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Representing Individual, High Net Worth & Institutional Investors

Office in Indiana


Home > Blog > Category Archives: Stockbroker Misconduct

Category Archives: Stockbroker Misconduct

Have You Experienced Investment Losses?

In March of 2020, America has experienced the unprecedented pandemic known as the Coronavirus. The US stock market has declined by more than a 1/3 from its all-time high in February 2020. Some investors have watched their own portfolios decline by 30-50%.

In some instances, your investment losses could be normal market decreases. However, in other instances your losses could be due to mistakes made by your financial advisor. You could have been unsuitably invested in a portfolio that was too risky for you. Some of your investments could have been inappropriate. The risks of your investments may not have been accurately discussed with you. The typical American investor needs an experienced attorney to help him or her evaluate whether their losses are actionable against the advisor or firm that recommended them.

At Maddox Hargett & Caruso, P.C., we have been advising clients about their investment losses for over 30 years. We give investors free initial evaluations to help them understand the viability of their case against their financial advisor and his firm. If you are trying to understand whether your investment losses are attributable to normal stock market declines or breaches of duty by your advisor or firm, please contact us. We are here to help you make an informed decision. Call us at 317-598-2040 or check out our website at

Tom Buck Update

The latest on broker Tom Buck, is a settlement has been made costing $4.1 Million for Merrill Lynch. For the all the details visit

Citigroup Global Markets Inc. Fined $15 Million by FINRA for Supervisory Failures

FINRA announced on November 24th that it fined Citigroup Global Markets, Inc. $15 million for supervisory failure in communications between its equity research analysts and its clients and Citigroup sales and trading staff, and for permitting one of its analysts to participate indirectly in two road shows promoting IPOs to investors. Department of Enforcement and the Office of Fraud Detection and Market Intelligence conducted this investigation for FINRA.

FINRA Executive Vice President and Chief of Enforcement, Brad Bennett said, “The frequent interactions between Citigroup analysts and clients at events like ‘idea dinners’ created a heightened risk that views inconsistent with research would selectively be disclosed to clients. Citigroup failed to successfully police these risks.”

Citigroup’s failure to supervise definite communications by its equity research analysts at “idea dinners” hosted by Citigroup equity research analysts that were also attended by some of Citigroup’s institutional clients and sales and trading personnel. At these dinners, Citigroup research analysts discussed stock picks, which, in some instances, were inconsistent with the analysts’ published research. Despite the risk of inappropriate communications at these events, Citigroup did not effectively monitor analyst communications or provide analysts with adequate management concerning the boundaries of permissible communications.

FINRA found that from January 2005 to February 2014, Citigroup failed to meet its supervisory obligations regarding the potential selective distribution of non-public research to clients and sales and trading staff. During this period, Citigroup issued approximately 100 internal cautions concerning communications by equity research analysts. However, when Citigroup discovered violations involving selective dissemination and client communications, there were lengthy delays before the firm disciplined the research analysts and the disciplinary measures lacked the strictness necessary to deter repeat violations of Citigroup policies.

In 2011, FINRA found that, a Citigroup senior equity research analyst helped two companies in preparing presentations for investment banking road shows. Between 2011 and 2013, Citigroup did not particularly prohibit equity research analysts from assisting issuers in the preparation of road show presentation materials. Citigroup neither admitted nor denied the charges, but consented to the entry of FINRA’s findings, in settling this matter.

For more information, please visit



BrokerCheck a Good Line of Defense for Investors

Failed deals involving private placements, non-traded REITs and high-risk investments like inverse and leveraged exchange-traded funds (ETFs) shed new light on why investors need to be as informed as possible about their financial investments. And the Financial Industry Regulatory Authority’s BrokerCheck database is a good place to start.

BrokerCheck is designed to help investors quickly and easily search the professional backgrounds of brokers and investment firms. This month – partly in response to address recommendations made in a January 2011 study by the Securities and Exchange Commission (SEC) – FINRA announced the addition of several new features to its BrokerCheck system.

With the latest improvements, investors and others now have:

  • Access to more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm. In addition, new Help icons are designed to clarify commonly referenced terms throughout the system and within BrokerCheck reports.
  • Centralized access to licensing and registration information on current and former brokers and brokerage firms, and investment adviser representatives and investment adviser firms.
  • The ability to search for and locate a financial services professional based on main office and branch locations, as well as the ability to conduct ZIP code radius searches in increments of five, 15 or 25 miles.

In 2011, individuals used BrokerCheck to conduct 14.2 million reviews of broker or firm records. Investors can access BrokerCheck here.


Investors Need More Protection

It’s an idea that may be long overdue following the recent rash of Ponzi schemes and failed private placement deals: Revisiting the protections afforded to investors by the Securities Investor Protection Corporation (SIPC).

The SIPC, which is the public corporation charged with aiding victims when their brokerages fail or file bankruptcy, took center stage on March 7 at a Congressional hearing titled The Securities Investor Protection Corporation: Past, Present, and Future.

Steven Caruso, a partner with Maddox, Hargett and Caruso, P.C. testified at the hearing. His recommendations for improving the SIPC include increasing investor protection from $500,000 to $1.3 million and indexing that amount to the rate of inflation moving forward.

Currently, brokers pay an annual premium to fund the SIPC. Should SIPC coverage be expanded in the future, however, these same brokers may be tapped for additional funds.

Proponents of the idea say it enhances accountability, forcing brokers to improve their due diligence of the products and investments they market and sell to clients.

During the March 7 hearing, Caruso also suggested that investment advisers and brokers/dealers be required to purchase insurance given that they are entrusted with billions of dollars in investment funds.

