News from SEC’s Senior Summit
The SEC reported at its 2nd Annual Senior Summit that it was working on codifying suitability rules as they apply to recommendations for the purchase of securities by stock brokers, and further clarifying sales practice principals for investment professionals. If properly crafted, additional guidance in these areas should help prevent abuse of investors as well as provide additional tools for attorneys representing investors who have been abused by their stock brokers.
The SEC, FINRA, and state regulators also reported the results of their “free lunch” sweep of seminars targeted as seniors. The findings included 59% of the brokerage firms involved failing to properly supervise the seminars, and 23% of the seminars including advice that was unsuitably risky for senior investors.
Posted by Greco & Greco on 09/21 at 02:31 PM
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State Regulators •
Suitability •
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Merrill reduces value of assets linked to subprime mortgages
Merrill Lynch warned last week that it was reducing the value of certain securities linked to subprime mortgages, thereby reducing its third quarter profits. Reuters article.
Posted by Greco & Greco on 09/21 at 02:20 PM
Brokerage Firms •
Merrill Lynch •
CMOs / CDOs •
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Securities Fraud Guilty Plea for IPOF Fund Manager
A fund manager who had utilized Ferris Baker Watts accounts for his IPOF fund plead guilty in Cleveland, Ohio to securities fraud related to stock price manipulation. According to this Baltimore Sun article, David A. Dadante lost $28 million dollars of investors’ monies in a scheme that started as a ponzi scheme and led to at least four different illegal trading techniques to artificially increase the price of a specific stock, Innotrac.
The Baltimore Sun has extensively covered the involvement of Ferris Baker Watts in this matter in these linked articles, which discuss the early retirement of several executives since the investigation began, a 2003 company memo regarding concerns, and internal flags of potential problems in Dadante’s accounts.
Stephen J. Glantz, a former Ferris broker, has recently been charged with related securities fraud by federal prosecutors in Cleveland. According to this Baltimore Sun article, the Ferris broker is charged with engaging in unauthorized trading in his clients’ account to aid Dadante’s scheme.
Posted by Greco & Greco on 08/17 at 12:03 PM
Brokerage Firms •
Ferris Baker Watts •
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Stock Manipulation •
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Suitability of Hedge Funds
Hedge funds are largely unregulated investment funds which are typically limited to investment by accredited investors, i.e. high net worth individuals, pension funds, and other institutional investors. These funds are not restricted by many of the regulations and disclosure requirements of mutual funds, and they have evolved into a widely diverse industry investing in an array of traditional and non-traditional investments.
As set out in the NASD Notice to its Members linked below, the NASD / FINRA has expressed its concern regarding the sale of hedge funds by its representatives to retail customers. The Notice emphasizes that the risks and disadvantages associated with hedge funds must be fully disclosed to retail customers, and the sales representative or member must use due diligence to investigate the fund and must make a customer specific determination of suitability for the customer’s situation.
NASD Notice to Members
Posted by Greco & Greco on 08/16 at 01:47 PM
Hedge Funds •
NASD Regulation •
Suitability •
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Morgan Stanley fined for corporate bond overcharges
As set out in this FINRA press release Morgan Stanley was fined and forced to pay restitution to retail customers for overcharging for corporate bond sales and for “having an inadequate supervisory system for monitoring the pricing of corporate fixed income securities sold to customers.”
Posted by Greco & Greco on 08/03 at 04:30 PM
Bonds •
Brokerage Firms •
Morgan Stanley •
FINRA •
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Universal Leases found to be Unregistered Securities
As set out more fully below on our firm’s website (link below), the sale of Universal Leases in the name of Resort Holdings, Yucatan Resorts, and Avalon Resorts have been found by many states to be violations of securities laws prohibiting the sale of unregistered securities. The federal government has alleged that these investments relating to timeshares were a ponzi scheme. The link below further has a link to the FBI press release regarding the arrest of Michael Kelly.
