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Morgan Stanley Smith Barney to Pay $8M Penalty

Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle SEC charges that the firm made unsuitable recommendations about single inverse exchange traded fund (“ ETF”)  investments to its advisory clients.  According to the SEC:

1.Morgan Stanley apparently failed to ensure that clients understood the risks involved with purchasing inverse ETFs.

2.Morgan Stanley never obtained a signed client disclosure notice from several hundred clients.    That notice stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy.

3.Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, where the securities were held long-term – leading to losses for many of the clients.

4.Morgan Stanley apparently failed to follow through having a supervisor conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.

5.Morgan Stanley did not monitor the single-inverse ETF positions on an ongoing basis
organ Stanley did not monitor the single-inverse ETF positions on an ongoing basis.

6.Finally, Morgan Stanley did not ensure that certain financial advisers completed single inverse ETF training.

Our firm is investigating investor claims relating to Morgan Stanley single inverse ETFs. We provide free initial evaluations as to whether an individual or institutional investor might have a good claim for these investments.

Variable Annuity Riders

One of the most common investments sold by financial advisors to investors is the Variable Annuity (VA). These products are often sold because they pay among the highest commissions to the advisor. In recent years, we have seen many cases involving guaranteed income riders to these variable annuities. Many of these riders provided guaranteed income or growth to the investment and are usually the most important reason the VA is sold in the first place. Problems sometimes arise with these riders when investors take withdrawals from their VAs that exceed the amounts permitted by them. When this happens, the guarantees can be either lost forever or capped at the time of the withdrawal, preventing further growth.

A common scenario involves an investor needing some cash to address an important need. Perhaps a new house is being purchased, a wedding needs to be funded, or a dream vacation is booked. When the investor discusses this cash need with his/her advisor, there is no discussion about how a withdrawal from the VA would impact the guaranteed income rider, so the advisor recommends that the amount be withdrawn for the VA, even when other sources are available. Once this error is later discovered by the investor, the only option is usually to file a FINRA arbitration against the advisor and his brokerage firm for not disclosing the risks of this withdrawal and causing the future losses to income.

If you are an individual or institutional investor who has a concern about a Variable Annuity or a VA rider, please feel free to contact us for a free initial evaluation. You may have a good claim for a FINRA arbitration to recover your losses.

Morgan Stanley Financial Advisor Barry Connell Arrested for Stealing more than $5 million from Client Accounts

On January 3, 2017, Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that former Morgan Stanley financial advisor Barry Connell had been arrested and charged with wire fraud and aggravated identity theft for allegedly using his position as a financial adviser at Morgan Stanley to defraud multiple clients out of at least $5 million over a one-year period. (“Former Financial Adviser At Global Bank Charged In Manhattan Federal Court With Multimillon-Dollar Scheme To Defraud Clients”).

According to the press release that announced the indictment and arrest of financial advisor Connell, “as alleged, Barry Connell used his clients’ bank accounts as his own, siphoning off millions of dollars to pay for his extravagant lifestyle, including a country club membership and private jet expenses.”

According to the allegations in the indictment that was unsealed in the Manhattan federal court, from December 2015 to November 2016, Mr. Connell effected numerous unauthorized transactions from five accounts belonging to a single family of Morgan Stanley clients, and as a result, defrauded the clients of at least approximately $5 million.

It is alleged that, in some instances, Mr. Connell effected the fraudulent transactions by submitting Morgan Stanley forms falsely stating that he had received client instructions authorizing wire transfers to third parties for the client’s benefit, when in fact he had not received client authorization and the wire transfers were for financial advisor Connell’s own benefit. In other instances, Mr. Connell effected the fraudulent transactions by using one client’s checks, which had been intended only to pay the client’s bills, to instead pay for his own expenses including a year’s rent for a house near Las Vegas, country club membership fees, and private jet expenses.

Financial advisor Connell also allegedly paid bills for a credit card account in his spouse’s name, and made payments for his own benefit to automobile dealerships, an entertainment company, and a yacht company. Financial advisor Connell’s registration records indicate that, at the time of the events in question, he had been associated with the Morgan Stanley branch office located in Ridgewood, New Jersey.

Copies of both the U.S. Department of Justice press release and the indictment of financial advisor Connell can be found at: https://www.justice.gov/usao-sdny/pr/former-financial-adviser-global-bank-charged-manhattan-federal-court-multimillon-dollar.

If you are an individual or institutional investor who has any concerns about your investments with financial advisor Barry Connell or Morgan Stanley, 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).

Morgan Stanley Terminates New York City Financial Advisors Paesano, Cadan and Perkins under Cloud of Suspicion of Misconduct

As was recently reported on January 24, 2017 by industry publication AdvisorHub (“Morgan Stanley Boots $6 Million New York City Producer”), Morgan Stanley Wealth Management has fired “three brokers on a high-producing New York City team” that conducted business as PC Wealth Management.

