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Category Archives: Uncategorized

Miguel Mattei Zapata Hit with $500K Clawback, $6M in Client Complaints

A former UBS and Wells Fargo advisor, Zapata has been ordered by FINRA to reimburse $500,000 to his ex-employer Wells Fargo for failure to pay back a promissory note, and will be answering to seven client complaints that allege more than $6 million in damages for misconduct at his most recent employer, UBS. According to Zapata’s FINRA BrokerCheck record, the complaints, he is now facing during his time at UBS, include allegations of overconcentration and misrepresentation of closed-end funds. He was terminated from UBS in November 2014. These complaints mirror the wider problems that UBS and its advisors are facing for their sales of municipal bonds and closed-end funds in Puerto Rico since 2013. Over the past year the number of complaints in Puerto Rico have soared, leading FINRA to boost the size of the arbitrator pool. There are currently about 700 eligible arbitrators on FINRA’s roster, a figure the regulator is trying to increase further.

Concern for Investing in “Target Funds”

It’s essential for investors to make a knowledgeable decision about investing their 401(k) money in a target-date fund or in other options. Retirement-plan investors frequently aren’t sure how to distribute the money they’re putting away. So the growth of target-date funds, which automatically shift investors’ money from stocks to fixed income gradually over the years, has been widely seen as a success for the country’s retirement readiness. Experts worry that some investors who don’t fully understand these funds might take on more risk than they want. Target-date approach surprised many investors with a decline in their funds during the 2008 financial crisis.

“That experience should have served as a wake-up call for investors and the relentless growth in target-date funds is troubling because studies have shown that investors and industry professionals alike do not fully appreciate the risk these funds present,” Luis A. Aguilar, SEC member. Investors should be aware that target-date funds can have confusing names and large fees.

To evaluate a target-date fund, check the prospectus to determine the glide path, the changes in allocations over time, to make sure the fund is taking an amount of risk over the years that the investor is comfortable with. Typically, 401(k) plans offer a series of target-date funds from the same fund company, so investors who can’t find one with low fees and their preferred risk profile might prefer to do things the traditional way, to invest in the stock and bond funds their plan offers and commit to doing the rebalancing in the years ahead themselves.

Merrill Lynch abruptly parts ways with top financial adviser


Merrill Lynch Advisor Tom Buck Terminated

Our firm will be looking into investor complaints against Tom Buck and the Buck Group as a result of his termination from Merrill Lynch.

Schwab Causing Controversy with New Investment Service for the Frugal

Charles Schwab is set to introduce Schwab Intelligent Portfolios a FREE investment service for consumers wanting low-cost personalized advice but with minimal money to invest. Schwab will potentially trounce the competition given its established brand name and size.

Schwab is following the lead of a few smaller firms in regards to automated investing. Wealthfront, which has collected $2 billion in customer assets over its three-year existence, largely from people under 35, and Betterment, which has collected $1.55 billion since it opened in 2010. These smaller companies provide service to people with thousands, not millions, to invest and little to spend on investment advice. A unique service that is in high demand.

Naureen Hassan, an executive vice president of Schwab, says that “Schwab wanted to create a product that would appeal to the masses and get more people into well-diversified portfolios,” she said. Although the program does not officially become available to customers until later this month, its federal regulatory filing and website contain many of its details.

The major source of criticism in the service lies within the allocation of cash recommendations and with how the portfolios are constructed. The cash allotment will often be larger than many financial advisers recommend. For more information about Schwab’s new service click here https://intelligent.schwab.com/


Legislation introduced to the House last week could stop brokers and advisers from requiring investors to take claims to arbitration rather than court. Nearly all brokerage and a large amount of advisory agreements include provisions limiting investors into arbitration.

Written by Rep. Keith Ellison, D-Minn., the bill bans pre-dispute mandatory arbitration clauses in contracts between advisers and clients. The legislation also prohibits any restrictions on investors filing class action suits.

