Today the North American Securities Administrators Association (NASAA) announced a massive LPL Financial settlement with state securities regulators relating to over a decade of sales of unregistered securities by LPL brokers.

Under the terms of the LPL Financial settlement, the firm agreed to repurchase from investors certain securities that were sold to them since October, 2006.  LPL will also have to pay civil penalties to the states, which could be as much as a $26 million penalty.

What happened?   State securities regulators have been investigating LPL Financial for years regarding failures to have reasonable policies and procedures.  In the last year, NASAA’s task force has focused on investigating LPL’s procedures to prevent LPL brokers from selling unregistered, non-exempt securities.

The sale of unregistered, non-exempt securities violates most states’ securities law and federal securities laws.  Often those securities do not disclose important information to the prospective buyer, like the riskiness of the investment, lack of liquidity or ability to sell the investment, or true financial history of the investment.  Sellers may get high commissions and other incentives to pitch these products to investors, even if the product is not suitable or in the best interest of that investor.

Under the agreement, LPL will repurchase from investors unregistered, non-exempt securities sold since October 1, 2006 to LPL customers by their broker.  Not only will LPL repurchase, it will pay 3% interest from the date of sale.  Other terms were agreed upon for customers who have since sold or transferred their qualified securities out of their LPL account.

Is this a good deal?  Yes, for many cheated investors, it’s an unusually good deal. NASAA is an association of state securities regulators.  Those state regulators help investors by cracking down on bad broker conduct by national firms like LPL Financial.  The dollars from civil penalties issued by regulators occasionally go back to compensate the victims — but not usually.  The key to this LPL Financial settlement is that the firm agreed to buy back the securities from investors and pay 3% interest.  For many investors, especially those with smaller amounts of affected securities, that’s a very good result for a recovery without private litigation.

However, investors that otherwise qualify for the buy-back may have strong, valid, private claims for relief against LPL Financial that might result in a better outcome.   It depends on the facts, and an experienced securities attorney can help you make that evaluation.

Failure to have reasonable supervisory and compliance procedures, failures to reasonably supervise its brokers, and unlawful broker conduct all are violations of FINRA rules and may state blue sky securities laws.   In some states like Oregon, brokerage firms may have joint and several liability with the bad broker, and the statutory remedy for these violations can be repayment of the original purchase price, plus interest at 9% from date of purchase, less any dividends or money otherwise received from the investment.  It may also include payment of attorney fees.  These are claims that an experienced securities fraud attorney like Darlene Pasieczny can bring on behalf of an investor in FINRA arbitration.

If you are an LPL Financial customer, or customer of any brokerage firm, and you have concerns about what you were sold for your investment portfolio, call us today for a free initial consultation.   Sudden large drops in portfolio value for a moderate or conservative investor, or discovering you cannot easily sell an investment, are some of the Red Flags that you may have securities claims for recoverable losses.  Don’t wait – statute of limitations may apply to set deadlines of when you can file a claim.

If you have concerns about how your money is being handled by your financial professional, or concerns that you or a loved one might be the victim of financial exploitation, call me at (503) 358-8292. Again, consultations are free, and confidential.

FINRA, the Financial Industry Regulatory Authority, issued an eye-catching warning in Regulatory Notice 20-14 about a particularly complex and risky type of security: Oil and Gas Exchange Traded Products, or ETPs. High concentrations in the oil and gas sector, especially with complex, risky, and volatile products like ETPs, may become a frequent subject for investor litigation in the upcoming year and fallout of the Coronavirus pandemic. To quote FINRA, “the performance of such products may be linked to unfamiliar indices or reference benchmarks, making them difficult for the average investor to comprehend.”

Oil and Gas-linked ETPs

These products are engineered to be complicated, risky, and volatile. While potentially paying out well above conservative fixed income investments, they carry the risk of massive and sudden drops in valuation. ETPs may be indexed to futures contracts or other market benchmarks, so their “value” is a few steps away from the actual daily value of the underlying commodity. More exotic offerings include leveraged and inverse commodities-linked ETPs, which seek to deliver multiples or the opposite of the return of an oil linked index.

This particular underlying commodity – oil – comes with its own set of risks. The benchmark price of oil was already under severe downward pressure at the end of 2019, before the jolting drop in demand from the impact of COVID-19. The combination has meant that one ETP shed 41% of its value in one week in April. Others have been forced to liquidate, or reconfigure their investment objectives.

It’s all there in FINRA’s authoritative detail in RN 20-14, should you want a refresher on the oil market’s conditions of “contango” (future prospects dim), or “backwardation” (with good investment opportunities) or “super-contango” (where we were in April).

Suitability

Scratching your head over “contango”? The term itself is a good warning sign. The average retail investor looking to put their retirement savings in a safe, moderate or conservative portfolio, should not be making decisions that require a technical dictionary for every other word. And if a financial professional cannot adequately analyze and explain the function and risks of betting on the futures market with an ETP, or why that is an appropriate risk compared to other investments, the recommendation may fail FINRA’s suitability standard.

FINRA has been clear in interpreting its own Rule 2111 regarding suitability: if a broker does not sufficiently understand the product, then a recommendation to purchase that product is not suitable for ANY investor:

A member’s or associated person’s reasonable diligence must provide the member or associated person with an understanding of the potential risks and rewards associated with the recommended security or strategy. The lack of such an understanding when recommending a security or strategy violates the suitability rule.

I noted in a prior post that it is wise to review investment statements during market volatility. When the market is acting like a roller coaster, it can reveal otherwise hidden problem areas. That might include over-concentration in a certain sector, or investments in complex products such as commodity-linked ETPs. Unsuitable investment recommendations may lead to claims against an advisor or firm for recoverable losses.

And if you are a financial advisor taking on a new client with a portfolio that has been inappropriately allocated, consider suggesting to your client a confidential review with a securities attorney. You may be able to help your client recover some of the damage caused by a prior advisor’s poor investment recommendations.

