TAG | Merrill Lynch
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In a January 25th., 2012, article from InvestmentNews.com, the staff writes that Former Boston Red Sox catcher and two-time World Series winner Doug Mirabelli, who made a nice career of being the preferred backstop to knuckleballer Tim Wakefield, finally saw a pitch even he couldn’t handle.
In March 2008, the same month he was released by the Red Sox, Mirabelli and his wife invested $880,219 with Bank of America Merrill Lynch adviser Phil Scott and took out loans that brought their account value to $1.8 million, according to an article in The New York Times. Scott put the money into the Merrill Lynch Phil Scott Team Income Portfolios, a bundle of 33 dividend-paying growth stocks. The loans were made on the condition that the account not dip below $1 million.
The InvestmentNews.com article goes on to say that by November, the Mirabellis’ account had dropped below that level, and they liquidated it to cover the loans. The Mirabellis argued in arbitration that Scott had put his client’s money into unsuitable, all-growth-stock investments and improperly briefed the couple on the loans and their requirements.
This arbitration panel ruled in favor of the Mirabellis and awarded them $1.2 million to cover their initial investment, plus all legal fees and arbitration costs. This was the second defeat for Scott in the last 12 months, according to The New York Times article. Merrill has moved to vacate the previous award and it’s unclear if they will do the same with Mirabelli’s.
“We disagree with the panel’s decision given the facts presented in this case,” said Bill Halldin, a spokesman for Merrill. “This account was handled properly during a very difficult time when there was extreme market volatility.”
Doug Mirabelli, 41, earned roughly $7 million over a dozen seasons. He now works as a real estate agent in Michigan.
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The recent credit crisis and the collapse of the sub-prime mortgage market has led to the collapse of both Fannie Mae and Freddie Mac, two of the largest issuers of preferred stock. Wall Street has underwritten much of this debt and dumped it on investors looking for income-generating investments that were low risk. Millions of investors have seen their portfolios and retirement accounts devastated by the collapse of Fannie Mae and Freddie Mac, which many believe should never have happened.
Over the past 70 years or so, Fannie and Freddie guaranteed close to 90% of all new home mortgages in the United States. Today, Fannie and Freddie are under conservatorship – a move that’s costing taxpayers more than $150 billion.
There were thousands of investors who purchased preferred shares in Fannie Mae and Freddie Mac stock. In 2007 and 2008, investment firms like UBS, Morgan Stanley, Citigroup, Merrill Lynch and others sold billions of dollars of preferred stock issued by the two mortgage lenders. In numerous lawsuits that have followed, investors allege that they never knew about their declining investments in Freddie Mac and Fannie Mae – a decline that was brought about by the two companies’ risky lending, excessive leverage and investments in bad derivative products.
Investors were led to believe these stocks were “conservative” and would provide steady income through above-average dividends. Also, investors were told that the Federal Government would assure that their investments were safe.
Fannie Mae and Freddie Mac were placed in conservatorship by the federal government, and investors with preferred shares watched their portfolios become worthless.
If you feel you or a family member were misled about Fannie Mae or Freddie Mac preferred shares, call a Securities Arbitration Lawyer for a free consultation on how to recover your investment 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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Reverse convertible notes offer a high coupon in return for the risk of getting shares valued at under the initial principal. Richard Ketchum, FINRA chief executive and chairman, has noted that it is not recommended for a client to place a significant chunk of one’s life savings into these kind of high risk, complex investments. FINRA has issued Notice to Members 10-09 cautioning the entire brokerage community about their sales practice obligations to the investing public when it comes to RCNs and other risky “Complex Investment Vehicles.”
Many financial advisors sold structured investments that were pitched as 100% safe and secure. In reality, these investments were of a high risk and the true risks were not made clear to investors. Many of the structured products targeted at retail investors were reverse convertibles based upon “blue-chip” and “household-name” stocks that comprise the S&P 500 or the NASDAQ-100 indexes. Brokers at H&R Block, Ameriprise and Morgan Stanley, Ferris, Baker Watts (acquired previously by RBC Wealth Management) and other firms were heavy sellers of these investments. FINRA Enforcement has already taken regulatory actions against some of the brokerage firms for selling these notes to unsophisticated, elderly, retired or otherwise conservative investors. The advantages of the investments were allegedly principal protection, superior risk-adjusted returns and access to hard-to-reach investment sectors. Unfortunately, these representations were often false. In reality, these investments had extraordinarily high risks and the true risks were not fully disclosed to investors in violation of the state securities acts. These investments were unsuitable for many of the clients who purchased them. Large sums of client assets and/or retirement portfolios were put into these investments. We feel these were grossly unsuitable and inappropriate investments for many of the people who were sold them and more importantly, the true risks were not made clear. Some of the sellers of RCNs were large banks and firms like RBS, Citigroup Inc., Barclays PLC and ABN Amro Holding NV. Citigroup brought out new versions linked to name a few, Johnson and Johnson, Apple Inc. and Celgene Corp. paying around 11% over one year. There are also reverse convertibles with stocks like Intel, Pfizer, Hess Corp., Yahoo Inc., Mexico’s Cemex SAB and SanDisk Corp.
