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On September 17, 2019 the SEC (The Securities and Exchange Commission) imposed an order against three Raymond James entities for improperly charging advisory fees on inactive accounts and charging excess commissions for investments, including unit investment trusts (UITs).

The SEC Order states that Raymond James & Associates, Inc., and Raymond James Financial Services Advisors, Inc., failed to perform review of advisory accounts which had no trading activity for at least one year.

Because Raymond James did not conduct the reviews properly, Raymond James failed to conclude whether the client’s fee-based account was suitable. The Order concluded that the entities also misapplied incorrect pricing to various UIT positions held by clients.

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An ex RBC Broker has been accused of stealing $1.1 million that RBC Wealth Management-U.S. accidentally deposited into his brokerage account. The broker, Thomas Lee Johnson has been barred by the Financial Institutions Regulatory Authority (“FINRA”)  from working at a U.S. broker-dealer.

The FINRA Hearing panel determined on August 22, 2019 that the broker, Thomas Lee Johnson “acted knowingly” when he withdrew funds that RBC deposited into his account as a result of a foreign currency conversion error.

Instead of reporting the discrepancy, Johnson wired the money from his own brokerage account to a personal account outside of RBC. RBC picked up the mistake and restated the transaction at the correct price. When Johnson found out about the corrected transaction, he covered his tracks and withdrew $1,060,000 from his separate personal account re deposited the funds into his RBC account.

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On July 31, 2019 Investment Adviser Dawn Bennett was sentenced to 20 years in jail. Bennett defrauded no less than 46 Investors in a $20 million Ponzi scheme. Reportage is from the U.S. Attorney’s office (District of Maryland).

Bennett was handed the maximum sentence in addition to five years of supervised probation upon her release.

Bennett advertised her purported genius through use of a paid radio show: “Financial Myth Busting.” She was convicted last October of conspiracy and fraud—17 counts in all.

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“Pump and Dump” schemes are not just the subject of episodes of the Sopranos. Nor are they limited to the unregulated 1920’s stock market in the USA commanded by Joe Kennedy. They persist in the here and now, made even more extreme through internationalization of markets, information and trading.

 On 20 June 2019 the SEC (Securities and Exchange Commission) published charges against five foreign traders for “matching” trades in Medico International, Inc. (MDDT) to artificially increase the price. Assets were frozen by the Court in the defendant’s brokerage accounts, inclusive of $144,000 slated for wiring offshore, and blocks of MDDT stock.

The SEC complaint stated that on 19 June 2019, traders from China, Singapore, and Malaysia attempted to artificially manipulate the price of MDDT. “Matched” orders to buy and sell MMDT at about the same times, sizes, and prices were implemented. The SEC complaint was filed in the US District Court for the Southern District of New York.

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The New SEC Rule for the Best Interest of Investors.

The Securities and Exchange Commission (SEC)  just published “Best Interest” rules (Regulation RBI, the “Rule”) ) as applied to stock brokers. Under the new Rule, Brokers and Investment Advisors must tell you if they’re making money from what they recommend and sell. Conflicts of Interest must be disclosed.  (https://www.sec.gov/rules/final/2019/34-86031.pdf.) Regulation Best Interest: The Broker-Dealer Standard of Conduct; 17 CFR Part 240; Release No. 34-86031.

This improves investor protection but still leaves brokers in the status of salespersons only who may be held liable only for “sales practice violations” such as unsuitable sales, fraud, unauthorized trading  or churning.  It is unclear as yet what practical effect the Rule will have beyond the existing “unsuitability “ Rule.

The Rule does not change the designation of stock brokers to a “fiduciary.” Fiduciaries (like a trustee) owe an affirmative duty of good faith, trust, loyalty and undivided interest to the client.  Stock brokers remain “salespersons” responsible for “sales practice violations.” The Rule slightly enhances existing rules regarding “suitability” and related concepts of “fair dealing.” Suitability and Fair Dealing are decided on a case by case basis and the investors own actions most times are implicated as a defense in any claim against the stockbroker.

“Suitability” means, generally, that an investment recommendation must comport with the investors’ investment “objectives” and “profile” (e.g., “aggressive”, “conservative”, “income, “speculation “ etc…) with individual reference to age, sophistication, net worth, health  and other factors; if the broker deviates from the investment profile, or disregards the investors financial and personal disabilities and needs, the broker can be taken to arbitration before the Financial Institutions Regulatory Authority for damages if money is lost.

The SEC Regulation Best Interest (“RBI”) Rule will have an effective date 60 days after it appears in the Federal Register stating a compliance date of June 30, 2020.

