This past May, 2016, Breitburn Energy Partners LP filed for chapter 11 bankruptcy protection, another casualty of plunging oil prices. Many investors were sold this investment by their brokerage firms and financial advisors who failed to properly disclose all the risks associated with an investment in this risky energy company. Our firm is investigating cases against brokerage firms where investors were improperly sold this investment. Please contact us if you were an investor in Breitburn Energy Partners LP and have any questions about how this investment was sold to you.

On September 28, 2016, the U.S. Securities & Exchange Commission announced that it had imposed severe monetary penalties on UBS Financial Services in connection with the firm’s activities involving nearly $10.7 billion of stock-linked reverse convertible notes (“RCNs”) that had been sold to approximately 44,000 customer accounts between 2011 and 2014. (“In the Matter of UBS Financial Services Inc., Exchange Act Release No. 34-78958”)

The penalties, which included more than $9 million in disgorgement and a civil penalty of $6 million, were based on UBS having failed to develop and implement policies and procedures reasonably designed to educate and train its registered representatives in connection with RCNs so that they could adequately understand the risks and rewards of the product and could form a reasonable basis to make suitable recommendations to their customers.

Without adequate education and training, certain registered representatives made unsuitable recommendations in relation to the offer and sale of approximately 2,500 different RCNs to certain customers – many of whom had little or no relevant investing experience and had identified to UBS modest reported income and net worth, primarily moderate or conservative investment objectives, and some of whom were retired.

RCNs are a type of structured product issued by a financial institution as an unsecured debt obligation that is linked to the performance of an underlying single stock. RCNs are structured to pay a higher interest rate than conventional debt of the same issuer because of the inclusion of the embedded derivative that provides essentially a synthetic put on the underlying stock.

The UBS single stock-linked RCNs at issue in the SEC enforcement action involved certain complex structures, including: (1) Trigger Yield Optimization Notes; (2) Trigger Autocall Optimization Securities; (3) Trigger Phoenix Autocall Optimization Securities; (4) Airbag
Yield Optimization Notes; and (5) Airbag Autocallable Yield Optimization Notes.

As noted in the SEC’s Enforcement Order, “UBS’s internal education and training primarily focused on describing the payouts for the various products and . . . it did not provide adequate training on certain important aspects of RCNs. For example, although the Structured Solutions Desk provided potential issuers with information regarding the RCN option features from the ‘investor’s perspective,’ internal educational materials lacked similar information. In addition, UBS’s internal educational materials did not describe sufficiently the role of implied volatility and the potential for breach in the selection of the equity securities underlying the RCNs. As a result, UBS registered representatives were not adequately educated and trained to understand adequately the risk and characteristics of the product, including relevant volatility concepts and the role that volatility played in the selection of the equity securities underlying the RCNs.”

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with UBS Financial Services Inc., 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).

Aware of this issue for many years, FINRA has made little progress in finding a way to ensure investors get what they are owed. Back in 2000, a report was issued by the U.S. Government Accountability Office that stated, the industry needed to address the problem of unpaid arbitration awards. With the decline of the broker dealer industry and many firms shutting down the last few years, this issue on unpaid awards to investors is more demanding.

Some experts believe the solution is requiring firms to carry insurance to cover the payment of arbitration awards, but broker dealers who have carried insurance for these investor claims, have proven to be limiting resulting in low payouts or the specific types of claims not being covered.

With new FINRA CEO, Robert Cook, it is being suggested he start off his new role fixing this issue and making his mark for retail investors. The latest industry talk is the idea of establishing a fund for investors of unpaid arbitration awards, but with the long history of no solutions for this growing problem who knows what will happen.

An article this week in The Wall Street Journal (“Federal Prosecutors Investigating Wells Fargo Over Sales Tactics”) stated that federal prosecutors are in the early stages of an investigation into sales practices at Wells Fargo & Co. – the same sales practices that led to Wells Fargo being slammed with a $185 million fine last week in an enforcement action that was filed by the Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and Los Angeles City Attorney.

