Category Archives: FINRA News

On August 22, 2013, FINRA announced that it had fined Morgan Stanley Smith Barney LLC and Morgan Stanley & Co. LLC $1 million and ordered $188,000 in restitution plus interest for failing to provide best execution in certain customer transactions involving corporate and agency bonds, and failing to provide a fair and reasonable price in certain customer transactions involving municipal bonds. The requirement to pay restitution is in addition to restitution that Morgan Stanley paid previously to customers for transactions covered by this settlement.

FINRA found that Morgan Stanley failed to use reasonable diligence to ensure that the purchase or sale price to its customers was as favorable as possible under current market conditions in 116 customer transactions involving corporate and agency bonds. Additionally, in 165 transactions involving municipal bonds, Morgan Stanley failed to purchase or sell bonds at prices reasonably related to the fair market value of the subject security.  FINRA cited its October 2011 Letter of Acceptance, Waiver and Consent with Morgan Stanley in which the firm was fined $1 million for unfair markups and markdowns.  Because the evidence suggested that Morgan Stanley had improved its supervisory procedures since 2011, FINRA did not pursue formal charges against the firm for supervision of the activity cited in this latest AWC.

In concluding this settlement, Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.  Unfortunately for the investing public, FINRA did not disclose in the AWC the percentage markups or markdowns that it found offensive.  It was unclear from the announcement whether customers initiated FINRA arbitrations, or any other type of securities arbitration.  Any investor interested in speaking with a securities attorney 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 20, 2013, FINRA issued a new Investor Alert called “Marijuana Stock Scams” to warn investors about potential related scams. Medical marijuana is legal in almost 20 states, and recreational use of the drug was recently legalized in two states. As a result, the cannabis business has been getting a lot of attention – including the attention of scammers. Like many investment scams, pitches for marijuana stocks may arrive in a variety of ways – from faxes to email or text message invitations, to webinars, infomercials, tweets or blog posts.

The con artists behind marijuana stock scams may try to entice investors with optimistic and potentially false and misleading information that in turn creates unwarranted demand for shares of small, thinly traded companies that often have little or no history of financial success. The scammers behind these “pump and dump” scams can then sell off their shares, leaving investors with worthless stock.

One company highlighted in “Marijuana Stock Scams” was touted on the Internet through the use of sponsored links, investment profiles and spam email, including one promotional piece claiming the stock “could double its price SOON.” Yet the company’s balance sheet showed only losses, and the company stated elsewhere that it was only beginning to formulate a business plan.

“Marijuana Stock Scams” also includes smart tips to help investors spot and avoid these potential scams.

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

In August 2013, FINRA announced that New York Registered Representative Edward Arthur Rademaker Jr. submitted a  Letter of Acceptance, Waiver and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for six months. The fine must be paid either immediately upon Rademaker’s re-association with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.

Without admitting or denying the findings, Rademaker consented to the described sanctions and to the entry of findings that he improperly borrowed money from an elderly, disabled customer at his member firm. The findings stated that Rademaker did not provide notice to, or receive permission from, his firm to borrow from the customer, and the firm’s Written Supervisory Procedures prohibited borrowing from customers. The customer orally complained to the firm about Rademaker and the outstanding money owed to her on the loan. After conducting an internal review into Rademaker’s activities, the firm discharged him.  It was unclear from FINRA’s announcement whether the customer initiated a FINRA arbitration or any other type of securities arbitration, or whether the customer was reimbursed for the $8,000 loan.  Mr. Rademaker was most recently registered with Chase Investment Services Corp.

In August 2013, FINRA announced that Edward D. Jones & Co., L.P. submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $160,000. No restitution payment was provided for in light of the fact that the firm previously provided restitution to its customers, which it commenced paying as early as December 31, 2008.

Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it purchased municipal securities for its own account from customers and/or sold municipal securities for its own account to customers at an aggregate price (including any markdown or markup) that was not fair and reasonable, taking into consideration all relevant facts, including the best judgment of the broker, dealer or municipal securities dealer as to the fair market value of the securities at the time of the transaction and of any securities exchanged or traded in connection with the transaction, the expense involved in effecting the transaction, the fact that the broker, dealer, or municipal securities dealer is entitled to a profit, and the total dollar amount of the transaction.  It is unclear from the FINRA announcement whether customers have initiated FINRA arbitrations or any other securities arbitration.  Any customer who believes that they may have paid excessive markups can contact David A. Weintraub, P.A., 7805 SW 6 Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

In August 2013, FINRA announced that New York Registered Representative John Rom submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Rom consented to the described sanction and to the entry of findings that, in his capacity as the treasurer of a school parent teacher association (PTA), he misappropriated at least $3,000 from the PTA by writing a series of checks on the PTA’s bank account that were made payable to either himself or cash, and then used the funds for his personal expenses. The findings stated that Rom did not have permission or authority to use the funds for his own purposes.  Mr. Rom was most recently registered with J.P. Morgan Securities LLC.  Mr. Rom’s CRD does not reflect any FINRA arbitrations or customer complaints.

