Wall Street Investment Fraud Lawyer Blog

On February 16, 2010, Financial Industry Regulatory Authority (FINRA) fined H&R Block Financial Advisors, Inc., (n/k/a Ameriprise Financial) $200,000 for failing to establish adequate supervisory systems and procedures for supervising sales of a unique and relatively new investment called reverse convertible notes to retail customers. FINRA also fined and suspended H&R Block broker Andrew MacGill, a Tampa-based financial advisor, for making unsuitable sales of reverse convertible notes to a retired couple. The firm was ordered to pay $75,000 in restitution to the couple for losses they incurred.

The Doss Firm, LLC, a law firm that focuses on representing investors against financial firms like Ameriprise Financial, may have uncovered that the circumstances surrounding Andrew MacGill's suspension and Ameriprises's $200,000 fine is not an isolated incident. The problem is regional, if not firm-wide and involves Ameriprise's financial advisors targeting senior citizens to purchase high-risk reverse convertible notes. These products are sold to investors as safe cash-alternative investments.

Today, the law firm filed suit on behalf of an elderly couple from Sun City Center, Florida (80 years old and 75 years old), who claim that they also were victimized by H&R Block Financial Advisors, Inc./Ameriprise Financial in connection with sale of reverse convertible notes. The elderly couple opened accounts at the firm after attending a free lunch seminar sponsored by H&R Block at an upscale restaurant in Apollo Beach, Florida.

In the press release announcing the fine and suspension, FINRA Chairman and CEO Richard Ketchum stated, "For the typical retail investor, for instance, it would be unwise to put anything more than a small portion of life savings into riskier structured products such as reverse convertible notes." In the case filed today, at one point over 40% of the elderly couples retirement accounts were invested in reverse convertible notes.

What is a reverse convertible note?

A reverse convertible note (RCN) is a structured product that typically consists of a high-yield, short-term note of an issuer and effectively a put option that is linked to the performance of an unrelated, or "linked," asset - usually a single common stock, but sometimes a basket of stocks, an index or some other asset. As a general rule, upon maturity of an RCN, the investor will receive either his full principal investment or a predetermined number of shares of the linked equity (which may be worth less than the principal investment), depending on the performance of the linked equity. Generally speaking, the higher the coupon rate, the higher the expected volatility of the linked equity and the greater the likelihood of the investment resulting in payment of shares. Reverse convertibles not only come with the risks that fixed income products ordinarily carry, such as issuer default and inflation risk, but with additional risks of the underlying asset, which can depreciate or even become worthless. The initial investment for most RCNs is $1,000 per unit and most RCNs have maturity dates ranging from three months to one year.

In the enforcement matter against Ameriprise, FINRA found that during the period from January 2004 through December 2007, H&R Block engaged in sales of RCNs without having a system or procedures in place to effectively monitor customer accounts for potential over-concentrations in RCNs. As a result, the firm failed to detect and respond to indications of potential over-concentration in RCNs in numerous customer accounts.

FINRA found that H&R Block utilized an automated surveillance system to facilitate its suitability review of securities transactions and to monitor customer accounts for potentially unsuitable positions and activity. The system would flag for review any transaction or account meeting certain parameters established by the firm relating to, for example, account turnover and concentration levels in a particular security or class of security. The firm's system, however, was not configured or designed to monitor RCN transactions or RCN positions in customer accounts and the firm did not establish an effective alternative means to do so. As a result, H&R Block failed to detect and respond to indications of potentially unsuitable RCN concentration levels in numerous customer accounts. Additionally, the firm failed to provide sufficient guidance to its supervising managers on how to assess suitability in connection with their brokers' recommendation of RCNs.

According to The Star-Ledger, Stephen Severio, a former Merrill Lynch financial adviser has plead guilty to two counts of theft by deception and to commercial bribery relating to a scheme that netted nearly $700,000. Severio admitted to the court that he had convinced 31 long-term clients of Merrill Lynch to withdraw their money from their Merrill Lynch accounts and invest their money in other opportunities outside of Merrill Lynch. This practice is called "selling away" and violates Merrill Lynch policy as well as industry standards. Some of the Severio's victims had been clients of Severio's at Morgan Stanley. Severio had been an employee at Merill Lynch's Red Bank office for five years.

