SEC Lawyers Blog

LPL Financial LLP ("LPL") will pay $9 million following a FINRA investigation of LPL's email system. Of that, $7.5 million will be paid as a fine for "35 separate, significant email system failures which prevented LPL from accessing hundreds of millions of emails and reviewing tens of millions of other emails," according to FINRA. FINRA also found that LPL made "material misstatements" to FINRA during its investigation of LPL's email handling. FINRA further ordered LPL to pay $1.5 million to establish a fund to compensate brokerage customer claimant who may have been affected by LPL's failure to produce email.

"This is the largest fine Finra has imposed for an e-mail case," said FINRA spokeswoman Michelle Ong.

In its investigation, FINRA found that from 2007 to 2013, LPL's email review and retention systems failed at least 35 times, which meant that LPL was unable to meet its obligations to capture email, supervise representatives and respond to regulatory requests. Some examples of LPL's 35 email failures include:

• Over a four-year period, LPL failed to supervise 28 million "doing business as" (DBA) emails sent and received by thousands of representatives who were operating as independent contractors.

• LPL failed to maintain access to hundreds of millions of emails during a transition to a less expensive email archive, and 80 million of those emails became corrupted.

• For seven years, LPL failed to keep and review 3.5 million Bloomberg messages.

• LPL failed to archive emails sent to customers through third-party email-based advertising platforms.

Continue reading "LPL Financial to Pay $9 Million for Systemic Email Failures and Misstatements to FINRA" »

Sonn|Erez is investigating claims against Greg John Campbell (CRD #4732999, Registered Representative, Ladue, Missouri), who has been barred from association with any FINRA member in any capacity following misappropriation of customer funds. See FINRA Case #2012034193201. Campbell most recently was registered with LPL Financial, LLC, and previously was registered with Merrill Lynch, Pierce, Fenner & Smith, Inc. Pursuant to FINRA Rules, LPL Financial and Merrill Lynch were responsible for properly supervising Campbell's activities during the time Campell was registered with the firm. Therefore, LPL Financial and/or Merrill Lynch may be liable for investment or other losses suffered by Campbell's customers.

Without admitting or denying the findings, Campbell consented to FINRA sanctions and to the entry of findings that he misappropriated more than $1.7 million from his customers at his member firm, converted more than $1.35 million for his personal use and made unauthorized transfers of approximately $390,000 between customers' accounts. The findings stated that Campbell misappropriated funds by establishing a Loan Management Account (LMA) in a customer's name, in most instances without the customer's knowledge or consent. An LMA operated as a line of credit through which a customer could obtain loans collateralized by securities held in the customer's advisory account. Campbell then effected wire transfers directly from the customer's LMA to various third-party accounts servicing his personal debt, including a mortgage, an auto loan and a home-equity line of credit. In some instances, Campbell replaced converted funds by transferring funds between customers' accounts without their consent. Campbell effected the wire transfers by creating falsified letters of authorization on which he forged customers' signatures. To avoid detection, Campbell had customers' account statements delivered "care of" other, unrelated customers.

Continue reading "Sonn|Erez Investigating Claims Against Greg John Campbell (Ladue, Missouri) For Investment Losses and Other Mishandling of Client Funds" »

Sonn|Erez is litigating several claims against NFP Securities, Inc., for investor losses in the Hennessey Financial Monthly Income Fund, LP, also known as the True North Fund and the Capital Solutions Monthly Income Fund, LP ("Hennessey Fund"). Represented to investors as offering a 12% annual return, the Hennessey Fund was a high risk and unsuitable unregistered hedge fund that was involved in risky real estate loans. When the underlying real estate investments went sour, the Hennessey Fund became nothing more than a Ponzi scheme, whereby old investors in the Hennessey Fund were being paid by new investors, as charged by the SEC.