In August 2013, FINRA announced that G. Research, Inc. f/k/a Gabelli & Company, Inc. submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $1,000,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that its Written Supervisory Procedures were not reasonably designed to achieve compliance with applicable securities laws and regulations, and NASD® and FINRA rules, with respect to private partnerships formed by firm registered representatives, and the firm did not adequately supervise the private partnerships.

The findings stated that although the private partnerships frequently offered hedge funds and funds of hedge funds, directly or indirectly, to customers, the firm did not maintain WSPs reasonably designed to provide adequate supervision regarding due diligence related to these hedge funds and funds of hedge funds. The firm’s WSPs did not provide specific guidance regarding the relative fees to be charged by the private partnerships. Private partnership investors were contractually obligated to pay additional fees to invest with an affiliated adviser through a private partnership, yet the firm’s WSPs did not provide guidance regarding offering similar investments that carry different fees, or how to balance the relative fees, benefits and detriments of closely-related investment vehicles, or the circumstances in which waivers of the affiliated adviser’s investment minimum might be sought or granted. As a result, the firm’s WSPs did not adequately consider the fees such customers were charged, or the ability of private partnership investors to seek and obtain accommodations from the affiliated adviser to invest below the stated minimum. The findings also stated that the WSPs in place were not reasonably designed to address the obligations set forth in Notice to Members 03-07 that impose obligations when members sell hedge funds and funds of hedge funds. The firm did not adequately evaluate a provision in the fund of funds’ subscription agreements that disavowed its obligation to perform due diligence on the fund manager. While the investment adviser to the fund of funds was well known to the firm, the firm should have, but did not have, the WSPs required by Notice to Members 03-07. As a result, the firm’s WSPs were defective. The findings also included that the firm failed reasonably to supervise the private partnerships by failing to enforce its own WSPs governing various aspects of the formation, operation, marketing and sale of the private partnerships, including supervisory review of sales materials. The firm’s failures to reasonably enforce its WSPs resulted in sales materials for the private partnerships not being approved by the firm prior to being used, and statements of securities held by the private partnerships not being provided to mandated firm departments. As a further result of the firm’s failure to reasonably enforce its WSPs, it did not adequately review the subscription documents for the direct investment in the fund manager through the fund of funds.

FINRA found that the firm failed to discover that its customers were being offered an investment in the fund manager even though the subscription documents did not legally obligate the private partnerships to invest solely in the fund of funds, and that the private partnerships provided investors with no legal recourse in the event the investments were not made in the fund manager as the customers instructed. Although the private partnerships did limited advertising, those communications were not approved and initialed by a registered principal prior to their use, nor were copies of them retained in a separate file that included the name(s) of the persons who prepared them. FINRA also found that the firm failed to take appropriate steps to ensure the mandated review of the sales materials occurred prior to their dissemination on behalf of private partnerships. As a result of the firm’s failure reasonably to enforce these WSPs, the private partnerships prepared advertising and sales materials that failed to comply with applicable FINRA rules. The private partnerships used items of advertising that did not comply with applicable advertising rules. Each of the noncompliant communications involved the private partnerships’ investment in the fund manager. In addition, FINRA determined that the marketing documents lacked sufficient disclosure regarding the risks of investing in the private partnerships, including potential loss of principal, concentration of investment, leverage, management fees, lack of liquidity, and conflicts of interest between the investors and the managers. Omission of these risk disclosures made the marketing documents impermissibly incomplete and unbalanced with respect to risks versus rewards.

On August 6, 2013, FINRA issued a new investor alert called Cold Calls From Brokerage Firm Imposters—Beware of Old-Fashioned Phishing, to warn investors of cold calls from scammers falsely claiming to be representatives of at least one well-known brokerage firm. In this latest twist on phishing scams, fraudsters are cold calling investors claiming to offer information about certificates of deposit with yields well above the best rates in the market in an attempt to get potential victims to divulge their personal or financial account information. Armed with this information, the fraudsters may attempt to steal the person’s identity or money.