Darlene Pasieczny is a fiduciary and securities litigator at Pasieczny Law LLC.  She represents clients in Oregon and Washington with matters regarding trust and estate disputes, financial elder abuse cases, and securities litigation. She also represents investors nationwide in FINRA arbitration to recover losses caused unlawful broker conduct.  Her article, New Tools Help Financial Professionals Prevent Elder Abuse, was featured in the January 2019, Oregon State Bar Elder Law Newsletter.

As current chair-elect of the Oregon State Bar’s Securities Regulation Section, attorney Darlene Pasieczny (pictured here moderating a panel via webcast) assisted with the program planning for the 40th Annual Northwest Securities Institute (NWSI) program in Seattle, Washington.  As part of this panel presentation, attorney Dan Keppler and SEC trial counsel Brent Smyth spoke on SEC receiverships, and attorneys Heidi Brooks Bradley and Diana Breaux spoke on the FHLB v. Credit Suisse litigation and the Securities Act of Washington.  The remaining program saw excellent presentations by SEC and state regulators (including Dorothy Bean from the Oregon Division of Financial Regulation) and securities attorneys from Oregon, Washington, and Canada, on a wide range of topics.   

Darlene Pasieczny’s practice at Pasieczny Law LLC focuses on all stages of corporate and securities law issues, securities litigation and FINRA arbitration, as well as fiduciary litigation in trust and estate disputes, and elder financial abuse.

Pasieczny Law LLC attorney Darlene Pasieczny Presents on FINRA Expungement Proceedings at PIABA’s Mid-Year Meeting.

On April 4, 2019, I joined co-panelist Kate McGrail and moderator Robert J. Girard II in Washington D.C. Together, we presented on FINRA expungement proceedings to an audience of securities attorneys, law professors, and state securities regulators attending PIABA’s Mid-Year Meeting.

Our main topics included:

• The process for brokers to request expungement of customer dispute information from a broker’s CRD record.
• The process for customer claimants to object to the request.
• Proposed rule changes being considered by FINRA.

Current FINRA Rule 2080 of the Code of Arbitration Procedure for Customer Disputes provides the narrow grounds for expungement requests. FINRA Regulatory Notice 17-42 describes the potential changes including:

• Limiting the time in which brokers may request expungement.
• Creation of an Expungement Arbitrator Roster, with enhanced arbitrator qualification requirements, to hear expungement requests.
• Requiring an additional finding that the customer dispute information has no investor protection or regulatory value.

The CRD is the Central Registration Depository, an online licensing and registration system for brokers and securities firms. Pursuant to FINRA rules, certain disclosure information must be reported for inclusion in the CRD record. This includes customer disputes – customer complaints, arbitrations and court actions.

Expungement of customer dispute information from a broker’s CRD record also means that the information is no longer publicly available through FINRA’s free online BrokerCheck. Because FINRA is clear that expungement is an “extraordinary remedy.”

That is in part because BrokerCheck is considered a major tool for investors to research the background of a financial professional. Wouldn’t you want to know if the person you are going to trust with your savings has a record of multiple customer complaints? Brokerage firms and state and federal securities regulatory agencies also use the CRD record when making hiring and licensing decisions, as well as in enforcement actions.

Today, over 46 million Americans are 65 years of age or older. This accounts for nearly 15% of the population. According to the Population Reference Bureau, that number is projected to more than double by the year 2060. It will reach an estimated 98 million and 24% of the U.S. population. Approximately 1 out of every 10 Americans, age 60 and older have experienced some form of elder abuse. Estimates of financial elder abuse and fraud costs range from $2.9 billion to $36.5 billion annually

On Thursday, February 21^st, Pasieczny Law LLC attorneys Victoria Blachly and Darlene Pasieczny will speak to the Oregon State Bar Securities Regulation Section about financial elder abuse in the securities industry. Their program “Recent Tools to Combat Financial Elder Abuse: Mandatory and Permissive Conduct Under FINRA Rules and Oregon Law for Securities Professionals,” will take a closer look at Oregon statues and FINRA rules regarding mandatory and permissive conduct for brokers and investment advisers when there is reasonable suspicion of financial abuse.

Meet the experts – Victoria Blachly and Darlene Pasieczny

Victoria Blachly is a fiduciary litigator, licensed in Oregon and Washington. She represents individual trustees, corporate trustees, beneficiaries, and personal representatives in often difficult and challenging cases including:

• Trust and estate litigation
• Will contests
• Trust disputes
• Undue influence
• Capacity cases
• Claims of fiduciary breach
• Financial elder abuse cases
• Petitioning for court instructions
• Contested guardianship and conservatorship cases.

Darlene Pasieczny is a fiduciary and securities litigator. She represents clients both in Oregon and Washington, with matters regarding trust and estate disputes, financial elder abuse cases, securities litigation, and represents investors nationwide in FINRA arbitration. Her article, New Tools Help Financial Professionals Prevent Elder Abuse, was featured in the January 2019, Oregon State Bar Elder Law Newsletter.

Report abuse

If you suspect someone is being abused, neglected, or financially exploited, please reach out to the Oregon Department of Human Services. Also, you may consider hiring a private attorney to help employ legal tools to prevent harm, or recover financial losses.

Securities attorney Darlene Pasieczny will speak about FINRA expungement issues at the PIABA Mid-Year Meeting: Current Issues in Securities Arbitration. The panel presentation will be on April 4, 2019, in Washington DC.

Presentation topics to include:

Expungement of customer dispute information from a broker’s or brokerage firm’s CRD and Bro­kerCheck disclosure reports continues to be a heated topic for securities professionals. Expungement requests are routinely made in customer cases, sometimes years after settlement. Despite FINRA’s position that expungement of customer infor­mation should be an “extraordinary remedy,” panels routinely grant expungement requests in FINRA arbitration. This panel will discuss current trends in expungement requests and litigation tactics by attorneys and non-attorney firms, as well as re­cent FINRA expanded guidance to arbitrators and proposed amendments to applicable FINRA rules.  We will also discuss ethical considerations for lawyers regarding expungement.