NFP Securities brought in the majority of the investors for the Hennessey Fund. Sonn|Erez has filed multiple claims on behalf of investors who purchased the Hennessey Fund at the recommendation of NFP Securities' brokers Andrew Rosenberg and Stuart Horowitz of Andrew Stuart Asset Management, located in Coral Springs, Florida. SEC litigation has revealed that other investors purchased the Hennessey Fund from financial professionals, including Charley Thompson, Jeffrey Gardner, Daryl Calton of Calton & Associates, David Dyer of Alliance Affiliated Equities, Luke Westerman, David Moore, Jay Edwards of NFP Securities, William Prewitt of Charleston Financial Advisors, LLC, and Daniel Lodes of JW Cole. Investors also have alleged that they purchased the Hennessy Fund after learning about it from Mark Williams, a family accountant, as well as Timothy Redpath of Capital Solutions and Michael Bozora, both of whom are defendants in the SEC litigation.

Continue reading "Sonn|Erez Pursuing Claims for Investor Losses in Hennessey Financial Monthly Income Fund, LP, Also Known as True North Fund and Capital Solutions Monthly Income Fund, LP" »

The SEC and FINRA recently issued an Investor Alert regarding buying or selling pension or structured settlement income streams. A structured settlement typically represents a stream of payments stemming from the resolution of litigation, such as personal injury lawsuit. Pensions also provide a defined-benefit income stream, which is intended to compensate an employee during retirement. These income streams are valuable assets, and factoring companies target recipients of these income streams to accept an immediate lump sum payment in exchange for the rights to receive some or all of the payments that the recipient of the income stream would receive in the future. Recipients of a pension or structured settlement income streams may be interested in selling their future rights in exchange for an immediate lump sum payment, particularly when faced with significant current expenses. Conversely, buying the rights to someone's future income stream may be attractive to investors who wish to avoid stock market volatility, particularly given the current low interest-rate environment.

For recipients of an income stream, the lump sum payment almost always will be significantly lower than the present value of the future income stream from the pension or structured settlement. The Investor Alert contains a checklist of questions to consider before selling away an income stream:

• Is the transaction legal? Federal law may restrict or prohibit retirees from "assigning" their pension to someone else.

• Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream and compare this rate to alternatives such as a bank loan.

• What is the reputation of the company offering the lump sum? Check the factoring company's record with the Better Business Bureau, and research the firm on the Internet and with a financial professional.

• Will the factoring company require life insurance? The factoring company may require you to purchase a life insurance policy, which will add to your transaction expenses and reduce your payout.

• What are the tax consequences? The lump-sum payment you collect may be taxable.

• Does the sale fit your longer-term financial goals? Consider how to replace the lost future income stream, as well as whether you are getting the best deal for selling your future income stream.

Continue reading "FINRA Cautions Investors About Pitfalls of Buying and Selling Pension or Structured Settlement Income Streams" »

Sonn|Erez is investigating claims against Success Trade Securities, Inc., Fuad Ahmed, and Jinesh Pravin Brahmbatt on behalf of individuals who invested in promissory notes issued by Success Trade, Inc. ("STI"), the firm's parent company, and CFP Group, Inc. The promissory notes were unregistered securities sold in violation of the Securities Act and SEC Regulations. The STI promissory notes were part of a large Ponzi scheme orchestrated by Success Trade, Ahmed and Brahmbhatt , according to FINRA. The CFP promissory notes also may be part of a Ponzi scheme, and it is doubtful that CFP Group ever had sufficient finances to pay back the promissory notes it issued. As a result, the promissory notes sold by Success Trade are worthless.

Success Trade, through its brokers, particularly Brahmbhatt, sold $18 million in STI promissory notes to investors, most of whom were current or former NFL and NBA players. Success Trade brokers sold a total of 104 STI promissory notes to 58 investors. Success Trade's brokers also were employees or affiliated with Jade PWM, the investment advisory firm owned by Brahmbhatt.

