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Wells Fargo Advisors Financial Network, LLC and Wells Fargo Clearing Services, LLC have been ordered by the Financial Industry Regulatory Authority (FINRA) to pay over $3.4 million as restitution to customers relating to “unsuitable recommendations of volatility-linked exchange traded products (ETPs) and related supervisory failures.” It was discovered by FINRA that Wells Fargo’s registered representatives, from July 1, 2010 until May 1, 2012, recommended such products without fully understanding their features and risks.

While “volatility-linked ETPs are generally short-term trading products that degrade significantly over time and should not be used as part of a long-term buy-and-hold investment strategy,” some Wells Fargo representatives believed that “the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn.” In summary, FINRA found that Wells Fargo failed to institute a reasonable system to supervise solicited sales of volatility-linked ETPs.

FINRA makes it clear that “volatility-linked ETPs” are complex products that could be misunderstood and improperly sold by registered representatives,” and has issued Regulatory Notice 17-32 to member firms reminding that heightened supervision is required regarding these products. Susan Schroeder, Executive Vice President of FINRA’s Department of Enforcement stated that member firms “soliciting sales of volatility ETPs should already be well aware of the unique risks that they pose” and explained that “FINRA’s Regulatory Notice 17-32 is intended to further educate the industry so that member firms can assess their own practices and take appropriate remedial action if necessary.”

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Morgan Stanley Smith Barney, LLC was fined by the Financial Industry Regulatory Authority (FINRA) for “failing to supervise its representatives’ short-term trades of unit investment trusts (UITs).”  Approximately 3,000 of Morgan Stanley Smith Barney’s customers were affected. The firm was required by FINRA to pay approximately $3.5 million in fines and $9.78 million in restitution to the affected customers.

As outlined by FINRA, a “UIT is an investment company that offers units in a portfolio of securities that terminates on a specific maturity date, often after 15 or 24 months. UITs impose a variety of charges, including a deferred sales charge and a creation and development fee, that can total approximately 3.95 percent for a typical 24-month UIT. A registered representative who repeatedly recommends that a customer sell his or her UIT position before the maturity date and then “rolls over” those funds into a new UIT causes the customer to incur increased sale charges over time, raising suitability concerns.”

It was discovered by FINRA, that hundreds of representatives for Morgan Stanley “executed short-term UIT rollovers, including UITs rolled over more than 100 days before maturity, in thousands of customer accounts” during a period from January 2012 to June 2015. FINRA found that representatives’ sales were not adequately supervised, and that Morgan Stanley did not provide sufficient guidance to Morgan Stanley supervisors on how to review UIT transactions to discover unsuitable short-term trading. Furthermore, FINRA determined that Morgan Stanley did not have adequate training regarding UITs or a supervisory system in place to detect short-term UIT rollovers.

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It was announced this week by the Financial Industry Regulatory Authority (FINRA) that J.P. Morgan Securities, LLC has been fined $1.25 million “for failing to conduct timely or adequate background checks on approximately 8,600, or 95 percent, of its non-registered associated persons from January 2009 through May 2017.” As outlined by Susan Schroeder, Executive Vice-President of FINRA’s Department of Enforcement, FINRA member firms like J.P. Morgan “play an important gatekeeper role in keeping bad actors from harming investors.” She further explained that these firms “have a clear responsibility to appropriately screen all employees for past criminal or regulatory events that can disqualify individual from associating with member firms, even in a non-registered capacity.” This federal requirement to conduct fingerprint screening of certain associated persons that work in a non-registered capacity is absolutely necessary in helping to identify individuals who could possibly be a risk to customers in light of their positions with the firm.

During their investigation, FINRA discovered that over a period of 8 years J.P. Morgan had failed to timely fingerprint 2,000 of its non-registered associated persons which prevented them from discovering whether such persons would be disqualified from employment with the firm. Furthermore, it was learned that the firm was limiting its screening of non-registered associated persons to convictions relating to federal banking laws and other crimes on a list J.P. Morgan created internally. Again, pursuant to federal law, however, J.P. Morgan was supposed to have screened for all felony convictions and for disciplinary actions taken by financial regulators. Unfortunately, in total, J.P. Morgan failed to appropriately screen approximately 8,600 non-registered persons in the appropriate manner.