Greco & Greco Universal Lease page
Posted by Greco & Greco on 08/03 at 04:13 PM
Ponzi Scheme •
State Regulators •
Arizona •
California •
Colorado •
Illinois •
Maryland •
Pennsylvania •
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Utah •
Universal Lease - Resort Holdings, Yucatan, Avalon •
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CMOs and Mortgage Backed Securities
CMOs, or collateralized mortgage obligations, are bundles of mortgages which are then divided up for sale by investment banks. Different types of these mortgage backed securities can vary widely in risk for investors, but recent problems with the subprime mortgage lending market could portend future problems for individual investors who have been sold these types of securities without their brokers fully explaining the risks involved. As set out in the following linked news stories, customers of Brookstreet Securities and Wedbush Morgan Securities have filed arbitration claims against their brokerage firms related to the sale of CMOs and other mortgage securities.
Wall Street Journal article
Orange County Register Article
Posted by Greco & Greco on 07/20 at 02:21 PM
Brokerage Firms •
Brookstreet •
CMOs / CDOs •
Suitability •
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Morgan Stanley Fined $250,000 by Rhode Island
The Rhode Island Department of Business Regulation fined Morgan Stanley $250,000 for failing to supervise sales representatives at its Providence, Rhode Island office. According to the Rhode Island press release below, the charges related to the replacement of mutual funds with more expensive mutual funds and variable annuities.
Rhode Island Press Release
Posted by Greco & Greco on 07/20 at 02:16 PM
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State Regulators •
Rhode Island •
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Life Settlements
The NASD has issued an Investor Alert regarding the purchase of life settlements, also known as senior settlements. Unlike viaticals, life settlements generally involve the sale of life insurance policies on policyholder individuals who are not terminally ill.
NASD Investor Alert
The National Association of Insurance Commissioners has also issued a statement regarding the risks involved in purchases of such settlements by individuals: it is not a liquid investment, there is no guaranteed rate of return, and you could be responsible for paying the premiums on the policy if the insured’s policy if they do not die within a certain time.
NAIC Statement to Consumers
Posted by Greco & Greco on 07/20 at 01:41 PM
Life Settlements •
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Viaticals •
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Wachovia Fine Related to Fee Based Accounts
Fee based accounts with brokerage firms are typically an alternative to commission accounts in which the account is charged a fixed annual fee or an annual percentage fee based on the assets in the account. These accounts may not be suitable for all customers. As set out in the link below, the NASD fined Wachovia for “failing to adequately supervise its fee-based brokerage business between 2001 through 2004.”
NASD Press Release
Posted by Greco & Greco on 07/20 at 11:29 AM
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Wachovia •
NASD Regulation •
Suitability •
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Merrill Lynch Fine for Supervisory Practices
In the below release, the NASD announced that it had “fined Merrill Lynch, Pierce, Fenner & Smith Inc. $5 million for supervisory failures, registration violations, impermissible sales contests and other violations in connection with the operation of its Financial Advisory Center (FAC) located in Hopewell, NJ and Jacksonville, FL.”
NASD Press Release
Posted by Greco & Greco on 07/20 at 11:22 AM
Brokerage Firms •
Merrill Lynch •
NASD Regulation •
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Early Retirement Pitches
Beware of sales pitches allowing early retirement which are based upon aggressive unrealistic annual returns without disclosure of the risks involved with such an aggressive strategy. As set out in the below NASD Investor Alert, following such a program may result in the depletion of your retirement nest egg if the broker is unable to meet the aggressive advertised annual returns.
NASD Investor Alert
See also the NASD charges against Citigroup regarding early retirement seminars in Charlotte, North Carolina for employees of Bellsouth.
NASD News Release
Posted by Greco & Greco on 07/20 at 11:13 AM
Brokerage Firms •
Citigroup •
NASD Regulation •
Retirement •
Suitability •
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NASAA’s Top Ten Investment Scams
The North American Securities Administrators Association’s (NASAA) has published a top ten list of investment scams, including ponzi schemes, affinity fraud, unlicensed securities sellers, prime bank schemes, and variable annuities sales practices:
NASAA Top Ten Investment Scams.
Posted by Greco & Greco on 07/20 at 11:05 AM
Affinity Fraud •
Ponzi Scheme •
Unregistered Securities •
Variable Annuities •
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