Category Archives: Uncategorized

Some investors lost considerable amounts of money by investing in Energy MLPs. Recommended by many financial advisors in 2014-2015, investors were misled to believe these investments carried far less risk than was true. A common misrepresentation was that some of these MLPs were like “fully leased toll roads” where investors simply sat back and collected the rents. Other investors had their portfolios unsuitably over-concentrated in Energy MLPs.

We are investigating many Energy MLPs for our clients. If you are an individual or institutional investor who has any concerns about your investments in the securities of Energy MLPs, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

On April 4, 2017, the U.S. Securities and Exchange Commission announced that Credit Suisse Securities (USA) LLC and one of its former investment adviser representatives, Sanford Michael Katz, agreed to pay almost $8 million to settle charges that they improperly invested clients in more expensive “Class A” shares of mutual funds rather than less expensive “institutional” shares for which they were eligible.

The SEC’s orders found that Credit Suisse and Katz both breached their fiduciary duties, failed to adequately disclose the conflict of interest created by such investments as they enriched themselves at their clients’ expense, and with deficiencies in compliance policies and procedures.

Class A shares are generally more expensive than institutional shares of the same fund because they charge investors marketing and distribution expenses known as 12b-1 fees that are paid out of the assets of the mutual fund. In this case, the 12b-1 fees were paid by the mutual funds to Credit Suisse, which then shared a portion of those fees with Katz.

According to the SEC’s orders, between January 1, 2009 and January 21, 2014, Credit Suisse collected approximately $3.2 million in avoidable 12b-1 fees from clients in its Discretionary Managed Portfolio program, and approximately $2.5 million of that amount was generated from Katz’s advisory clients. Credit Suisse also failed to implement policies and procedures to prevent these fiduciary breaches.

Credit Suisse and Katz will collectively pay disgorgement of $3,224,483, prejudgment interest of $577,678, and penalties totaling $4.125 million. Credit Suisse and Katz also consented to censures and the entry of cease-and-desist orders from committing or causing further violations of these provisions.

If you are an individual or institutional investor who has any concerns about your investments with Credit Suisse Securities (USA) LLC, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

We are investigating investor concerns about various investments made in the securities of Giant Gray, Inc. f/k/a Behavioral Recognition Systems, Inc. (BRS Labs). Specifically, we are investigating cases where financial advisors and brokerage firms improperly recommended their investors purchase securities in these companies that included promissory notes, warrants, and common stock. If you had a financial advisor or broker recommend the purchase of any of these securities to you, please contact our office as soon as possible.

If you are an individual or institutional investor who has any concerns about your investments in the securities of Giant Gray, Inc. f/k/a Behavioral Recognition Systems, Inc. (BRS Labs), please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

As described in a recent article in The Wall Street Journal (“Are Taxes Lurking in Your Tax-Free Retirement Account”), many Americans are now receiving notices informing them that they owe additional taxes on their traditional individual retirement accounts (IRAs).

Although investors have been led to believe that their retirement accounts were normally tax-free, it is entirely possible to owe annual tax on a tax-deferred traditional IRA or tax-free Roth IRA, even allowed investments.

“Taxpayers should beware that as IRAs grow in size, so does the potential for taxes on these accounts if they have investments in alternative assets such as hedge funds, private-equity funds, limited partnerships, operating businesses and real estate.”

The reason why there are taxes on an apparently tax-free account is that these accounts must pay income tax on the “Unrelated Business Taxable Income,” or UBTI, which can often arise when an IRA invests in operating businesses that pass profits and losses directly to the owners, such as partnerships, master limited partnerships and limited-liability companies.

As more IRA owners look to invest in alternative assets for accounts large and small, here’s what the WSJ advises investors to know – and document – before they invest their funds:

Ask before you invest. The time to find out about UBTI is up front. In general, a risk exists for investments that report results to the Internal Revenue Service on a Schedule K as many publicly traded partnerships do – especially when units are sold.

Understand the tax bite. Because UBTI is taxed at trust rates, the top rate of 39.6% kicks in quickly—at $12,500 of income in 2017. However, each IRA gets a UBTI exemption of $1,000. So if a saver has three traditional IRAs and a Roth IRA, he gets four exemptions. If there is tax, be sure it is paid with IRA assets. If the account owner pays with outside funds, the entire IRA could become taxable.

