory Authority Inc. arbitrators, included compensatory damages of $734,000 and punitive damages of $250,000, plus attorney and expert witness fees of $171,000. The claimant, Josephine Wayman, also sued Randall Ray Talbott, a Newport Beach, Calif.-based rep, who is also liable for the award, according to the arbitrators’ decision, which was filed with Finra Dec. 31.
It is uncommon for punitive damages in Finra arbitration awards.
“This is a powerful win for the claimants,” said a plaintiff’s attorney who represents more than 100 clients in similar arbitration claims seeking more than $35 million in damages against Securities America. The punitive damages in this award shows that the three arbitrators were “shocked” by Securities America’s action involving Medical Capital notes, he said.
After checking his profile on Finra’s BrokerCheck system, Mr. Talbott has 11 other pending customer disputes involving the sale of Medical Capital notes, but he is not named as a defendant in many of the arbitration cases. When asked about the award, Mr. Talbott said, “I don’t know anything about it.” He added that the matter was “very unfortunate.”
Securities America has tried to pin blame for the losses on Medical Capital Holdings Inc., the issuer of the private placements.
Securities America could be on the hook for millions of dollars more in legal damages involving the sale of private placements before the market collapse of 2008. The securities divisions of Massachusetts and Montana are also suing the firm.
“If there’s a problem here, Medical Capital is to blame, not Securities America,” Bruce Bettigole, a partner at Sutherland Asbill & Brennan LLP who is serving as lead attorney for the broker-dealer, said during a September hearing with before Massachusetts Securities Division.
In November, Jim Nagengast, the firm’s CEO said, “We feel very strongly we did industry-leading due diligence and are vigorously defending” the firm and its advisers.
This particular arbitration award appears to be the first involving Securities America’s sale of private placements issued by Medical Capital, which the Securities and Exchange Commission charged with fraud in 2009. Dozens of independent broker-dealers sold private Medical Capital notes, which raised $2.2 billion from 2003 to 2008. Securities America was by far the biggest seller of the Medical Capital product, with 400 brokers selling almost $700 million of notes. Medical Capital is in bankruptcy, and the receiver estimated that about half of investors’ money, $1.1 billion, is gone.
It was noted that a spokesman for Ameriprise, said the firm had no comment.
As is common in Finra arbitration awards, the decision gives no reasoning for the award. However, the arbitrators did offer comments about their decision, a point of great interest to other clients suing Securities America.
Securities America, with about 1,900 reps and advisers, is owned by Ameriprise Financial Inc., one of the largest retail brokerage firms in the country. “The award was based on the specific facts of this investor’s case, and we disagree with the outcome,” wrote Janine Wertheim, a company spokeswoman, in an e-mail. “Securities America does not believe it acted inappropriately in the sale of these investments.”
“The panel’s decision is based on what was actually known by Randall Talbott and Securities America Inc. at the relevant times and is not based on what additional information could or could not have been discovered by respondents regarding the subject investments or the company offering the investments,” according to the award. “The decision is based on what was actually known by Randall Talbott and Securities America Inc. at the relevant times.”
This information was obtained from Investment News’ website in an article by Bruce Kelly.
If you feel you have been a victim of these alleged fraudulent schemes of Securities America, Inc., Randall Ray Talbott, Ameriprise Financial, Inc., or Medical Capital Holdings, Inc., 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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Additional Information About Brokers and Former Brokers to be Made Available by FINRA Through BrokerCheck
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Full Records of Brokers Leaving Industry to Remain Available for 10 Years; Criminal Convictions, Civil Injunctions, More to Remain Available Permanently
WASHINGTON — FINRA announced that the amount of information available to the public about current and former securities brokers will expand significantly in coming months, as the Financial Industry Regulatory Authority (FINRA) implements changes to its free, online BrokerCheck service recently approved by the Securities and Exchange Commission.
The changes will increase the number of customer complaints reported publicly; extend the public disclosure period for the full record of a broker who leaves the industry from two years to 10 years; and, make certain information about former brokers available permanently, such as criminal convictions and certain civil injunctive actions and arbitration awards against the broker.
”This additional information will benefit investors who are considering whether to conduct, or continue to conduct, business with a particular securities firm or broker,” said FINRA Chairman and CEO Rick Ketchum. “Just as important, it will provide valuable information about persons who have left the securities industry, often not of their own accord, who have established themselves in other segments of the financial services industry and can still cause great harm to the investing public.”
The changes will also formalize a dispute process for current or former brokers to dispute the accuracy of, or update, factual information disclosed through BrokerCheck.
When the expansion is implemented, BrokerCheck will:
- Disclose all “historic” complaints against a broker dating back to 1999, when electronic filing of broker information began. Generally, historic complaints are customer complaints, arbitrations or litigations more than two years old that have not been adjudicated or have been settled for an amount less than the reporting requirement (currently $15,000). They are currently reported on BrokerCheck when the broker has three or more currently disclosable regulatory actions, customer complaints, arbitrations, litigations or historic complaints. The expanded BrokerCheck will disclose all historic complaints dating back to 1999 for individual brokers who are currently registered or whose registrations were terminated within the preceding 10 years.
- Expand the disclosure period for former brokers. Currently, a broker’s record is publicly available for two years after he or she leaves the securities industry. That two-year period coincides with the period in which an individual remains subject to FINRA’s jurisdiction and within which an individual can return to the industry without having to take re-qualifying exams. The expanded BrokerCheck will make a former broker’s record public for 10 years, so investors can access information about individuals who may work in other sectors of the financial services industry or who have attained other positions of trust.
- Further expand the amount of information that is permanently available on former brokers. Last year, BrokerCheck started making information about final regulatory actions (i.e. bars, suspensions, fines, etc.) against former brokers permanently available to the public. The expanded BrokerCheck will make additional information that has been reported to FINRA since 1999 permanently available – including reportable criminal convictions or pleas of guilty or nolo contendere; civil injunctions or findings of involvement in a violation of any investment-related statute or regulation; and, arbitration awards or civil judgments based on the individual’s involvement in alleged sales practice violations.
- Formalize the process for current and former brokers to dispute the accuracy of factual information disclosed through BrokerCheck. Brokers will be able to submit a written notice of the dispute to FINRA – FINRA will post the appropriate form on its website – with all available supporting documentation. If FINRA determines that the dispute is eligible for investigation, it will add a general notation to the broker’s BrokerCheck report stating that the broker is disputing certain information in the report – and that notation will only be removed when FINRA has resolved the dispute. If its investigation shows the information is in fact inaccurate, FINRA will update, modify or remove that information as appropriate.
FINRA states that the BrokerCheck expansion will be implemented in two phases. In late August, historic complaints will be added to the public records of all current and former brokers. By the end of the year, full records will be publicly available for all brokers whose registrations have terminated within the last 10 years. Also by the end of the year, the additional information that will be permanently available will be added to the records of the appropriate former brokers and the formal dispute process will be fully in place.
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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