The investigation, which is reportedly being conducted by the U.S. Attorney’s Offices for the Southern District of New York and the Northern District of California, could potentially lead to civil or criminal charges being filed against Wells Fargo and/or its executives.

At the center of this new federal investigation are the same allegations that led to last week’s enforcement action which asserted that Wells Fargo had engaged in “widespread illegal” activity which included employees having falsified documents in connection with as many as 2 million accounts having been opened without customers’ knowledge, consent or permission.

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with Wells Fargo, 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).

The Financial Industry Regulatory Authority (“FINRA”) has launched an examination sweep of non-traded business development companies (“BDCs”), the latest alternative investment product to receive increased scrutiny from the broker-dealer regulator.

An examination letter, posted on FINRA’s website on August 4, 2016, stated that “FINRA is conducting an inquiry with respect to non-traded Business Development Companies (BDCs)” and it requests that brokerage firms provide documents and information to the regulator “by no later than September 9, 2016.”

Non-traded BDCs are investment vehicles that typically make loans to small and medium-size companies with less than stellar credit. They reportedly attracted $22 billion from investors over the past several years, as interest rates near zero sent investors in search of higher yields.

Many of the brokerage firms that are selling non-traded BDCs to their retail clients had previously been involved with the marketing of non-traded Real Estate Investment Trusts (“REITS”) – another high commission alternative product with a questionable track record and limited liquidity.

Among the documents and information that brokerage firms have to provide to FINRA in response to this examination sweep are “the firm’s due diligence procedures and, if not already included in the due diligence procedures, a written description of the due diligence that the firm conducts of the BDC initially and on an ongoing basis as well as a written description of the due diligence that the firm conducts of participating broker-dealers with which the firm has a selling agreement.”

An article in the Investment News (“FINRA Launches Exam Sweep of Business Development Companies”), quoting a high-ranking FINRA official, indicates that “the regulator is targeting the increasingly popular BDCs to assess how they’re marketed and sold” and that “given the complexity and high-risk nature of this product, there is concern that retail customers may not fully understand the risks and the potential impact on their portfolios” of this investment product.

A copy of the firm’s due diligence procedures and, if not already included in the due diligence procedures, a written description of the due diligence that the firm conducts of the BDC initially and on an ongoing basis as well as a written description of the due diligence that the firm conducts of participating broker-dealers with which the firm has a selling agreement.

If you are an individual or institutional investor who has any concerns about your investment in any Business Development Company investment, 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).

Merrill Lynch underwrites, manages and markets the sale of Market-Linked Notes issued by its parent company, Bank of America Corporation, and numerous other unaffiliated banks.

Market-Linked Notes were purportedly recommended by Merrill Lynch financial advisors to customers as a stable source of income. Many investors did not adequately understand or comprehend the extreme risks associated with Market-Linked Notes or how they worked. In many instances, Market-Linked Note investments tracked oil prices, energy pipelines, or commodity baskets and have resulted in significant investor losses.

How do Market-Linked Notes Work?

Merrill Lynch managed Market-Linked Notes to generate greater returns through the use of embedded derivatives designed to track the performance of volatile securities, indices, commodities or currencies. In many instances Market-Linked Notes offered little if any principal protection. Merrill Lynch financial advisors purportedly recommended and/or solicited investments based on the potential returns without properly disclosing the risks associated with Market-Linked Notes.

Merrill Lynch purportedly provides incentives to its financial advisors for the sale of proprietary products, such as Market-Linked Notes issued by affiliated banks. Market-Linked Notes may have substantial fees and/or commissions paid to affiliated companies for banking, underwriting and asset management. Merrill Lynch may have failed to properly explain the risks associated with Market-Linked Notes to investors whose performance and interest crediting is tied to specific securities, commodities, indices or currencies, sometimes with leverage up to 200%.