Registration for the PIABA Mid-Year meeting can be done through PIABA’s website.

Why is FINRA expungement an important topic?

When an investor considers hiring a new financial advisor, they might look for publicly available information about the advisor’s background and customer complaints. FINRA’s BrokerCheck database is available online for exactly that kind of investor research. By current FINRA rules, a broker or brokerage firm must disclose certain customer dispute information on their CRD record. If FINRA grants expungement of that information, the disclosure is effectively wiped clean. That may be appropriate in some circumstances. But expungement can harm the investing public, who might otherwise think twice about hiring a broker with a negative track record.

The securities attorneys at the Investor Defenders practice group of Pasieczny Law LLC are investigating potential claims against this broker.

Public records from the Financial Industry Regulatory Authority (FINRA) show that in August 2018, Daniel Noah Winger (CRD# 1542674) entered into an Acceptance, Waiver and Consent (“AWC”) agreement in which Winger was barred from associating with any FINRA member in all capacities.

Daniel Noah Winger was most recently registered with PFS Investments Inc. in Federal Way, Washington.

The Facts and Violative Conduct alleged in the AWC include that, between April 2015 and April 2018, Daniel Noah Winger converted the funds of an elderly customer in violation of FINRA rules 2150(a) and 2010.  The elderly customer gave checks to Winger totaling approximately $100,000.  The AWC alleges that Winger used the customer’s funds for his own personal use.

Brokers are licensed and regulated by FINRA and state regulatory agencies.  FINRA rules, state securities laws and state common law offer protections for investors from unlawful broker conduct such as:  negligent portfolio mismanagement, selling away, overconcentration, unsuitable investment recommendations, excessive trading (“churning”), failure to supervise, misrepresentations about investments, or outright conversion and theft.

Common Red Flags of broker misconduct include lack of communication from your broker, discovering that you cannot liquidate investments that you thought you could sell, or discovering that large portions of your portfolio are used to purchase “alternative investments” like interests in Limited Partnerships, Limited Liability Companies, or promissory note investments.   The Investor Defenders have compiled a list of Ten Red Flags for Investors, which you can see by clicking on this link.

If you were a client of Daniel Noah Winger, and suspect that financial losses in your brokerage account may have been caused by broker misconduct, call the Investor Defenders.  We represent investors in the United States with securities claims against brokers and brokerage firms for financial losses caused by unlawful conduct.

The securities attorneys at the Investor Defenders practice group of Pasieczny Law LLC are investigating potential claims against this broker.

Public records from the Financial Industry Regulatory Authority (FINRA) show that Jamewon Jeewon Shin (CRD# 2436899) was suspended as of August 13, 2018, from associating with any FINRA member for failure to provide information or keep information current pursuant to FINRA Rule 9552(d).

Jameson Jeewon Shin was most recently registered with LPL Financial LLC in Bellevue, Washington, and was previously registered with Wells Fargo Advisors, LLC in Seattle, Washington.

FINRA records show that the names James J Shin, James Shin, Jameson Jee Won Shin are related to Jameson Jeeswon Shin.

Brokers are licensed and regulated by FINRA and state regulatory agencies.  State securities laws and state common law offer protections for investors from unlawful broker conduct such as: negligent portfolio mismanagement, selling away, overconcentration, unsuitable investment recommendations, excessive trading (“churning”), failure to supervise, misrepresentations about investments, or outright conversion and theft.

Common Red Flags of broker misconduct include lack of communication from your broker, discovering that you cannot liquidate investments that you thought you could sell, or discovering that large portions of your portfolio are used to purchase “alternative investments” like interests in Limited Partnerships, Limited Liability Companies, or promissory note investments.   The Investor Defenders have compiled a list of Ten Red Flags for Investors, which you can see by clicking on this link.

If you were a client of this broker, and suspect that financial losses in your brokerage account may have been caused by broker misconduct, call the Investor Defenders.  We represent investors in the United States with securities claims against brokers and brokerage firms for financial losses caused by unlawful conduct.

Current cryptocurrency regulation and cryptocurrency investment regulation can be summed up in one phrase:  Regulation by Enforcement.

I moderated a great panel presentation this weekend on Cryptocurrency Investments, Supervision and Securities Regulation at PIABA’s mid-year CLE event in Los Angeles on May 5, 2018.  We discussed the current state of regulation as well as the nuts-and-bolts of blockchain technology: everything from Bitcoin, the basics of utility tokens, security keys, and even ranging into CryptoKitties.  Our audience included securities attorneys, law professors, and representatives from the Financial Industry Regulatory Authority (FINRA).  I was joined by Professor Benjamin Edwards (William S. Boyd School of Law, University of Las Vegas, Nevada), securities attorney and former SEC Enforcement officer Celiza Braganca (Braganca Law LLC), and industry expert Louis Straney (Arbitration Insight LLC).

Most securities professionals that I’ve talked with consider cryptocurrency investments the Wild West in terms of regulation and safeguards (minimal to none) for the investing public.   The North American Securities Administrators Association (NASAA), the association of state securities regulators, would agree.

Accumulating SEC enforcement actions and reports like the “DAO Report,” Release No. 81207 (June 25, 2017), are the current guides that issuers and industry participants have for what to do, or not do, so that an Initial Coin Offering (ICO) or Initial Token Offering (ITO) complies with existing federal and state securities laws. This kind of “regulation by enforcement” leaves industry participants guessing at what they can do as the technology changes.   And, the SEC and state securities regulators are by no means the only regulatory bodies overlapping with enforcement.  The Internal Revenue Service, FinCen, the CFTC, criminal law, and private class actions are all taking their pound of flesh from industry participants.   FINRA’s 2018 Regulatory and Examination Priorities Letter notes that the SRO will be keeping an eye on developments with ICOs and the supervisory and compliance mechanisms that brokerage firms have put in place for compliance with securities laws and FINRA rules.

