July 6, 2015

Wells Fargo, LPL Financial, and Raymond James to Pay Investors of Retirement Accounts and Charities Over $30M for Mutual Fund Overcharges

The Financial Industry Regulatory Authority said that LPL Financial, LLC (LPLA), Raymond James & Associates (RJF), Raymond James Financial Services, Wells Fargo Advisors, LLC (WFC), and Wells Fargo Advisors Financial Network, LLC must pay over $30M in restitution plus interest to customers who were impacted when the firms did not waive mutual fund sales charges for certain retirement and charitable accounts. According to the self-regulatory organization, between July 2009 and the end of 2014 the financial firms either improperly overcharged certain investors who had purchased Class A mutual fund shares or sold them Class B or C shares instead. The latter two come with ongoing, high back-end fees.

Mutual funds typically offer different share classes for sale. Each class has its own sales fees and charges. Although Class A shares come with an initial sales charge, they usually have lower annual fees than Class B and C shares. However, mutual funds will usually waive Class A sales charges when selling them to charities and some retirement accounts.

The broker-dealers offered these waivers for the retirement and charitable plan accounts under limited conditions. The waivers also were disclosed in prospectuses. Yet, according to FINRA, at various times since at least July 2009, the firms did not actually waive the sales charges for these customers when they were offered the Class A shares.

Because of this, contends the agency, over 50,000 eligible retirement accounts and charitable organizations either paid sales charges for the Class A shares or bought other share classes that required them to pay higher ongoing fees and other expenses. FINRA said that the firms did not properly supervise the sale of these mutual funds and depended on its brokers to offer the waiver discounts even though they weren't properly trained.

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April 6, 2015

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award

Financial Industry Regulatory Authority arbitrators have awarded Mayank Chamadia $3.7 million in compensation in his case against Barclays Plc. (BARC) Chamadia was placed on leave from the June 2013 to prepare testimony for a possible interest-rate manipulation case. He resigned in October 2013 to go work for another firm.

Although Chamadia wasn’t accused of any violations, he said that the leave time while at Barclays hurt not just his reputation but also is bonus earning power. Now, Barclays must pay Chamadia millions of dollars in deferred pay along with the compensation. The arbitrators found that the firm had “no basis” to reduce or keep payouts that had not yet vested. Chamadia’s lawyer says that this releases some $9 million in back pay that had vested, including interest, to his client.

In another financial representative case against a firm, Robert Fenyk, an ex-Raymond James Financial Services Inc. (RJF) adviser, recently saw his $650,000 award reinstated by the U.S. Court of Appeals for the First Circuit. The ruling comes after a five-year legal battle.

Fenyk was part of the independent adviser network of Raymond James before he was fired in 2009. He took the firm to arbitration two years later alleging employment discrimination and retaliation after a supervisor found out about his sexual orientation and that he was a recovering alcoholic.

An arbitration panel awarded him $650K in back pay and legal costs in 2013. The firm, claiming that the arbitration panel misapplied Florida law and that Fenyk’s claims exceeded the one-year statute of limitations for civil rights cases, appealed in district court. The court vacated the award.

Fenyk appealed and the appellate panel affirmed the original arbitration award. Depending on whether Raymond James appeals this latest ruling, the case could end up before the U.S. Supreme Court.

The SSEK Partners Group is an institutional investor fraud law firm.

Former Barclays Swaps Trader Wins Millions in Back Pay, The Wall Street Journal, April 3, 2015

Barclays Ordered to Pay Ex-Trader About $9 Million, Lawyer Says, Bloomberg, April 6, 2015

Ex-Raymond James broker wins back $650,000 award, Investment News, March 13, 2015


More Blog Posts:
CNL Lifestyle Properties REIT Dips in Value, May Sell Ski Resorts, Institutional Investor Securities Blog, March 16, 2015