“Working Americans shouldn’t have to sign away their rights in order to work with a financial adviser or broker-dealer to build a secure retirement,” Mr. Ellison, a member of the House Financial Services Committee, said in a statement. “An investor’s right to recover monetary damages through legal action is critical. Working Americans will be more eager to invest their hard-earned dollars when we give them more rights in the financial marketplace.”

In 2013, Mr. Ellison submitted a similar bill. It failed to get a hearing in the House Financial Services Committee, which is controlled by Republicans. It died at the end of the congressional session last December and had to be reintroduced to the new Congress.

Republicans’ strengthened House majority and their Senate majority pose an even bigger challenge for Mr. Ellison’s legislation this time, but state regulators are not discouraged.

“State securities regulators believe that investor confidence in fair and equitable recourse is critical to the health of our securities markets and long-term investments by retail investors,” the North American Securities Administrators Association said in the legislative agenda it released Feb. 23.

SEC Charges Oppenheimer and Orders Payment of $20 Million for Securities Law Violations

Oppenheimer & Co. has been charged by the SEC for violating federal securities laws while wrongly selling penny stocks in unregistered offerings on behalf of clients. Oppenheimer admitted their wrongdoing and will pay $10 million to settle the SEC’s charges, as well as another $10 million to settle a parallel action by the Treasury Department’s Financial Crimes Enforcement Network.

The SEC found Oppenheimer engaged in two courses of misconduct.  The first involved aiding and abetting illegal activity by a customer and ignoring red flags that business was being conducted without and valid exemption from the broker-dealer registration requirements of the federal securities laws. Oppenheimer failed to recognize the resulting liabilities and expenses in violation of the books-and-records requirements, and improperly recorded transactions for customers in Oppenheimer’s records. Oppenheimer also failed to file Suspicious Activity Reports as mandatory under the Bank Secrecy Act to report potential misconduct and its clients, and the firm failed to properly report, withhold, and remit more than $3 million in backup withholding taxes from sales profits. .

The second course of misconduct involved Oppenheimer again engaging on behalf of another client in unregistered sales of billions of shares of penny stocks. The firm’s liability stems from its failure to react to red flags and conduct a searching inquiry into whether the sales were exempt from registration requirements of the federal securities laws, and its failure reasonably to supervise with a view toward detecting and preventing violations of the registration provisions. The SEC’s investigation, which is continuing, discovered that the sales generated approximately $12 million in profits of which Oppenheimer was paid $588,400 in commissions.

The SEC’s order is requiring Oppenheimer to stop and abstain from committing or causing any violations and any future violations of Section 15(a) and 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3 and 17a-8, and of Section 5 of the Securities Act of 1933.  In addition to the financial remedies, Oppenheimer agreed to be censured and undertake such corrective measures as retaining an independent consultant to review its policies and procedures over a five-year period.


A top economic adviser under President Obama is calling for stricter rules on Wall Street after finding some bad broker practices costing investors $8 billion to $17 billion a year.

Chairman of President Obama’s Council of Economic Advisers, Jason Furman, found research showing some broker practices, such as boosting commissions with excessive trading, is costing investors billions. The White House is considering tighter oversight of brokers who handle retirement accounts.

In a Jan. 13th memo, drafted by Furman to the White House, calls for a Labor Department regulation that would impose a fiduciary duty on brokers handling retirement accounts, requiring them to act in their clients’ best interest. Under current procedures, brokers are held to a ‘suitability’ standard, meaning they must sensibly believe their recommendation is right for a customer.

Over the past four years or so, Wall Street has been lobbying against the Labor rule. Firms such as, Morgan Stanley and Bank of America Corp. have been leading the charge. Arguing that costlier regulations would take away options for smaller investors, who would lose access to advice as well as investment choices.

The Labor Department’s official proposal could come as soon as this month. It is important to note that this draft rule will not ban sales commissions and will require brokers to guard against conflicts and avoid “certain self-dealing transactions”.

For more details about the Jan. 13th memo click here.

