Seeing that account balance number can hurt. And not all investment losses are potentially recoverable or due to inappropriate recommendations by a financial advisor. But in times of market volatility, reviewing investment account statements might reveal claims for losses that are actionable and recoverable – if prompt action is taken.

Warren Buffet’s much repeated quote, “only when the tide goes out do you discover who’s been swimming naked,” rings true once again today in the sawtooth market volatility of the coronavirus global pandemic. The Dow Jones Industrial average hit a record high of 29,551 in mid-February. Today it stands about 20% lower than that, having seen the price of crude oil slipping into negative territory and other wild news. Some market sectors have been hit disproportionately, and there is no end in sight to the turmoil. Investors are waking to unexpected margin calls while struggling to maintain liquid assets.

Not reviewing investment account statements can hurt more in the long run.

Rising markets tend to conceal all kinds of potential misconduct or inappropriate investments. When markets drop, investors take notice and start asking questions. Why is my account allocation 80% in single stock equities? Why is there margin trading in my account? Why are there multiple variable annuities in my IRA account? Why is there frequent buying and selling of investments that I don’t recognize? Why can’t I easily sell the investments in my account? Why is my account concentrated in a certain sector like oil and gas investments? At its worst – where did my money go? 

Here are five red flags to consider when reviewing investment account statements: 

1. First of all, did you get a statement? Are they arriving on time? If your account statements stop arriving, or your broker is hard to reach, that needs your immediate attention. Call the custodian or clearing firm customer service line that should be printed on your last received statement to get copies of statements and trade confirmations.
2. You have investments that do not appear on the brokerage company’s account statements that you receive. Or the statements otherwise look irregular, unprofessional, or show frequent transactions that you don’t understand, or literally don’t add up. Or the dates or balances don’t match up to the last period. Or your advisor says you shouldn’t discuss your investments with anyone else at the brokerage company.
3. In normal times 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 that the portfolio allocation is exposed to significant risk. These are not normal times in the midst of the coronavirus pandemic. But, the performance of your investment should always be fully reported, plausible, well-explained, and roughly comparable to similar investments. Any indication that your investment is riskier than you bargained for is a red flag. Your portfolio value may lose money during market swings, but if it was appropriately allocated for your investment objectives and risk tolerance, then it may not have lost as much. This is especially important for senior investors who do not have as long of an investment time horizon to recover from significant market losses.
4. Liquidity is a concern in uncertain markets. If you’re suddenly informed that you can’t sell your investments, or you encounter unexpectedly high penalties or surrender charges for selling, that’s reason to dig deeper. Nontraded REITs, LP or LLC interests, annuities, structured products with exotic names, may be appropriate for some investors or for a small part of a portfolio. But these products tend to pay selling brokers high commissions and are frequently oversold. Generally, any sense of rush, pressure, or surprise in the context of making investment decisions is cause for concern.
5. You are a conservative or moderate investor, and discover that your broker has you in risky leveraged ETFs or has been trading on margin in your account. Many investors are discovering the risks of margin accounts with demands for payment of new money into accounts to meet margin calls. Failure to add required funds can allow the brokerage firm to liquidate holdings as well as charge commissions, fees, and margin interest. Margin trading is inherently risky – and ripe for abuse by unscrupulous brokers.

If you have seen any of these five red flags when reviewing investment account statements do not ignore your suspicions. Call us for a free initial consultation. We’ll discuss your concerns and whether we can help. Your call is confidential.

And if you have lost trust and confidence in your financial advisor, it may be time for a change. Consider whether a registered investment advisor and fee-based (rather than commission-based) account may be more appropriate for your needs. A good advisor can assist your transition and help a securities attorney review a prior advisor’s recommendations for potentially actionable claims.

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.

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.

Pasieczny Law LLC is pleased to announce that attorney Darlene Pasieczny (“Pah-shetch-nee”) has been appointed by the Board of Governors for the Financial Industry Regulatory Authority (FINRA) to serve a three-year term on the National Arbitration and Mediation Committee (NAMC).  Darlene will serve as one of the “Public” members of the national 13-person advisory committee.  The NAMC reviews and recommends rules, regulations, procedures and amendments relating to arbitration, mediation, and other dispute resolution matters to FINRA’s Board.