Michael F. Paesano, who joined Morgan Stanley in 2011 and had previously been associated with UBS Financial for a number of years, was “discharged” on December 21, 2016 in connection with “allegations relating to employee’s exercise of discretion and investment strategy.” According to his FINRA BrokerCheck report, financial advisor Paesano has been the subject of fifteen (15) customer complaints and, in September of 2016, the Internal Revenue Service filed a tax lien against him for the reported amount of $142,956.

The two (2) other brokers who were terminated by Morgan Stanley – Jeffrey Cadan and Richard Perkins – were also reportedly terminated in December 2016 in connection with the same “allegations relating to employee’s exercise of discretion and investment strategy.”

According to his FINRA BrokerCheck report, financial advisor Cadan has been the subject of eleven (11) customer complaints and, in November of 2012, he filed a petition for relief under Chapter 7 of the United States Bankruptcy Code.

If you are an individual or institutional investor who has any concerns about your investments with Morgan Stanley, 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).

Time to Drain the Swamp at the U.S. Securities & Exchange Commission?

As reported by Gretchen Morgenson in The New York Times on January 13, 2017 (“S.E.C. Inertia on Paybacks Adds to Investor Harm”), when securities laws are broken and investors get hurt, the U.S. Securities & Exchange Commission is charged with the responsibility to ride to the rescue, using its regulatory muscle to extract penalties that can be returned to victims.

Unfortunately, it is one thing to persuade a wrongdoer to pay reparations and quite another to get the SEC to disburse the money to aggrieved investors.

Case in point: in August 2015, when the S.E.C. struck a settlement with Citigroup over an exotic investment strategy known as ASTA, MAT and Falcon, an investment strategy involving municipal bonds that the bank sold to clients from 2002 to 2008, the SEC fined Citigroup approximately $180 million and ordered the creation of a so-called “fair fund” to be distributed to investors.
That was over 16 months ago. Today, the wronged investors are not only still awaiting their money, but they have yet to see any plan outlining how the $180 million will be distributed.

Fair funds were established by the Sarbanes-Oxley Act of 2002; they allow the S.E.C. to exact civil penalties in addition to recovering ill-gotten gains, a process known as disgorgement.

But as noted in the article, “the pace of the Citigroup restitution plan seems especially glacial. And it raises questions about how these plans are administered and whether those overseeing them are rewarded for slowing down the process.”
The New York Times article includes extensive quotes from the Resident Partner in the New York City office of our firm: “To me, it comes down to a bureaucratic quagmire of indifference and concealment,’ said Steven B. Caruso, a lawyer at Maddox Hargett & Caruso in New York City. There is simply no transparency in this process, and no effort being made by the S.E.C. to recognize that these are funds that belong to other people.”

Maddox Hargett & Caruso, P.C. represented hundreds of investors who had been deceived in connection with their ASTA, MAT and Falcon investments and, in 2011, it served as co-counsel in connection with an arbitration award that forced Citigroup to pay nearly $54 million (including $17 million of punitive damages) to two (2) individuals – an award that still stands as one of the largest arbitration recoveries ever obtained on behalf of retail investors in the history of the Financial Industry Regulatory Authority (“FINRA”).

The complete New York Times article can be accessed at: https://www.nytimes.com/2017/01/13/ business/fair-game-gretchen-morgenson-investors-regulators-.html?ref=business.

If you are an individual or institutional investor who has any concerns about your investments with any brokerage firm or investment advisor, 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).

Why Am I Losing Money in an Up Stock Market?

The S&P 500,which is widely considered one of the best measures of the U.S. stock market, finished the year up over 11%. After some significant ups and downs over the past few years, the price of oil stabilized and posted some nice gains over the second part of 2016. So why did I lose money or break-even in my brokerage accounts for 2016? This is an important question that needs a closer look. A well-diversified portfolio should be up in 2016. In my experience, there are a few things that can cause investors to lose money when the market is up. Ask yourself these questions:

1.Was my account being traded too often with lots of buying and selling, called churning?
2.Do I have concentrated positions (a significant percentage of my investments)  in things that dropped in value?
3.Is my broker getting me into investments at a high price and selling me out at a lower price?

If your answer to any one of these questions is “yes,” and your losses exceed $50,000, you should contact an experienced securities arbitration attorney for a complimentary review of your potential case. Our firm represents individual and institutional investors in cases against financial advisors, and we are happy to give you a free initial evaluation.

Former Ameriprise Broker Radcliffe (Cliffe) Daly Suspended by FINRA

According to FINRA’s Brokercheck public database, former Granger, IN Ameriprise broker Radcliffe (Cliffe) Daly was suspended by FINRA for the improper sales of the common stock of Sloud, Inc. Daly allegedly sold this Sloud penny-stock by mismarking order tickets as “unsolicited” when in reality the transactions were solicited by him. According to FINRA, Daly made 292 mismarked transactions in Sloud stock for 43 customers.