Find out who files. Tax on UBTI doesn’t go on the IRA owner’s individual return. Instead, the IRA must apply for its own taxpayer ID number, file a Form 990-T with the IRS, and pay the tax. There may also be state income tax implications, such as additional taxes owed, and required filings for each state in which the investment entity conducts its operations.

If you are an individual or institutional investor who has any concerns about your retirement account investments, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

Steven B. Caruso, the Resident Partner in the New York City office of Maddox Hargett & Caruso, P.C., has been invited to participate as a speaker at the 2017 “Hot Topics in Securities Arbitration” program that will be offered by the Association of the Bar of the City of New York on May 12, 2017.

During the program, the faculty of experienced practitioners, including the Director of FINRA Dispute Resolution, will discuss the status of FINRA Task Force Recommendations and explore rule changes, decisions, and future developments. This program will offer attendees practical suggestions and tested advice on prosecuting and defending securities arbitrations and mediations.

For more information and to register for the program please visit:
https://services.nycbar.org/iMIS/Events/Event_Display.aspx?EventKey=SAM051217&WebsiteKey=f71e12f3-524e-4f8c-a5f7-0d16ce7b3314

Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle SEC charges that the firm made unsuitable recommendations about single inverse exchange traded fund (“ ETF”)  investments to its advisory clients.  According to the SEC:

1.Morgan Stanley apparently failed to ensure that clients understood the risks involved with purchasing inverse ETFs.

2.Morgan Stanley never obtained a signed client disclosure notice from several hundred clients.    That notice stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy.

3.Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, where the securities were held long-term – leading to losses for many of the clients.

4.Morgan Stanley apparently failed to follow through having a supervisor conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.

5.Morgan Stanley did not monitor the single-inverse ETF positions on an ongoing basis
organ Stanley did not monitor the single-inverse ETF positions on an ongoing basis.

6.Finally, Morgan Stanley did not ensure that certain financial advisers completed single inverse ETF training.

Our firm is investigating investor claims relating to Morgan Stanley single inverse ETFs. We provide free initial evaluations as to whether an individual or institutional investor might have a good claim for these investments.

One of the most common investments sold by financial advisors to investors is the Variable Annuity (VA). These products are often sold because they pay among the highest commissions to the advisor. In recent years, we have seen many cases involving guaranteed income riders to these variable annuities. Many of these riders provided guaranteed income or growth to the investment and are usually the most important reason the VA is sold in the first place. Problems sometimes arise with these riders when investors take withdrawals from their VAs that exceed the amounts permitted by them. When this happens, the guarantees can be either lost forever or capped at the time of the withdrawal, preventing further growth.

A common scenario involves an investor needing some cash to address an important need. Perhaps a new house is being purchased, a wedding needs to be funded, or a dream vacation is booked. When the investor discusses this cash need with his/her advisor, there is no discussion about how a withdrawal from the VA would impact the guaranteed income rider, so the advisor recommends that the amount be withdrawn for the VA, even when other sources are available. Once this error is later discovered by the investor, the only option is usually to file a FINRA arbitration against the advisor and his brokerage firm for not disclosing the risks of this withdrawal and causing the future losses to income.

If you are an individual or institutional investor who has a concern about a Variable Annuity or a VA rider, please feel free to contact us for a free initial evaluation. You may have a good claim for a FINRA arbitration to recover your losses.

On January 3, 2017, Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that former Morgan Stanley financial advisor Barry Connell had been arrested and charged with wire fraud and aggravated identity theft for allegedly using his position as a financial adviser at Morgan Stanley to defraud multiple clients out of at least $5 million over a one-year period. (“Former Financial Adviser At Global Bank Charged In Manhattan Federal Court With Multimillon-Dollar Scheme To Defraud Clients”).

According to the press release that announced the indictment and arrest of financial advisor Connell, “as alleged, Barry Connell used his clients’ bank accounts as his own, siphoning off millions of dollars to pay for his extravagant lifestyle, including a country club membership and private jet expenses.”

According to the allegations in the indictment that was unsealed in the Manhattan federal court, from December 2015 to November 2016, Mr. Connell effected numerous unauthorized transactions from five accounts belonging to a single family of Morgan Stanley clients, and as a result, defrauded the clients of at least approximately $5 million.

It is alleged that, in some instances, Mr. Connell effected the fraudulent transactions by submitting Morgan Stanley forms falsely stating that he had received client instructions authorizing wire transfers to third parties for the client’s benefit, when in fact he had not received client authorization and the wire transfers were for financial advisor Connell’s own benefit. In other instances, Mr. Connell effected the fraudulent transactions by using one client’s checks, which had been intended only to pay the client’s bills, to instead pay for his own expenses including a year’s rent for a house near Las Vegas, country club membership fees, and private jet expenses.