But, since December, 2017, the US Commodity Futures Trading Commission (CFTC) has allowed cryptocurrency futures contract trading on the Chicago Mercantile Exchange.  Goldman Sachs recently announced that it will open a Bitcoin trading desk, and now the New York Times reports that the parent company of the New York Stock Exchange, Intercontinental Exchange, has been working on an online trading platform for large investors to buy and hold Bitcoin.   The confidence of these institutions may lead the market in another round of soaring blockchain hype and eager investors buying in … to what?

Warren Buffet made his feelings about clear when he called Bitcoin “probably rat poison squared” in an interview with CNBC over the weekend.

If a FINRA-licensed broker or SEC-licensed registered financial advisor makes recommendations for a customer to buy cryptocurrency investments, it could be a big red flag for a compliance department.  SEC Chairman Jay Clayton has basically said that he thinks all cryptocurrency-related investments are securities.  But the SEC hasn’t issued specific cryptocurrency regulations, and it seems to be relying on shutting down unregistered ICOs and ITOs to create a regulatory roadmap.  Do those offerings sound like Initial Public Offerings (IPOs)?  You are correct, that’s on purpose.  But, importantly, unlike an IPO, you get no ownership interest when buying into an ICO or ITO. There’s no there, there. Unfortunately for investors duped into participating in a fraudulent cryptocurrency offering or hacked offering, the likelihood is that your money is halfway around the world and difficult to recover from the issuer.

I suspect the future of cryptocurrency regulation will include increased claims for participant liability under state securities laws that offer broader investor protections than those provided by federal law.  Attorneys and accountants assisting issuers in these fraudulent offering should be held accountable under appropriate circumstances.  I bring participant liability claims under state blue sky laws to recover investment losses for individuals and groups of individuals.  And, if financial advisors are actively making purchase recommendations to clients otherwise unwilling to take on high risk, speculative investments, there could be viable FINRA arbitration claims against the brokerage firms that allow their brokers to make irresponsible, unsuitable recommendations.

If you have concerns about how your money is being handled by your financial professional, or concerns that you or a loved one might be the victim of financial exploitation, call me at (503) 358-8292.  Consultations are free, and confidential.

Simply put, mediation is a voluntary process by which disputing parties agree to negotiate with a professional referee – a neutral mediator – to try to settle a dispute. Settlement means resolving a case before incurring further time, costs, and the risk of losing when taking a case to trial or arbitration hearing, where a judge, jury or arbitrator makes the final, binding decisions.

I represent investors in FINRA arbitration and in court, in disputes with the financial industry.  Securities claims against stockbrokers and their firms are typically litigated in FINRA arbitration because there are pre-dispute arbitration clauses in just about every brokerage account agreement.  FINRA rules also provide that an investor may always choose to file claims against a broker or brokerage firm in FINRA arbitration.  FINRA IM-12000.

Arbitration is very different than mediation.  State laws provide the legal framework for arbitration as a binding alternative to trying a case in court.  An arbitration hearing may seem like a mini-trial:  you have one or more arbitrators in place of a judge and jury, you have opening and closing statements, present witness testimony and evidence, and submit briefs on legal issues.  At the end of the the process, the arbitrator or panel of arbitrators issues a binding arbitration decision and award.  A party may take that arbitration award to a court for confirmation as a judgment.  Once the award is entered in the court record as a judgment, the winning party is a judgment creditor and may use that state’s creditor laws to enforce and collect the award.  FINRA arbitration is a specialized forum with its own procedural code and discovery rules – a forum I know very well.

Mediation, on the other hand, is an entirely voluntary process, and a mediator makes no binding decisions that the parties must follow.  Parties can choose to mediate at any time – before a case is filed, or anytime during the case, with strategic decisions when mediation may be the most successful, such as after the exchange of discovery in a case.  State law provides that settlement discussions in the context of mediation are confidential and generally may not be used as evidence in a case.  So, if a mediation session does not result in a settlement agreement, neither side may use what was said or settlement offer dollar amounts exchanged during the mediation against the other side in the related court case or arbitration proceeding.   That’s because we want to encourage good faith negotiation during mediation.

If the parties come to settlement agreement during the mediation, the mediator, or one of the parties, will typically put at least the material terms of the agreement into writing while the parties are still present.  A good mediator will encourage this:  after hours of back-and-forth negotiation, no one wants to go home and get a message that the other side has “buyer’s remorse,” or denies coming to an agreement, and then have to litigate to enforce the settlement.

For my clients in FINRA arbitration, I often recommend trying a mediation session. Why?  The risks are small, and it can be a smart investment.  The parties typically share the cost of hiring a mediator, it’s non-binding, and we prepare as if preparing for the arbitration hearing. I use the time to refine my client’s case, learn about the strengths and weaknesses of respondent’s case, and have a kind of dress rehearsal of testimony – all while still negotiating in good faith towards a settlement.  So, even if a mediation does not immediately result in settlement, we are all better prepared for the hearing.

In a FINRA arbitration case, you want a securities attorney to help you select a FINRA arbitration panel and steer your case through the process, from legal analysis and damages calculations, through filing the statement of claim and discovery, to representing you at the hearing.  When mediating a securities case, you want a securities attorney experienced in mediation to help choose a mediator and stay by your side with analysis of the situation and recommendations during negotiation.  For both arbitration and mediation: these are not trials in courtrooms.  The rules, and the opportunities, are different.

If you have concerns about how your money is being handled by your financial professional, or concerns that you or a loved one might be the victim of financial exploitation, call me at (503) 358-8292.  Consultations are free, and confidential.

We’ve updated our list of ten red flags that  investors should be aware of: danger signs that point to potential mismanagement of an account or investment fraud by a financial advisor. These red flags are useful as you evaluate your own investments, review the investments of an elderly relative, or if you’ve decided to change brokers.

From our firm’s first-hand experience in reviewing thousands of financial statements and successfully recovering investment money for many clients, these red flags of investment fraud are often a sign of trouble. If you notice any of these red flags and you have concerns, we encourage you to contact us for a free, confidential review. With early detection, investors have the potential to avoid a lot of heartache and significant financial loss.