In an effort to persuade these clients, Severio promised returns of between 15 and 20 percent. Rather than investing the funds he received, Severio merely cashed the checks and used the money as he pleased. Authorities alleged that the scam ran more than a year and that the money was used to support a drug habit. Although the details are not clear as to exactly where the money went, police records indicate that Severio along with two 21 year-old women were arrested in July of 2008 on charges of possession of cocaine.

The prosecutor will recommend a seven-year prison term in exchange for Severio's plea. Additionally, Severio has agreed to a civil consent judgment to repay the victims
$685,653.

The Doss Firm, LLC is currently investigating whether Ameriprise Financial f/k/a H&R Block Financial Advisors violated industry rules on a wide-spread basis in connection with the unsuitable sale of reverse convertible notes to senior citizens.

FINRA fined the firm as well as Andrew MacGill, a broker with the firm, this week for making unsuitable sales of reverse convertible notes to a senior couple. Andrew MacGill practices out of Tampa, Florida. The Doss Firm, LLC has been retained by other Ameriprise clients who are complaining they too were sold reverse convertible notes.

Reverse convertible notes are inherently very risky investments. Unfortunately, in many instances they were sold as safe income-producing alternative investments, which is why FINRA has taken action against H&R Block Financial Advisors.

A reverse convertible note is a type of structured product. According to Notice To Members ("NTM") 05-59, structured products are securities created by investment banks that are derived from or based on a single security, a basket of securities, an index, a debt issuance, and/or foreign currency. As such, these investments come in many shapes and sizes.

Most structured products pay an interest or coupon rate substantially above the prevailing market rate. Structured products also frequently cap or limit the upside participation in the referenced asset. These unique financial instruments are typically issued by investment banks or their affiliates and have a fixed maturity date. Some structured products are listed on a national securities exchange and some are not. Because they are so unique, however, even those listed on a national exchange are thinly traded.

As a result, once an investor purchases such an investment, it is difficult to get out of it prior to the maturity date without suffering a substantial penalty. Structured products typically have two components - a note and a derivative (often an option). The note pays interest to the individual at a specified rate and interval. The derivative component or option component establishes the payment upon maturity.

Most reverse convertibles sold to consumer are linked to a single stock in a household name company (e.g. Jet Blue, Norfolk Southern, Lowes and Bristol Myers to name a few.) Prior to the maturity date, which was typically only a few months, investors receive interest payments at a rate that is higher than the prevailing market rate. Importantly, the reverse convertible notes do not allow investors to participate in any upside in the referenced underlying stock. Investors fully participate, however, in all downside market risk of that stock, because upon maturity (i.e. at the expiration of the option), if the price per share of the underlying stock falls below a predetermined value, the note converts into shares of underlying common stock at the eroded price per share. In other words, in exchange for receiving some income, investors risk losing some or all of their principal investment by assuming all of the downside risk of the underlying stock and by giving up all of the upside potential.

If you believe you have been sold unsuitable reverse convertible notes and suffered losses, you may have a claim to recover damages. Please contact The Doss Firm, LLC at 770-578-1314.

FINRA, Financial Industry Regulatory Authority announced that it was fining H&R Block Financial Advisors, Inc. (n/k/a Ameriprise Advisor Services, Inc.) $200,000 for failing to establish adequate supervisory procedures in connection with the sale of reverse convertible notes. FINRA also fined Andrew MacGill, an advisor of the firm for making unsuitable recommendations to a retired couple.

FINRA also released an Investor Alert, Reverse Convertibles - Complex Investment Vehicles, to educate consumers about these complex structured products. FINRA also issued Regulatory Notice 10-09, reminding firms of their sales practice obligations when recommending or selling reverse convertible notes.

A reverse convertible note is a type of structured product. According to Notice To Members ("NTM") 05-59, structured products are securities created by investment banks that are derived from or based on a single security, a basket of securities, an index, a debt issuance, and/or foreign currency. As such, these investments come in many shapes and sizes.

Most structured products pay an interest or coupon rate substantially above the prevailing market rate. Structured products also frequently cap or limit the upside participation in the referenced asset. These unique financial instruments are typically issued by investment banks or their affiliates and have a fixed maturity date. Some structured products are listed on a national securities exchange and some are not. Because they are so unique, however, even those listed on a national exchange are thinly traded.

