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Merrill Lynch Fined $1.9M and Ordered to Pay $540k Restitution by FINRA

FINRA has fined Merrill Lynch, Pierce, Fenner & Smith Incorporated $1.9 million for fair pricing and supervisory violations in connection with more than 700 retail customer transactions in distressed securities over a two-year time period. Merrill Lynch was also ordered to pay more than $540,000 in restitution, plus interest, to affected customers.

It was found that Merrill Lynch’s Global Banking & Markets Credit Trading Desk purchased Motors Liquidation Company Senior Notes (MLC Notes) from retail customers at prices 5.3 percent to 61.5 percent below the prevailing market price. As a result, in 716 instances, Merrill Lynch purchased MLC Notes at prices that were not fair to its retail customers. The notes were originally issued by General Motors Corporation prior to its bankruptcy. Also, Merrill Lynch did not have an acceptable supervisory system in place and specifically, did not conduct post-trade best execution or fair pricing reviews of these transactions, or conduct fair pricing or best execution post-trade reviews of other retail customer trades executed on the Credit Desk.

Thomas Gira, FINRA Executive Vice President and Head of Market Regulation, said, “We expect firms to adhere to their fair pricing obligations to customers when transacting in lower-priced or distressed securities. Even after factoring in the nature of the market for these types of instruments, the markdowns charged were simply unacceptable, as was Merrill Lynch’s failure to conduct post-trade fair pricing or best execution reviews for customer transactions executed on the Credit Desk.”

Merrill Lynch has been ordered to deliver three reports over the next 18 months regarding the effectiveness of the firm’s supervisory system with respect to the pricing of retail customer transactions executed by the Credit Desk, as part of the sanctions.

Fredrick Griffin v. Rockwell Global Capital LLC FINRA Dispute Resolution Award

Griffin requested compensatory damages of approximately $200,000.00, attorneys’ fees, interest, costs, punitive damages, and such in a claim against Rockwell Global Capital LLC in January 2013.

Griffin stated that Rockwell Global Capital LLC violated Florida’s Securities and Investor Protection Act; breach of fiduciary duty; common law fraud; excessive trading; breach of contract; restitution; negligence; negligent misrepresentation; omission; and negligent supervision. The causes of action relate to Griffin’s investments in unspecified securities.

Fredrick Griffin v. Rockwell Global Capital LLC FINRA Dispute Resolution Award

2013 Annual Report to Congress on the Dodd-Frank Whistleblower Program Released

Maddox Hargett & Caruso is currently assisting whistleblowers. If you believe your company might be participating in securities fraud, please contact us. We will keep your information confidential and protected.

Download the 2013 Annual Report findings here:  http://www.sec.gov/about/offices/owb/annual-report-2013.pdf


Apparent theft of $1 million in office supplies leads to Ex-Schwab Broker

Starting in February of this year and lasting an additional 7 months, Jeffrey Brian Grove, a FINRA permanently barred former Charles Schwab & Co. Inc. Broker, allegedly stole around $1 million in office equipment from his former firm. FINRA says, “Grove purchased items through the firm’s order system and then sold them to individuals”.

According to a report from Schwab on Grove’s public BrokerCheck, he was charged with two felony counts in August at the Circuit Court of the Ninth Judicial Circuit. Also according to the BrokerCheck report the specific charges were: conspiracy to traffic in oxycodone and “unlawful use of a two-way communication device to commit a crime. Grove pleaded not guilty, according to court documents.

Grove had spent his 17-year career in financial services with Schwab and serviced approximately 250 accounts.

Sarah Bulgatz, Schwab spokeswoman, said in an e-mailed statement that the firm had cooperated with law enforcement in the investigation and that there is “no evidence of any client impact as a result of Mr. Grove’s illegal activities.”

Elderly Primary Target for Troubled Brokers

The Wall Street Journal has identified 16 hot spots across the country where troubled brokers are going after their elderly targets. Investigating around 550,000 stockbrokers, the WSJ found parts of New York’s Long Island, South Florida, Detroit, Las Vegas and California cities where these brokers are targeting the elderly.

One such troubled broker is, Rafael Golan, who knows all too well of taking advantage of the elderly. Working in Florida, he would invite potential clients to a financial seminar with the incentive of a FREE meal. Dinners like this landed him clients, some have now lodged complaints against him. Golan is now part of a group of brokers with a troubled regulatory record and 5 disciplinary red flags.

BLOG PIC Courtesy: Wall Street Journal

FINRA’s Susan Axelrod, who serves as executive vice president of regulatory operations says, “FINRA has offices in the hot spots identified by the Wall Street Journal, which means we have dedicated significant regulatory resources in these geographic locations.”

Please don’t let yourself or someone you love get taken advantage of by these troubled brokers. Avoid the temptations of a FREE meal offer, if something seems too good to be true, it’s too good to be true. Our law firm is here to help if you have become a target of troubled brokers, contact us today to discuss your claim.


13 firms are accused of failing to protect retail investors in sales of high-risk bonds issued by Puerto Rico’s debt-strapped government. The SEC’s first actions under a rule designed to protect municipal-bond investors from high-risk debt. Under settlement, the 13 firms have neither admitted nor denied their wrongdoing. With the possibility of stiffer sanctions if the alleged violation is repeated and firms agreeing to review policies and procedures and changing them to comply with the rule on minimum amounts.

In addition to Hapoalim Securities and Riedl First Securities, the firms and the amounts they were fined: Charles Schwab & Co., $61,800; Interactive Brokers LLC, $56,000; Investment Professionals Inc., $67,800; JPMorgan Securities, $54,000; Lebenthal & Co., $54,000; National Securities Corp., $60,000; Oppenheimer & Co., $61,200; Stifel Nicolaus & Co., $60,000; TD Ameritrade, $100,800; UBS Financial Services, $56,400; and Wedbush Securities Inc., $67,200.

