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New Hampshire Requesting LPL Financial to pay $3.6M

In a filing last week, The New Hampshire Bureau of Securities Regulation says they are seeking $2.4 million from LPL in buybacks and restitution for clients in 48 sales of nontraded real estate investment trusts that date back to 8 years ago. The rest of the $3.6M stems from a request for a $1 million fine and $200,000 in investigative costs. The state is claiming the sales were “unsuitable and unlawful” and that the advisors allegedly conducted unsuitable sales of real estate investments for their elderly clients.

What to Know about Liquid-Alternative Mutual Funds

With low interest rates hampering the returns of conventional bond funds, the new alternatives are booming in popularity, such as liquid-alternative mutual funds. Sold as portfolio diversification, these “Hedge Funds for the Masses”, bring complicated fixed-income assets within reach of the average investor, who should be frightened at how these funds perform in turbulent markets.

The SEC has taken notice. In a document spelling out its priorities for examinations of the financial industry this year, it said one focus would be the “leverage, liquidity, and valuation policies and practices” of funds holding alternative investments. The SEC pinpointed fixed-income-focused funds specifically, and said it would review whether they mislead investors about how easily the funds can sell their holdings

If market instability were to occur, fixed-income prices can rise and fall quickly. Hedge funds usually are able to ride out the bumps, due to their lockups, but these newer funds may be forced to sell their positions at inopportune moments, leading to big losses for some investors. Click here for pointers when investigating future investments into liquid-alternative funds.

Tom Buck Update

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



JPMorgan Executives Deposed in SEC Asset-Management Probe

On March 31, 2015, Bloomberg reported that JPMorgan Chase & Co. executives have been deposed and thousands of pages of internal documents subpoenaed as part of a U.S. investigation into the bank’s asset-management unit, according to people familiar with the situation.

The Securities and Exchange Commission’s enforcement division is purportedly investigating whether senior asset-management executives at the bank and its brokerage affiliate, J.P. Morgan Securities, developed a strategy that used bonuses and other incentives to improperly encourage their financial advisers to steer pension, institutional and retirement account clients into in-house funds, structured notes and other investments that generate fees for the bank – a practice that is internally referred to as “guided architecture” according to the Bloomberg report.

Regulators are also reportedly interested in the bank’s use of its own funds inside products it has marketed to retail investors, including an all-in-one investment called the “Chase Strategic Portfolio.”

The SEC’s investigation into potential conflicts of interest at JPMorgan, a probe that began roughly two years ago, has reportedly become more active in recent months. It is being assisted by the Office of the Comptroller of the Currency, which oversees national banks.

JPMorgan’s asset-management unit has faced criticism in recent years, including by advisers who alleged they were pressured to sell in-house products even when it wasn’t in their clients’ best interests. JPMorgan’s asset-management unit includes investment advisers — who oversee pensions, trusts and private accounts — and also manages funds in which those clients could invest, generating fees for the bank.

Market Concern over Bond Funds’ Liquidity

Generating another risk for financial markets, Bond funds might depend on investors who can take their money out at any time. Potentially causing big losses for investors in funds, if lots of bondholders want to sell at the same time. Another problem with a greater scope for hefty redemptions by fund investors to elicit such market chaos.

For a deeper look into this rising concern: http://www.wsj.com/article_email/bond-funds-liquidity-presents-market-concern-heard-on-the-street-1427389105-lMyQjAxMTI1MTI3ODgyNzg5Wj

SEC Files Fraud Charges Against Lynn Tilton & Patriarch Partners Over its Zohar Funds

On March 30, 2015, the SEC filed administrative fraud charges against Lynn Tilton (“Tilton”); Patriarch Partners, LLC (“Patriarch”); Patriarch Partners VIII, LLC (“Patriarch VIII”); Patriarch Partners XIV, LLC (“Patriarch XIV”); and Patriarch Partners XV, LLC (“Patriarch XV”).

According to the SEC complaint, it is alleged that, since 2003, Respondents have defrauded three Collateralized Loan Obligation (“CLO”) funds they manage and these funds’ investors by providing false and misleading information, and engaging in a deceptive scheme, practice and course of business, relating to the values they reported for these funds’ assets.

A CLO fund is a securitization vehicle in which a special purpose entity, the issuer, raises capital through the issuance of secured notes and uses the proceeds to purchase a portfolio of commercial loans.

The three CLO funds, collectively known as the “Zohar Funds,” raised more than $2.5 billion from investors and used these investments to make loans to distressed companies. However, many of the distressed companies have performed poorly and have not made interest payments, or have made only partial payments, to the Funds over several years.

Despite the poor performance of many of the Funds’ assets, the SEC has alleged that Tilton intentionally and consistently directed that nearly all valuations of these assets be reported as unchanged from their valuations at the time the assets were originated. As a result, Tilton and her entities purportedly received almost $200 million in excess fees from the Funds.

The SEC’s administrative complaint can be found at http://www.sec.gov/litigation/admin/


FINRA Orders Oppenheimer to Pay $3.75 Million in Broker Fraud Case

Oppenheimer & Co. has been ordered to pay $3.75 million for allegedly failing to properly supervise a broker that FINRA says defrauded dozens of clients and who also cheated the producers of a Broadway musical.

FINRA says the firm failed to supervise an ex-broker despite detecting unnecessary trades and overlooked other “red flags” indicating that Mark Hotton was wiring funds from customer accounts to businesses he owned or controlled.

For more information: http://www.wsj.com/articles/oppenheimer-ordered-to-pay-3-75-million-in-broker-fraud-case-1427389139

Massachusetts Fines $2.5M for Supervision Violations to Merrill Lynch

William Galvin, Secretary of the Commonwealth of Massachusetts has fined Merrill Lynch $2.5 million for supervisory violations in association with a training presentation in 2013.

The fine order states that the presentation specifically “did not include language regarding client suitability or the fiduciary requirements of Merrill Lynch financial advisers.”

Secretary Galvin, , said “During the presentation, Merrill financial advisers were being trained in how to double their production by, among other things, transferring existing customer assets from commission-based brokerage accounts to fiduciary fee-based alternatives.”

William Halldin, Merrill Lynch spokesman said, “We are reiterating to our employees the need to have internal presentations properly approved before their use, Importantly, as the state notes, this was not a matter involving any conduct that disadvantaged our clients.”

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.

FINRA Unveiled a Redesigned Website

FINRA just unveiled a redesigned website today for arbitration and mediation. It is much more user friendly, checkout the new webpage here: http://www.finra.org/arbitration-and-mediation


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