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Home > Blog > Monthly Archives: March 2013

Monthly Archives: March 2013

FINRA Sides With Victim in Case of Spousal Theft From a Brokerage Account

For some ex-spouses, the marriage vow of “for richer or poorer” weighs heavily on the side of poorer. More cases are coming forth involving ex-spouses stealing from each other through a brokerage account. Recently, Maddox Hargett & Caruso, P.C. represented a client whose ex-husband falsified various documents and transferred funds from several Wells Fargo accounts into several E*Trade accounts without his former wife’s knowledge or consent.

An arbitration panel of the Financial Industry Regulatory Authority (FINRA) ruled in favor of the victim, holding Wells Fargo and E*Trade liable to her for more than $80,000 in compensatory damages.

In addition, the FINRA arbitration panel ruled that Wells Fargo Advisors and E*Trade Securities had to pay the investor $11,960 in interest, as well as $22,500 in attorney fees and $4,500 in arbitration hearing session and fees.

FINRA’s decision sends a clear and strong message that if one spouse “steals” money from another spouse’s brokerage account, the brokerage firm involved could, in fact, be held liable for any financial losses that may occur as a result.

TNP Strategic Retail Trust Halts Dividends

It seems the bad news just keeps getting worse for longtime real estate dealer Tony Thompson. Now, Thompson’s non-traded REIT – the TNP Strategic Retail Trust – is cutting its dividend.

In a recent filing with the Securities and Exchange Commission (SEC), the REIT cited short-term liquidity issues, including an accelerated maturity date of loans, lender fees and the cost of potential litigation with lenders, as the cause behind the halt in distributions.

As reported March 19 by Investment News, the loan compliance issues with its lenders means the TNP Strategic Retail Trust will not pay a dividend in the first quarter of 2013 and may not pay any type of distribution for 2013.

“Although our board of directors will continue to evaluate our ability to resume paying distributions, given the uncertainties noted, stockholders should not assume a resumption of distribution payments during the remained of 2013,” the company said in the SEC filing.

It was only a few short months ago that Thompson was touting TNP’s rising value to potential investors. In January, Thompson sent a note to broker/dealers declaring that the net asset value of the TNP Strategic Retail Trust was 6% higher than its share price. That kind of discrepancy between a REIT’s selling price and its NAV could be dilutive to shareholders and provide brokers with a strong sales pitch to potential investors.

That’s not the only problem facing Thompson. In January, after raising money in 2008 and 2009 for Thompson National Properties LLC, the company defaulted on $21.5 million of the private notes from that offering. Last month, the Financial Industry Regulatory Authority (FINRA) announced it was investigating Thompson and his broker/dealer, TNP Securities LLC, for failing to turn over documents, thus potentially violating FINRA rules.

FINRA Fines Increase by 15% in 2012

Suitability, misrepresentation and complex investment products like structured notes, non-traded REITs, and private placements played a key role for the increase in fines and disciplinary actions brought by the Financial Industry Regulatory Authority (FINRA) against firms and brokers in 2012. Last year saw 4% more disciplinary cases than in 2011, as well as an increase in fines by 15%.

A recent study conducted by Sutherland Asbill & Brennan LLP showed 2012 as the fourth consecutive year of growth in the number of cases filed by FINRA and the second consecutive year of growth for the amount of fines.

In total, FINRA filed 1,541 disciplinary actions in 2012 and assessed $78.2 million in fines, the study says.

In addition to the increase in fines, the study revealed that FINRA is becoming more aggressive when it comes to getting restitution for aggrieved investors. Last year, FINRA ordered firms and representatives to pay a record $34 million in restitution, up 80% from $19 million in 2011.

Leading the list of enforcement actions by FINRA in 2012 were suitability and due-diligence cases. A total of 117 suitability cases were brought by FINRA in 2012, a 10% increase from the 106 cases reported in 2011 and nearly double the amount in 2008 and 2009.

Of the 62 due-diligence cases filed in 2012, FINRA issued $12.8 million in fines.