Unregistered Broker Fraud on the Rise

In 2013 state securities regulators received 9,693 complaints from investors and conducted 5,302 investigations on unlicensed brokers ripping off investors. Ponzi schemes remain the most reported problem and then real estate investment scams. The North American Securities Administrators Association says the internet is making it easier for prey to connect with their victims. If you or someone you now is looking to invest make sure it is with a reputable broker.

FINRA Highlights Risks of Complex Financial Products

In a speech given at the SIFMA Complex Products Forum in New York City on October 29, 2014, Susan F. Axelrod, Executive Vice President of FINRA’s Regulatory Operations, once again emphasized the regulatory concerns over the influx of money into riskier products as investors continued to search for income on their assets, assets that were becoming more complex and moving further out on the risk curve in the quest for yield.

With current yields on money market funds remaining near zero, Ms. Axelrod noted that FINRA continues to see assets moving into complex financial products and longer-duration or high-yield bond products as the average daily trades in investment-grade corporate bonds by retail investors have declined each year, while average daily trades in junk bonds continue to increase.

Among the issues that are at the forefront of regulatory concerns are whether investors are sufficiently prepared for rising interest rates and whether they fully understand how the value of their investments may change when the Federal Reserve Bank begins to raise interest rates as well as whether market professionals and their systems are prepared to maintain orderly trade amid a possible increase – potentially significant increase – in trading-environment volatility?

FINRA and other regulators remain especially concerned that investors are taking on risks that they either don’t understand or cannot afford – especially with respect to interest rate-sensitive products, as well as structured products that embed fixed income securities or fixed income features.

One of the structured retail products of particular concern is “steepeners” which are principal-protected, longer-term notes that generally have fixed-to-floating coupons, with an initial, attractive rate followed by floating rates based on the spread between long- and short-term interest rates. The higher the spread, the steeper the yield curve. Issuers are adding a “trigger” linked to an equity index. The trigger serves as a downside buffer but once the buffer is breached, the investor could potentially lose principal.

”Range accrual notes” are another popular structured retail product which offer potentially attractive yields that are linked to the performance of one or more market reference points, such as the S&P 500 Index or three-month LIBOR. The coupon on the range accrual is determined by the extent to which the reference point value stays in a fixed range during a given period. The greater the percentage of time it meets the criterion, the higher the coupon payment to the investor. Historically, these products offered full principal protection, but as with “steepeners,” FINRA is seeing increased issuance of range accrual notes with principal at risk.

A third product that continues to cause regulatory concern is alternative mutual funds, or Alt Funds, which are marketed to investors as a way to invest in complex, actively managed strategies that will perform in any number of market environments, but may be sold by financial advisors who do not understand the underlying strategies or holdings.

The fourth product highlighted by Ms. Axelrod in her comments was unconstrained bond funds which, given the the complexity of the funds’ strategies, may make it difficult for investors and registered representatives to understand how the funds may perform in various market conditions and may complicate representatives’ suitability determinations.

Finally, FINRA remains concerned about the products that primarily invest in floating-rate bank loans which, due to their high yields and the floating rate, are products that invest in leveraged loans that may be attractive to investors chasing yield and looking to protect their portfolios from rising interest rates. Despite the lower interest-rate risk, these loans carry significant credit and call risk. These loans are also relatively illiquid, trade over the counter and can be difficult to value.

As noted by Ms. Axelrod, complex products continue to present a number of challenges to firms, brokers and clients. In this environment, firms that are going to make complex products available to customers have a duty to make sure investors fully understand how the products operate and the risks of each product which begins with brokers having a full understanding of the products they sell and receiving training on the features of the product as well as their firm’s own suitability guidelines for the products.

Richard Berry Named to be the Next Director of Dispute Resolution by FINRA

Berry will be starting his new position as Executive Vice President and Director of Dispute Resolution starting December 1st. Replacing Linda Fienberg who is set to retire November 30th.  He reports directly to FINRA’s Chairman and CEO, Richard Ketchum.

Ketchum said, “Rick is an effective and thoughtful leader who brings a fresh perspective at a crucial time as we build the future of the forum. We are fortunate to have someone who throughout his career with FINRA has demonstrated an unwavering commitment to ensuring that our forum provides the highest level of service to the investors and other parties who use it. I would also like to thank Linda for the exceptional contributions she has made to FINRA’s Dispute Resolution Forum over the past 18 years.”

Berry graduated from the University of California at Santa Barbara and Hastings College of Law. Beginning his career as a member of the California Bar and practicing in San Francisco. He joined NASD in 1995 as the head of Dispute Resolution’s Los Angeles satellite office, later being promoted to Director of Case Administration in NASD’s New York office in 2001. Berry currently serves as Senior Vice President and oversees FINRA Dispute Resolutions, four regional offices.

For the original press release: http://www.finra.org/Newsroom/NewsReleases/2014/P601468

High-Risk and High-Fee Exposure for Public Employees

A recent New York Times article (“Behind Private Equity’s Curtain,” October 18, 2014), has exposed the all too often insidious relationship between public pension funds and the private equity firms that are entrusted with the financial retirement security of hundreds of thousands of teachers, firefighters, police officers and other public employees.

Unfortunately, private equity firms, which are currently estimated to manage $3.5 trillion of assets, have recently underperformed the broad stock market indices and, according to the New York Times article, have intentionally concealed from the public many of the terms and fees that are associated with the investment of their retirement assets as well as the fact that private equity investments are “the highest-risk, highest-fee products ever devised by Wall Street.”

If you are an institutional or public employee pension fund employee who has any concerns about your retirement or non-retirement accounts, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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