As a result, once an investor purchases such an investment, it is difficult to get out of it prior to the maturity date without suffering a substantial penalty. Structured products typically have two components - a note and a derivative (often an option). The note pays interest to the individual at a specified rate and interval. The derivative component or option component establishes the payment upon maturity.

Most reverse convertibles sold to consumer are linked to a single stock in a household name company (e.g. Jet Blue, Norfolk Southern, Lowes and Bristol Myers to name a few.) Prior to the maturity date, which was typically only a few months, investors receive interest payments at a rate that is higher than the prevailing market rate. Importantly, the reverse convertible notes do not allow investors to participate in any upside in the referenced underlying stock. Investors fully participate, however, in all downside market risk of that stock, because upon maturity (i.e. at the expiration of the option), if the price per share of the underlying stock falls below a predetermined value, the note converts into shares of underlying common stock at the eroded price per share. In other words, in exchange for receiving some income, investors risk losing some or all of their principal investment by assuming all of the downside risk of the underlying stock and by giving up all of the upside potential.

These are inherently very risky investments. Unfortunately, in many instances they were sold as safe income-producing alternative investments, which is why FINRA has taken action.

If you were sold reverse convertible notes and lost money you may legal rights to recover your losses. Please call The Doss Firm, LLC for a free consultation.

According to First Coast News in Ponte Vedra, Florida, Michael Joseph Dimare pleaded guilty to mail fraud Monday for scamming about 22 people out of approximately $2 million. He worked as a registered representative of ING Financial Partners from October 2006 to May 2008. Based on the article, it appears that Mr. Dimare engaged in the ponzi scheme fraud while he was with ING Financial Partners and the firm he worked with before ING, Signator Investors, Inc. According to Mr. Dimare's CRD report, a publicly available report that tracks customer complaints against financial advisors, it appears that only 11 customers have filed complaints thus far. One of the victims came forward in the article and stated that she received every penny of her money back from a financial firm. That firm is likely ING Financial Partners and/or Signator Investors, Inc.

Given that he pleaded guilty to defrauding 22 people, there are likely more victims who have not come forward yet.

The Doss Firm, LLC represents investors across the nation against financial firms and seeks to recover investment losses that result from fraud. If you believe you have been defrauded by Mr. Dimare, feel free to contact us.

According to an article in today's Atlanta Journal Constitution, Rhea Dignam was named the regional chief for the Securities Exchange Commission. Ms. Dignam will be working from the Atlanta-based regional office and she will oversee the office's enforcement and examination activities for the five-state region of the Southeast. According to the article, she is replacing Katherine Addelman, who left the position to enter private practice.

Virtually every homeowner purchases title insurance when they buy a home. Stuart Title Guaranty is one of the nation's largest providers of title insurance. According to a recent Atlanta Journal Constitution article entitled Title insurance company accused of overcharging, the Georgia Department of Insurance filed a regulatory action against the company alleging that Stuart Title Guaranty violated Georgia law more than 600,000 times between 2003 through 2007. The Department alleged that the violations caused consumers to pay more than they should have for title insurance. Specifically, the Department alleged that Stuart illegally permitted closing attorneys to charge what ever they wanted to charge. The company also permitted agents to charge consumers with the same risk profiles different premium amounts. The formal adminstrative hearing is scheduled to begin sometime in February. The article also stated that the average overcharge was about $200 per consumer.

Even though the overcharge amount per individual is small, collectively it amounts to a lot. If you are a customer of Stuart Title Guaranty, you have legal rights to collect for the overcharges. Most likely, the best way to proceed against the company is on a class-wide basis.

The Doss Firm, LLC has handled mutiple large class actions on behalf of Georgia consumers. Please feel free to contact us if you feel that you have been aggrieved.

According to the Los Angeles Times, Robert Khuzami, the Securities and Exchange Commission's (SEC) director of enforcement, has initiated a new whistle-blower program to attempt to catch fraudsters in the act. This program hopes to stop the fraudster before they have caused too much damage and to attempt to seize the most assets possible for returning to victims.

In exchange for coming forward and cooperating with the SEC, the SEC will provide levels of protection to individuals who were involved in the scheme but now wish to turn in their co-conspirators or the individual running the scheme. The whistle-blower may even avoid an SEC suit as a result of their cooperation with the SEC. Further, there is a proposal to even provide the whistle-blower with a reward, a percentage of what is recovered, for coming forward and providing key information which leads to the prosecution of individuals like Madoff.

