Articles Posted in FINRA

The Financial Industry Regulatory Authority has expelled the real estate firm formerly called DT Securities and its owner/CEO Markel Newton. According to the regulator, the firm and Newton engaged in negligent misrepresentations involving private placements. Markel is also barred for alleged violations involving two of the firm’s offerings to purchase real estate in Georgia and Florida, as well as a third one involving alcoholic treatment facilities in California.

According to FINRA, in the private placement offerings Fresh Start, DT Atlanta, and DT Florida, Markel and DT should have disclosed that the California Department of Real Estate had submitted a complaint against him in 2010. The complaint against Markel and DT Ventures Real Estate Investments accused them of performing certain activities without the required real estate license, as well as making misrepresentations about deposits made for purchase to sellers. In 2011, Markel consented to a 30-day suspension.

In addition to accusing Markel of not alerting the state, FINRA also accused Markel of improperly releasing escrow proceeds to purchase properties prior to satisfying funding-raising goals that were delineated in two of the private offerings. The settlement document said that although DT Florida had originally aimed to raise at least $3M by the end of November in 2009, that closing date was extended to 1/29/10. The funds were to go back to investors if that figure wasn’t achieved. The private placement offering put into effect by DT Atlanta in 2011 came with the goal to raise a minimum of $1.7M—a figure that was later lowered to $400K. That lower figure was reportedly never properly fulfilled.


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The Financial Industry Regulatory Authority is fining Raymond James Financial Inc. and Raymond James & Associates (RJA) $17M. The self-regulatory organization is accusing the company of widespread failures related to anti-money laundering compliance.

According to FINRA, from ’06 to ‘14 the processes that the firm had in place to stop money laundering failed to line up with its business growth. The SRO said that the company instead depended on “patchwork” systems and procedures to identify suspect activity. Because of this, Raymond James was unable to notice certain “red flags” that arose.

FINRA also said that both firms did not perform the mandated due diligence and risks reviews for foreign institutions. RJFS is accused of not putting into place and maintaining a Customer Identification Program that was adequate.

It was just in 2012 that Raymond James Financial Services was subject to sanctions for its inadequate procedures related to anti-money laundering. The firm said that it would evaluate its AML procedures and programs.

Also sanctioned and fined is former Raymond James Anti-Money Laundering Compliance Officer Linda Busby. She is suspended for three months and must pay a $250K fine. FINRA said that along with the two firms, she did not succeed in setting up AML programs geared toward the two companies, respectively.

By settling, Raymond James Financial Services, Raymond James & Associates, and Busby are not denying or admitting to the FINRA charges.

It is important that financial firms have systems in place to identify suspect transactions that may be signs of money laundering.

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A FINRA arbitration panel has ordered Wells Fargo Advisors LLC (WFC) to pay UBS Financial Services Inc. $1.1M to resolve a claim involving financial adviser David Kinnear who went to work for the Wells Fargo & Co. brokerage arm after leaving the UBS Group AG (UBS) unit. UBS claims that Kinnear stole thousands of client and business records, as well as proprietary information, after resigning from the firm.

The Wall Street Journal reports that according to a source, Kinnear downloaded the data and distributed it to clients. UBS contends that the compensation Kinnear received at Wells Fargo was related to his ability to successfully bring UBS clients with him. UBS also claims that Kinnear owes it promissory notes.

Wells Fargo denies UBS’s allegations. It submitted a counterclaim accusing the firm of unfair completion, including preventing clients from moving from UBS to Wells Forgo.

Under the Protocol for Broker Recruiting, brokers are only allowed to bring the names and contact information of clients that they serviced while having worked at a firm when moving to another brokerage firm.

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BNY Mellon to Pay Massachusetts $3M Over Computer Problem That Impacted Mutual Funds
Bank of New York Mellon (BK) will pay $3 million to the state of Massachusetts to resolve a probe that found that a computer glitch did not calculate net asset values for over 1,000 mutual funds. Although the bank hired SunGard InvestOne to calculate these values, there was one weekend last year when a malfunction occurred.

