Author Archives: David Weintraub

During the investigation period, July 1, 2009 and February 22, 2018, Kestra deprived eligible retirement accounts and charitable organizations that qualified but did not receive, the applicable mutual fund sales charge waiver or appropriate share class.  Customers were overcharged approximately $1.6 million.  The investigation found that since July 2009, approximately 3,250 eligible customers accounts purchased mutual funds shares for which the Firm did not apply an available sales charge waiver.  Kestra relied on its financial advisors to determine the applicability of sales charge waivers but failed to maintain reasonable designed written policies or procedures to assist in making this determination.  The different sales charges, breakpoints, waivers and fees associated with different shares classes affect the return customers receive from mutual fund investments.   

Without admitting or denying the findings, the firm agreed to pay customers $1.9 million.  Kestra was also fined $325,000.  The firm agreed to the entry of findings that it failed to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to ensure that its registered representatives’ recommendations complied with applicable securities laws and regulations and FINRA rules.  Additionally, Kestra has provided FINRA with a detailed plan to remediate eligible customers. 

On January 10, 2019, FINRA fined CFD Investments $125,000 for failure to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to ensure that its registered representatives’ recommendations of variable annuities complied with applicable securities laws, regulations and FINRA rules.  

CFD failed to provide sufficient training to its registered representatives and reviewing principals to ensure that they understood the material features of variable annuities, specifically the additional scrutiny of the suitability issues raised by the sale of an L-share contract combined with a long-term rider, or to a customer with a long term investment objective.  The findings also stated that the firm failed to implement reasonable procedures to supervise rates of variable annuity exchanges by associated persons. The procedures did not provide any guidance regarding what constituted excessive switching, and how to supervise for excessive switching.  Moreover, the firm had no surveillance procedures or processes to review the rates of exchanges of its associated persons. The lack of supervisory systems and procedures relating to rates of exchanges was particularly unreasonable given that nearly 25 percent of the firm’s variable annuity transactions were exchanges

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 supervisory procedures (WSPs) reasonably designed to ensure that its registered representatives’ recommendations of variable annuities complied with applicable securities laws and regulations and FINRA rules.

On December 13, 2018,

FINRA fined Merrill Lynch, Pierce, Fenner & Smith Incorporated $300,000 for failure to reasonable supervise an associated person who was part of a scheme to defraud a firm’s customer.  Merrill Lynch failed to investigate red flags raised by the registered representaitve’s email communications, and it failed to follow up on a $1.7M default judgment entered against the same registered representative.  As well as the firm’s failure to disclose to FINRA these reportable events, together with a felony charge against the registered agent.      

During the investigation period, FINRA found that in three instances, Merrill Lynch flagged for review some of the registered representative’s email communications, showing possible violations of the firm’s policies and procedures.  It failed to further investigate these flags.  In doing so, Merrill Lynch would have learned that the representative, allegedly, had a close association with a con man, that she was providing services beyond what the firm permitted, and that she was potentially involved with private securities transactions. 

Another red flag was raised on March 25, 2010, when the Firm’s payroll department received a garnishment order, in connection with a lawsuit filed against the registered representative.  It showed that the representative had a default judgment against her, in the amount of $1,694,233.10.  Merrill Lynch failed to review the underlying complaint, although the default judgement and garnishment order were eventually vacated.  The firmed also failed to report to FINRA several events related to the registered representative, including the garnishment order, as well as the felony charges against her for writing post-dated checks.

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to reasonably supervise this associated person. 

FINRA fined Lenox Financial Services $15,000 for failure to disclosed required financial interest and beneficial ownership in several Research Reports prepared by the firm’s principal.  Additionally, Lenox failed to prevent its principal from making at least eight purchases in research analysts’ accounts of securities of companies that were the subject of his research reports.  FINRA found that the firm failed to establish a supervisory system reasonably designed to achieve compliance with disclosures requirements and personal trading restrictions.  

The investigation found that between September 28, 2012 and November 23, 2015, Lenox published 79 research reports prepared by its principal, regarding the equities of 14 companies.  In 14 of the initial research reports, Lenox included a generic disclaimer that used vague language that failed to identify its principal’s actual financial interest or the nature of his actual financial interest in the subject companies. 

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to make required financial interest and beneficial ownership disclosures in its research reports, as well as establish a supervisory system reasonably designed to achieve compliance with personal trading restrictions. 

If you have not hired an attorney you may contact David A. Weintraub, P.A., 7805 SW 6^th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

On September 7, 2018, FINRA issued a Letter of Acceptance, Waiver and Consent in which Citigroup Global Markets, Inc. (CGMI) was censured and fined $100,000 and required to submit to FINRA a plan to remediate eligible customers who qualified for, but did not receive, the applicable mutual fund sales-charge waivers.  As well as paying $309,093 as part of restitution to eligible customers.  Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge.

According FINRA, during the investigation period (January 2011 – September 2016), CGMI failed to establish and maintain 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.  CGMI estimates that during the relevant period, approximately 274 customers accounts purchased mutual fund shares for which an available sales charge was available but was not applied.

CGMI failed to reasonably supervise the application of sales charge waivers to eligible mutual fund sales.  The firm relied on its financial advisors to determine the applicability of sales charge waivers to eligible customers but failed to maintain written policies and procedures to make correct determinations.  Additionally, the firm failed to adequately notify and train its financial advisors regarding the availability of mutual fund sales charge waivers for eligible customers.  As a result of the firm’s failure to apply available sales-charge waivers, CGMI estimates that eligible customers were overcharged around $264,844 for eligible purchases made since January 2, 2011.

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 6^th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

On September 7, 2018, FINRA issued a Letter of Acceptance, Waiver and Consent in which Securities America (SA) was censured and fined $175,000.  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 representatives’ recommendations of variable annuities complied with applicable securities laws and regulations.

According to the investigation, during the relevant period (August 2014 – January 2018), Securities America’s procedures did not specifically address the suitability issues concerning fees and costs or surrender periods of different variable annuity share classes.  Additionally, the Firm failed to adequately trained its representatives and reviewing principals to ensure that they understood the material features of variable annuities.

Per the Letter of Acceptance, Waiver and Consent, the firm failed to identify the pattern of red flags presented by the sale of L-share contracts with long-term income riders.  During the investigation period, the firm received approximately $53 million from the sale of variable annuities, including around $6.6 million from the sale of L-share contracts.  Considering the significant role that these transactions played in SA overall business, the firm failed to implement a supervisory system and procedures reasonable designed to ensure suitability in multi-share class variable annuity sales, including L-share contracts.

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 6^th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

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 6^th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

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 6^th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

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 6^th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

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 6^th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.