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.

Lawmakers & Industry Folk Address the DOL Amending the Definition of Fiduciary, Reg A Plus Offerings, Oversight, Rogue Brokers, and Expungement Rules

US House Passes A Bill Prohibiting the US Labor Department DOL From Amending Its Definition of “Fiduciary” Until SEC’s Uniform Conduct Standard is Established
A bill that would not allow the Department of Labor to amend its rules regarding the definition of the term “fiduciary” until after Securities and Exchange Commission adopts its own rule that places broker-dealers and investment advisers under a uniform standard of conduct has passed in the US House of Representatives. The DOL has been trying to revise its definition of “fiduciary” in the Employee Retirement Income Security Act (ERISA). Those who voted to prohibit revising the definition have been worried about possibly ending up with two rulemakings that were inconsistent with one another.

Reg A Plus Offerings and Their Oversight Get Capitol Hill Debate
At a Senate Banking Committee’s Securities, Insurance, and Investment Subcommittee hearing about developments involving the Jumpstart Our Business Startups Act, discussion ensued about Reg A Plus offerings. The SEC has yet to put out a proposal about “Reg A Plus,” which is the term used by its staff to refer to the new Reg A threshold.

Per the JOBS ACT’S Title IV, the SEC has to put in place a rule that will give exemption to certain offerings of up to $50 million (the current Reg A exemption is $5 million). While Reg A plus offerings would be exempt from SEC registration, they will have to adhere to state level registration unless found on a national securities exchange or sold to a “qualified purchaser.” Already, some in the industry are calling for a “workable definition” of what constitutes a “qualified purchaser” so that certain offerings would be exempt from state registration requirements.

There are those who believe that Reg A Plus offerings would benefit “Main Street businesses” that are not the likeliest candidates for other JOBS Act provisions. That said, the existing blue sky registration process puts in place additional limitations and burdens that might discourage those who would use a new Reg A Plus exemption.

Meantime, the North American Securities Administrators Association has put out a proposal (and is seeking comment) on streamlining the review of Reg A Plus offerings by the states. NASAA says long standing state policies will have to be modified and a “peel back” of certain requirements is necessary to make the offerings more viable.

Sen. Markey Worries About Rogue Brokers, Expungement of Violations from Public Records
In letters to the SEC and the Financial Industry Regulatory Authority, US Sen. Edward Markey (D-Mass) expressed his concerns about the high rate of broker-dealers that are able to get certain complaints removed from their records. Markey co-authored the bill that eventually led to the creation of FINRA’s BrokerCheck, which is the online database that provides information about the records of broker-dealers and brokers that the public can access. However, he worries that with such a high expungement rate for these advisers, investors are not getting an accurate picture of these people’s records.

The senator from Massachusetts believes that expunging settlement deals from a broker’s records should be prohibited. Meantime, FINRA said it has started to make changes to preserve the integrity of its BrokerCheck system and enhance investor protections.

Markey also voiced worry about a report in the Wall Street Journal noting that millions of dollars in arbitration awards aren’t paid because some firms file for bankruptcy instead. Markey wants the SRO to make brokerage firms carry insurance to cover arbitration awards. He is dismayed that there are thousands of brokers who keep selling securities even after being kicked out by FINRA. He told the SRO that it needs to do a better job of finding “rogue brokers” who stay in business even though they’ve been expelled.

The Resolution Law Group represents individual and institutional investors that have sustained losses from broker fraud. Contact our stockbroker fraud law firm today.

The Resolution Law Group: SEC Wants Comments About FINRA’s Proposed Rules About Broker-Dealer Supervision

The Securities and Exchange Commission wants comments on a proposed amendment to the Financial Industry Regulatory Authority’s broker-deal supervision rules. The latter wants to change the rules by consolidating some of them, including NASD Rule 3010 and NASD Rule 3012 into its proposed Rules 3110 and 3120 that have to do with supervisory controls and the supervision of supervisory jurisdictions’ office and branch offices. The proposed rule change would eliminate NYSE Rule 342, which is related to supervision, approval, and controls, Rule 401 about business conduct, and Rule 354 regarding control persons, Rule 351e about reporting requirements. The consolidation is taking place because the SEC says some of the rules are duplicative.