Although rewarding wrongdoers, who become whistleblowers, may seem distasteful, unfortunately this may be extremely important in the efforts to bring down powerful fraudsters and their schemes. The protection from a lawsuit and monetary reward, encourages individuals to come forward, when likely they would not otherwise. Further, as Khuzami pointed out "cooperator's testimony allows [the SEC] to act more quickly -- find out where the bank accounts are located and increase our chance of returning money to investors." Finally, Khuzami reminded us that "the earlier you shut down a case, the less victims there are. Tomorrow's victims will not materialize."

The IRS initiated a similar whistle-blower provision four years ago, which has apparently significantly increased the number of multimillion-dollar prosecutions of individuals who cheat the tax system.

Another way to stop a scam is for the victims to come forward when they suspect a fraud. If you believe that you may be a victim of an investment scheme, contact our office for a free consultation regarding your legal rights and possible means to recover losses. Please also visit our website www.dossfirm.com.

The Financial Industry Regulatory Authority (FINRA) has issued an Alert warning individuals about "modeling" and "mystery shopper" scams. These scams involve checks that appear to be from legitimate companies, but turn out to be counterfeit. In summary, both scams involve an authentic-appearing check that is sent to the individual. This check often has the name of a real company with both account and routing numbers. The scammer instructs the individual to deposit the check into their personal bank account and then to transfer part of the money to another person. In a few days, the individual learns from the bank that the check was counterfeit. This individual is then liable for the amount of money that was withdrawn, which is often several thousand dollars. This becomes a very expensive lesson learned for the individual scammed. Additionally, more than likely, it would be impossible to track down the scammers to recover the loss.

The "mystery shopping" scam leads individuals responding to a classified add to believe that they have been hired as a mystery shopper to "evaluate the services of money transfer companies, such as Money-Gram." The victims are then sent checks that seem to be from real companies, including FINRA. They are then asked to deposit the money in their personal account and then told to withdraw a substantial portion of the money and then wire it to another individual. The remainder of the money, which is generally a few hundred dollars, goes to the victim as compensation for being a mystery shopper. Later, the victim is notified by their bank that the check is counterfeit and the bank seeks reimbursement of the money withdrawn from the victim.

The "modeling" scam convinces victims that they are being hired to model. The victim is sent an email with instructions on what they are to do. A counterfeit check is sent to the victim "model" and then they are told to cash the check and wire the majority of the money to another individual. The victim is told that the remainder of the money is their compensation for being a "model." In the same manner as the "mystery shopper" scam, the bank then notifies the victim that the check is not legitimate and the victim is then liable for the amount of money withdrawn.

Also, this scam also takes place on an individual basis, with individuals running the same scam on sellers on such websites as Craigslist. In this instance, the individual wants to purchase something from you and send you a check for an amount greater than the amount of what is being sold. The seller is then asked to send money left over from the purchase either back to them or to another individual. The check here also turns out to be counterfeit.

FINRA has warned that it is very difficult to determine whether a check is counterfeit. Therefore, they "(urge) consumers to be cautious if someone they don't know asks them to cash a check and then transfer the money." Further, they point out that "no legitimate company will overpay you and ask that you wire the difference back to the company or to some third party."

FINRA does suggest some tips to avoid these scams. Prior to cashing any check you are sent by a seemingly legitimate company, call the company directly to verify the check. However, make sure that you do not use any telephone number on the check, you need to obtain the number via directory assistance. Further, look out for emails that are filled with typographical and grammatical errors. This could also be a red flag that the email is a scam. In addition, compare the name of the company from the posting to the name of the check. If the names don't match, this is also a red flag. Finally, do not be pressured to deposit the check and wire the money quickly. Wait until the bank confirms that the check clears before you withdraw or transfer any money. Remember you will be liable to the bank for any amount withdrawn on a counterfeit check.

In summary, beware of any offers which seem to go to be true. Further, look out for red flags and question any offer prior to agreeing to perform any task involving wiring money to another unknown individual. Ask yourself why! Why is this company giving me money to cash a check and then wire the majority of the money to someone else?