“There is no free lunch in this world,” Caruso said in a March 7 Investment News article.

“When we have a fiduciary who is out there as an investment professional, requiring insurance will go a long way to helping potential [fraud] victims.”

FINRA Issues Investor Alert On Account Statements

Investors whose portfolios have taken a hit recently might not be too keen to open their account statements. Bad move, according to the Financial Industry Regulatory Authority (FINRA). Instead, the self-regulator cautions investors to review their statements carefully and immediately contact the firm issuing their account statement about any unexplained fees, overcharges or unauthorized transactions.

“A single keystroke can make the difference between 100 and 1,000 shares,” says Gerri Walsh, FINRA’s Vice President for Investor Education.

On Feb. 23, FINRA issued a new Investor Alert titled It Pays to Understand Your Brokerage Account Statements and Trade Confirmations that details in plain language key elements of customer account statements, plus “red flags” that can help investors spot and avert problems.

The Securities and Exchange Commission (SEC) also is taking up the subject of unauthorized trading. On Feb. 27, it issued a risk alert outlining preventative measures to help brokerages improve their policing of authorized trades.

Over-Concentration: A Growing Concern For Investors

Over-concentration is the opposite of diversification. An over-concentrated portfolio means too much of your money is tied up in one security or asset class, such as a single stock, bond, mutual fund, or other investment vehicle. Over-concentration happens if you buy or sell too many shares of a stock in one company. It also occurs when you invest too much in one market sector (remember the era?).

A more recent example of over-concentration occurred last year over sales of reverse convertible notes. In February 2010, the Financial Industry Regulatory Authority (FINRA) fined H&R Block Financial Advisors, Inc. (n/k/a Ameriprise Advisor Services, Inc.) $200,000 for failing to establish adequate supervisory systems and procedures for sales of the notes to retail customers. FINRA also fined and suspended H&R Block broker Andrew MacGill for making unsuitable sales of the investments to a retired couple. The firm was ordered to pay $75,000 in restitution to the couple for losses they incurred.

If a substantial portion of your money is tied up in one investment, you are taking on a considerable amount of risk. When it comes to investing, the rule of thumb is never to put all of your eggs – i.e. your money – in one basket. Diversification is key, something that a good stockbroker or investment advisor should know.

A good investment advisor also will take into consideration your risk tolerance levels, as well as your overall investing objectives. If a broker recommends an investment that falls outside of either of these two areas, you may have reason for concern. Most important, you could be setting yourself up for financial disaster.

Over-concentration complaints by investors are on rise. If you believe you or a family member suffered substantial investment losses as a result of over-concentration, please contact us.

Next Financial Hit With $400K Fine By FINRA

For the third time in three years, Next Financial Group has been fined by the Financial Industry Regulatory Authority (FINRA). The latest is a $400,000 fine, plus $102,000 in restitution to clients.

According to FINRA’s Broker Check Web site, the action is attributed to Next Financial failing to “have a reasonable system for reviewing the transactions of its registered representatives for excessive trading.”

The allegations by FINRA go on to state that one representative was able to churn client accounts and that Next Financial’s lack of a reasonable supervisory system enabled the activity to go undetected.

In fact, FINRA says Next Financial failed to detect excessive trading by a registered representative in five accounts, resulting in about $102,376 in unnecessary sales charges.

As reported Nov. 30 by Investment News, FINRA also states that Next Financial failed to identify or follow up on other transactions that suggested excessive trading by 13 other reps in 39 additional client accounts.

Even when Next Financial did detect such trades, it took no action, according to FINRA.

Financial Fraud Cases Against Broker/Dealers On The Rise

Financial fraud is growing, and more broker/dealers are at the center of the scams. According to data from the Securities and Exchange Commission (SEC), the number of cases brought by the regulator involving broker/dealers rose significantly last year.

In 2009, 16% of the financial fraud cases generated by the SEC involved broker/dealers, compared with 9% in 2008. In 2007, 14% of cases involved broker/dealers.

The percentage of cases involving securities offerings also escalated last year – to 21% from 18% in 2008.

Debate Over Fiduciary, Suitability Standards Heats Up

Financial reform is a hot topic on Capitol Hill, with legislation designed to rein in broker/dealers through new oversight measures currently being contested on the Senate floor. At the heart of the debate is a bill containing a provision to strengthen the protection of consumers by requiring stock brokers and insurance agents to act in the best interest of their clients. As it turns out, the provision may never see the light of day.

As reported March 8 by the Washington Post, certain Senators are in disagreement over the provision, prompting some insiders to predict that new legislative language will ultimately be inserted into the bill that directs the Securities and Exchange Commission (SEC) to study the rules currently governing brokers and registered investment advisers.

As it is, investment advisers operate under fiduciary standards. That means they are legally and ethically bound to put their clients’ interests ahead of their own. By comparison, brokers adhere to suitability standards, meaning they only need to have “reasonable grounds” to believe that the financial products they recommend to clients are suitable for their needs. In some instances, however, those investments could be lucrative for the broker at the expense of clients.

In addition, broker/dealers usually do not have to make as many disclosures regarding conflicts of interest, fees or previous infractions as investment advisers.

And therein is the problem. The services that broker/dealers and investment advisers provide are almost indistinguishable. Case in point: In 2008, the SEC commissioned a study by the Rand Corp., which showed that investors were equally confused about the differences between the two groups.

It would seem commonsense that investment advisers, broker/dealers and any and all financial professionals connected in some way to investment-related services and products should be subject to a consistent, uniform fiduciary standard. The operative word, however, is commonsense.

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