Sonn|Erez and co-counsel Aaron Resnick, Esq., are representing Jared Odrick, who purchased promissory notes issued by STI and CFP Group, in a claim filed against Success Trade, Ahmed, and Brahmbatt. In late 2011, Odrick was searching for a new financial advisor and was introduced to Brahmbhatt. Brahmbhatt represented that he was a financial advisor for many NFL football players, and that he could invest a player's funds in safe investments which generated a consistent income stream. Prior to doing business with Brahmbhatt, Odrick confirmed that Brahmbhatt was approved by the NFL Players Association as a financial advisory. The NFL provides a background check and verification of insurance for NFL players at their request, before any advisor can be on the NFLPA approved financial advisor list.

Continue reading "Sonn|Erez Pursuing Claims Against Success Trade Securities, Inc., Fuad Ahmed, and Jinesh Pravin Brahmbatt For Sale of Unregistered Securities to NFL Players " »

The Financial Industry Regulatory Authority Inc., has issued a Notice to Members, in which it reminds brokerage firms of their obligations to investors when communication about nontraded real estate investment trusts. FINRA Rule 2210 requires that a firm's communications be fair, balanced and not misleading. According to the Notice, however "[r]ecent reviews by FINRA of communications with the public regarding real estate programs have revealed deficiencies." Materials distributed by firms may contain misleading and inaccurate statements regarding the risks and benefits of illiquid real estate investments.

The Notice discusses what would be considered a balanced presentation of risks and benefits with respect to distribution rates, stability/volatility, redemption features and liquidity events, performance of prior related real estate events, use of indices and comparisons, pictures of specific properties, and capitalization rates.

Continue reading "FINRA Reminds Brokerage Firms That Communications Regarding Nontraded Real Estate Investment Trusts Must Be Fair and Balanced" »

Sonn|Erez is pursuing FINRA arbitration claims against NFP Securities, Inc., on behalf of investors who made investments through Andrew Stuart Asset Management, located in Coral Springs, Florida, by two stockbrokers registered with NFP Securities, Inc. The two stockbrokers, Andrew Rosenberg ("Rosenberg") and Stuart Horowitz ("Horowitz"), recommended illiquid real estate investments including Warsowe Acquisition Corp. Debentures, Hennessey Financial Monthly Income Fund, LP a/k/a Capital Solutions, Inland American Real Estate Trust, GK Properties Fund III, and KBS REIT 1.

In a recently filed FINRA arbitration claim, a chemical engineer and his wife invested more than $300,000 of their irreplaceable retirement funds in the Warsowe Acquisition Corp. Debentures, Hennessey Financial Monthly Income Fund, LP a/k/a Capital Solutions, Inland American Real Estate Trust, GK Properties Fund III, and KBS REIT 1. The couple was just a few years shy of retirement, and these investments represented nearly all of their irreplaceable retirement savings. The couple told Rosenberg and Horowitz that they wanted their retirement savings to be invested primarily in conservative investments. Like many retirees, the couple had no interest in high risk or speculative investments. Nevertheless, the NFP Securities stockbrokers implemented a high risk and unsuitable strategy of investing the couple's retirement savings in illiquid real estate investments. This reckless strategy concentrated their funds in a single sector on the verge of implosion with devastating results.

Continue reading "Sonn|Erez Pursuing Claims Against NFP Securities, Inc., For Investments Sold Through Andrew Stuart Asset Management" »

Sonn|Erez is investigating claims for investor losses in the UBS Willow Fund, LLC, a closed-end investment fund sponsored and sold by UBS. The UBS Willow Fund specialized in distressed debt instruments, and had assets of almost $500 million in 2006. In the first three quarters of 2012, however, the UBS Willow Fund lost almost 80% of it value, and then in October 2012 announced that it would be liquidated. Investors in the UBS Willow Fund are likely to receive pennies on the dollar for their investment.