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Red Flags:

1. Your financial advisor didn’t discuss your risk tolerance with you, told you “not to worry” about that category when filling out account paperwork, or you somehow ended up with a higher risk portfolio than you wanted.  Any reported swing in portfolio value of more than 10% up or down, when you’re a conservative or moderate investor, is a red flag.

2. You discover that you cannot liquidate investments that you thought you could sell. Or you discover an unexpected high fee or surrender charge for selling.

3. Big portions of your portfolio are used to purchase “alternative investments” – things like interests in limited partnerships (LPs), non-traded REITs, private placements, promissory notes, and interests in limited liability companies (LLCs). Many of these investments come with a prospectus, require you to complete special forms just to purchase them, carry high risk for investors, and pay big commissions to the selling brokers.

4. You are encouraged to purchase investments where you must formally certify that you are an “accredited investor”. These investments also often carry a high degree of risk and are only designed for people who can afford to lose all of their investment.

5. You are advised to purchase investments the same day that they are offered to you, without giving you a chance to think about it, especially when your advisor says that the opportunity won’t last long. If you feel any sense of rush, surprise, or pressure to make any investment decision, that’s a red flag.

6. Your account statements stop arriving, your broker is suddenly hard to reach, or your advisor discourages you from discussing your investments with anyone else at the brokerage company.

7. You have investments that do not appear on the brokerage company’s account statements that you receive.   Or the statements otherwise look irregular, show frequent transactions that you don’t understand, or don’t add up.

8. Your financial advisor promises returns that seem too good to be true. In today’s market, there are no legitimate, safe and secure investments that can guarantee an 8% annual return year after year.  Any promised return that seems like an unusually good deal deserves closer scrutiny.  Risky, unsecured promissory note scams may be particularly targeted towards elderly investors as “fixed income” investments.

9. You are offered an investment that you do not understand.  Or your portfolio contains investments that, on closer examination, are not plausible or understandable.

10. You discover that your advisor has multiple disclosures when you look him or her up on FINRA’s BrokerCheck system (search by name at http://www.finra.org/Investors/ToolsCalculators/BrokerCheck). Disclosures may include prior client complaints, bankruptcy, termination from prior employers, regulatory investigations and sanctions, criminal charges, on-going or resolved client disputes.  These are all red flags about a broker’s prior conduct that you probably want to know about before entrusting them with your money.

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If you have seen any of these red flags, and have questions about the legitimacy of your investments or seen large financial losses, do not ignore your suspicions. Call us for a free initial consultation.  We will tell you if your concerns are well founded and whether we can help.  Your call is confidential.

Please call us first, before contacting your financial advisor or any regulatory agency.  Why?  Because those calls are not confidential.  Once you contact the firm you can bet that your communications are being recorded, and the details you include or leave out may undermine your claim.  Securities regulators may be important allies in stopping wrongdoing, but they are not your attorney. By reporting a complaint to your state agency, FINRA or the SEC, you may be starting the clock on a statute of limitations for filing a claim, without understanding what that means.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations. Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or concerns that you or a loved one might be the victim of financial exploitation, call me at (503) 358-8292. Consultations are free, and confidential.

Darlene Pasieczny’s practice at Pasieczny Law LLC focuses on all stages of corporate and securities law issues, securities litigation and FINRA arbitration, fiduciary litigation in trust and estate disputes, elder financial abuse, and complex civil litigation. Darlene’s practice includes representing investors nationwide in investment disputes through FINRA arbitration.

On February 5, 2018, a new FINRA rule geared towards preventing financial exploitation of seniors  – also called elder financial abuse – goes into effect. This is new Rule 2165, which creates a limited safe harbor for brokers to put a temporary hold on certain disbursement requests from a brokerage account.

The rule “permits members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers.”  The new rule also amends existing FINRA Rule 4512, to require members to take reasonable efforts to have the customer identify the name of a trusted contact person as part of gathering customer account information. The broker may contact that person if there is a suspicious request for a disbursement of funds. The broker may also contact that person to confirm the customer’s contact information, health status, or identify of any legal guardian, executor, trustee, or holder of a power of attorney.

The new rule permits, but does not require, temporary holds and contacting the trusted contact person. And using it does not necessarily mean a total halt on all disbursements. For example, a broker could put a temporary hold on a suspicious request to transfer funds to an unfamiliar outside account, while still allowing regular bill payments to continue.

This is an important new tool from the Financial Industry Regulatory Authority (“FINRA”) in the fight to curb financial abuse of senior citizens.

Elder financial abuse continues to be a major problem in the U.S., sometimes with devastating results. Fraudsters cheat seniors out of an estimated $3 billion annually. Some believe the dollar figures are up to ten times higher. Nobody is certain of the overall numbers, in part because it is believed that only a small percentage of cases are reported.  Senior financial abuse depletes retirement savings, and it affects our elderly community in other ways.  Studies concentrated on the health effects among those whose essential life savings have suddenly vanished have found that mortality rate can triple. Just think about the stress and emotional impact on a vulnerable senior when his or her financial security is stolen.

State and federal securities regulators are working to prevent elder financial abuse before it happens. But the scammers are out there. What can you do if you or a loved one has been financially exploited?

Contact an attorney experienced in recovering financial losses. In many circumstances, money unlawfully taken can be recovered. In my work as a litigator, I’ve helped curtail and restore money improperly taken from elders in estate and trust disputes among family members. I have helped recover money from brokers “selling away” from their firm, selling unapproved, extremely risky, or even outright fictional investments to unsuspecting elderly clients. We see bad actors unduly influencing seniors to sell undervalued property.  We see seniors (and others) who continue to place trust in swindlers because con artists are good at what they do. We see forged signatures, shady documentation, account statements printed off a home computer, and account figures that just don’t add up. And we fight for the financial abuse victim to recover money where possible. Contacting law enforcement and regulators are additional important resources, and your attorney can advise you on your best options for loss recovery.

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product. I also represent parties in trust and estate disputes where a fiduciary has breached their duties and money is recoverable to the estate, trust, or beneficiary.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations. Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or concerns that you or a loved one might be the victim of financial exploitation, call me at (503) 358-8292. Consultations are free, and confidential.

FINRA recently released an Investor Alert on cryptocurrency scams. Investors should be wary of jumping into this “hot,” volatile sector, and do their research before handing over their money to a potential fraudster, or for a risky investment that they don’t understand.

In the last quarter, cryptocurrencies such as Bitcoin and Ripple have received a fresh burst of press attention. This includes reporting on massive price swings up and down, and stories of overnight millionaires. According to the media, a Welsh man who spilled lemonade on his laptop in 2013 and absentmindedly threw the hard drive away now wants to mine the local dump for the hard drive. Why? It contained the key to access his lost Bitcoin fortune said to be worth $100 million — but only if he finds it and if the drive is still operational.  It’s a good metaphor for Wild West, gold rush atmosphere of the whole cryptocurrency hype.

With this Investor Alert, and other recent warnings, FINRA points out that:

• Investment offerings based on distributed ledger or “blockchain” technologies may or may not qualify as securities. Many fundamental investor protections written into federal and state law depend on this distinction.
• The cryptocurrency markets inherently transcend national borders. This also limits investor protections. There may be restrictions on how much information the SEC can obtain about the investment, the quality of the information, and limit law enforcement ability to recover money.
• An “initial coin offering” (ICO) for a cryptocurrency is nothing like an “initial public offering” (IPO) for a stock.
• Lack of regulation, lack of clarity about the underlying value of the investment, and the excitement in the market create the perfect conditions for market manipulation and “pump-and-dump” schemes. Fraudsters may use the hype and make false, misleading or greatly exaggerated statements to drive up a higher share value, and then cash out their large holdings at the peak, driving values down and leaving innocent investors at a loss.
• Even if there’s no trace of fraud in an ICO, blockchain operators may themselves be vulnerable to hacking and other cyber threats

According to a December 11, 2017, public statement from SEC Chairman Jay Clayton, the number of such investments registered with the SEC is ZERO. “Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.”

As a securities attorney, I represent investors nationwide who have lost money due to the conduct of a financial professional or a defective investment product.

The Investor Defenders at Pasieczny Law LLC help investors get their money back from brokerage fraud, fraudulent investments, elder financial abuse, and other situations.  Our specialized investment litigation practice combines familiarity with complex financial modeling, experience with specialized FINRA arbitration rules and securities laws, and empathy for our clients whose financial losses have become personal.

If you have concerns about how your money is being handled by your financial professional, or if your broker has stopped returning your calls, contact me. Consultations are free and confidential. Call (503) 358-8292 now.

On December 21, 2017, the Financial Industry Regulatory Authority (FINRA) announced it had fined brokerage firm Raymond James Financial Services, Inc. $2 million for significant supervisory failures in reviewing email communications. FINRA found that, over a nine-year period, Raymond James did not have a reasonably designed supervisory system and procedures for reviewing email communications.

Why is email review important? Under FINRA rules, brokerage firms must reasonably supervise all electronic communications technology used by a firm and its brokers to conduct firm business.  Many firms used a risk-based approach to supervision, automatically searching for key words and phrases in emails. This review is important for firms to catch bad conduct, such a broker involved in unapproved “outside business activities,” or conducting securities transactions that are not approved by the firm, also known as “selling away.” 

Brokers engaging in “selling away” sometimes create their own spreadsheets and account statements to mislead customers into thinking that recommended investments are approved by the brokerage firm. Often those investments are especially risky, inappropriate for the particular investor, and very lucrative for the seller. For example, it is not uncommon for a seller to receive a 7 – 10% commission on a sale of a private placement investment like a limited partnership (LP) interest. The most slick-looking investment pamphlet could be an outright investment fraud … with the check going straight to the seller’s pocket.

Firms must actively maintain supervisory procedures reasonably designed to catch such unlawful conduct, and protect its customers.  Email supervision, office audits, and document review are only a few of the ways firms should be monitoring the activities of its brokers.

Under FINRA rules and the applicable state or federal law, a brokerage firm can be held financially liable to the customer for the losses caused by its bad actor brokers.  And, for the firm’s own supervisory failures.

If you believe you are the victim of “selling away,” negligent portfolio management, churning, securities fraud, or other unlawful conduct by your financial professional,contact the Pasieczny Law LLC Investor Defenders team at (503) 358-8292 for a free, confidential initial consultation.

You may be able to recover financial losses caused by your financial professional.  An experienced securities attorney will fight on your side.

On November 8, 2017, the Financial Industry Regulatory Authority (FINRA) announced that a broker named Hank Mark Werner of upstate New York had been barred from the securities industry. The headline: “FINRA Hearing Panel Bars Broker for Defrauding Elderly, Blind Customer”.

The pattern of this behavior is outrageous but not all that unusual. It makes a good example of how financial professionals fail their clients.

According to the FINRA news release, Mr. Werner served as the licensed broker for an elderly couple since 1995. The husband died in 2012. Mr. Werner made some 700 trades on “behalf” of his client, a sightless 77-year old recently widowed woman in poor health between October 2012 and December 2015. He ultimately collected $210,000 in commissions. The panel’s decision includes an order of restitution to the widow, a fine, Mr. Werner’s banishment from the industry, and a further fine and censure for his employer – Legend Securities, brokerage firm expelled from the securities industry as of April, 2017.

The hearing panel found that Mr. Werner engaged in a pattern of “fraudulently churning and excessively trading” the client’s brokerage accounts – trades executed only for the sake of generating commissions. Compounding the excessive number of trades, Mr. Werner’s commission rates were so above range as to be “exorbitant”.

“Churning” is one common way investors can be defrauded by financial professionals. On a commission-based account, where a fee is generated for the broker for each purchase and sale, it’s easy to see how an unscrupulous broker might take advantage of a client with unnecessary trading.