Broker and Adviser News: Morgan Stanley Sues Ameriprise Broker, Former UBS Broker Alleges Investor Risk Levels Were Mischaracterized, and Ex-Bank of America Merrill Lynch Trainees Seek Overtime, Institutional Investor Securities Blog, March 5, 2015

Financier Lynn Tilton Sues the SEC After She is Charged with Securities Fraud, Institutional Investor Securities Blog, March 31, 2015

May 8, 2012

The 11th Circuit Revives SEC Fraud Lawsuit Against Morgan Keegan Over Auction-Rate Securities

The 11th U.S. Circuit Court of Appeals has revived the US Securities and Exchange Commission’s fraud lawsuit against Morgan Keegan & Co. accusing the financial firm of allegedly misleading investors about auction-rate securities. The federal appeals court said that a district judge was in error when he found that alleged misrepresentations made by the financial firm’s brokers were immaterial. The case will now go back to district court. Morgan Keegan is a Raymond James Financial Inc. (RJF) unit.

The SEC had sued Morgan Keegan in 2009. In its complaint, the Commission accused the financial firm of leaving investors with $2.2M of illiquid ARS. The agency said that Morgan Keegan failed to tell clients about the risks involved and that it instead promoted the securities as having “zero risk” or being “fully liquid” or “just like a money market.” The SEC demanded that Morgan Keegan buy back the debt sold to these clients.

In 2011, U.S. District Judge William Duffey ruled on the securities fraud lawsuit and found that Morgan Keegan did adequately disclose the risks involved. He said that even if some brokers did make misrepresentations, the SEC had failed to present any evidence demonstrating that the financial firm had put into place a policy encouraging its brokers-dealers to mislead investors about ARS liquidity. Duffey pointed to Morgan Keegan’s Web site, which disclosed the ARS risks. He said this demonstrated that there was no institutional intent to fool investors. He also noted that a “failure to predict the market” did not constitute securities fraud and that the Commission would need to show examples of alleged broker misconduct before Morgan Keegan could be held liable.

Citing the US Supreme Court’s ruling in Basic v Levinson, the circuit court found that the misleading statements made by Morgan Keegan brokers and the alleged failure to reveal the known risks involving ARS could have easily been perceived by a reasonable investor to be a modification of the information about ARS that Morgan Keegan had made available. The 11th circuit panel also said that seeing as Morgan Keegan knew there were auctions that were failing in 2007 and early 2008, giving clients "general cautionary language" about the debt behind trading confirmations was not enough. (Although the panel agreed that a written disclosure of the risks involved could trump any sales pitch omissions, it pointed to circuit precedent, which did not allow this “as a matter of law.”)

The appeals court rejected the district judge’s narrow focus on how many alleged victims there might have been, as well as his emphasis on the Commission having to prove institutional intent.

Investors were left in a financial bind when the $330 billion ARS market froze in February 2008. They could not get their now frozen money from this largely, illiquid debt, which was a shock to them seeing as most of them were told that auction-rate securities were liquid, like cash. Morgan Keegan and other financial firms have since been pursued by regulators, as well as investors seeking financial recovery.

Over the last few years, a number of financial firms have had to pay back billions in dollars of ARS to their clients. Our auction-rate securities lawyers have been helping investors recover such losses. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

Broker Omissions Could Doom Morgan Keegan, Courthouse News Service, May 7, 2012

Fraud lawsuit vs Morgan Keegan revived, Chicago Tribune, May 2, 2012

SEC v. Morgan Keegan & Co., 11th U.S. Circuit Court of Appeal (PDF)


More Blog Posts:
Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, January 11, 2012

Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million, January 14, 2012

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011

January 14, 2012

Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million

This week, Regions Financial Corp. (NYSE: RF) issued a statement announcing that Raymond James Financial Inc. (RJF) will be paying it $930 million to purchase Morgan Keegan & Company, Inc. and related affiliates in a stock purchase agreement. (Regions Morgan Keegan Trust and Morgan Asset Management, however, are not part of the sale.) Prior to closing, Morgan Keegan will pay Regions $250 million. This agreement, of course, will have to receiver regulatory approvals and meet closing conditions.