The UBS Willow Fund began to experience dramatic losses after its longtime manager switched the Fund's focus from corporate debt to derivative trades, as described in a recent New York Times article. As shown by the Fund's SEC filings, the Fund returned almost 25 percent on a portfolio of corporate bonds, bank loans and corporate repurchase agreements, a financing arrangement. Credit default swaps amounted to a mere 0.18 percent of the 2006 portfolio. Thereafter, however, credit default swaps grew exponentially to 2.6% in 2007, 24.97% in 2008, and 42.86% in 2009. At the same time, the Fund's losses also grew, and by 2009, the Fund had $106 million in unrealized losses on credit default swaps.

Continue reading "Sonn|Erez Pursuing Claims for Investor Losses in UBS Willow Fund, LLC" »

The time is ripe for Apple REIT investors to strongly consider filing individual arbitration claims. David Lerner Associates Inc. ("David Lerner Associates") recently won the dismissal of a lawsuit by investors who accused the brokerage firm of misrepresenting the value and returns of more than $6.8 billion worth of holdings in Apple REITs. The federal court found that the investors could not establish that they suffered a loss because the holdings continue to perform, and the possibility of changes in value, which occurred when the real estate market declined, was disclosed to investors. Although investors in the Apple REITs are appealing the lawsuit's dismissal, an appeal is time consuming, and there is no guarantee that the appellate court will reinstate the investors' claims. Further, while the appeal is pending, the clock is ticking, and an investor's claims can be time barred if the investor fails to act.

Class action lawsuits are court proceedings intended to recover damages for a group or "class" of investors who sustained losses from the same cause. For example, Apple REITs investors filed their lawsuit in 2011, and alleged that David Lerner Associates misrepresented the holdings as appropriate for conservative investors. The investors also claimed that the firm never disclosed that the REITs failed to generate enough income from their operations and that investors were being paid "with their own money."

Continue reading "Investors in Apple REITs Should Strongly Consider Individual Arbitration Claims Following Dismissal of Class Action Against David Lerner Associates, Inc." »

Paul Elvidge Jr. (CRD #1852650, Registered Principal) submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity and ordered to pay $620,177.90, plus interest, in restitution to customers. See FINRA Case #2012034412101. Elvidge was registered with FINRA at Cape Securities, Inc., and Seacoast Investor Services, Inc.

Without admitting or denying the findings, Elvidge consented to the described sanctions and to the entry of findings that he wrongfully and without authorization converted funds for his own use and benefit from his member firm's customer brokerage accounts by submitting wire transfer requests totaling $690,152.90 to the firm, ostensibly on the customers' behalf, but the funds were wired into the operating account for Elvidge's office. The findings stated that Elvidge admitted that he forged the customers' signatures on the wire transfer requests, and none of the customers were aware of or authorized the transfers. Once the funds were in Elvidge's operating account, the majority were transferred to a futures trading account Elvidge owned and controlled, where the funds were lost due to trading activity. The findings also stated that Elvidge repaid one customer.

Sonn|Erez is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 866-372-8311 or complete our "contact form."

Robert Keith Brooks aka Robert Keith Stuart (CRD #1571789, Registered Principal) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $7,500 and suspended from association with any FINRA member in any capacity for two months. The suspension is in effect from February 4, 2013, through April 3, 2013. See FINRA Case #2011030168001. Brooks currently is registered with FINRA at Freedom Investors Corp. Brooks previously was registered with FINRA at EZ Stocks, Inc., Richfield Orion International, Inc., and Source Capital Group, Inc.

Without admitting or denying the findings, Brooks consented to the described sanctions and to the entry of findings that he commingled his personal funds with investors' funds for an oil-and-gas offering he solicited through a private placement memorandum. Brooks ultimately raised $87,633.50, which he deposited into a bank account designated as an operating account for the oil-and-gas project. Brooks used the account to pay expenses related to the oil-and-gas project. During the same time period, Brooks deposited $8,912.50 of his personal funds into the bank account where the investors' funds were deposited, thus commingling the funds.

Sonn|Erez is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 866-372-8311 or complete our "contact form."