FINRA also wants to eliminate proposed Rule 3110.03, which is a provision about the supervision and control of registered principals at one-person OSJs by a designated senior principal on the site. The SRO also is proposing to amend rule 3110.05 so that an Investment Banking and Securities Business member doesn’t have to perform detailed reviews of transaction if the member is using risk-based review system that is designed in a way so it can focus on areas that have the greatest risks of violation.

Meantime, proposed Rule 3110(b)(6)(D) will be changed so that it is clear that the rule doesn’t establish a strict liability to identify and get rid of all conflicts as they relate to an associated person that is supervised by supervisory personnel. There will have to be procedures to make sure that conflicts of interest don’t compromise the supervisory system.

As for proposed rule 3110(c)(3)(A), this will be modified so it is clear that it doesn’t establish a strict liability duty mandating the ID’ing and getting rid of all conflicts of interest as they relate to the inspections taking place at a location. Members will have to implement procedures designed so that they don’t let the effectiveness of inspections become compromised by such conflicts.

The Resolution law Group represents investors that have sustained financial losses because of broker fraud. Contact our securities law firm today.

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton “Bud” Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

The FINRA arbitration panel’s ruling this week includes over $1 million for the couple’s real estate investment losses and $2.1 million for the couple’s portion of the $10 million judgment. Should the Madhanys have to pay the entire $10 million amount, Citigroup will have to pay them back.

Selling Away
The securities industry prohibits selling away, which is a practice involving advisors promoting investments privately without their firm’s knowledge. Brokerage firms can be held liable when a broker engages in “selling away.”

The Resolution Law Group securities lawyers represent investors that have lost their investments because of selling away, elder financial fraud, and other types of securities fraud. Contact The Resolution Law Group today and ask to speak with one of our FINRA arbitration lawyers.

The Resolution Law Group: Many Financial Fraud Victims Don’t See It Coming, Says Survey

According to people who took a survey a report called the Financial Fraud and Fraud Susceptibility in the United States, while most people have been targeted by financial scammers, nearly half of them don’t see it coming. Almost 24,000 adults in the 40 and over age group participated.

Among the survey results:

• Over 80% of respondents had been approached about taking part in what was potentially financial scam.

• 40% were unable to recognize the typical red flag signs of possible fraud.

• Over 40% found the idea of a 100% yearly investment return very attractive.

• 43% liked the idea of investments that were “fully guaranteed.”

• 11% of respondents admitted to losing money when investing in specifics scams, such as e-mail schemes or sales pitches during free lunches, but only 4% admitted to being victimized by financial fraud when they were directly asked about it.

• Just 45% of those that admitted to being a fraud victim told anyone else about it.

• The most common reasons cited for not reporting what happened were a) not knowing who to tell and b) not thinking that telling anyone would help.

• Educated, younger males with high incomes were the ones most likely to risk big in order to possibly achieve high returns.

If you feel you are the victim of FINRA 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: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board

Goldman Sachs Wants Third Circuit To Look at Vacated Arbitration Award
Goldman Sachs (GS)wants the U.S. Court of Appeals for the Third Circuit to look at a decision by a lower court to vacate a FINRA securities award issued by a panel member that included arbitrator Demetrio Timban, who was indicted on criminal matters and suspended. The securities case is Goldman Sachs & Co. v. Athena Venture Partners LP and involves an investor accusing the firm of making misrepresentations. The U.S. District Court for the Eastern District of Pennsylvania remanded the award, which favored the financial firm.

