Category Archives: FINRA News

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.

On July 24, 2018, FINRA announced that the firms submitted Letters of Acceptance, Waiver and Consent in which Royal Alliance Associates, Inc. was censured and fined $350,000; FSC Securities Corporation was censured and fined $200,000; SagePoint Financial, Inc was censured and fined $200,000.; and Woodbury Financial Services, Inc. was censured and fined $250,000.  Without admitting or denying the allegations, the firms consented to the sanctions and to the entry of findings that during the investigation period the firms failed to establish, maintain and enforce a supervisory system and written procedures designed to reasonably supervise representatives’ sale of multi-share class variable annuities and failed to provide training to their representatives and principals on the sale and supervision of these annuities.   Additionally, Royal Alliance failed to reasonably supervise variable annuity exchanges in that it failed to implement a reasonable supervisory system and procedures to regulate its registered representatives.

According to the findings, the firms’ procedures did not specifically address suitability issues related to the different surrender periods, fees and costs of the different variable annuity share classes; as well as, it did not specifically address the suitability concerns raised by the sale of an L-share contract when combined with a long-term income rider.  The investigation also found that the firms failed to provide adequate training to their registered representatives and reviewing principals to ensure that they understood the material features of variable annuities.   The firms’ training was not designed to ensure that their representatives and reviewing principals understood all suitability considerations.

The investigation revealed that between February 2014 and December 2015, Royal Alliance received over $61.9 million from the sale of variable annuities.  More than 28% of the annuities were L-share contracts.  Between January 2013 and December 2014, FSC received over $51.5 million from the sale of variable annuities; SagePoint received over $52.7 million from the sale of variable annuities; including $11.5 million from the sale of L-share contracts, and Woodbury received over $107.1 million from the sale of variable annuities, including approximately $18.8 million from the sale of L-share contracts.

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 June 22, 2018 Newport Coast Securities appealed a National Adjudicatory Council decision to the Securities and Exchange Commission.  The firm was expelled from FINRA membership, fined $403,000 and ordered to pay $853,617.04, plus prejudgment interest, jointly and severally, in restitution to customers.   Representatives Andre Vincent La Barbera and Douglas Anthony Leone were barred from association with any FINRA member in all capacities and ordered to pay full restitution to their customers.  The sanctions were based on the findings that the firm, La Barbera and Leone excessively traded customers’ accounts.  Specifically, the investigation found that La Barbera and Leone exercised de facto control of customers’ accounts and the firm is liable for the excessive trading and churning of its representatives.  FINRA found that the firm ignored multiple red flags indicating that these representatives were excessively trading and churning certain customers’ accounts.  FINRA noted that these representatives’ clients appeared repeatedly on the firm’s exception reports reflecting the high volume of trading, commission charges, or both.   As a result of their conduct, the firm, La Barbera and Leone violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, NASD Rule 2120 and FINRA Rule 2020.  The firm’s expulsion is in effect pending review.  On June 25, 2018 the NAC decision became final with respect to La Barbera and Leone.

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.