Jim Eugene Scala Jr. (CRD #2493873, Registered Representative) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for 15 business days. FINRA gave Scala credit for serving a suspension imposed by his member firm while it investigated his private securities transactions. The suspension was in effect from February 19, 2013, through March 11, 2013. See FINRA Case #2011025846001. Scala has been registered with Dalton Strategic Investment Services, Inc., since August 2010. Scala previously was registered with FINRA at Brookstone Securities, Inc., and GunnAllen Financial, Inc.

Without admitting or denying the findings, Scala consented to the described sanctions and to the entry of findings that he engaged in private securities transactions when he sold shares he owned in an alternative energy company to individuals that included customers of his firm. The findings stated that Scala was required to give his firm prior written notice and obtain prior written approval to sell his shares of the company and he failed to do so.

Sonn|Erez is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 866-372-8311 or complete our "contact form."

Tiffany Lea Chamberlain (CRD #4204733, Registered Principal) submitted an Offer of Settlement in which she was fined $7,500 and suspended from association with any FINRA member in any capacity for six months. The suspension is in effect from January 22, 2013, through July 21, 2013. See FINRA Case #2011026351101. Chamberlain was registered with FINRA at Morgan Keegan & Company, Inc., from August 2008 to February 2011.

Without admitting or denying the allegations, Chamberlain consented to the described sanctions and to the entry of findings that an affiliate bank of her member firm issued her a credit card to be used for legitimate business of the affiliate only, and was not to be used for personal charges under any circumstances. The findings stated that Chamberlain, on separate occasions, attested that she had read the affiliate's Code of Conduct, which stated that proper use of corporate assets is her responsibility and must not be used for personal use, and completed the affiliate's business ethics training, which required reviewing the Code of Conduct.

Continue reading "FINRA Fines, Suspends Tiffany Lea Chamberlain of Hollywood, Florida" »

Sonn|Erez has filed a claim against FSC Securities Corp. on behalf of an elderly couple whose broker, Richard Arzaga, recommended that they invest $100,000 in the Behringer Harvard Strategic Opportunity Fund 1, LP ("Behringer Harvard Fund"). Arzaga told the couple that the Fund was an excellent investment and that they would receive not only a good return on their investment, but also distributions as the Fund sold properties that it owned.

From the time the couple invested in the Behringer Harvard Fund through June 2012, they consistently were told that the value of their investment was $100,000. On August 22, 2012, however, Behringer Harvard announced that the Fund was underwater and that the units of the Fund owned by the couple were worthless. The couple's $100,000 investment is completely lost. Further, the couple received no dividends or other distributions from the Behringer Harvard Fund.

Arzaga worked at FSC Securities Corp.'s San Ramon, California office when he sold the investment to the couple, two risk averse, retired teachers. Arzaga held a series of seminars attended by the couple, and touted himself as a "Wealth Preservation Specialist" that provided "retirement planning" with an expertise in real estate investments. After leaving FSC Securities Corp., Arzaga worked at Associated Securities Corp., and now works at LPL Financial, LLP, both in San Ramon.

Continue reading "Sonn|Erez Pursuing Claims Against FSC Securities Corp. For Investment Losses in Behringer Harvard Strategic Opportunity Fund 1, LP" »

Glen Edward Smith Jr. (CRD #1023145, Registered Principal) submitted an Offer of Settlement in which he was barred from association with any FINRA member in any capacity. See FINRA Case #2011028081101. Smith was registered with FINRA at Capstone Partners, L.C., from April 1999 to March 2011.

Without admitting or denying the allegations, Smith consented to the described sanction and to the entry of findings that he failed to respond to FINRA requests to appear and testify regarding information needed regarding his disclosed outside business activity, and his involvement in its sale of the entity's collateralized notes. The findings stated that Smith's failure to respond impeded FINRA's investigation and prevented FINRA from completing its regulatory responsibility to fully investigate potential rule violations.

Sonn|Erez is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 866-372-8311 or complete our "contact form."