FINRA is a self-regulatory organization authorized by Congress to regulate broker-dealers and associated persons (such as stockbrokers), and it operates national dispute resolution program.  Claims by investors against their broker for securities-related misconduct causing recoverable investment losses are commonly filed in FINRA Arbitration.  FINRA also operates a growing FINRA Mediation program for informal resolution of securities disputes.

Darlene currently serves on the Board of Directors and is Treasurer for the Public Investors Advocate Bar Association (PIABA).  She is also the Chair of the Securities Regulation Section of the Oregon State Bar for 2021.

Congratulations Darlene!

Can investors bring a claim against Robinhood and other self-directed platforms for the recent purchase restrictions on GameStop, AMC, and other securities? The internet is buzzing with talk of class action lawsuits.  Our office is fielding inquiries.  But – from a claimants’ attorney perspective – there are high hurdles to overcome.

The securities trading platform Robinhood is under fire – again.  In December 2020, the trading platform agreed to a cease-and-desist order from the SEC, based on allegations of misleading customers regarding order execution quality and the hidden higher costs to its users compared to other broker’s prices.  Robinhood agreed to pay a $65 million civil penalty as part of that agreement.

Now, retail investors are slamming Robinhood, TD Ameritrade, and other platforms for restricting purchases of GameStop, AMC, Nokia, Blackberry, and other securities.  A significant portion of the news reporting this week has addressed various brokerage firms’ refusal to accept orders on those securities, and whether there’s any sort of recoverable loss associated with the refusals.  Legislators are posting on Twitter and demanding explanations in support of angry investors, and the SEC is “monitoring” the situation.

There’s a lot going on, and no single answer to the question.

Share values have zoomed upwards over the past few days.  Notably, this isn’t a total restriction on all trading of these shares.  The platforms still allow sales.   Given that the trading price surge is apparently due to retail investors rallying to snub institutional investors (like hedge funds) who have been shorting these companies, and thus profit off of falling stock value, this limited trading restriction appears to benefit the Goliaths over the Davids.   The prohibition of buy orders, and allowance of sell orders, has naturally driven the stock prices down, thereby protecting those who shorted the stocks.

Isn’t this “market manipulation” by the platforms, for the benefit of the institutional Goliaths?

The restrictions have an effect on the market – but whether or not it was unlawful “manipulation” with recoverable damages will likely be played out in the courts.  Here are five hurdles off the bat for retail investors wanting to sue these platforms:

First, the stock exchanges are also restricting trading activity.  For example, the New York Stock Exchange instituted a number of temporary trading halts on GameStop and AMC.  The halt is imposed, orders build, and when trading opens, the execution of the pent-up orders serves to move the stock price to a degree that triggers yet another market-based trading halt.  The NYSE is allowed to impose halts under a number of different regulatory rules.  There’s likely no wrongdoing there.

Second, some of the refusals are coming at the hands not of the brokers, but their clearing firms.  The president of WeBull has gone on record as saying that his clearing firm shut down the trading in those securities.  And to bolster the argument, the user agreement you signed when you opened your account probably had you expressly acknowledge and agree that the platform isn’t liable if a third-party clearing firm is causing the problem.

Third, for Robinhood, the very nature of their structure makes it difficult to fill orders on highly volatile stocks.  Your user agreement probably has language that says the firm will not actually accept traditional market orders.  Rather, every “market” order is really a limit order, to be filled at a price up to 5% higher than the last traded price.  Thus, if the stock price is moving upward quickly, it’s possible if not outright likely that the price will never be within that 5% band, and the order will therefore never fill.

Fourth, if you’re trading on margin, the brokerage firms can and have tightened margin restrictions on highly volatile stocks. Where you might have to maintain a 50% cushion for some securities, the restriction for these securities is now far higher.   It makes sense.  Firms aren’t willing to loan money to buy super volatile securities.  You would be hard-pressed to win a claim that the decision to not extend margin in these circumstances is an unreasonable decision.  By tightening margin requirements, the firms can shut down trading without actually shutting it down.

