On March 8, 2022, the Financial Industry Regulatory Authority, Inc. (“FINRA”) issued Regulatory Notice 22-08 (Complex Products and Options) (the “Notice”). The Notice is FINRA’s most significant statement on sales of complex products since 2012.

FINRA notes that the number of accounts trading in complex products and options has increased significantly in recent years and that important regulatory concerns arise when investors trade such products without understanding their unique characteristics and risks. Further, these concerns may be heightened when retail customers access these products through self-directed platforms without the assistance of a financial professional. In light of these concerns, FINRA cautions that trading in complex products and options requires member firm scrutiny and supervision.

Although there is no standard definition for a “complex product,” FINRA lists examples which include: leveraged or inverse exchange-traded products (ETPs), geared ETPs, structured products that may employ options, interval funds, options strategies, and non-traded REITs.

The essence of FINRA’s guidance is that some of these products are being sold by brokers who don’t understand the risks, and therefore investors are buying them without a full and fair understanding of the risks. Additionally, these products are unsuitable for many investors.

Finally, FINRA cautions that brokerage firms have a high duty to supervise the sale of these complex products to retail investors. Many brokerage firms are falling short of their supervisory duties relating to suitability and disclosure in the sale of these products.

Please feel free to contact us immediately if you believe you may have been improperly sold a complex investment product or option. Maddox Hargett & Caruso, P.C. represents investors in actions against their brokerage firms and financial advisors. Our founding partner, Mark Maddox, is happy to give you a free initial review to evaluate your situation. Feel free to call him at 317-598-2043 or email him at mmaddox@mhclaw.com.

Federal securities regulators have sued a former Morgan Stanley adviser for using client funds to pay for personal costs such as a Tesla Inc. automobile, credit card bills, and cash transfers.

According to a U.S. Securities and Exchange Commission complaint filed in federal court, Shawn E. Good, 55, of Wilmington, North Carolina, had clients deposit monies to his personal bank account to ostensibly make low-risk investments in real-estate development projects. According to the regulator, Good scammed investors, including retirees, out of at least $4.8 million, resulting in losses of more than $2 million.

According to the regulator, Good’s Ponzi scheme lasted roughly a decade. He utilized the money from his clients to pay bills, reimburse other investors, and send cash via Venmo for transactions.

According to the SEC, Good assured consumers that the wagers he was placing on their behalf were low-risk and would generate returns of between 6% and 10% over three to six months, but he never presented a written agreement.

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses from Morgan Stanley and Shawn Good. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.

In a forgery investigation, FINRA has barred a stockbroker from NYLife. Kyle Zachary Wittgren, a stockbroker formerly registered with NYLife Securities LLC, has been barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity, based on findings that Wittgren refused to testify in an investigation relating to allegations that he signed customer names on variable annuity applications without authorization while registered with NYLife Securities between April 26, 2016, and April 29, 2021. According to an Acceptance, Waiver, and Consent Letter (AWC) dated December 27, 2021. FINRA received a Uniform Termination Notice for Securities Industry Registration (Form U5) on April 1, 2021, indicating that Wittgren was allowed to resign, based on allegations that he admitted to forging or signing customers’ names without their agreement or knowledge. Wittgren was also accused of submitting 13 variable annuity applications, according to NYLife. Wittgren also allegedly changed customer email addresses, according to the securities broker-dealer. The allegations made by NYLife Securities were the subject of a FINRA investigation, which resulted in FINRA sending Wittgren a request to testify about the allegations on December 17, 2021. Wittgren’s failure to cooperate was considered by FINRA to be a violation of Rules 2010 and 8210.

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.

Amy Marjorie O’Brien consented to an Acceptance, Waiver and Consent Letter (AWC) prohibiting her from working with any FINRA member in any capacity. O’Brien consented to the censure and the entry of findings that she failed to deliver documents and information as required by FINRA without admitting or contesting the findings. According to the findings, O’Brien was being investigated after she refused to assist with an anonymous report that she had inappropriately collected monies from an elderly customer. (Financial Industry Regulatory Authority Case #2021073002001)

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.

The Financial Industry Regulatory Authority (FINRA) announced on December 16, 2021, that John Daniel Quinn (CRD #: 2576416) had accepted and consented to FINRA’s findings that he had engaged in undisclosed private securities transactions and outside business activities in violation of industry rules while a registered representative with at least two brokerage firms.

Quinn agreed to an 18-month suspension from associating with any securities company and a $10,000 fine as part of FINRA’s ruling. Quinn did not admit or deny the charges, according to FINRA.

Quinn was a registered representative of Ameriprise Financial Services, Inc. from June 2012 to May 2019, LPL Financial LLC from May 2019 to November 2019, and VALIC Financial Advisors, Inc. from October 2019 to February 2021, according to his BrokerCheck report. In early 2021, he was fired from VALIC, and he is no longer affiliated with any brokerage firms.

Financial advisors like Quinn are prohibited by securities industry laws from engaging in secret private securities transactions or outside commercial activities without first informing and receiving clearance from their supervisory broker-dealer.

According to FINRA, while Quinn was affiliated with LPL, he engaged in six private securities transactions totaling $1.2 million in sales without the knowledge or consent of LPL, in violation of FINRA Rule 3280. Quinn also inappropriately engaged in an outside business activity in which he was paid $105,000 in fees for undeclared and unapproved consulting activities while linked with LPL and later with VALIC, according to FINRA Rule 3270.

When a financial adviser engages in unreported and disapproved private securities transactions and outside business operations, it is common for the advisor’s consumers to be inappropriately marketed assets pertaining to the undisclosed and unapproved activities, according to our law firm’s experience.

Brokerage businesses are required by law to oversee their personnel in a reasonable manner. This involves monitoring and preventing concealed and unauthorized securities transactions to the firm’s consumers through its financial advisors.

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.

Merrill Lynch Wealth Management was fined $950,000 by the Financial Industry Regulatory Authority on Monday for allegedly ignoring vulnerabilities in its fraud detection systems that allowed two brokers to steal $6 million.

The settlement explains how two brokers, Christopher Hibbard of Kentucky and Marcus Boggs of Illinois, were able to get around the wirehouse’s compliance policies. (For their thefts, Hibbard and Boggs are serving eight and three-and-a-half years in jail, respectively.)

Merrill’s systems, according to FINRA, did not adequately screen Automated Clearing House transfers from clients’ accounts to detect whether one of Merrill’s registered agents was the recipient of those payments. Merrill’s internal fraud-detection system, according to the letter, was only “intended to detect fraud by third parties” or “persons other than its own brokers.”

According to the settlement letter, despite the fact that the industry’s self-regulator had alerted Merrill about difficulties with its monitoring of customer fund transfers in 2013, the business failed to implement alerts or appropriately follow up on red flags until at least 2018.

According to the document, between 2011 and 2017, Hibbard, who is only designated as “representative 1” in the FINRA letter, stole $3.2 million by making 270 illicit ACH transactions from the accounts of five customers–including four seniors–to his credit card accounts.

According to the letter, the broker was able to hide his fraud from customers by giving unauthorized account summaries with inflated balances. Merrill failed to “properly follow up on the emails, which were red flags of potential misbehavior,” despite Merrill’s email monitoring system flagging four emails for inspection.

“Had it done so, the firm may have detected Representative 1’s theft,” FINRA concluded, noting that the issue was discovered after a customer complaint in December 2017.

Boggs, also known as “representative 2,” stole $3.2 million from eight client accounts with 300 fraudulent ACH payments between 2007 and 2018. According to the letter, the monies were mostly utilized to pay his credit card bills.

According to the settlement, when transfer requests were escalated to the fraud unit in at least four occasions, the brokers were still ultimately responsible for authenticating that the request was in fact originated by the consumers.

Brad Bennett, a former chief of enforcement at FINRA and a lawyer in Washington, said of Merrill’s prior supervisory regime, “Obviously you don’t want the fox in control of the hen house.”

Merrill has now been censured and punished by FINRA for failing to monitor the transfer of customer funds to third-party accounts for the second time. Merrill was censured and fined $450,000 in August 2012 for that issue after one of its registered agents converted $887,931 from 13 customer accounts, according to the letter.

Merrill violated FINRA Rule 3110 and its predecessor National Association of Securities Dealer Rule 3010 and 3012, which require brokerages to monitor customer fund transfers, maintain supervisory systems, and enforce policies and procedures that are “reasonably designed to review and monitor all transmittals of funds from customers to third party accounts, outside entities, and locations other than a customer’s primary residence,” according to FINRA.

According to the FINRA letter, Merrill also broke FINRA’s catch-all Rule 2010 requiring it to “observe high standards of commercial honor.”

Merrill settled the matter without admitting or denying the findings and has since upgraded its compliance systems. According to the letter, the company has also “taken reasonable attempts to pay reparations to each of the consumers or their estates.”

In an email, a Merrill representative said, “As the settlement acknowledges, we built an upgraded monitoring system several years ago to detect possible unlawful transactions.” “Clients who were harmed as a result of the actions of these two former Financial Advisors were paid.”

Merrill told the regulators in January 2018 that it had terminated a broker for theft and other wrongdoing, prompting FINRA to launch an investigation.

The settlement illustrates that the era of the rogue broker is likely probably not over, even in the age of high-tech compliance at giant brokerage firms, according to a former Securities and Exchange Commission enforcement official.