FINRA is reminding investors who receive unsolicited telephone calls never to provide personal information or authorize any transfer of funds to any unknown person.

“Cold Calls from Brokerage Firm Imposters” advises investors who feel they are victims of this scam to act quickly and contact their financial institution immediately to report a loss or theft of funds through an electronic funds transfer. Anyone who believes his or her identity has been stolen can follow the Federal Trade Commission’s Identity Theft action plan. FINRA also encourages investors to file a complaint using its online Complaint Center or send a tip to FINRA’s Office of the Whistleblower.

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

On August 5, 2013, FINRA announced that it had fined Oppenheimer and Co., Inc. $1,425,000 for the sale of unregistered penny stock shares and for failing to have an adequate anti-money laundering (AML) compliance program to detect and report suspicious penny stock transactions. Oppenheimer is also required to retain an independent consultant to conduct a comprehensive review of the adequacy of Oppenheimer’s penny stock and AML policies, systems and procedures. Oppenheimer agreed to the sanctions to resolve charges first brought against the firm in a FINRA complaint in May 2013.

FINRA’s findings stated that from Aug. 19, 2008, to Sept. 20, 2010, Oppenheimer, through branch offices located across the country, sold more than a billion shares of twenty low-priced, highly speculative securities (penny stocks) without registration or an applicable exemption. The customers deposited large blocks of penny stocks shortly after opening the accounts, and then liquidated the stock and transferred proceeds out of the accounts. Each of the sales presented additional “red flags” that should have prompted further review to determine whether the securities were registered. FINRA also found that the firm’s systems and procedures governing penny stock transactions were inadequate, and were unable to determine whether stocks were restricted or freely tradable. Oppenheimer also failed to conduct adequate supervisory reviews to determine whether the securities were registered.

FINRA also found that Oppenheimer’s AML program did not focus on securities transactions and therefore failed to monitor patterns of suspicious activity associated with the penny stock trades. In addition, Oppenheimer failed to conduct adequate due diligence on a correspondent account for a customer that was a broker-dealer in the Bahamas, and therefore a Foreign Financial Institution under the Bank Secrecy Act; the firm’s failure contributed to Oppenheimer’s failure to understand the nature of the customer’s business and the anticipated use of the account, which was to sell securities on behalf of parties not subject to Oppenheimer’s AML review. This is the second time Oppenheimer has been found to have violated its AML obligations.

In concluding this settlement, the firm neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

In July 2013, FINRA reported that Florida Registered Representative Alan Jay Davidofsky was fined $11,741.78, plus interest, which represents disgorgement, and barred from association with any FINRA member in any capacity. The sanctions were based on findings that Davidofsky effected unauthorized trades in a customer’s traditional Individual Retirement Account (IRA) at his member firm, had de facto control over the account, and excessively traded in the account, which was inconsistent with the customer’s financial circumstances and investment objectives.

The findings stated that Davidofsky excessively traded the accounts with scienter, and consequently, churned the customer’s account. The findings also stated that the firm had warned Davidofsky to get his numbers up, and he undertook the excessive trading in the customer’s account to solidify his tenuous employment position at the firm and generate additional commissions for himself.  It is unclear whether the customer initiated a FINRA arbitration proceeding, or any other type of securities arbitration.

In July 2013, LPL Financial LLC submitted a Letter of Acceptance, Waiver and Consent in which the firm agreed to be censured and fined $60,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it purchased municipal securities for its own account from customers and/or sold municipal securities for its own account to customers at an aggregate price (including any commission or service charge) that was not fair and reasonable, taking into consideration all relevant factors, including the best judgment of the broker, dealer or municipal securities dealer as to the fair market value of the securities at the time of the transaction and of any securities exchanged or traded in connection with the transaction; the expense involved in effecting the transaction; the fact that the broker, dealer, or municipal securities dealer is entitled to a profit; and the total dollar amount of the transaction.

According to FINRA, the firm failed to use reasonable diligence to ascertain the best inter-dealer market, and failed to buy or sell in such market so that the resultant price to its customer was as favorable as possible under prevailing market conditions. The findings also stated that the firm submitted evidence that it made restitution to each of the affected customers.  Because of the evidence submitted by LPL, it is unlikely that the customers initiated FINRA arbitrations, or any other type of securities arbitration.