Fifth, these account contracts generally allow the brokerage firm to use its discretion to decline trades.  A quick look at Robinhood’s user agreement finds language “I understand Robinhood may at any time, in its sole discretion and without prior notice to Me, prohibit or restrict My ability to trade securities.”   Contractual terms may be challenged for various reasons, and the SEC can prohibit regulated firms from certain exculpatory and other types of language.   But broadly speaking – this kind of authorization to refuse trade instructions tends to hold up.

Online brokerage firms are also required to make commercially reasonable decisions and potentially reject trade instructions that don’t line up with an account’s trading objectives.  Meaning, if you have marked a “moderate” risk tolerance for your account, the firm should theoretically reject a trade in AMC or GameStop since those trades under current conditions are beyond speculative.

What are the damages?

Finally – even if there are potential private causes of action for retail investors to sue the platforms for restricting purchases, there may be a high hurdle to cross regarding determining what damages may be recoverable.

Assuming that share prices keep going up, even if the firm should not have rejected your trade instruction, could you recover damages?  The problem there is that the damages calculation is very speculative.  Your complaint is that you couldn’t buy the stock at “X” price.  Unless you have strong documentary evidence that you had the intent and ability to buy “Y” number of shares, your word alone may not be enough to carry your burden of proof.  Equally problematic is the issue of when you would have sold the securities.  It is highly unlikely that a court, jury, or arbitration panel is going to believe that you would have magically sold at the high point before the stock inevitably crashed to the appropriate valuation.  Once again, you’d have to prove the date, price, and amount of shares you otherwise would have sold.

How about an argument, once the share value starts dropping, that the platforms’ trading restrictions caused a market drop?  A drop in share value is a likely effect of the restriction. But does that mean the platform should be responsible for investment losses?  Even assuming it was a violation of law for the platforms to put the purchase restriction in place, and that the restriction was proved to be the cause of losses, damages calculations are still a speculative moving target.  If you can still sell your shares, the defense becomes that you failed to mitigate your losses by not selling when you could.

These problems inherent in calculating damages could be strong arguments to defeat an attempted class action case.

What now?

There are, of course, other harms caused by wild market volatility and trading platform restrictions.  Public confidence in our securities industry erodes when it looks like the rules and regulations meant to protect the Davids out there are doing more harm than good.   However, as should be clear now, securities regulation is incredibly complicated and can’t respond on a dime.

Based on current publicly available information, it is difficult to see a path forwards for recoverable claims by retail investors against self-directed platforms relating to the purchase trading restrictions of these securities.  That situation may change as more information becomes available.  More likely is that we’ll see regulation that addresses these issues and tries to ensure that pricing anomalies like these don’t happen again.

However, if a FINRA-registered broker-dealer recommended and sold you the stock, depending on the circumstances of the sale, your investment objectives and risk tolerance, and other factors, you may have a claim against the broker-dealer for your investment losses.  If you have questions about your investments feel free to call us or use our online inquiry tool.  We’ll be happy to speak with you and and see if we can offer assistance.

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, securities litigation, and appellate cases.  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.

Since February 2020, the U.S. Securities and Exchange Commission (SEC) has temporarily suspended trading in over 30 stocks and filed several enforcement actions against individuals and microcap securities issuers based on fraudulent COVID-19-related claims.

The enforcement actions have a common theme – fraudulent misrepresentations made in press releases and online forums about the company providing COVID-19 tests or protective equipment, in an attempt to unlawfully drive up the share price of the company’s stock.

These emergency enforcement actions seek to protect the public by freezing defendants’ assets, getting permanent injunctions to bar the wrongdoers from further violations of the securities laws, officer-and-director bars against individual participants, disgorgement of ill-gotten gains, civil money penalties, and penny stock trading bars.