The Massachusetts Securities Division conducted an investigation and discovered that BNY Mellon lacked a back-up plan to deal with such a malfunction. Because of this, non-uniform and untimely information was sent to clients and funds. As Secretary of the Commonwealth William F. Galvin noted, it is the job of financial institutions like BNY Mellon to oversee third-party vendors and put into place a back-up plan in the event a vendor’s system fails. The bank says that in the wake of the outage, it took action to protect client interests and ensure that the daily net asset values were issued.

BNY Mellon said that it has since made investors and the funds that sustained losses because of the computer error whole. The bank has made changes to supervisory procedures.

WedBush to Pay $675K Fine to Nasdaq and FINRA over Trading and Clearing Errors Involving Exchange-Traded Funds
Wedbush Securities Inc. will pay a $675K fine to the Nasdaq Stock Market and the Financial Industry Regulatory Authority Inc. over clearing and trading mistakes involving redemption and trading activities related to leveraged ETFs. Wedbush served as Scout Trading, LLC’s clearing firm.

According to FINRA, from 1/10 to 2/12, Scout Trading was not long enough in the shares that made up the redemption orders. Scott Trading turned in more than 250 naked redemption orders via Wedbush. These involved nearly a dozen ETFS that totaled over 295 million shares. This activity and ETF shortselling on the second market by Scout Trading led to Wedbush’s failure to deliver on a number of occasions. (This could have led to a naked short sale in which the seller does not arrange to borrow the securities in a manner timely enough for the buyer to receive the delivery within the standard three days.)

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A Financial Industry Regulatory Authority panel says that Royal Bank of Scotland’s (RBS) securities division in the U.S. must pay Jeffrey Howard, an ex-executive that it fired, $2.05M in compensatory damages because of the way he was let go. The bank must also retract his termination and expunge his regulatory record of any comments that are defamatory.

The FINRA arbitration panel’s case summary said that according to Howard, the bank fired him because it didn’t want people to find out that there was “significant internal turmoil” at the financial institution. Howard, who joined the firm’s RBS Securities in 2012 as head of its prime services for the Americas, eventually went on to become global-co-head of the group and then later its sole head. Previous to all of that he worked at Bank of America (BAC) Merrill Lynch. After he was let go by Royal Bank of Scotland in 2014, Howard filed a breach of contract and defamation case with FINRA contending that the disclosure about his firing was false.

According to the FINRA panel, Howard should not have been let go for cause. It found that the bank made fundamental mistakes and inconsistencies in: the way it interpreted internal policies and put them into effect, the facts it employed to decide to fire him, and the rationale behind that decision. The panel said that Howard did not violate any internal policies.

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The Financial Industry Regulatory Authority is accusing VFG Securities of failing to supervise brokers to make sure that clients’ portfolios did not become overly concentrated in illiquid investments. In its complaint against the brokerage firm, the regulator said that from 11/10 to 6/12, VFG made nearly 95% of revenue from the sale of nontraded real estate investment trusts and direct participation programs. An audited financial statement with the SEC said that by 6/30/12, the broker-dealer had nearly $4M in revenues for that past year.

The self-regulatory organization said that VFG Securities owner Jason Vanclef wrote a “The Wealth Code,” which he used as sales literature to market investments in direct participation programs and nontraded REITs, in order to bring potential investors. He purportedly claimed in the book that nontraded REITs and nontraded direct participation programs provide capital preservation and high returns—a claim that is misleading, inaccurate, and not in line with information in the prospectuses for the instruments sold by VFG Securities. Such investments are typically high risk to the extent that an investor may end up losing a substantial part of if not all of his/her investment.

Vanclef also wrote in the book that by investing in the instruments that he recommended, investors stood to earn 8-12% results and consistent returns. FINRA said that he and the firm did not give readers a “sound basis” upon which to assess such claims.

In an interview with Vanclef, InvestmentNews said that FINRA has been “persecuting” him, ever since VFG underwent an exam in 2012. That is the year when the self-regulatory organization started concentrating more of its attention on illiquid alternative investment sales. Vanclef is accusing the regulator of “character assassination.”