Troubles Grow for Real Estate King Tony Thompson

Failed deals in non-traded real estate investment trusts (REITs) and private placements have plagued more investors in recent years, with problems ranging from suspension of share redemptions to inaccurate valuations to outright fraud. Such issues have garnered the attention of the Financial Industry Regulatory Authority (FINRA), which is now investigating real estate developer Tony Thompson and his broker/dealer, TNP Securities LLC, for allegedly failing to turn over certain documents to FINRA.

By failing to turn over documents about his business to FINRA, Thompson is in violation of industry rules that require firms and individuals to produce information when asked to do so by FINRA.

As reported March 12 by Investment News, FINRA initially made inquiries regarding the documents two months ago. At the time, Thompson was attempting to “goose sales for a non-traded real estate investment trust, the $272 million TNP Strategic Retail Trust Inc.”

During that same month, Thompson sent a note to broker/dealers hawking the TNP Strategic Retail Trust and proclaiming that its net asset value was 6% higher than its share price. Specifically, Thompson’s note read: “Closing Feb. 7, 2013! Necessity retail: Now is the time!”

As the Investment News article points out, discrepancies between a REIT’s selling price and its NAV could be dilutive to current shareholders and provide brokers with a pitch laden with urgency to sell.

That’s not the only problem on Thompson’s plate, however. He’s also dealing with huge financial troubles, including the default on $21.5 million of private notes that he sold in 2008 and 2009 to raise money for Thompson National Properties LLC.  Last year, that venture suspended interest payments to investors in a private placement – i.e. the TNP 12 Percent Notes Program – that was designed to raise capital for the firm. Many of the investors in the TNP 12 Percent Notes Program reportedly were elderly, retired or conservative investors living on fixed incomes.

According to a July 10, 2012, article by Investment News, 22 independent broker/dealers had agreements to sell the notes, which required a minimum investment of $50,000. Brokers earned a 7% commission on sales of the notes, according to a filing with the Securities and Exchange Commission (SEC).

If you invested and suffered financial losses with Tony Thompson, the TNP 12 Percent Notes Program, Thompson National Properties LLC, TNP Securities, or TNP Strategic Retail Trust, contact us to tell your story.

FINRA Fines Ameriprise, Clearing Firm For Failing to Detect Fraud

The Financial Industry Regulatory Authority (FINRA) has fined Ameriprise Financial Services and its affiliated clearinghouse firm, American Enterprise Investment Services (AEIS), $750,000 for failing to properly supervise wire-transfer requests and the transmittal of customer funds to third-party accounts.

In February 2011, FINRA barred former Ameriprise registered representative Jennifer Guelinas for converting approximately $790,000 from two customers over a four-year period by forging their signatures on wire transfer requests and disbursing the funds to bank accounts she controlled. Following the investigation, Ameriprise paid full restitution to the two customers who were affected.

FINRA found, however, that both Ameriprise and AEIS failed to establish, maintain and enforce supervisory systems designed to review and monitor the transmittal of funds from customer accounts to third-party accounts. According to FINRA, neither Ameriprise or AEIS had policies or procedures in place to detect or prevent multiple transmittals of funds going to third-party accounts. Instead, they relied on a manual review of wire requests without the benefit of exception reports that could have helped to discern suspicious patterns.

Ameriprise and AEIS also failed to adequately track or further investigate wire transfer requests that had been rejected, FINRA said.

FINRA went on to state that Ameriprise failed to detect Guelinas’ scheme despite the multiple “red flags” that were present. For instance, Guelinas submitted three requests to wire funds from a customer’s account to a bank account that appeared to be under Guelinas’ control. Ameriprise processed the forged wire transfer requests and disbursed the funds without any inquiries.

In addition, there were at least three other occasions when Ameriprise initially rejected Guelinas’ forged wire transfer requests, including one for an apparent signature discrepancy. Guelinas, however, simply resubmitted the requests in question on either the same day or the next day. Guelinas also forged and submitted a wire transfer request after Ameriprise had begun to investigate her misconduct.

In all of the instances, Ameriprise disbursed the customer funds as Guelinas directed. Even after Ameriprise had terminated Guelinas, she submitted another forged wire transfer request. Ameriprise again disbursed the customer’s funds to a bank account Guelinas controlled; however, the firm realized its mistake in time to prevent Guelinas from accessing those funds.