SEC v. Nelson Gomes et al. (filed 06/09/20)

The SEC took emergency action against this group of individuals and offshore entities based on allegations of a fraudulent scheme to profit from the COVID-19 pandemic. The allegations include that the defendants generated more than $25 million from illegal microcap stock sales, using promotional campaigns that falsely asserted that the multiple companies involved could produce medical grade facemasks and automated retail kiosks. Company insiders dumped large amounts of the shares, hiding the activity so investors were unaware of the “pump and dump” scheme. The SEC warns that investors should generally be on the alert for fraud involving microcap stocks, as they may be more prone to manipulative schemes by fraudsters.

SEC v. Jason C. Nielsen (filed 06/09/20)

The SEC brought charges against a penny stock trader based in Santa Cruz, California, who allegedly engaged in a “pump-and-dump” scheme. The SEC claims that the trader made numerous false statements in an online investment forum about a biotechnology company, Arrayit Corporation, to artificially drive demand up, so the trader could sell his shares for a profit.  The trader falsely asserted that the company had developed an approved COVID-19 blood test. The SEC also claims that the trader scheduled and subsequently cancelled several large purchases of the company’s stock as another way to create an apparent high demand for the stock. Investors should be attentive to signs of stock manipulation, especially those regarding products or services related to COVID-19.

SEC v. Applied BioSciences Corp. (filed 05/14/20)

The SEC filed a complaint against microcap company Applied BioSciences Corp. based on the company’s misleading press releases in March 2020, intended to exploit the coronavirus pandemic for profit. The company’s press releases claimed to offer shipment of at-home COVID-19 tests that could be used by individuals and institutions. The SEC complaint alleges that the tests were not approved for at-home use, had not been approved by the FDA, and, as of the press release, the company had not yet shipped any of the tests. The false and misleading press releases caused the company’s stock price and trading volume to soar.

SEC v. Turbo Global Partners, Inc. and Robert W. Singerman (filed 05/14/20)

The SEC filed a complaint against Turbo Global Partners, Inc. and its CEO and chairman, Robert W. Singerman, based on a “pump and dump” scheme to artificially increase stock value by issuing two false press releases in late March and early April 2020. The press releases announced the company’s involvement in a “multi-national-public-private-partnership” to distribute and sell non-contact fever-detecting equipment with facial recognition technology, which would soon be available in each state. The SEC alleges the releases were materially false and misleading in numerous ways, including that no such partnership existed, the equipment did not have such technology, and that the company’s CEO knew his statements to be false. The false and misleading press releases caused the company’s stock price and trading volume to all-time highs.

SEC v. Praxsyn Corporation and Frank J. Brady (filed 04/28/20)

In late April, the SEC charged Praxsyn Corporation and its CEO, Frank J. Brady, with issuing false statements regarding the company’s ability to source and distribute N95 masks. In a press release, Praxsyn claimed that it had established a supply chain that would allow the company to sell millions of masks.  Subsequently, Praxsyn announced that it already had a large stock of masks. The SEC’s complaint alleges that Praxsyn neither had any masks on hand nor a single contract with a manufacturer or supplier. After being pressed by regulatory inquires, the company admitted in a third press release that it never had N95 masks on hand, and its artificially inflated share price and trading volume dropped to about what it had been prior to the false press releases.

The SEC Temporarily Suspended Trading in the Securities of the Following Companies for Violations Related to COVID-19

Using its authority under Section 12(k) of the Securities and Exchange Act of 1934, the SEC temporarily suspended trading due to concerns about the accuracy and adequacy of publicly available information and public statements made by these issuers:

• Blackhawk Growth Corp. (6/22/2020)
• Micron Waste Technologies Inc. (5/26/2020)
• WOD Retail Solutions Inc. (5/20/2020)
• Custom Protection Services, Inc. (5/5/2020)
• CNS Pharmaceuticals Inc. (5/1/2020)
• Moleculin Biotech, Inc. (5/1//2020)
• WPD Pharmaceuticals, Inc. (5/1/2020)
• Nano Magic Inc. (4/30/2020)
• Kleangas Energy Technologies, Inc. (4/27/2020)
• Decision Diagnostics Corp. (4/23/2020)
• Predictive Technology Group, Inc. (4/21/2020)
• SpectrumDNA, Inc. (4/21/2020)
• SCWorx Corp. (4/21/2020)
• PreCheck Health Services, Inc. (4/16/2020)
• Bravatek Solutions, Inc. (4/15/2020)
• BioXyTran, Inc. (4/15/2020)
• Signpath Pharma, Inc. (4/15/2020)
• Applied BioSciences Corp. (4/13/2020)
• Arrayit Corporation (4/13/2020)
• Solei Systems, Inc. (4/10/2020)
• Roadman Investments Corp. (4/10/2020)
• Parallax Health Sciences, Inc. (4/10/2020)
• Turbo Global Partners, Inc. (4/9/2020)
• BioELife Corp. f/k/a U.S. Lithium Corp. (4/9/2020)
• Key Capital Corporation (4/7/2020)
• Prestige Capital Corp. (4/7/2020)
• Wellness Matrix Group, Inc. (4/7/2020)
• Sandy Steele Unlimited, Inc. (4/3/2020)
• No Borders, Inc. (4/3/2020)
• Praxsyn Corporation (3/25/2020)
• Zoom Technologies, Inc. (3/25/2020)
• Eastgate Biotech (2/24/2020)
• Aethlon Medical, Inc. (2/27/2020)

Investing in Stock that was Previously Suspended by the SEC May Be Additionally Risky

The SEC suspends trading in a stock when it believes that suspension is required to protect investors and the public interest. Section 12(k) of the Securities and Exchange Act of 1934 allows the SEC suspend trading in any security (other than an exempted security) for a period not exceeding 10 business days. Even if trading resumes after the 10-day period, the SEC may continue to investigate a company to determine if it has defrauded investors. Importantly, the SEC is not required to alert the public of a pending investigation until an enforcement action is publicly filed, like the ones described above.

Stocks that trade on a national exchange automatically resume trading after the suspension period ends. However, securities traded on the OTC Markets, which typically are where many “penny stocks” or microcap stocks trade, do not automatically resume trading after the suspension period ends. Before trading can resume, certain requirements under SEC and FINRA rules must be fulfilled. This means that there is a risk the OTC stock never resumes trading. With no market to trade in, the stock may be worthless.

What Should You Do If You Discover a Trading Suspension?

The SEC recommends contacting the broker-dealer who sold you the stock, or who quoted the stock before the suspension. Ask if they intend to resume publishing a quote in the company’s stock. If trading resumes, expect a decline in the price of the security as investors may rush to sell of their holdings.

If a FINRA-registered broker-dealer recommended and sold you the stock, depending on the circumstances of the sale, your investment objectives and risk tolerance, and other factors, you may have a claim against the broker-dealer for your investment losses.

Investors should generally proceed carefully if trading in low-value microcap or “penny stocks.” Be wary of online forums or press releases that purport to announce a company’s COVID-19-related products or services.

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.

If you are considering using provisions under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to withdraw and reinvest money from your retirement savings, be aware that fraudsters may be targeting you. Be wary when someone encourages you to use your retirement savings to make new investments. When considering new investments, do your own research and consider contacting an unbiased investment professional or an attorney.

CARES Act Retirement Savings Benefits

The CARES Act includes provisions designed to provide relief for individuals who are financially impacted by the COVID-19 pandemic. Among these provisions are relief efforts that allow individuals to pay back amounts withdrawn from qualified retirement plans without paying income tax on the withdrawal. The CARES Act also allows individuals to take out larger retirement plan loans with limited income tax consequences. For those suffering financial hardship, the CARES Act benefits can provide much-needed liquidity. Unfortunately, fraudsters and dishonest promoters are using this crisis to encourage investors to make high risk or high fee investments that may not be in the investor’s best interest.

How Fraudsters Are Targeting Retirement Savings

Promoters or investment professionals may contact you with a recommendation that you take advantage of the CARES Act benefits to withdraw money from your retirement savings and invest that money. If you have been contacted with such a recommendation, be very wary. The individual who contacted you may be part of a predatory scheme to profit off your retirement savings. Always be sure to verify that the person you are speaking with is licensed to give advice or sell investments. Contact your state securities regulator or use these free tools from the SEC and FINRA to verify the license and history of an investment professional.