The district court said FINRA didn’t give the parties three arbitrators who were qualified and said the respondent’s rights were prejudiced. Judge J. Curtis Joyner said that therefore, a “final and definite award” was not issued. Following the scandal involving Timban, FINRA said it now would perform yearly background checks of arbitrators and other reviews before they are given a case.

District Court Says Buyers Who Are Not Broker-Dealer’s “Customers” Cannot Compel Arbitration
A district court has preliminarily enjoined an arbitration proceeding involving real estate investments. In Orchard Sec. LLC v. Pavel, the U.S. District Court for the District of Utah said that buyers were not a managing brokerage firm’s “customers” and did not have the right to compel arbitration under the SRO’s rules. The court also said that as the plaintiff firm Orchard Securities clearly demonstrated that its chances of success on its claim’s merits.

Margaret and Michael Pavel had filed an arbitration proceeding with FINRA contending that they had securities claims involving their purchase of tenant-in-common interests, including a New York offering that Orchard Securities LLC managed as a brokerage firm. Orchard Securities contended that it could not be made to arbitrate because there was no arbitration agreement or facts showing that the Pavels were its customers and therefore could compel arbitration. The NY offering had been recommended by a registered rep. with Direct Capital, which was a third-party broker-dealer enlisted by Orchard Securities.

Three Governors Are Elected to SRO’s Board, Four Are Reappointed
FINRA says that its members have elected two industry governors: Robert Keenan, who is St. Bernard Financial Services CEO, and James D. Weddle, who is Edward Jones’s managing partner. Keenan was elected small firm governor, while Weddle will be his large firm counterpart. Shelly Lazarus, who is an ex- Ogilvy & Mather chairman and CEO, was named a public governor.

Four other governors received reappointments to the board, which oversees FINRA. The board is comprised of 22 people—10 industry governors and 11 public ones. FINRA’s CEO also has a seat.

If you feel you are the victim of FINRA 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: Citigroup Must Pay $11M Claimant for Royal Bank of Scotland Investment Losses, Says FINRA Arbitration Panel

A FINRA arbitration panel has decided that Citigroup (C) and Edward J. Mulcahy, one of the firm’s ex-branch managers, has to pay $11 million to investor John Fiorilla. Fiorilla is a legal adviser to the Holy See who went to Citigroup because he wanted to de-risk a $16 million stock position in Royal Bank of Scotland (RBS).

According to the claimant, he asked Citigroup to employ derivatives to assist in hedging his position against losses but the firm did not fulfill the request. When the market failed in 2008 his account suffered over $15 million in losses.

Fiorilla is claiming breach of contract, failure to control and supervise, breach of fiduciary duty, gross negligence, negligence, and other violations. His claim against Mulcahy is over an alleged failure to supervise.

The FINRA arbitration panel says Citigroup has to pay $10,750,000 and 9% interest from 5/1/09 until full payment of the award is reached. Mulcahy, who retired from Citigroup recently, must pay $250,000 and interest.

Citigroup denies the securities fraud allegations and is disappointed with the arbitration ruling.

Arbitration
Arbitration is one venue through which securities disputes between parties are resolved. To be eligible to be heard before a FINRA panel, cases must involve a FINRA-registered individual or entity and an investor (including broker v. investor, broker-dealer v. investor, brokerage firm and stockbrokers v. investors) or multiple FINRA-registered entities and/or individuals (such as broker v. broker, broker v. brokerage firm). Claims need to be submitted within six years that the events leading to the dispute happened.

Investors have to arbitrate before FINRA if this is mandated in their written agreement together, the dispute is with a FINRA member, and involves that member’s securities business. Industry members must arbitrate their disputes with each other before FINRA if a brokerage firm/broker’s securities business activities are involved. Brokerage firms and brokers have to enter into FINRA arbitration if the investor requests it.

The best way to increase the chances your FINRA securities case will come out in your favor is to hire an experienced FINRA arbitration lawyer.

We have helped thousands of clients recoup their losses sustained due to the negligence or errors of their financial representatives.  Please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

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