J.P. Morgan neither admitted nor denied the FINRA allegations, but did consent to the entry of the findings by FINRA.

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Jay Costa Kelter, a Marietta, Georgia investment advisor, was recently charged with defrauding three retirees out of their retirement savings, according to an article in the Atlanta Journal Constitution entitled “Marietta man accused of bilking elderly investors,” written by Lori Norder.  Kelter is the subject of both a criminal action and a civil action filed by the U.S. Securities and Exchange Commission, both of which are pending in Tennessee.  He faces up to 5 years in prison on each count according to the article.  One 75-year-old widow lost approximately $1.4 million and two other retirees lost another $400,000 in the scheme.  Kelter reportedly used some of the funds to purchase luxury goods for himself and engaged in high-risk trading with the rest.

This is not Kelter’s first offense.  His FINRA BrokerCheck Report (CRD # 2787858) discloses two other customer disputes, including one in which the victim was awarded $346,800.00 in a FINRA arbitration case for alleged breach of fiduciary duty, negligence, unsuitability and misrepresentation by Kelter while he was registered with a broker-dealer named Securities Service Network, Inc. It seems likely that there are even more victims.

Kelter has not been registered with a broker-dealer since September 2013.  His registration history is as follows:

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On September 29, 2017, Richard G. Cody, 43, of Jacksonville, Fla., a former investment advisor, was arrested in Florida on charges of violating the Investment Advisors Act of 1940 and lying to the Securities and Exchange Commission in a court proceeding, according to an insurancenewsnet.com article entitled “Former Investment Advisor Indicted for Fraud and Perjury.”  The Financial Industry Regulatory Authority (FINRA) has barred Cody from acting as a broker or otherwise associating with firms that sell securities to the public.

Between May 2005 and August 2016, according to the article, Cody mismanaged the retirement savings of three victims, falsely assuring the victims that their retirement savings were secure, when he knew they were not.  By 2014 the retirement savings of two of the victims had vanished. Cody reportedly concealed the facts by sending the victims fraudulent account statements and tax documents.  In 2013, regulators had suspended Cody from acting as investment advisor, but he failed to disclose that fact to the victims.

Cases like this one often involve just the tip of the iceberg, and one would expect that there are more than three victims of Roger G. Cody.  The brokerage firms that were associated with Cody owed their investor customers a legal duty to supervise Cody and warn them of all the important facts that they learned about Cody.  Cody worked for the following firms over the years:

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The Securities Arbitration Commentator (SAC) recently took notice of a new investor education project that was spearheaded by our own Jason Doss.  Mr. Doss is a recent past president of the Public Investors Arbitration Bar Association, or PIABA, and the current president of the PIABA Foundation.  PIABA is an association of attorneys from around the country who represent investors against brokerage firms and their financial advisors. These investment-related disputes are resolved in arbitration proceedings and are often centered around investment fraud.  The damage done to victims of investment fraud – both financial and emotional – can be devastating.

Having seen the devastation up close for many years, Mr. Doss wanted to help alleviate as much of it as possible.  “Wouldn’t it be a good if we could help investors before they became victims,” he said.

Mr. Doss helped create the PIABA Foundation and has led the organization as its President to fulfill its mission of educating and protecting investors.  Mr. Doss and the PIABA Foundation then collaborated with the Alliance for Investor Education (AIE) in producing a National Investor Town Hall Meeting on October 29 in San Diego that SAC blogged about.  Mr. Doss also co-authored a book entitled “The Investors Guide to Protecting Your Financial Future,” and a short documentary entitled “Trust Me.”  The video uses the inability of government to prevent repeated financial collapses as a starting point for learning how investment fraudsters operate and what investors can do to protect themselves.  The video features the accounts of two actual investment fraud victims and commentary by several investor attorneys.