Financial advisor Connell also allegedly paid bills for a credit card account in his spouse’s name, and made payments for his own benefit to automobile dealerships, an entertainment company, and a yacht company. Financial advisor Connell’s registration records indicate that, at the time of the events in question, he had been associated with the Morgan Stanley branch office located in Ridgewood, New Jersey.

Copies of both the U.S. Department of Justice press release and the indictment of financial advisor Connell can be found at: https://www.justice.gov/usao-sdny/pr/former-financial-adviser-global-bank-charged-manhattan-federal-court-multimillon-dollar.

If you are an individual or institutional investor who has any concerns about your investments with financial advisor Barry Connell or Morgan Stanley, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

As was recently reported on January 24, 2017 by industry publication AdvisorHub (“Morgan Stanley Boots $6 Million New York City Producer”), Morgan Stanley Wealth Management has fired “three brokers on a high-producing New York City team” that conducted business as PC Wealth Management.

Michael F. Paesano, who joined Morgan Stanley in 2011 and had previously been associated with UBS Financial for a number of years, was “discharged” on December 21, 2016 in connection with “allegations relating to employee’s exercise of discretion and investment strategy.” According to his FINRA BrokerCheck report, financial advisor Paesano has been the subject of fifteen (15) customer complaints and, in September of 2016, the Internal Revenue Service filed a tax lien against him for the reported amount of $142,956.

The two (2) other brokers who were terminated by Morgan Stanley – Jeffrey Cadan and Richard Perkins – were also reportedly terminated in December 2016 in connection with the same “allegations relating to employee’s exercise of discretion and investment strategy.”

According to his FINRA BrokerCheck report, financial advisor Cadan has been the subject of eleven (11) customer complaints and, in November of 2012, he filed a petition for relief under Chapter 7 of the United States Bankruptcy Code.

If you are an individual or institutional investor who has any concerns about your investments with Morgan Stanley, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

As reported by Gretchen Morgenson in The New York Times on January 13, 2017 (“S.E.C. Inertia on Paybacks Adds to Investor Harm”), when securities laws are broken and investors get hurt, the U.S. Securities & Exchange Commission is charged with the responsibility to ride to the rescue, using its regulatory muscle to extract penalties that can be returned to victims.

Unfortunately, it is one thing to persuade a wrongdoer to pay reparations and quite another to get the SEC to disburse the money to aggrieved investors.

Case in point: in August 2015, when the S.E.C. struck a settlement with Citigroup over an exotic investment strategy known as ASTA, MAT and Falcon, an investment strategy involving municipal bonds that the bank sold to clients from 2002 to 2008, the SEC fined Citigroup approximately $180 million and ordered the creation of a so-called “fair fund” to be distributed to investors.
That was over 16 months ago. Today, the wronged investors are not only still awaiting their money, but they have yet to see any plan outlining how the $180 million will be distributed.

Fair funds were established by the Sarbanes-Oxley Act of 2002; they allow the S.E.C. to exact civil penalties in addition to recovering ill-gotten gains, a process known as disgorgement.

But as noted in the article, “the pace of the Citigroup restitution plan seems especially glacial. And it raises questions about how these plans are administered and whether those overseeing them are rewarded for slowing down the process.”
The New York Times article includes extensive quotes from the Resident Partner in the New York City office of our firm: “To me, it comes down to a bureaucratic quagmire of indifference and concealment,’ said Steven B. Caruso, a lawyer at Maddox Hargett & Caruso in New York City. There is simply no transparency in this process, and no effort being made by the S.E.C. to recognize that these are funds that belong to other people.”

Maddox Hargett & Caruso, P.C. represented hundreds of investors who had been deceived in connection with their ASTA, MAT and Falcon investments and, in 2011, it served as co-counsel in connection with an arbitration award that forced Citigroup to pay nearly $54 million (including $17 million of punitive damages) to two (2) individuals – an award that still stands as one of the largest arbitration recoveries ever obtained on behalf of retail investors in the history of the Financial Industry Regulatory Authority (“FINRA”).

The complete New York Times article can be accessed at: https://www.nytimes.com/2017/01/13/ business/fair-game-gretchen-morgenson-investors-regulators-.html?ref=business.

If you are an individual or institutional investor who has any concerns about your investments with any brokerage firm or investment advisor, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).