Another major seller of the reverse convertibles was Morgan Stanley Smith Barney and the Revcon notes. Morgan Stanley issued the Morgan Stanley Reverse Convertible Bond on AT&T, Apple (AAPL), Deere & Company (DE), Foster Wheeler (FWLT), Amazon (AMZN), Texas Instruments (TI), AMEX Gold Bugs, Citigroup (C), Consol Energy (CNX), Lehman Brothers (LEH), Range Resources Corporation (RRC), Freeport-McMoRan Copper & Gold, Inc.(“FCX”), Norfolk Southern Corp., Western Union Co. (“WU”), Whole Foods Market Inc. (“WFMI”), Toll Brothers, Western Union (WU), Spiders (SPDR), Ebay, Sunoco (Sun), The Goldman Sachs Group (GS), Valero Energy Group (VLO), Baker Hughes Incorporated (“BHI”),Monsanto Company (“MON”), Southern Copper Corporation (“PCU”), Amylin Pharmaceuticals, Inc.(“AMLN”), National Semiconductor (NSM), Baker Hughes Incorporated (“BHI”), Southern Copper Corporation (“PCU”), Arch Coal, Inc. (“ACI”), Joy Global Inc. (“JOYG”)
Most major brokerage firms were selling structured products and reverse convertibles. H&R Block, UBS, Morgan Stanley Ameriprise, Merrill Lynch and others actively sold them to retail clients. We feel this will cause arbitration claims and lawsuits to skyrocket in the next 6-12 months.
The Financial Industry Regulatory Authority (FINRA) has fined H&R Block Financial Advisors (now Ameriprise Advisor Services) $200,000 for failing to put in place the proper system to supervise its reverse convertible notes (RCN) sales to retail clients as one example. FINRA also suspended H & R broker Andrew MacGill for 15 days while ordering him to pay a $10,000 fine and $2,023 in disgorgement for making unsuitable RNC sales to a retired couple. MacGill recommended that they invest close to 40% of their total liquid net worth in RCNs. Meantime, H & R Block has been ordered to pay the couple $75,000 in restitution for their financial losses. Without denying or admitting to the charges, the brokerage firm and MacGill consented to the finding’s entry. According to FINRA, between January 2004 and December 2007, H&R Block sold RCNs without a system of procedures in place to properly monitor whether possible over-concentrations in RCNs were taking place in customer accounts. FINRA says that the brokerage firm relied on an automated surveillance system to monitor client accounts and review securities transactions for unsuitability but that the system was not set up to monitor RCN placement in customer accounts or RCN transactions. This caused H & R Block to miss signs of when there were potentially unsuitable levels of RCN in client accounts. FINRA says that the firm failed to provide guidance to its supervisors regarding the assessment of suitability standards related to their agents’ recommendation of RCNs to the firm’s clients. This is FINRA’s first enforcement action over RCN sales.
Have been a victim of the sale of risky RCNs by your broker or brokerage? If so 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.
ABN Amro Holding · Ameriprise Advisor Services · Andrew MacGill · automated surveillance systems to monitor stock accounts · Baker Watts · Barclays PLC · Citigroup Inc · Complex Investment Vehicles · elder abuse · elder abuse awareness · elder abuse in investments · Ferris · Financial Industry Regulatory Authority · FINRA · FINRA arbitration · finra lawyer · finra securities arbitration · finra securities arbitration lawyer · Florida Securities Lawyer · Ft. Lauderdale Securities Lawyer · H&R Block Finanical Advisors · investment fraud · Merrill Lynch · Morgan Stanley · RBC Wealth Mangement · RBS · RCN · reverse convertible notes · risky RCNs · securities arbitraton lawyer · securities fraud lawyer · Soreide Law Group PLLC · stock broker fraud · Stock fraud lawyer · stockbroker misconduct · structured products · targeting elderly investors
FINRA Announces Merrill Lynch to Pay More Than $2.5 Million Related to UIT Sales Charge Discount Failures
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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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