Important Considerations for Using Your Retirement Accounts to Make New Investments

There are several important drawbacks you should consider before you use retirement funds to make new investments. The promoter may charge you high fees. Inquire how much of your money will be invested for you and how much will go to the person managing the investment. Liquidity – whether you can easily cash out of the investment – can be very important in today’s uncertain environment. Make sure to ask whether there are any fees for early withdrawal or sale. Consider the current value of your retirement investments. If the market is down when you withdraw retirement savings, you may not recover those losses when the market rebounds. If you invest the money that you take out as a loan from your retirement savings, you may have difficulty repaying the loan if the investment performs poorly.

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.

Featured image courtesy of Pasieczny Law LLC paralegal Torrie Timbrook.

Cybercrime is becoming ever more pervasive, and with so many more people working at home during the COVID-19 coronavirus pandemic, the risk of a fraudulent wire transfer and other financially motivated crimes is higher than ever.

Fraudsters use crisis events to target good-hearted investors.

The SEC and other federal and state regulatory agencies are paying close attention to COVID-19-related financial fraud, such as fraudulent stock promotions and unregistered offerings, charitable investment scams, and community-based financial frauds. Since February 2020, the SEC has suspended stock trading in connection with COVID-19 for at least 23 companies, and has initiated at least five emergency enforcement actions against companies seeking to exploit investors with false and misleading promises. These investment scams include fraudulent claims of N95 mask production, and manufacturing COVID-19 blood tests and thermal scanners for fever detection.

The FBI’s Financial Fraud Kill Chain:  A Resource for Recovering Stolen Funds

Unfortunately, while regulatory agencies work hard to shut down fraudulent scams, it can be difficult to impossible to recover money from the fraudsters.  Especially if the investor funds or cybercrime victim’s bank account funds have been transferred overseas. The Financial Fraud Kill Chain (FFKC), a program administered by the FBI, is a critically important tool that can cut off large international wire transfers. But victims need to act fast, within 72 hours of the wire transfer.

How does the Kill Chain work?

Financial fraud scams are often international, with unsuspecting investor money transferred from the United States to overseas financial institutions via international wire transfers through the SWIFT system. Cybercriminals hacking email accounts may use personal information to prey on individuals (“I’m traveling overseas and need money for a plane ticket home”). Businesses are also targets of cybercriminals. For example, corporate account takeovers and business e-mail compromise scams may be used to redirect legitimate wire transfers to fraudulent overseas accounts.

The Kill Chain utilizes the FBI’s international relationships to help U.S. financial institutions recover large international wire transfers. If the Kill Chain is activated, the FBI can prevent the withdrawal of stolen funds by cutting off the SWIFT transfer.

What kind of transfer qualifies to initiate the Kill Chain?

The FFKC can only be activated if:

• The wire transfer is $50,000 or more;
• The wire transfer is international;
• A SWIFT recall notice has been initiated; and
• The wire transfer occurred within the last 72 hours.

To initiate the FFKC process, you should immediately contact your local FBI field office and also notify your financial institution that originated the transfer. Because time is of the essence, call your local FBI office and fill out an on-line complaint through the FBI’s Internet Crime Complaint Center (IC3).

Providing the FBI with more information will allow the agency to respond more effectively, but all complaints should include the following:

• Victim business name and address,
• Transaction type, amount, and date,
• Originating bank name and address,
• Beneficiary bank name and address,
• Beneficiary account number,
• Beneficiary bank location (if known), and
• Intermediary bank name (if known).

If you or your business has been the victim of wire transfer fraud, consider still reporting it to the FBI even if the fraud does not meet the above criteria to initiate the Kill Chain.

And as we all work to protect ourselves and each other during the coronavirus pandemic, COVID-19-related investments scams should be reported to the SEC and your state’s securities regulator. 

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.

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.