In June 2016, Merrill Lynch agreed to pay a $10 million penalty to the U.S. Securities & Exchange Commission to settle charges that it was responsible for misleading statements in offering materials provided to retail investors for structured notes linked to a proprietary volatility index.

In June 2012, the Financial Industry Regulatory Authority (FINRA) censured and fined Merrill Lynch $450,000 for sales practice violations related to the sale of Structured Securities Products, referred to as Market-Linked Notes. According to FINRA’s findings in the Letter of Acceptance Wavier and Consent, more than 50% of the 650,000 Structured Securities Product transactions were issued by the parent of Merrill Lynch. FINRA regulators found that there was inadequate supervision of customer accounts to determine whether there were unsuitable levels of concentration in Market-Linked Notes.

Merrill Lynch has underwritten, managed and marketed to its customers billions of dollars in Market-Linked Notes including, for example, the following:

Bank of America – Autocallable Market-Linked Step Up Notes Linked to the S&P Oil & Gas Exploration and Production Select Industry Index Bank of America – Strategic Return Notes
Bank of America – Accelerated Return Notes® Linked to the Merrill Lynch Commodity Index eXtra Precious Metals Plus – Excess Return
Credit Suisse – Accelerated Return Notes®
HSBC USA – Market Index Target Term Securities®
HSBC USA – Capped Leveraged Index Return Notes®

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with Merrill Lynch & Co., Inc., 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).

A recent article in The Wall Street Journal (“SEC Readies Case Against Merrill Lynch Over Notes That Lost 95%”) stated that the Securities and Exchange Commission is preparing a civil enforcement case against Merrill Lynch over a structured note investment that fell as much as 95% in value and was marketed in a way that one of the firm’s financial advisers called “borderline crooked.”

“The probe involves a product called Strategic Return Notes that Merrill sold over a number of months in 2010, raising about $150 million. Linked to a Merrill Lynch index tracking the volatility of the S&P 500 stock index, the five-year notes lost value rapidly after they were issued, as market volatility fell and the cost of buying the options upon which the notes were based rose sharply.”

Structured notes are extremely complex securities that are custom-built by banks out of options and other derivatives and are often sold to retail investors.

Wall Street investment banks sell an estimated $40 billion to $50 billion of structured notes each year and they rank among the most common types of securities in arbitration claims filed with the Financial Industry Regulatory Authority (FINRA).

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with Merrill Lynch & Co., Inc., 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).

Oppenheimer & Co., one of the most sanctioned and criticized brokerage firms on Wall Street, has been once again the subject of a massive regulatory fine (“FINRA Sanctions Oppenheimer & Co. $2.9 Million for Unsuitable Sales of Non-Traditional ETFs and Related Supervisory Failures”) according to a release issued by the Financial Regulatory Authority, Inc. (“FINRA”) on June 8, 2016.

This latest enforcement proceeding was the result of Oppenheimer having sold “leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs) to retail customers without reasonable supervision, and for recommending non-traditional ETFs that were not suitable.”

According to the FINRA release, notwithstanding the fact that “Oppenheimer’s procedures prohibited solicitation of non-traditional ETFs,” between August 2009 and September 30, 2013, “more than 760 Oppenheimer representatives executed more than 30,000 non-traditional ETF transactions totaling approximately $1.7 billion for customers.”

FINRA also found that “Oppenheimer failed to conduct adequate due diligence regarding the risks and features of non-traditional ETFs and, as a result, did not have a reasonable basis to recommend these ETFs to retail customers. Similarly, Oppenheimer representatives solicited and effected non-traditional ETF purchases that were unsuitable for specific customers.”

A complete copy of this latest regulatory enforcement proceeding can be accessed through the FINRA website at http://disciplinaryactions.finra.org/Search/ViewDocument/66217.

Moreover, a cursory review of the FINRA BrokerCheck report for Oppenheimer & Co. indicates that the firm has now been the subject of at least 83 regulatory enforcement proceedings and hundreds of customer-initiated arbitration proceedings.