“Even in the most robust compliance systems, individuals predisposed to commit fraud will find a way to do so,” said Jacob Frenkel, a former senior counsel in the SEC’s Division of Enforcement who now chairs Dickinson Wright’s government investigations and securities enforcement unit in Washington, D.C.

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.

FINRA’s Department of Enforcement entered a default decision September 22, 2021 against Elizabeth Ann Sollars, a former Allstate Financial Services, LLC broker, for failing to deliver information and documentation, as well as failing to present and provide testimony to FINRA in accordance with FINRA Rule 8210.

The material was requested as part of FINRA’s investigation into claims that Sollars misappropriated insurance customer premium money while she was registered with her firm.

Sollars has two years of experience in the securities sector, and between June 2017 and January 2020, was registered as a broker with Allstate Financial Services, LLC in Terre Haute, IN.

Financial advisers and customer accounts must be appropriately supervised by brokerage businesses like Allstate Financial Services, LLC. To ensure compliance with securities laws and industry rules, brokerage companies must also build and maintain an adequately structured system to oversee account activity. Brokerage firms may be held accountable for losses if a brokerage business fails to adequately supervise its financial advisors or investment account activities.

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.

From 2001 to 2021, Roland Terrence Molo (CRD: 4371241) was a registered broker with Edward Jones in Illinois.

On his BrokerCheck report, Molo has nine disclosures including allegations he stole $800,000 from senior citizens by convincing them to transfer money out of their financial institution accounts for the purported investment in tax-free bonds without their knowledge or authorization. The bonds did not exist and instead Molo is alleged to have misused the money for his own personal use.

Brokerage firms, such as Edward Jones, are responsible for properly supervising all representatives who are registered with them. Brokerage firms must also guarantee that its financial advisors adhere to all securities rules and regulations, as well as internal business standards. Customers may hold brokers and brokerage firms accountable for investment losses if brokerage firms fail to effectively oversee their licensed representatives.

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.

 

Maddox Hargett & Caruso, P.C., based in Indianapolis, is looking into financial advisors who transfer clients into more expensive investments, resulting in excessive costs. Commission-based financial advisors and brokers frequently make “exchanges” that convert clients from one investment to another that is remarkably similar. They frequently claim that these new investments would “earn you more money,” but the truth is that they will make more money in commissions and fees.

According to FINRA, the federal securities regulator, NY Life Securities has agreed to “pay a total of $263,347 to settle allegations that, as a result of supervisory failures, it failed to prevent several of its clients from being charged excessive, unnecessary fees after one of its brokers engaged in unsuitable mutual fund and cross-product switches.”

According to FINRA, a broker at the company, identified only as “Broker A,” recommended that 10 clients buy and sell Class A mutual funds after holding the shares for brief periods of time “on hundreds of times” between January 2015 and March 2019.

According to FINRA, the clients paid nearly $175,000 in unnecessary front-end sales charges for Class A mutual fund shares as a result of the short-term trades, with Broker A collecting around $116,000 in commissions.

A spokesman for parent business New York Life told ThinkAdvisor, “The firm has always behaved in good faith and remains completely dedicated to delivering the necessary tools and guidance to meet financial requirements.” He went on to say, “We were able to engage with FINRA to achieve a settlement that best serves our clients’ interests.” NYLife Securities signed a FINRA letter of acceptance, waiver, and consent on Sept. 30, 2021, without admitting or denying the industry self-findings, regulator’s agreeing to be censured and pay a $200,000 fine and $63,347 in restitution.

Broker-advisors don’t always inform clients that seemingly innocuous trades would result in a bonanza in commissions and fees for them and their firms. Frequently, shifting client money from one mutual fund share class to another is all that is required.

Who is responsible if a broker-advisor charges you excessive and needless fees, reducing your total returns? Brokerage firms are accountable for overseeing their brokers’ behavior under FINRA guidelines, which might lead to an arbitration dispute. Such transactions may be deemed “unsuitable” for a customer, particularly if they are uninformed of the financial consequences in terms of lowered retirement funds.

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.

In the last year, Frederick Mark Atiyeh of Crown Capital Securities, L.P. has received a customer complaint alleging broker misconduct.

Frederick Atiyeh (CRD #872352) is a subject of a securities industry sales practice abuse investigation. He is now registered with Crown Capital Securities, L.P. in Whitmore Lake, Michigan.

Frederick Atiyeh is the subject of two pending client complaints alleging a lack of proper due diligence, lack of suitability and over-concentration in regards to investments in alternative and variable annuity products as well as misrepresentations of risk factors in regards to the purchase of alternative investments.

Maddox Hargett & Caruso, P.C. represents investors nationwide who are trying to recover their losses. You can call or email our senior partner Mark Maddox to have your potential case evaluated at no charge. Please call 317-598-2043 or email him at mmaddox@mhclaw.com.