Oregon has strong protections for investors against fraud with our state blue sky securities laws.  The Investor Defenders attorneys at Pasieczny Law LLC have deep experience with litigating securities cases to recover investment losses cause by financial advisor misconduct.

We also handle elder financial abuse claims. Sometimes those claims relate to securities, like a registered investment advisor mishandling an investment account, or an unlicensed person unlawfully selling investments.  But financial abuse of our seniors and other vulnerable persons can take many other forms. 

Under Oregon Law, an “elderly person” is anyone age 65 or older.  ORS 124.100(3).

Financial “abuse” includes “[w]rongfully taking or appropriating money or property, or knowingly subjecting an elderly person or person with a disability to alarm by conveying a threat to wrongfully take or appropriate money or property, which threat reasonably would be expected to cause the elderly person or person with a disability to believe that the threat will be carried out.”  ORS 124.100(1)(g).

The civil penalties are significant for abusers and persons who have “permitted” another to engage in the abuse.  The statutes allow recovery of three times all economic and noneconomic damages, and reasonable attorney fees incurred by the plaintiff.  ORS 124.100(2).

Pasieczny Law LLC is one of the few firms in Oregon with equally strong estate planning attorneys and fiduciary litigation attorneys, who have the experience to recognize the signs of potential elder financial abuse, and know how to bring claims for victims of abuse.  Many of our attorneys are licensed in both Oregon and Washington, and litigate claims in both states.

Who can bring a claim under Oregon’s financial elder abuse statute?   The elder, a guardian, conservator, or attorney-in-fact for the elder, a personal representative for a decedent who was an elder at the time of the abuse, or a trustee for a trust on behalf of the trustor or spouse of the trustor who is an elder.  ORS 124.100(3).

The National Adult Protective Services Association reports that 90% of financial abusers are family members or trusted others.  And financial abuse is vastly under-reported: it is estimated that only one in 44 cases are reported to state protective services.

What are some common forms of financial abuse?   Misuse of a Power of Attorney or joint bank account, overcharging for services, or improperly transfer title to property.  Outright threats to abandon unless the victim complies with the abuser’s demands can by itself be financial elder abuse.

What are some warning signs of abuse?

• An unexplained withdrawal, transfer, credit card charge, or payments that are unusual, or don’t otherwise fit with the explanation.
• The elder is not given an opportunity to speak for themselves without the presence of a particular care giver, family member, or anyone else suspected of abuse.
• The elder is extremely withdrawn, defensive, not communicative, or unresponsive. Victims frequently feel shame and embarrassment.
• Unpaid bills, overdue rent, utility shut-off notices.

If you suspect a senior loved one may have been or is being financially abused, the attorneys at Pasieczny Law LLC can help.  Contact us to speak with an experienced fiduciary litigator who understands financial elder abuse claims in Oregon and Washington.

Did you know – most stockbrokers and registered investment advisors (RIAs) are not required by law to carry errors and omissions insurance?

Beginning July 31, 2018, with an amendment to the Oregon Securities Law, Oregon became only state in the nation to require certain state-regulated financial professionals to carry errors and omissions insurance. These financial professionals must now carry at least $1 million in errors and omissions insurance in order to qualify for licensing in Oregon.

ORS 59.175 now provides:
. . .
(5)(a) Except as otherwise provided in paragraph (b) or (c) of this subsection, every applicant for a license or renewal of a license as a broker-dealer or state investment adviser shall file with the director proof that the applicant maintains an errors and omissions insurance policy in an amount of at least $1 million from an insurer authorized to transact insurance in this state or from any other insurer approved by the director according to standards established by rule.
(b) A licensed broker-dealer subject to section 15 of the Securities Exchange Act of 1934, as amended, is not required to comply with paragraph (a) of this subsection.
(c) A licensed state investment adviser who has its principal place of business in a state other than this state is exempt from the requirements of paragraph (a) of this subsection.

Why is this important?

Investors are rightfully confused about what protections they have when they sign over their life savings or transfer a retirement account to the care of a financial professional.  One might assume the advisor is insured, just like many attorneys, doctors, and other professionals are insured.