Of equal and perhaps greater importance, a recent academic study (“The Market for Financial Adviser Misconduct”) found that more than one in seven financial advisers at Oppenheimer & Co. “have engaged in misconduct in their past” and that “almost one in five financial advisers at Oppenheimer & Co. have been disciplined for misconduct in the past.”

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with Oppenheimer & Co., 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).

Attorney Mark Maddox wrote an article for the Indianapolis Business Journal this past week on the topic of protecting our retirement accounts.

Here is a link to the article:

http://www.ibj.com/articles/58208-maddox-lets-better-protect-our-retirement-accounts

One of the hottest investment products being pitched by Wall Street, in the low interest environment that has persisted over the past few years, has been Energy Master Limited Partnerships (“MLPs”) – an investment product with above average yields and, all too often, above average commissions for the financial advisors who have touted them.

Unfortunately, for many investors, one of the material facts associated with MLPs, that never seems to have been included in the sales presentations of their financial advisors, is the fact that tax-exempt accounts, such as IRAs and employee benefit plans, may incur substantial income tax liabilities if they own a MLP.

There is a concept in the tax code (I.R.C. §§511-514) called “unrelated business income tax” (“UBIT”). Under the UBIT rules, tax-exempt organizations and retirement accounts must pay tax on their “unrelated business taxable income” (UBTI) – income from a business that is not related to their exempt purpose.

If your IRA invests in an MLP, it becomes a limited partner in that MLP, just as you would if you invested directly. Because an MLP, like all partnerships, is a pass-through entity (no tax paid by the partnership, all tax items flow through to the limited partners/shareholders, who pay tax on their share), the partners are treated by the tax code as if they are directly earning the MLP’s income. Thus, as a partner in the MLP, the IRA or other account is considered to be “earning” its share of the MLP’s business income. The MLP’s business is not related to the retirement account’s tax-exempt purpose; therefore the IRA’s share of the MLP’s income is treated as UBTI and is taxed accordingly.

The latest U.S. Securities & Exchange Commission filings by a number of energy-related MLPs provide a clear example of the undisclosed income tax ramifications that could potentially impact investors in these products.

A case in point is clearly illustrated, for example, by the specific risk factor disclosure that was contained within the annual report (“Form 10-K”) that was filed by Energy Transfer Partners, L.P. (NYSE:ETP) on February 29, 2016 for its fiscal year that ended on December 31, 2015:

Tax-exempt entities and non-U.S. persons face unique tax issues from owning Common Units that may result in adverse tax consequences to them.

“Investment in Common Units by tax-exempt entities, including employee benefit plans and individual retirement accounts (known as IRAs) and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to Unit holders who are organizations exempt from federal income tax, including IRAs and other retirement plans, will be ‘unrelated business taxable income’ and will be taxable to them . . . If you are a tax exempt entity or non-U.S. person, you should consult your tax advisor before investing in our common units.”

Another clear illustration is the specific risk factor disclosure that was contained within the annual report (“Form 10-K”) that was filed by Plains All American Pipeline L.P. (NYSE:PAA) on February 25, 2016 for its fiscal year that ended on December 31, 2015:

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

“Investment in common units by tax-exempt entities, such as employee benefit plans and IRAs, and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them . . . Tax-exempt entities and non-U.S. persons should consult their tax advisor before investing in our common units.”

Finally there is the specific risk factor disclosure that was contained within the annual report (“Form 10-K”) that was filed by Buckeye Partners L.P. (NYSE:BPP) on February 25, 2016 for its fiscal year that ended on December 31, 2015:

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our LP Units that may result in adverse tax consequences to them.

“Investment in LP Units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (“IRAs”), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them . . . If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before investing in our LP Units.”

The common theme that emerges from all of these risk disclosures – investors in MLPs who hold these products in their retirement accounts or other tax-exempt accounts may owe taxes, in some instances substantial taxes, on the “unrelated business income” that is allocated to their holdings.

If you are an individual or institutional investor who has any concerns about your investment in any Master Limited Partnership investment, 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).