The Resolution Law Group: FINRA Considers System That Would ‘Red Flag’ Customer Accounts at Brokerage Firms

The Financial Industry Regulatory Authority is looking at a system that would let the SRO run analytics on the customers accounts at brokerage firms that would allow it to identify “red flags” involving business and sales misconduct involving branches, firms, and registered representatives. The agency is now seeking comments for its proposal for the Comprehensive Automatic Risk Data System (CARDS).

Upon implementation of CARDS, clearing firms and self-clearing firms would regularly turn in, in standardized, automated format, specific data about customer accounts and the customers accounts of each member account that they clear for. This would allow FINRA to conduct analytics so it can identify excessive commissions, churning, markups, pump and dump scamps, and mutual fund switches. The information would also be used to examine broker-dealers.

FINRA says it wants to be able to find the risks and red flags earlier. According to a notice from the SRO, the agency says that this type of automated reporting would get rid of some of the one-off reporting that brokerage firms now have to engage in. This would also let FINRA compare broker-dealers and identify trends and patterns in the industry.

CARDS is part of FINRA’s efforts, since the 2008 financial crisis, to go from depending on individual financial firm exams to surveillance that is broader and occurs on an ongoing basis. The SRO says it conducted a successful trial of CARDS earlier in 2013. 300 introducing firms were involved.

To make CARDS a working reality, brokers might have to gather historical data. Meantime, clearing firms would need to construct a system that would let them turn in the information and oversee data transmission. FINRA CEO and Chairman Robert Ketchum said that the purpose of CARDS isn’t to “replace the compliance officer.” He said the SRO wants to be able to swiftly place attention on firms and their branches where there may be a “concentration in assets that are more likely to be hit.”

The Resolution Law Group works with institutional investors and high net worth individual investors to get back their money that they lost due to securities fraud. Contact our broker fraud law firm today.

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The Resolution Law Group: LPL Financial Places Independent Reps Under Supervision

LPL Financial Inc. (LPLA) is no longer allowing independent representatives to supervise themselves and will impose a fee increase on some 2,200 one-person shops. These changes are among the firm’s steps to restructure oversight and compliance. With over 13,000 registered investment advisers and financial representatives, LPL is the biggest independent-contractor brokerage firm.

The reps that opt to have LPL Financial home office supervise them will pay a fee hike of $4,800 in 2015. Reps with one-adviser shops can also choose to have an existing office of supervisory jurisdiction (OSJ) that is qualified to supervise them, which cost them another 5% on production. They would pay 4% – 30% of gross fees and commissions. Those that pay the most would get more service.

These changes come right before the Financial Industry Regulatory Authority will enact its consolidated supervision rule 3110 that will mandate that firms provide an on-site supervisory structure for single-person OSJs that would employ designated senior principals. Generally, industry regulators have been wary of these solo OSJs because of insufficient oversight over the investment product recommendations that representatives make to clients. LPL spokesperson Betsy Weinberger says these modifications are the latest in the broker-dealer’s efforts to enact better compliance oversight and ensure company success and growth.

In May, LPL was fined $7.5 million by FINRA for email violations. Earlier this year, the firm agreed to settle an REIT case filed by Massachusetts Secretary of the Commonwealth William F. Galvin by paying $2.2 in restitution and a $500,000 fine. The regulator accused LPL Financial Holdings of not properly reviewing the sale of nontraded real estate investment trusts and violating state rules that cap investors’ buys to 10% of their net worth. The sale of shares from at least seven nontraded REITs between 2006 and 2009 were involved.

The state’s regulator would go on to increase that amount to $4.8 million to be paid back to investors, upping the total penalty to $5.3 million after the sales of the nontraded real estate investment trusts from a broader period—1/1/2005 to 2/13—were taken into account.

If you feel you are the victim of Broker Fraud, please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

The Resolution Law Group: FINRA Orders LPL Financial to Pay $7.5M Over Allegedly Inadequate Supervision of E-Mails

In what is being called the SRO’s largest fine to date over e-mail violations, the Financial Industry Regulatory Authority announced that it is fining LPL Financial LLC $7.5 million over 35 key e-mail system failures. The financial firm also has to set up a $1.5 million fund to compensate customers that may have been impacted. That is a total of $9 million.

According to FINRA, the e-mail and retention issues took place between 2007 and 2013, with LPL’s systems failing a minimum of 35 times. The brokerage firm allegedly did not fulfill its duty to supervise representatives, capture email, and answer regulator requests.

For more than four years, LPL purportedly did not supervise 28 million business emails that involved thousands of independent contractor representatives. The broker-dealer also is accused of making misstatements to the SRO during the latter’s investigation into the matter (email systems failures made it impossible for the firm to give over certain documents).

By settling, LPL is not denying or admitting to the securities fraud allegations.

Under securities industry rules, broker-dealers must keep and review emails for a certain length of time to make sure that procedure compliance is happening and to prevent possible wrongdoing. In a statement, the financial firm said that it was the one that notified FINRA about the e-mail issues. LPL says that not only did it fully cooperate with the SRO’s probe but also, regretting what happened, it is redesigning email systems and related compliance procedures and policies and working with independent experts. The firm says it is training employees so that in the future these kinds of oversights are identified and dealt with more quickly. Meantime, Reuters is reporting that in the wake of recent fines LPL has agreed to pay over abusive securities sales practices allegations, it is redoing its procedures related to its supervision of 13,000 advisers.

If you, your family, friends, neighbors or associates have been subjected to Mortgage Fraud, please contact The Resolution Law Group at (203) 542-7275 for a confidential, no obligation consultation.

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FINRA Notifies Brokerage Firms About Non-traded REIT Information that Can Mislead Investors

The Financial Industry Regulatory Authority is alerting broker-dealers that the way they market certain non-traded real estate investment trusts could be misleading investors. The regulator said its recent reviews of brokerage firm communications with the public about these investments showed “deficiencies.” The SRO has been trying to improve the sales practices related to illiquid REITs and increase their transparency.

Among the identified information shortcomings:
• Inaccurate and misleading statements about the benefits of investing
• Failure to adequately explain the risks involved
• Describing a real estate security as a “yield,” which can incorrectly suggest that it is a bond

FINRA said it is necessary for brokerage firms to provide “fair and balanced” distribution rates, while explaining that distribution payments are not a given. The regulator observed that some broker-dealers are prone to highlight these payments, which are given to investors as soon as the nontraded REITs are sold, but fails to inform that some distributions are the return of their principal or borrowed money. FINRA reminded broker-dealers that they have to wait until an REIT has paid distributions for six months before it can make claims about the instrument’s yearly return rate.

The SRO noted that data about related or affiliated REITs should be as prominently visible as other information, and past performance information about REITs involving the current investment being promoted cannot be cherry picked.

REITs and Non-traded REITs
REITs invest in commercial real estate, which gives investors a chance to benefit from the increase in property values, and they are publicly traded. Non-traded REITs, which don’t trade on securities exchange, can be tough to sell in secondary markets or illiquid. Investors usually have to pay higher fees for them.

FINRA has been targeting the improper-sale of non-traded REITs for some time now. This latest notification to brokerage firms doesn’t mention how many broker-dealers it looked at (or which ones) to reach its conclusions.

The Resolution Law Group represent investors throughout the US. For over two decades, The Resolution Law Group has helped thousands of investors recoup their investment losses by going through arbitration via FINRA, NYSE, NASD, and AAA, as well as through the state and federal courts.  Visit our website http:www.theresolutionlawgroup.com

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud