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Monthly Archives: August 2018

FINRA Disciplinary Action against World Equity Group, Inc. 

On August 23, 2018, FINRA issued a Letter of Acceptance, Waiver and Consent in which World Equity Group, Inc. (WEG) was censured and fined $100,000.  Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and written procedures designed to ensure that agents’ recommendations of variable annuities complied with applicable securities laws and regulations.

According to the investigation, during the relevant period (April 2013 – March 2017), World Equity Group lacked a supervisory system that would allow the firm’s principal to determine whether a recommendation to purchase or exchange a variable annuity was suitable.  WEG had one Principal for the firm’s 150 registered representatives.  The Principal had no prior experience supervising the sale of variable annuities.  Moreover, the Firm failed to adequately trained or provide the tools needed to assist in the review of variable annuity transactions.  Additionally, the Firm’s procedures did not address the specific suitability considerations relating to the varied fees, costs and surrender periods of different variable annuity share classes.

Per the Letter of Acceptance, Waiver and Consent, WEG failed to identify the pattern of red flags presented by the sale of L-share variable annuities with long-term riders and failed to investigate the suitability of these potential recommendations.  For example, during the period of April 2013 through April 2015, the sale of variable annuities represented more than 22% of the Firm’s total revenue, and L-share contracts comprised approximately 43% of the variable annuities sold at the Firm.  Also, approximately 91% of the L-share contracts sold at WEG were purchased with long-term riders. WEG was ordered to provide restitution to Firm’s customers who were affected by these deficiencies.

It was unclear from FINRA’s announcement whether customers had initiated FINRA arbitrations or any other type of securities arbitrations.  If you believe that you have suffered losses as a result of misconduct, you may contact David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

FINRA Disciplinary Action Against Morgan Stanley & Co., LLC

On August 23, 2018, FINRA announced that Morgan Stanley & Co., LLC submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $1,100,000.  Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish risk management controls and supervisory procedures reasonably designed to prevent the entry of orders that exceeded pre-set credit thresholds.

Questions or comments may be addressed to David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

FINRA Disciplinary Action against Buttonwood Partners, Inc. 

On August 20, 2018, FINRA issued a Letter of Acceptance, Waiver and Consent in which Buttonwood Partners, Inc. was censured and fined $50,000.  Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and written procedures designed to review and monitor the transmittal of funds from customer accounts to third party accounts.

According to the investigation, in March 2015, a Buttonwood customer’s funds were fraudulently transferred out of her account after her email was hacked.  In 2015, the firm had approximately 100 customers who used a bill payment service that allowed them to transfer funds regularly from the customers’ security accounts to pay invoices from third parties.  Buttonwood’s clearing firm required the use of a letter of authorization (LOA), signed by the client, for transfers larger than $100,000.  The firm did not have a written supervisory procedure to address wire transfers of customers’ funds to third-party accounts. Nonetheless, it was a well-known routine practice to ask customers who used the bill payment service to sign a blank letter of authorization form.  This was done so that they would not have to sign a new LOA for each third-party fund transfer.

Per the Letter of Acceptance, Waiver and Consent, in or about February 2015, a Buttonwood customer advised her registered agent that she would be requesting fund transfers from her trust account.  On February 27, 2015, the customer called to request a wire transfer for $569,700.53.  The firm used a pre-signed, blank letter of authorization from the customer’s file to process the request.  Within the next couple of days, the customer’s email account had been hacked and the firm received 6 emails with wire transfer requests to different payees.  Buttonwood did not contact the customer to confirm each request.  Instead, it used the pre-signed LOA form and disbursed $207,300 out of the customer’s account as directed in the fraudulent emails.  The fraud was discovered once the firm became suspicious of the activity and called the client to confirm.  Buttonwood and its clearing firm were able to retrieve most of the money and reimburse the reminder amount to make the client whole.   It is worth noting that Buttonwood self-reported the violations to FINRA.

If you believe that you have suffered losses as a result of misconduct, you may contact David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

FINRA Disciplinary Action against Thrivent Investment Management, Inc. 

On August 9, 2018, FINRA issued a Letter of Acceptance, Waiver and Consent in which Thrivent Investment Management, Inc. (Thrivent) was censured.  Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and written procedures designed to supervise mutual funds sales to ensure that eligible customers received the benefit of applicable sales charge waivers and breakpoint discounts.

According FINRA, during the investigation period (January 2011 – April 2016), Thrivent failed to reasonably supervise the application of sales charge waivers and available breakpoint discounts to eligible mutual fund sales.  The firm relied on its financial advisors to determine the applicability of sales charge waivers and breakpoint discounts to eligible customers but failed to maintain written policies and procedures to make correct determinations.  The different sales charges, breakpoint discounts, waivers and fees associated with different share classes impact mutual fund investors’ returns.

Per the Letter of Acceptance, Waiver and Consent, Thrivent launched an internal investigation and as a result it returned a total of $855,465.04 (inclusive of interest) in restitution to customers, which represents the amount eligible customers were overcharged because of its deficiencies.  An additional $16,157.75 (inclusive of interest) was returned to customers in restitution, which represents the overcharges for missed sales charge waivers.

It was unclear from FINRA’s announcement whether customers had initiated FINRA arbitrations or any other type of securities arbitrations.  If you believe that you have suffered losses as a result of misconduct, you may contact David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.