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The Financial Industry Regulatory Authority is sanctioning J.P. Turner & Co. for violating a rule mandating that brokers must make sure that municipal securities transactions between a customer’s account and the firm’s account occur at a price that is “fair and reasonable.” The SRO contends that the firm’s supervisory system did not provide the kind of supervision that could achieve compliance with securities regulations involving fair pricing

As part of the settlement, J.P. Turner will pay a $140K fine and over $76K plus interest in customer restitution.

The brokerage firm will also pay a $75k fine related to the ongoing use of a third-party telemarketer, which continued after it made the decision to stop using the marketing firm. Because the telemarketer stopped getting a do-not-call list from the firm, it continued to call people on the registry.

J.P. Turner agreed to settle both cases without denying or admitting to the charges.

In other news, the Securities and Exchange Commission is charging and fining 14 muni bond underwriting firms for issuing inaccurate information to investors. Collectively, the firms will pay about $4.58M for federal securities law violations that purportedly occurred between ’11 and ’14. The alleged violations involved the sale of municipal debt that used offering documents with materially false statements or omissions about borrower compliance as they pertain to disclosure duties. The SEC said that the firms did not perform proper due diligence to identify issues before selling the bonds.Barclays Capital Inc. (BARC), which will pay $500K, Wells Fargo Bank (WFC) N.A. Municipal Products Group, which will pay $440K, Jefferies LLC (JEF), which will pay $500K, and TD Securities USA LLC, which will pay $500K.

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The Financial Industry Regulatory Authority (FINRA) is proposing rules that would limit how much in political contributions brokers would be allowed to make to avoid conflicts of interest. FINRA is now calling for feedback during the comment period regarding the proposed rule, which runs for 21 days after notice is published in the Federal Register.

Under the proposed rule, brokers would have a contribution cap of $350 during an election year and $150 during any other year. Should a broker contribute beyond these caps, there would not be a penalty as long as a refund is issued within four months of the donation’s receipt. A failure to satisfy exemptions will lead to a bar for the broker from being allowed to solicit a government entity or official for business purposes for two years after the donation was made.

It was in 2010 that the U.S. Securities and Exchange Commission (SEC) adopted “pay-to-play” rules that placed investment advisers under the same limits.

A Financial Industry Regulatory Authority arbitration panel has awarded First United Bank & Trust and First United Corp. over $11.5M in their securities fraud case against FTN Financial Securities Corp., Hugh James Boone, and Franklin Benjamin Kennedy. The bank is claiming unsuitable investments, misrepresentations, omission, breach of fiduciary duty, failure to supervise, breach of implied contract, and common law fraud involving the claimants’ purchase of preferred term securities, trust preferred securities, and other collateralized debt obligations. Two of the preferred term securities at issue are the PreTSL Notes, also known as the I-PreTSLI notes, and the PreTSL XVII.

The claimants said that that purchase of the PreTSL Notes were among a number of transactions in their leverage strategy. They said that the respondents were aware that the notes had deteriorated after they were issued but did not inform the claimants. The respondents denied the claimants’ allegations. Boone and Kennedy in their response said that they acted properly as financial adviser.

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The Financial Industry Regulatory Authority has fined six independent brokerage firms for not giving clients the proper discounts on big sales of business development companies and real estate investment trusts. According to InvestmentNews, the self-regulatory organization has been scrutinizing whether financial firms are giving the appropriate discounts, also known as breakpoint discounts to clients.

When the sale of certain nontraded real estate investment trusts is anywhere from over $500K up to $1 million, a discount is usually available. This means that the REIT’s price, which is typically at $10/share with the broker getting a 70 cent commission, can go down to $9.90/share and a commission of 60 cents.

FINRA said that J.P. Turner, Voya Financial Inc. (VOYA), Transamerica Financial Advisors Inc., Investacorp., National Planning Corp., and Cetera Investment Services did not identify and put into effect volume discounts for certain eligible purchase of BDCs and non-traded REITs. Because of this, said the SRO, customers paid sales charges that were too high. Now, all six firms will have to pay restitution to the clients that were affected.

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