“Ameriprise and its affiliated clearing firm missed numerous supervisory red flags, including the fact that two of the wire transfers went to accounts in Guelinas’ name. Firms must have robust supervisory systems to monitor and protect the movement of customer funds,” said Brad Bennett, FINRA Executive Vice President and Chief of Enforcement.

Ameriprise signed FINRA’s Letter of Acceptance, Waiver and Consent without admitting or denying the accounts.

Red Flags of Elderly Fraud: Is Your Loved One Potential Scam Bait?

Investment fraudsters are highly skilled at what they do and view people of all ages as potential targets for their crimes. The elderly, however, may be especially vulnerable to investment fraud and financial abuse because they often have nest eggs to invest, say aging experts. The elderly also are generally more trusting of strangers. In addition, many elderly individuals suffer from decreased cognitive functioning that, in turn, affects their decision-making capacity and makes them susceptible to people looking to defraud them.

The prevalence of elder fraud has reached epidemic proportions, according to the National Association of Area Agencies on Aging. And it will continue to grow as Baby Boomers age. Financial exploitation of the elderly – from unauthorized transactions in a victim’s brokerage account to telemarketing scams and identity theft – costs an estimated $3 billion annually, said Sandy Markwood, CEO of National Association of Area Agencies on Aging, in a December 2012 article in USA Today.

About 55% of elder fraud is perpetuated by a family member. “It’s not usually the close children, but the removed relative. And what they tend to do is try to isolate the older person, so no one can see what is going on,” Markwood notes.

According to the North American Securities Administrators Association (NASAA), some of the most common financial products and practices used in elder investment fraud include distressed real estate schemes, energy investments, gold and precious metal investments, promissory notes, private placements, and securitized life settlement contracts.

The ways and methods in which fraudsters lure victims into their net of opportunity run the gamut. But there are several common red flags associated with investment scams. NASAA offers the following list of a few of the more common ones used by scam artists:

The Pitch: This investment has a guaranteed high return, with no risk involved.

The Catch: There’s no such thing as a guaranteed investment. The higher the return, the more risk involved. Period. The guaranteed return sales pitch is often aimed at people who are non-risk takers, particularly those like the elderly who are on a fixed income or individuals who are near retirement and worried about not having a large enough nest egg. Even with legitimate investments, it’s important to know the risk level you are taking and invest only what you are willing and can afford to lose.

The Pitch: There’s a shortage of opportunity available; you need to get in before it’s too late.

The Catch: If it’s a legitimate deal, that same deal will be available tomorrow. The high-pressure sales pitch is used to create a false sense of urgency, whether it’s a limited amount of the investment product or a scarcity of time to invest. Never feel pressured to make a quick decision when it comes to investing money. Take your time and talk it over with an objective third party, some who can check the facts regarding the investment opportunity.

The Pitch: This is an offshore investment, and it’s tax free.

The Catch: You can defer paying taxes, but you can’t avoid paying them. This type of deal is often pitched as a secret and is an opportunity you should keep to yourself. Promoters of these investments hope to avoid hard questions from family, friends or financial advisers who might see through the scam. Often, your money will be transferred to overseas locations, making it harder to recover and even harder for the authorities to investigate.

The Pitch: You will profit just like the experts; get the secrets to their success.

The Catch: If the investment is so profitable, why do the investment promoters need to contact YOU out of the blue? Promoters utilizing this tactic are trying to convince you that he or she has access to inside information known only to a select few who are said to be making a lot of money. If you hear phrases like “secret markets,” “prime bank guarantees,” take your checkbook and run because secret prime bank markets simply don’t exist.

The Pitch: You can trust me. I have credentials and extensive experience.

The Catch: Credibility can be stretched and faked. If the person pitching the investment opportunity is legitimate, he or she should have no qualms about you conducting a background check. Take the time to determine if the authenticity of the individual’s education and experience requirements by contacting the organization that issued the credential. One of the first resources investors should turn to when choosing whether to do business or continue to do business with a particular firm or individual is BrokerCheck. The free tool helps investors research the professional backgrounds of current and former Financial Industry Regulatory Authority-registered brokerage firms and brokers, as well as investment adviser firms and representatives.


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