Articles Posted in Lack of Supervision

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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 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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The Financial Industry Regulatory Authority (FINRA) has filed a disciplinary action against SWS Financial Services Inc. (SWS) for failing to supervise unsuitable sales of variable annuities to investors, and failing to maintain and implement appropriate supervisory policies, according to a recent InvestmentNews article. FINRA is seeking undisclosed monetary sanctions for violations that occurred during the period from September 2009 to May 2011. During this time, sales of variable annuities made up to 20% of SWS’s total revenue.

With regard to the charge of failure to supervise, FINRA found that variable annuity sales were generated in SWS offices that did not have an on site supervisor to monitor compliance with FINRA rules regarding sales of variable annuities. The variable annuities in question were issued by an insurance company that is affiliated with SWS. More than 70% of these variable annuities were sold to investors without ever having been reviewed by an SWS securities principal to determine whether they were suitable for the investors.

Some of the variable annuity sales involved a practice known as switching in which an existing annuity is sold and replaced with another annuity. Improper switching is a form of churning in which a broker trades excessively for the purpose of generating commissions. Improper switching and failure to properly explain to investors the terms and risks of variable products have been long-term problems in the securities brokerage industry. In particular, brokers often fail to clearly explain the illiquidity and surrender charges, as well as the risks associated with the subaccounts that comprise the investment component of these products.