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The Securities and Exchange Commission has announced that UBS Financial Services will pay more than $15 million to settle charges related to unsuitable sales of reverse convertible notes (“RCNs”) to individual (“retail”) investors.  The SEC found that UBS failed to adequately educate and train its sales force in connection with the sale of RCNs as a result of which they had no reasonable basis for recommending them, and could not make proper disclosures to investors.

RCNs are complex securities.  In addition to the risk of default by the issuer, RCNs contain embedded put options giving the issuer the right to not return the investor’s principal at maturity, but instead assign the underlying security (usually a stock) at maturity if the stock price drops to a certain level.  In that case, the investor is left holding a stock that may be worth much less than the price paid for the RCN.

RCNs are alternative investments that typically offer above-market yields.  They are often sold to income-oriented investors who are unable to realize a sufficient return in the persistent low interest rate environment in which we live.  However, most individual investors who purchase RCNs have no idea they can lose money on this investment.

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Our firm has already filed many individual lawsuits alleging, among other things, investment fraud against Leavitt Sanders and the firms that he traded through.  Those firms include Invest Financial, Triad Advisors, Capital Asset Advisory Services, Sanders Yearian Advisory Group and Leavitt Financial Group. We have developed direct evidence that supports the allegations that these firms are legally responsible to pay back investors for their investment losses.

If you were a victim of this alleged fraudulent scheme, we would be interested in discussing representing your interests with the hope and expectation of recovering some or all of your losses.  We will evaluate your case at no charge.

As background, Mr. Sanders’ CRD reveals over 30 customer complaints for the same type of account mismanagement.  On December 26, 2014, Triad Advisors, Inc. terminated and discharged Mr. Sanders for “mismanagement of RIA related accounts” involving options trading.  (“RIA” means “registered investment advisor.”)

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Reuters reports that bankruptcies in the U.S. oil industry have reached record levels.  The number of bankrupt oil and gas companies is 59 and counting, and we are not even half-way through the wave of bankruptcy filings, according to a Reuters article entitled U.S. oil industry bankruptcy wave nears size of telecom bust.  As the article’s title indicates, the number of oil and gas bankruptcies is closing in on the 68 bankruptcy filings by telecom companies during the 2002-2003 telecom bust.

Given in the sustained low interest rate environment, many income-oriented investors have been steered by their investment advisors into oil and gas investments and other alternative or non-conventional investments.  However, non-traded investments like oil and gas limited partnerships are among the most speculative, high-risk investments available.  The category of oil and gas investments is one of the “Top Investor Threats” identified by the North American Securities Administrators Association (“NASAA”), which is the organization of state securities regulators.  They are often sold to investors by brokers and brokerage firms because of the high sales commissions paid to such brokers.

Please call us if you have questions about your oil and gas investments or other investments.  We offer a free initial consultation.  If based on that consultation we feel that further review is needed, we will analyze your situation and provide a recommendation on whether and how to proceed at no charge to you.  Cases are typically handled on a contingent fee basis – i.e., the attorney’s fee is a percentage of any amount we recover on your behalf.

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A South Carolina grand jury has indicted a Greenville broker named Claus Foerster for defrauding his clients out of $2.8 million.  According to news reports, the indictments states that Foerster persuaded clients to invest in a fictitious company called SG Investment Management.  According to the Associated Press, Foerster provided his clients with bogus earnings statements that falsely indicated their funds were invested and earning profits.

Foerster allegedly perpetrated this fraud over a 14 year period from 2000 to 2014 while he was associated with three different brokerage firms.  Foerster was associated with Raymond James & Associates, Inc. from February 2013 to June 2014; Morgan Keegan & Company, Inc. from February 2008 to February 2013; and Citigroup Global Markets, Inc. d/b/a Smith Barney from July 1997 to February 2008.

In 2014, the Financial Industry Regulatory Authority (FINRA) barred Foerster from the securities industry due to allegations that he was running a Ponzi scheme.  Foerster was terminated by Raymond James in 2014 after he admitted that he had misappropriated client funds.