If you are an individual or institutional investor who has any concerns about any of your investments made with Cliffe Daly or Ameriprise Financial Services, please contact us for a free initial evaluation.

UBS Financial Fires Top Connecticut Broker Phil G. Fiore, Jr.

As reported this week in the Investment News (“UBS Fires Top Connecticut Broker Phil Fiore Jr. for Multiple Violations”), UBS Financial Services Inc. has fired Phil G. Fiore Jr., a top broker based in Stamford, Conn., for the violation of firm policies while he was under heightened supervision.

Mr. Fiore was reportedly a senior vice president and part of the FDG Institutional Consulting Group, as well as one of the top-ranked advisers in Connecticut, according to last year’s ranking by Barron’s magazine.

A review of Mr. Fiore’s registration records with the Financial Industry Regulatory Authority (“FINRA”) indicates that he was discharged at the end of November for violating UBS policies, including not disclosing an unpaid directorship at a not-for profit entity affiliated with a client; not seeking approval to operate a charity golf tournament; not seeking firm approval to make blog posts; and for failing to disclose to UBS that a new client had made an investment in Mr. Fiore’s approved outside business.

Mr. Fiore, who had been a broker at UBS since 2009, has five (5) customer complaint disclosure events indicated on his FINRA registration report – complaints which had alleged misrepresentation, churning, unsuitable trading and failure to follow instructions.

In addition, his FINRA registration report indicates that he has been the subject of two regulatory events including:

A May 2015 suspension, for thirty (30) days, by the Financial Industry Regulatory Authority Inc. for having an outside business activity and acting as a business consultant at an electric utility company without providing specific written notice to UBS; and

A December 2015 conditional registration stipulation, with the Massachusetts Securities Division, which required UBS to supervise his activities, on a heightened basis, for eighteen (18) months; prohibited him from exercising discretion over retail accounts for Massachusetts individuals; and which prohibited him from having any principal or supervisory duties.

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with UBS Financial Services, 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).

UBS Loses Massive Arbitration Case

In early December, 2016, UBS was hit with an $18 million arbitration award because of various breaches of duties regarding its sale of poor performing Puerto Rican bonds. The Claimant in the case alleged breach of fiduciary duty, breach of contract, negligence, negligent supervision, unsuitable investments and strategy, failure to supervise and the failure to comply with the requirements set forth in the “Laws of Banks of Puerto Rico.” The causes of action relate to the Claimant’s investments in Puerto Rico closed-end mutual funds concentrated in Puerto Rico bonds heavily peddled by UBS brokers. The Panel awarded $12.7 million in compensatory damages, $2.5 million in interest, $163,000 in expert witness fees and $3.1 million in attorney fees. It is the largest award to date against UBS for the sales of the Puerto Rico bond funds. The entire award can be viewed at the link below.

http://www.finra.org/sites/default/files/aao_documents/14-02464.pdf

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with UBS, 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).

Merrill Lynch Slammed by FINRA over Loan Management Account Deficiencies

On November 30, 2016, the Financial Industry Regulatory Authority (FINRA) announced that it had fined Merrill Lynch, Pierce, Fenner & Smith Inc. $6.25 million and ordered the firm to pay approximately $780,000 in restitution for inadequately supervising its customers’ use of leverage in their Merrill brokerage accounts.

According to the FINRA press release, Merrill “loan management accounts” (LMAs) are lines of credit that allow the firm’s customers to borrow money from an affiliated bank using the securities held in their brokerage accounts as collateral. FINRA found that from January 2010 through November 2014, Merrill lacked adequate supervisory systems and procedures regarding its customers’ use of proceeds from these LMAs. More specifically, FINRA found that although both Merrill policy and the terms of the non-purpose LMA agreements prohibited customers from using LMA proceeds to buy many types of securities, the firm’s supervisory systems and procedures were not reasonably designed to detect or prevent such use. FINRA further found that during the relevant period, on thousands of occasions, Merrill brokerage accounts collectively bought hundreds of millions of dollars of securities within 14 days after receiving incoming transfers of LMA proceeds.

FINRA separately found that from January 2010 through July 2013, Merrill lacked adequate supervisory systems and procedures to ensure the suitability of transactions in certain Puerto Rican securities, including municipal bonds and closed-end funds, where customers’ holdings were highly concentrated in such securities and highly leveraged through either LMAs or margin. FINRA further found that during the relevant period, 25 leveraged customers with modest net worths and conservative or moderate investment objectives, and with 75 percent or more of their account assets invested in Puerto Rican securities, suffered aggregate losses of nearly $1.2 million as a result of liquidating those securities to meet margin calls. Merrill has already reimbursed some customers and, as part of the settlement, will pay approximately $780,000 in restitution to the remaining 22 customers affected.

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with Merrill Lynch, 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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