Mr. Werner also steered his elderly client’s money into “unsuitable recommendations” — specifically a risky variable annuity that was not suitable based on his client’s age, heath, financial position, and other factors. Why do bad actors love putting their clients’ money into high-risk investments? It’s not just incompetence or the urge to gamble (although there’s that too). Again, it comes down to commissions. There’s a whole class of dubious variable annuities, commodities instruments, exotic real estate investment trusts (REITs), and other extremely complicated investments that are engineered to carry all kinds of risk, while cloaked in the appearance of a moderate investment, and which richly reward any broker who signs somebody up.

We applaud FINRA’s enforcement actions. But FINRA can’t help everybody.

As a securities litigator, I represent investors who have lost money due to the conduct of a financial professional or a defective investment product. If you have concerns about how your money is being handled, or if your broker has stopped returning your calls, contact me for a free, confidential consultation at (503) 358-8292 orInvestorDefenders.com

Customer Concerns Grow About Energy Stock Concentration and George Merhoff

Our office continues to investigate Cetera Investments and its representative George Merhoff Jr. Since our last reporting, even more investors have called us to report that they suffered significant losses in their accounts as a result of having virtually all of their investments in energy stocks. We continue to evaluate how widespread this problem is for our clients and potentially others who were customers of George Merhoff. Mr. Merhoff is currently a registered representative of Cetera Investments, and was previously a registered representative of Pacific West Securities, Inc.

If you are or were a customer of George Merhoff and are willing to share your information with us that might help us in this investigation, or if you have lost money in another investment or have concerns about the conduct of another financial advisor, please call our office at (503) 358-8292 for a confidential, and free no obligation consultation.

Is Your Investment Portfolio Over-Concentrated in Energy Stocks?

Here is why we are conducting our investigation: When a portfolio is heavily weighted in one particular industry sector, we refer to it as a non-diversified, over-concentrated account. Over-concentration increases volatility and risk in investment portfolios. Licensed securities stockbrokers and have an obligation under the law and FINRA Rule 2110 to recommend only suitable investments and trading strategies, based upon the particular customer’s risk tolerance, investment objectives, investment experience, time frame, and other factors when recommending an investment. If a broker recommends the same types of concentrated energy sector portfolios to a broad array of clients, regardless of their needs for safety and moderation, that suggest that the securities laws may have been violated.

What is FINRA and what is the Suitability Rule?

FINRA (the Financial Industry Regulatory Authority) is the self-regulatory organization that is authorized by Congress to regulate the securities industry.

That includes brokers and brokerage firms. FINRA has various rules to do this including Rules 2110 and 2111, which provide that a broker’s investment recommendations must be “suitable” for the customer. Suitability includes reasonable-basis suitability (that the investment or investment strategy is suitable for at least some investors), customer-specific suitability (the recommendations are suitable for that specific customer), and quantitative suitability (that a series of recommended transactions, even if suitable in isolation, when considered together are not excessive and unsuitable for that customer). Violations of the FINRA suitability rules may implicate other laws such as negligence and breach of fiduciary duty, and financial losses caused by the unlawful conduct may be recoverable by the investor.

Do you have questions about losses in accounts managed by Cetera Investments or George Merhoff?

The fact that you invested with Mr. Merhoff or Cetera does not necessarily mean that there was wrongdoing. However, if your account was over-concentrated in energy stocks and you did not ask for those investments, we would like to hear from you. Bob Banks, a nationally recognized securities attorney, has fought for investors in court and FINRA arbitration since 1985. He has successfully represented investors in over-concentration cases where there has been a failure to diversify investments. He leads the Investor Defenders practice group at Pasieczny Law LLC. If you have lost money in an investment, or if you have any concerns about the conduct of your financial adviser, please contact us, or call our office at (503) 358-8292 for a free no obligation consultation.

It’s a new year and you’re looking to hire a broker or investment advisor to help you with your financial planning and investment decisions. What questions should you ask at that first meeting? FINRA recently released an Investor Education top 5 questions to ask:

1. What experience do you have working with people like me?

2. Are you registered with FINRA, the SEC or a state securities regulator?

3. Do you or your firm have an overarching investment philosophy?

4. Do you or your firm impose any minimum account balances on customers?

5. How do you get paid?

Before you entrust your retirement or other savings with a financial professional, it’s important that you understand the answers to these and other questions.

The Investor Defenders attorneys at Pasieczny Law LLC represent investors each day who were unlucky in hiring the wrong adviser. We work to recover investment losses caused by negligent portfolio management, unsuitable product sales, excessive transactions (“churning”), and other bad acts.

Investor Defender attorneys Robert S. Banks Jr. and Darlene Pasieczny have the experience, knowledge, and dedication to help you. Since 1985, they have represented clients nationwide. If you have concerns about your investments or the conduct of your financial adviser, please contact us for a free, confidential initial consultation with an experienced securities litigation attorney. For more information about different types of securities claims, the FINRA arbitration process, current investigations, sample cases and results, and our attorneys, visit our website at InvestorDefenders.com.

Effective December 12, 2015, certain information provided on the registration termination paperwork (Form U5) for a brokerage firm or terminated broker will be accessible on BrokerCheck in 3 business days instead of 15. The SEC approved the proposed change to FINRA Rule 8312 (FINRA BrokerCheck Disclosure). The Form U5 includes important information for investors researching brokers or firms on BrokerCheck, including whether a broker was fired from a firm and the reason given by the firm for termination.

See the full FINRA Regulatory Notice 15-49.

BrokerCheck and other investor educational materials are available on FINRA’s website.

Investor Defender attorneys Robert S. Banks Jr. and Darlene Pasieczny have the experience, knowledge, and dedication to help you. Mr. Banks himself has over 30 years experience representing investors in recovering millions of dollars in investment losses, and he has served on FINRA’s own National Arbitration and Mediation Committee. If you have concerns about your financial advisor or investment portfolio, please contact us and visit our website at investordefenders.com.