SEC Compliance Inspections and Examinations Office Released Examination Priorities for 2015

The Examination priorities for 2015 address issues across a variety of financial institutions, including investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, and national securities exchanges.  Areas of examination include:

Market-Wide Risks – The SEC will examine for structural risks and trends that involve multiple firms or entire industries, including: monitoring large broker-dealers and asset managers in coordination with their policy divisions, conducting annual examinations of clearing agencies as required by the Dodd-Frank Act, assessing cybersecurity controls across a range of industry participants, and examining broker-dealers’ compliance with best execution duties in routing equity order flow.

Retail Investors – Retail investors are being offered products and services that were formerly characterized as alternative or institutional, including private funds, illiquid investments, and structured products.  Additionally, financial services firms are offering a broad array of information, advice, products, and services to help retail investors plan for and live in retirement.  The SEC will evaluate risks to retail investors that can arise from these trends.

Data Analytics – Significant enhancements have been made that enable exam staff to analyze large amounts of data efficiently and effectively. The SEC will use these capabilities to focus on registrants and registered representatives that appear to be possibly doing illegal activity.

These priorities for 2015 can be adjusted depending on market conditions, industry developments, and ongoing risk assessment activities. To view the actual report see below.



This document identifies selected 2015 examination priorities of the Office of Compliance Inspections and Examinations (“OCIE,” “we” or “our”) of the Securities and Exchange Commission (“SEC” or “Commission”). In general, the priorities reflect certain practices and products that OCIE perceives to present potentially heightened risk to investors and/or the integrity of our capital markets.1

OCIE serves as the “eyes and ears” of the SEC. We conduct examinations of registered entities to promote compliance, prevent fraud, identify risk, and inform policy.2 We selected our 2015 examination priorities in consultation with the five Commissioners, senior staff from the SEC’s eleven regional offices, the SEC’s policy-making and enforcement divisions, the SEC’s Investor Advocate, and our fellow regulators.

This year, our priorities focus on issues involving investment advisers, broker-dealers, and transfer agents and are organized around three thematic areas: 1. Examining matters of importance to retail investors and investors saving for retirement, including whether the information, advice, products, and services being offered is consistent with applicable laws, rules, and regulations; 2. Assessing issues related to market-wide risks; and 3. Using our evolving ability to analyze data to identify and examine registrants that may be engaged in illegal activity, such as excessive trading and penny stock pump-and-dump schemes.

This document does not address OCIE’s examination priorities for exchanges and SROs, which we are addressing separately.

1   This document was prepared by SEC staff, and the views expressed herein are those of OCIE. The Commission has expressed no view on this document’s contents. It is not legal advice; it is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. 2 The registered entities that OCIE examines include investment advisers, investment companies, brokerdealers, exchanges, self-regulatory organizations (“SROs”), clearing agencies, municipal advisors, and transfer agents.


  1. Protecting Retail Investors and Investors Saving for Retirement

Retail investors of all ages face a complex and evolving set of options when determining how to invest their money, including retirement funds. Registrants are developing and offering to retail investors a variety of new products and services that were formerly characterized as alternative or institutional, including private funds, illiquid investments, and structured products intended to generate higher yields in a low-interest rate environment. Additionally, as investors are more dependent than ever on their own investments for retirement,3 the financial services industry is offering a broad array of information, advice, products, and services to retail investors to help them plan for, and live in, their retirement years. We are planning various examination initiatives to assess risks to retail investors that can arise from these trends.

  • Fee Selection and Reverse Churning. Financial professionals serving retail investors are increasingly choosing to operate as an investment adviser or as a dually registered investment adviser/broker-dealer, rather than solely as a broker-dealer. Unlike broker-dealers, which typically charge investors a commission or mark-up on purchases and sales of securities, investment advisers employ a variety of fee structures for the services offered to clients, including fees based on assets under management, hourly fees, performance-based fees, wrap fees, and unified fees. Where an adviser offers a variety of fee arrangements, we will focus on recommendations of account types and whether they are in the best interest of the client at the inception of the arrangement and thereafter, including fees charged, services provided, and disclosures made about such relationships.
  • Sales Practices. We will assess whether registrants are using improper or misleading practices when recommending the movement of retirement assets from employer-sponsored defined contribution plans into other investments and accounts, especially when they pose greater risks and/or charge higher fees.
  • Suitability. We will evaluate registered entities’ recommendations or determinations to invest retirement assets into complex or structured products and higher yield securities, including whether the due diligence conducted, the disclosures made, and the suitability of the recommendations or determinations are consistent with existing legal requirements.
  • Branch Offices. We will focus on registered entities’ supervision of registered representatives and financial adviser representatives in branch offices, including using data