There is no current federal requirement for FINRA-registered brokers or SEC-registered investment advisors to carry basic errors and omissions (“E&O”) insurance. E&O insurance is a form of liability insurance for professionals who provide advice or other services. Some call it “professional liability insurance.”

You may have seen reference to “SIPC” on a sign in your advisor’s office, or on account statements from a firm. The Securities Investor Protection Corp. (SIPC) insures cash and securities in a brokerage account up to a certain amount of losses incurred because of the bankruptcy of a broker-dealer. SIPC does not cover losses caused by faulty or negligent conduct by the broker or brokerage firm.

Wait a minute – A financial advisor may handle millions and millions of dollars of investor money, but not carry insurance for professional misconduct?  Yes.

Investors may win a substantial recovery of losses that were caused by their financial professional’s misconduct, either through a FINRA arbitration award or court judgment. However, many awards and judgments go unpaid. A smaller firm may simply close shop rather than pay. Or a culpable advisor might leave his or her firm and start working for a business or investment vehicle that is not licensed by FINRA or the SEC. If there was applicable insurance that covered the investor claims, the insurance policy would pay the investor at least part if not all of the award or judgment.  Large firms that have significant net capital, or firms that otherwise responsibly carry insurance as a matter of choice, already provide reassurance that they can make good on a successful customer claim.

Generally speaking, E&O insurance should cover mistakes, errors, negligent conduct, and breaches of fiduciary duties by a professional relating to the professional service that result in harm to the client.  In the case of financial professionals, that usually takes the form of recoverable financial losses caused by unlawful conduct.  For example, losses caused by a broker (or RIA or someone dual-licensed as a broker/RIA) failing to follow client instructions, making recommendations to purchase investments that are “unsuitable” for that particular investor, or acting in a way that violates a fiduciary duty to the investor.

The good news for Oregon investors is that there are now at least some new protections at the state level, relating to certain financial professionals.  If you invest with a financial professional and want to know if they have E&O insurance – ask!  Responsible advisors and firms should be able to provide a clear explanation as to what protections their customers have in case of a customer claim to recover investment losses.

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.

The news has been full of stories of investment losses. First, it was cryptocurrencies and related investments on a roller coaster ride of valuation. Then, in the last week, the major stock market indices followed… Dow Jones, S&P 500, Nasdaq…

What is a Main Street investor to do?

As a securities attorney representing investors in disputes with the financial industry, down markets mean my phone starts ringing. Investors start to look closely at their portfolios.

Some find surprises. Potential claims against their financial advisor to recover investment losses.

Not every investment loss is a recoverable investment loss – far from it. But, sometimes investment losses are caused because of a financial advisor’s misconduct. Making unsuitable securities recommendations to buy risky investments or allocate a portfolio in a certain way. Failing to follow instructions, negligence, or outright fraud and misrepresentation.

The law provides remedies to investors injured by advisor misconduct. Typically, securities claims are brought by filing a statement of claim in FINRA arbitration. I’ve helped my clients bring securities claims in FINRA arbitration. I help them to navigate mediation and informal settlement discussions. And I have helped them recover millions of dollars, thought to be lost forever due to “bad luck”.

I recently filed some short video clips explaining how an experienced securities attorney like myself can help investors who think they may have a problem, and why investors may be hesitant to seek help and file claims to recover losses.

A down market is a good time to take a hard look at your, or your client’s, portfolio. And ask questions.

Why is the portfolio heavily allocated in one volatile sector, such as oil and gas?

Was that level of risk appropriate for the investor at the time of the recommendation? Why are there so many LP and LLC private placement interests in the portfolio? Can those interests be sold? And why are my investment losses in this down market so much more than my friend’s losses, when we have similar financial goals and risk tolerances? These and other red flags may be signs of investment fraud.

If you think you may be the victim of investment abuse, call me toll free at (503) 358-8292 for a free, confidential initial consultation. I represent investors in FINRA arbtiration nationwide who have investment losses caused by 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 investment 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. Again, 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.

***

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.

***

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.