The North American Securities Administrators Association (NASAA) announced Wednesday a settlement with brokerage firm LPL Financial. The settlement is the result of a multi-state investigation led by the Nevada Secretary of State Securities Division into LPL’s failure to implement adequate supervisory systems and failure to enforce its own written procedures regarding sales of non-traded REIT shares.

Under the terms of the settlement, in addition to remediating certain investor losses, LPL will pay civil penalties of $1.425 million to be distributed among 48 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. LPL already reached a prior settlement with Massachusetts’s securities regulators in 2013, and a separate action by New Hampshire securities regulators is still pending.

This is only the latest sanction against LPL for improper sales of non-traded REIT shares to investors. In May, 2015, the Financial Industry Regulatory Authority (FINRA) ordered LPL to pay about $10 million for broad supervisory failures in the sales of non-traded REITs, non-traditional exchange-traded funds (ETFs), certain variable annuities and other complex products.

My advisor sold me a non-traded REIT…. I didn’t understand the risks. Can I get my money back from these state regulator settlements?

If you have any concerns about a sizable non-traded REIT purchase, contacting an attorney experienced in representing investors in securities litigation and FINRA arbitration is your first stop.   While the recent settlements between LPL and other brokerage firms with state securities regulators may include some limited compensation for certain investors, only a private action in court or FINRA arbitration is the best chance to rescind (unwind) an unsuitable investment sale, or otherwise recover your investment losses from improper investment recommendations.

What’s so Risky About Non-Traded REITs?

• Not a “liquid” investment. Non-traded means not traded on a public securities exchange. It may be that the only way an investor can re-sell the shares is to take pennies on the dollar in a private secondary market.   A financial advisor should clearly explain this to you before you invest, and you should be willing to take the risk of not having access to your investment. Be wary if your advisor tells you not to worry, that the company will buy it back, or that they can make special arrangements for a sale. A non-traded REIT may occasionally offer to buy back a limited amount of investor shares at some highly discounted value, but the company is not required to do that and it is impossible to predict if or when it may happen.
• Expected holding time can be long (7-10 years) and may never end. The idea behind a REIT is that it is a pooled investment fund for income-producing real estate with special tax breaks under the Internal Revenue Code. At some point, the real estate project may fully develop and the company has a “liquidity event” – the first date when an investor can sell his or her shares. But, that date can be years away – or never occur – if the underlying real estate investments are unsuccessful.   Retail investors are unsecured creditors if the company goes belly-up, putting you at the end of the line for a payout. Be wary if your advisor recommends a non-traded REIT without explaining the risk of a long time horizon or total loss of your investment, in particular if you are 60+ years old and thinking about retirement needs.
• High front-end fees that may not be disclosed end up costing investors. Those fees can be up to 16%, so the $10,000 you put in is really only an $8,400 investment. That makes a big difference over time as to how dividend payments are calculated and your principal investment value.

A recent study by the Securities Litigation & Consulting Group found that investors are about $50 billion worse off for having put money into non-traded REITs, versus exchange-traded REITs (which do exist).

• Those same front-end fees mean big commissions for the financial advisor. Your broker might earn 8 – 10% on the sale of a non-traded REIT. This can create an incentive to recommend unsuitable products to the investor. Be wary if your advisor does not (or cannot) explain the illiquidity, long time horizon, higher risk of loss of investment, and high costs of purchasing a non-traded REIT.

These are some of the most prominent risks of non-traded REIT sales. Many brokerage firms, not only LPL Financial, have been sanctioned for supervisory failures and other sales practice violations regarding these risky products. Whether a non-traded REIT is a suitable component of an investment portfolio is a case-by-case analysis, and the Investor Defender attorneys at Pasieczny Law LLC may be able to help recover your money.

Investor Defender attorneys Robert S. Banks Jr. and Darlene Pasieczny have the experience, knowledge, and dedication to help you. Mr. Banks himself has over 30 years experience representing investors in recovering millions of dollars in investment losses, and he has served on FINRA’s own National Arbitration and Mediation Committee. If you have concerns about your financial advisor or investment portfolio, please contact us and visit our website at investordefenders.com.

FINRA announced yesterday that as part of a settlement reached with brokerage firm LPL Financial LLC, it is fining LPL $10 million for broad supervisory failures over multiple years and ordered almost $1.7 million in restitution to certain LPL customers. The sanctions are for LPL’s supervisory failures including failure to adequately supervise LPL broker sales of certain complex and often risky products such as non-traditional exchange-traded funds (ETFs), variable annuities, non-traded real estate investment trusts (REITs), and certain fee-generating transactions such as surrendering annuities or selling existing mutual funds to purchase others (“switching”).

This is only FINRA’s latest sanction of LPL, and in particular it highlighted LPL’s improper sales of non-traditional ETFs (leveraged, inverse, and inverse-leveraged ETFs). FINRA ordered LPL to pay approximately $1.7 million in restitution to 327 customer account entitled to receive payments ranging from $1.02 to $86,034.97 within 120 days.

We encourage FINRA Enforcement’s regulatory actions against brokerage firms that harm investors by failing to adequately supervise their brokers. However, most of these disciplinary fines do not go back to the harmed investors to compensate for their investment losses.

Our firm has successfully represented investors nationwide in claims against LPL Financial and other firms selling non-traded REITS, non-traditional ETFs, variable annuities, and for practices that ring up high fees such as improper churning and switching in an account. We recover money for our clients both in court and in the FINRA arbitration process. We continue to investigate firms that sell these products and allow improper handling of brokerage accounts. We welcome calls from investors with questions about their investments or suspicious account activity.

Pasieczny Law LLC attorneys Robert S. Banks, Jr. and Darlene Pasieczny have more than 35 years combined experience representing investors in securities industry disputes and FINRA arbitration across the United States. Our clients include institutional investors, pension funds, municipalities, fiduciaries, as well as individual investors. If you have concerns about your financial advisor or investment portfolio, please contact us. For more information about Pasieczny Law’s Investor Defenders litigation team and securities litigation, visit us online.

This Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Pasieczny Law LLC., The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.