3   For decades, employers have shifted from offering defined benefit pensions to defined contribution plans, such as 401(k) accounts, that place funding and investment risk directly on participants. Today, it is estimated that approximately $15.8 trillion is invested in defined contribution plans (including individual retirement accounts and annuity reserves), while approximately $8.3 trillion is invested in defined benefit plans. See Nari Rhee, “Retirement Savings Crisis: Is it Worse than We Think” (June 2013), a publication of the NATIONAL INSTITUTE ON RETIREMENT SECURITY, available at: http://www.nirsonline.org/index.php?option=com_content&task=view&id=768&Itemid=48; see also “Retirement Assets Total $24 Trillion in Second Quarter 2014” (Sept. 2014), a publication of the INVESTMENT COMPANY INSTITUTE, available at: http://www.ici.org/research/stats/retirement/ret_14_q2.


analytics to identify branches that may be deviating from compliance practices of the firm’s home office.

  • “Alternative” Investment Companies. Funds holding “alternative” investments, or those offering returns uncorrelated with the stock market, have experienced rapid and significant growth compared to other categories of mutual funds. We will continue to assess funds offering alternative investments and using alternative investment strategies, with a particular focus on: (i) leverage, liquidity, and valuation policies and practices; (ii) factors relevant to the adequacy of the funds’ internal controls, including staffing, funding, and empowerment of boards, compliance personnel, and back-offices; and (iii) the manner in which such funds are marketed to investors.
  • Fixed Income Investment Companies. With interest rates expected to rise at some point in the future, we will review whether mutual funds with significant exposure to interest rate increases have implemented compliance policies and procedures and investment and trading controls sufficient to ensure that their funds’ disclosures are not misleading and that their investments and liquidity profiles are consistent with those disclosures.

III. Assessing Market-Wide Risks

The SEC’s mission includes not only investor protection and capital formation, but also maintaining fair, orderly, and efficient markets. With examination authority over a wide variety of registrants, we intend to examine for structural risks and trends that may involve multiple firms or entire industries. In 2015, we will focus on the following initiatives:

  • Large Firm Monitoring. We will continue to collaborate with our colleagues in the Division of Trading and Markets and the Division of Investment Management to monitor the largest U.S. broker-dealers and asset managers for the purpose of assessing risks at individual firms and maintaining early awareness of developments industry-wide.
  • Clearing Agencies. We will continue to conduct annual examinations of all clearing agencies designated systemically important, pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Areas for review will be determined through a risk-based approach in collaboration with the Division of Trading and Markets and other regulators, as applicable.
  • Cybersecurity. Last year, we launched an initiative to examine broker-dealers’ and investment advisers’ cybersecurity compliance and controls. In 2015, we will continue these efforts and will expand them to include transfer agents.
  • Potential Equity Order Routing Conflicts. We will assess whether firms are prioritizing trading venues based on payments or credits for order flow in conflict with their best execution duties.


  1. Using Data Analytics to Identify Signals of Potential Illegal Activity

Over the last several years, OCIE has made significant enhancements in data analytics that enable us to efficiently and effectively analyze the data to which we have access. We will use these capabilities to focus on registrants and firms that appear to be potentially engaged in fraudulent and/or other potential illegal activity, including the following examination initiatives:

  • Recidivist Representatives. We will continue to use our analytic capabilities to identify individuals with a track record of misconduct and examine the firms that employ them.
  • Microcap Fraud. We will continue to examine the operations of broker-dealers and transfer agents for activities that indicate they may be engaged in, or aiding and abetting, pump-anddump schemes or market manipulation.
  • Excessive Trading. We will continue to analyze data obtained from clearing brokers to identify and examine introducing brokers and registered representatives that appear to be engaged in excessive trading.
  • Anti-Money Laundering (“AML”). We will continue to examine clearing and introducing broker-dealers’ AML programs, using our analytic capabilities to focus on firms that have not filed suspicious activity reports (“SARs”) or have filed incomplete or late SARs. Additionally, we will conduct examinations of the AML programs of broker-dealers that allow customers to deposit and withdraw cash and/or provide customers direct access to the markets from higher-risk jurisdictions.
  1. Other Initiatives

In addition to examinations related to the themes described above, we expect to allocate examination resources to other priorities, including:

  • Municipal Advisors. We will continue to conduct examinations of newly registered municipal advisors to assess their compliance with recently adopted SEC and Municipal Securities Rulemaking Board rules. This initiative will include industry outreach and education.
  • Proxy Services. We will examine select proxy advisory service firms, including how they make recommendations on proxy voting and how they disclose and mitigate potential conflicts of interest. We will also examine investment advisers’ compliance with their fiduciary duty in voting proxies on behalf of investors.
  • Never-Before-Examined Investment Companies. We will conduct focused, risk-based examinations of selected registered investment company complexes that we have not yet examined.
  • Fees and Expenses in Private Equity. Given the high rate of deficiencies that we have observed among advisers to private equity funds in connection with fees and expenses, we will continue to conduct examinations in this area.


  • Transfer Agents. Transfer agents serve as important gatekeepers to prevent violations of Section 5 of the Securities Act of 1933 and other fraudulent activity. We intend to allocate more resources to examine transfer agents, particularly those that are involved with microcap securities and private offerings.
  1. Conclusion

This description of OCIE priorities is not exhaustive. While we expect to allocate significant resources throughout 2015 to the examination issues described herein, our staff will also conduct examinations focused on risks, issues, and policy matters that arise from market developments, new information learned from examinations or other sources, including tips, complaints, and referrals, and coordination with other regulators.

OCIE welcomes comments and suggestions about how we can better fulfill our mission to promote compliance, prevent fraud, monitor risk, and inform SEC policy. If you suspect or observe activity that may violate the federal securities laws or otherwise operates to harm investors, please notify us at http://www.sec.gov/complaint/info_tipscomplaint.shtml

John Thomas Financial Expelled and CEO Tommy Belesis Barred for Life by FINRA Hearing Panel; ordered to pay over $1M to Customers

FINRA has announced that a hearing panel expelled John Thomas Financial and barred its Chief Executive Officer, Tommy Belesis, from the securities industry. They violations are in connection with the sale of America West Resources, Inc. common stock, including trading ahead of customers’ orders, recordkeeping violations, violating just and equitable principles of trade, and for providing false testimony. The panel ordered has ordered them to pay $1,047,288, plus interest, to customers. In addition, they have been suspended for two years and fined $100,000, and the Chief Compliance Officer Joseph Castellano is suspended for one year and fined $50,000, for harassing and intimidating registered representatives. The panel also found they intimidated and harassed representatives who resigned by filing false Forms U5 indicating that the firm had a reasonable basis for investigating these individuals for serious misconduct, when this was not the case. In addition, the decision noted that Belesis provided false testimony to FINRA.

According to the decision, “Belesis testified that he was ‘not familiar’ with the recordkeeping requirements, and claimed that he was unfamiliar even with the fundamental requirement that the firm preserve order tickets for three years.” The panel noted that it did not find Belesis’ claims of ignorance credible given the length and breadth of his experience in the securities industry, and inferred that “they either concealed or destroyed order tickets.”

The panel dismissed charges alleging fraud, best execution violations, failure to follow customer orders, making misrepresentations to customers and failure to supervise. The ruling resolves charges brought by FINRA’s Department of Enforcement from April 2013. The hearing panel’s decision becomes final after 45 days, unless the panel’s decision is appealed to FINRA’s National Adjudicatory Council (NAC), or is called for review by the NAC.

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