Also per the agreement:
• For all litigation matters connected to pre-closing activities, Regions will protect Raymond James against these losses. Meantime, Regions will benefit from already existing reserves by Regions at Morgan Keegan.

• Raymond James’ Public Finance and Fixed Income businesses will be headquartered in Memphis, Tennessee, which is also Morgan Keegan’s main base.

• Raymond James and Regions will become involved in a number of business relationships that will benefit both parties.

Regions placed Morgan Keegan on the market last June.

The sale is expected to close during the first quarter of 2012. This stock purchase agreement would allow Raymond James to grow its retail brokerage network, turning it into one of the largest firms in the US.

According to Regions, the deal would give it additional revenue opportunities, as a result of its solid partnership with Raymond James, for loan referrals, processing relationships, and deposits. The sale would also help Regions pay the federal government back some of the $3.5 billion that it received during the height of the economic crisis in 2008. However, Regions also anticipates a $575 million to $745 million impairment charge from the deal.

The Wall Street Journal says that to keep some Morgan Keegan management and financial advisers from leaving in the wake of the sale, Raymond James intends to offer up to $215 million in retention payments (restricted stock units and cash) as part of the acquisition deal. Already, a number of key Morgan Keegan employees have placed their signatures to employment contracts with Raymond James. The deal ups Raymond James headcount of financial advisers to 6000—a 60% increase and a 1000 more than prior to the deal. This will rank it third behind Morgan Stanley Smith Barney and just under Bank of America Corp.'s (BAC) Merrill Lynch.

It’s Official: Raymond James Buys Morgan Keegan, for $930 Million, The Wall Street Journal, January 11, 2012

Raymond James Said to Near $930 Million Purchase of Broker Morgan Keegan, Bloomberg, January 11, 2012


More Blog Posts:
Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute, Institutional Investor Securities Blog, September 1, 2010

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds, Stockbroker Fraud Blog, September 6, 2011

Claims Filed Against Morgan Keegan Division of Regions Financial Causes Shortage of Arbitrators, Stockbroker Fraud Blog, February 8, 2010

Continue reading "Raymond James Financial to Buy Morgan Keegan from Regions Financial for $930 Million" »

September 1, 2010

Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute

A Financial Industry Regulatory Authority panel says that Raymond James and financial advisor Larry Milton must pay Sherese and Rex Glendenning $925,000 over an auction-rate securities dispute. This is the third time this summer that Raymond James Financial Inc. (NYSE: RFJ) subsidiaries have been involved in an ARS dispute that was decided in FINRA arbitration. Since July 1, independent broker-dealer Raymond James Financial Services Inc. and brokerage firm Raymond James & Associates have been ordered to repurchase $3.5 million in ARS from clients.

The Glendennings set up their account with Raymond James in January 2008 before the market meltdown. Milton placed the couple’s $1.4 million in an ARS that contained sewer revenue bonds while failing to tell them about the risk involved.

The couple contends that Milton’s behavior wrongly gave them the impression that their investment was highly liquid and could be easily sold. However, Raymond James turned down their request to buy the ARS back at full value.

According to the Glendennings’ securities fraud attorney, the timing of the purchase was key to winning the award. The securities that they bought came up for auction for the first time thirty five days after they made the purchase. The auction failed and the couple were never able “ to go to auction.”

At the time of the ARS market crash in February 2008, Raymond James Financial clients held $1.9 billion in auction rate debt—now down to $600 million. To date, none of the securities regulators have sued the firm over ARS sales. Other financial firms, including Oppenheimer & Co. Inc. and Charles Schwab & Co. haven’t been as lucky.

Related Web Resources:
Raymond James pays more auction rate claims, Investment News, August 26, 2010

FINRA rules against Raymond James in auction rate securities case, Tampa Bay Business Journal, August 26, 2010

Stockbroker-Fraud Blog

Continue reading "Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute" »

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