Here is more on the Rule:

RBI was written to “enhance the BD standard of conduct beyond existing suitability obligations”;

·        RBI remains recommendation-based (like the existing FINRA’s Rule 2111 requiring “suitable” investments), “regardless of whether a retail investor chooses a broker-dealer (“BD”) or an investment adviser…. The retail investor will be entitled to a recommendation (from a BD) or advice (from an investment adviser) that is in the “best interest” of the customer which does not place the interest of the broker ahead of the interest of the retail investor.”;

  • RBI exist at the time of the recommendation by the broker (a registered investment advisor has a continuous obligation, by contrast);
  • The RBI standard is not satisfied by disclosure of a conflict of interest, for example, standing alone;
  • “Best Interest” is decided on a case by case basis with reference to the following elements:

Care. They (broker-dealers) will be required to exercise reasonable diligence, care, and skill when making a recommendation. Risks and rewards must be understood and requires that the broker’s interest not be placed ahead of the  customer’s.

Disclosure. A broker-dealer will be required to disclose fees, conflicts and the broker’s capacity to provide requested services.

Other financial professionals are fiduciaries under the law, but not a broker. Those who have a fiduciary duty are registered investment advisers, certified public accountants or a lawyer.

Of importance, a Broker must disclose if account monitoring services will be provided.
“…the retail investor will be entitled to a recommendation (from a BD) or advice (from an investment adviser) that is in the best interest of the retail investor and that does not place the interest of the firm or the financial professional ahead of the interest of the retail investor”;

If a broker is taken to arbitration, the investor is not required to prove “Scienter”, which means mental knowledge, either intentionally or recklessly delivered, that the investor’s Best Interest was not served.

Anthony M. Abraham, Esq., PC, has represented many investors who have claimed against brokers and investment advisors for unsuitable investments, fraud, churning and other sales practice violations. If you were victimized and need help, please call us Toll Free at 1-877-430-4877 for a Free Consultation or email us at Anthony@AbrahamAttorneys.com.

 

 

 

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On 28 May 2019, the SEC (The Securities and Exchange Commission) charged investment adviser Stephen Brandon Anderson with fraud. The specific fraud was overcharging of advisory fees to his clients.

Anderson owned River Source Wealth Management, LLC, a registered investment adviser in North Carolina. River Source’s primary revenue was customer advisory fees. Customer agreements provided that those fees would be based on each customer’s assets under management. River Source is now out of business.

According to the SEC, in 2015 and 2016, Anderson overcharged his clients. The amounts were about 40% more than the agreed fees. Anderson also misled his clients about the reason he transferred their assets from River Source’s asset custodian, falsely stating that it was his decision when the asset custodian ended the relationship with River Source after noting irregular billing practices.

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On May 3, 2019 FINRA (The Financial Industry Regulatory Authority) published a Notice and Warning to member firms concerning fraudulent imposter broker websites, designed to fool investors into transmitting funds to thieves.

Anthony M. Abraham, Esq., PC has been involved in several cases in which impostor Websites were used to steal entire IRA accounts. In one case, an investor from Perth, Australia, called that he wired the entire balance of his retirement account to a broker in Hong Kong, who promised half price shares in the then new Alibaba IPO. The website was a fake; so were investment advisor internet listings for a purported “Investment Advisor” in New York State (the reason we were called in NYS). All funds were lost; the case could not ne pursued in the USA when the money was wired into Hong Kong, never to be seen again. The investor was wiped out.

FINRA therefore issued a Warning Notice to Member Firms.

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FINRA Broker Check reports Kalos Capital broker Eric Weschke is the subject of several customer disputes. (CRD# 2486324).

Weschke has been in the securities industry for 20 years and has been affiliated Kalos Capital in Long Island, New York since 2011.

According to FINRA, Weschke has been the subject of nine past customer complaints. Two complaints are pending. While at Kalos Capital, one customer alleged that Weschke recommended unsuitable investments, among other claims. $200,000 in damages have been demanded in the current complaint.

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On April 11, 2019, the SEC (Securities and Exchange Commission) charged two former directors of investments at Woodbridge Group of Companies LLC related to their participation in a massive Ponzi scheme. Ivan Acevedo and Dane R. Roseman, were charged, along with Robert H. Shapiro (who was Woodbridge’s owner).

Previously, a number of others, principally unregistered securities brokers, were charged.

In prior SEC charges, the SEC charged Woodbridge and Shapiro, and Woodbridge’s unlicensed brokers. A federal court in Florida in January 2019 ordered Woodbridge and Shapiro together to pay $1 billion for operating this Ponzi scheme.

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The SEC (Securities and Exchange Commission) advanced charges against former executives of Woodbridge Group. The total claim is $1.2 billion. Woodbridge engaged in an elaborate Ponzi, mostly against the elderly.

Ivan Acevedo and Dane R. Roseman, former directors of investments at Woodbridge, were charged for their roles in the scheme. Acevido and Roseman, were former controlling persons of Woodbridge

The criminal charges against them pend in Federal Court in Los Angeles.