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Yearly Archives: 2013

SEC Charges Former Rochdale Securities Broker for Rogue Trades That Brought Down Firm

Posted byDavid Weintraub

On April 15, 2013, the SEC charged David Miller, a former employee at a Connecticut-based brokerage firm, with scheming to personally profit from placing unauthorized orders to buy Apple stock. When the scheme backfired, it ultimately caused the firm to cease operations. David Miller, an institutional sales trader who lives in Rockville Centre, New York, has agreed to a partial settlement of the SEC’s charges.

The SEC alleges that Miller misrepresented to Rochdale Securities LLC that a customer had authorized the Apple orders and assumed the risk of loss on any resulting trades. The customer order was to purchase 1,625 shares of Apple stock, but Miller instead entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion. Miller planned to share in the customer’s profit if Apple’s stock profited, and if the stock decreased he would claim that he erred on the size of the order. The stock wound up decreasing after an earnings announcement later that day, and Rochdale was forced to cease operations in the wake of covering the losses suffered from the rogue trades.

According to the SEC’s complaint, Apple’s stock price decreased after Apple’s earnings release was issued on October 25. The customer denied buying all but 1,625 Apple shares, and Rochdale was forced to take responsibility for the unauthorized purchase. Rochdale then sold the Apple stock at an approximately $5.3 million loss, causing the value of the firm’s available liquid assets to fall below regulatory limits required of broker-dealers. Rochdale had to cease operations shortly thereafter.

Miller is charged with violations of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. To settle the SEC’s charges, Miller will be barred in separate SEC administrative proceedings from working in the securities industry or participating in any offering of penny stocks. In the partial settlement, Miller agreed to be enjoined from future violations of the antifraud provisions of the federal securities laws. A financial penalty will be determined at a later date by the court upon the SEC’s motion.

FINRA Disciplinary Proceeding Against Deutsche Bank Securities Inc.

Posted byDavid Weintraub

On April 8, 2013, FINRA announced that it had censured and fined Deutsche Bank Securities Inc. $275,000.00 for violating FINRA’s rules by failing to establish and enforce adequate supervisory procedures regarding dividend-related yield enhancement on total return swap transactions that involve U.S. equities.

An equity-based swap is a contractual arrangement between two parties who agree to exchange cash flows that replicate the economics of owning an underlying equity.  The buyer of a swap has the risks and benefits similar to those of owning the underlying equity, while the seller of the swap has countervailing risks and benefits.  From at least 2002 through 2011, Deutsche Bank did not maintain any written procedures for how to supervise or document decisions that impacted dividend uplift on swap trades referencing U.S. dividend-paying securities.

For the reviews that were conducted, the Firm developed a document so that overall client trading patterns could be monitored and potential red flags regarding the use of Total Return Swaps could be identified by desk personnel.  However, this document and the Firm’s review of it were insufficient in that the document was based on data that did not facilitate adequate monitoring.

Deutsche Bank was aware that it needed to improve its record keeping regarding swaps, so as to better manage risks associated with yield enhancement on Total Return Swaps.  However, the Firm did not put in place systems to retrieve sufficient data for managers’ review of executions made by the desk staff.  The records regarding market-on-close pricing or cross trades were not adequate under NASD Rule 3010.

In settling this matter, Deutsche Bank Inc. neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

FINRA Disciplinary Proceeding Against E*Trade Securities LLC

Posted byDavid Weintraub

On April 4, 2013, FINRA announced that it had censured and fined E*Trade Securities LLC  $30,000.00.  The fine was based on the amount of  excess commissions as well as other excess commissions self-identified and self-reported by firms that are not the subject of the formal charges.

Between July 1, 2009 and September 30, 2009, E*Trade Securities charged a fixed charge of $1.00 per bond for online corporate bond purchases.  In 14 transactions in low priced bonds, this charge was in excess of a fair and reasonable amount, taking into consideration all relevant factors, including the availability of the securities involved in the transaction, the expense of executing or filling the customer’s order, the value of the securities rendered by the firm, and the amount of any other compensation received or to be received by the firm in connection with the transaction.  As a result, the Firm violated NASD Rule 2440.

In settling this matter, E*Trade Securities LLC neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

FINRA Disciplinary Action Against Nicholas P. Bentivegna

Posted byDavid Weintraub

On April 4, 2013, FINRA announced that it has fined and suspended New York Registered Representative Nicholas P. Bentivegna.

On March 18, 2011 and March 21, 2011, while registered through EKN Financial Services, Inc., Mr. Bentivegna effected six unauthorized transactions in a customer’s account without the customer’s knowledge, authorization or consent.  This is a violation of FINRA Rule 2010, and as a result he consented to a fifteen business day suspension in all capacities from association with any FINRA member firm, and a fine of $5,000.00.  The suspension was in effect from May 6, 2013 through May 24, 2013.

In settling this matter Nicholas P. Bentivegna neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

SEC Shuts Down Real Estate Investment Scheme in Redondo Beach

Posted byDavid Weintraub

On March 12, 2013, the SEC announced charges and an emergency asset freeze against a Redondo Beach, California, resident and his companies for defrauding seniors and other investors in a real estate investment scheme.

The SEC alleged that Alvin R. Brown raised more than $3 million from investors who were falsely promised high profits for investing in his companies that were purportedly funding commercial and residential rental properties in California and other western states. Brown and his companies – First Choice Investment and Advanced Corporate Enterprises (ACorp) – instead used investor funds to make Ponzi-like payments to pre-existing investors, and Brown routinely withdrew cash for personal use. The ACorp website prominently displayed the seals of the SEC and the State of California as well as the NYSE, NASDAQ, and the Better Business Bureau to falsely imply to investors that these investments were endorsed by these organizations. In reality, the investment offerings were not registered with the SEC.

According to the SEC’s complaint unsealed in U.S. District Court for the Central District of California, Brown particularly targeted an elderly investor suffering from a stroke and dementia. After the investor made a $30,000 initial investment, his daughter advised ACorp to stop contacting her father because she had power of attorney, but Brown nonetheless e-mailed him forms to close his brokerage account and move the money to an IRA account that would then invest in ACorp. The investor’s daughter replied to Brown again to remind him that she had power of attorney and he should cease-and-desist from contacting her father. But ACorp eventually succeeded in circumventing the daughter to get the investor’s signature as well as an additional $45,000 investment. The investor’s daughter requested the return of her father’s money, but it was never returned.

The SEC alleged  that Brown and First Choice lured investors beginning in January 2011 by falsely promising 10 percent annual returns and a planned initial public offering (IPO) at the end of 2012 that would net investors 150 percent of their original investment. They touted Brown’s management experience but failed to disclose to investors that he had twice filed for personal bankruptcy. Brown also falsely stated that ACorp’s assets guaranteed the investments and misled investors into believing their money was safe and secure.

The Commission’s complaint alleged that Brown, ACorp, and First Choice violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and seeks preliminary and permanent injunctions, appointment of a permanent receiver, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties, against each of them.

FINRA Bars Florida Broker for Unsuitable Recommendations and Unapproved Securities Transactions Involving 31 NFL Players

Posted byDavid Weintraub

On March 7, 2013, FINRA announced that it had barred broker Jeffrey Rubin of Lighthouse Point, Florida, from the securities industry for making unsuitable recommendations to his customer, an NFL player. The recommendations related to a now-bankrupt casino in Alabama. As a result, the customer lost approximately $3 million. Based on Rubin’s referrals, 30 other NFL players also invested in the casino project and lost approximately $40 million. Rubin also failed to obtain the required approval from his employers to participate in the securities transactions involving the casino.

Rubin operated a Florida-based company, Pro Sports Financial, which provided financial-related “concierge” services to professional athletes for an annual fee. Between March 2006 and June 2008, while he was registered as a broker with Lincoln Financial Advisors Corporation and Alterna Capital Corporation, Rubin recommended that one of his NFL clients invest a total of $3.5 million, the majority of his liquid net worth, in four high-risk securities. Rubin recommended and facilitated the largest investment, $2 million, in the Alabama casino project without informing his employer member firm or receiving the firm’s approval of this activity.

Rubin referred other investors to the casino project while employed by Alterna Capital Corporation and International Assets Advisory, LLC without the firms’ knowledge or approval. FINRA found that from approximately January 2008 through March 2011, 30 additional clients of Rubin’s concierge firm, all NFL players, invested approximately $40 million in the casino project. Rubin received a 4 percent ownership stake and $500,000 from the project promoter for these referrals.

In settling this matter, Rubin neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Any investor interested in speaking with a securities attorney may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.

Investment Industry Needs More Educational Requirements – The Miami Herald

Posted byDavid Weintraub

My Corporations professor in law school once said, “Financial advisors are nothing more than used car salesmen with more expensive suits.”  Although her words may have been somewhat harsh, her comment was prescient in one particular regard — the subject of education.

Whether one sells used cars or investments, the educational prerequisites for those who sell used cars and investments are identical – there are none.  Perhaps there is good reason in the case of the car salesperson, but is the same true with respect to one’s advisor?  Do investors really care whether the person with whom they are entrusting their life savings ever graduated from high school or college?  Of course they care.

 

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