Greco & Greco's lawyers represent investors to recover losses caused by securities fraud, churning, lack of suitability, negligence, sales of unregistered securities, unauthorized trading, and other misconduct by stock brokers, investment advisors, financial planners and their firms.
Greco & Greco is currently investigating and filing FINRA arbitration claims for investors harmed by UBS’s Yield Enhancement Strategy. This strategy was marketed to UBS customers as a means to generate additional income on existing accounts with minimal risk. UBS claimed that the options program, which allegedly used an “Iron Condor” strategy, would a) generate cash flow from lower yielding assets, b) mitigate downside exposure and provide downside protection, c) provide income when markets were flat or trending lower, d) limit exposure to significant downward market movements, e) manage risk, and f) provide portfolio diversification.
These representations proved to be untrue with investors losing large amounts of money from the use of the YES program, especially at times of high market volatility.
As is often the case in the industry, the true reason brokers may have recommended the strategy comes back to fees. The program allowed UBS and its brokers to earn additional fees on the same amount of assets by adding an additional “mandate” dollar amount upon which a percentage fee would be charged. The program could allow UBS and the broker to earn an additional 1.75% on an additional dollar amount above the accounts’ value, although the net value of the customer accounts remained the same.
UBS and its brokers owed its customers duties to discuss and disclose the risks associated with any recommended strategy, and to only recommend and implement securities strategies suitable for the customer’s financial situation, goals, needs, and risk tolerance.
UBS’s actions related to the Yield Enhancement Strategy may have violated the FINRA suitability Rule, and further may constitute negligence, breach of fiduciary duty, fraud, violations of state securities Acts, and breach of contract. If you suffered losses from UBS’s Yield Enhancement Strategy and wish to discuss your claims for free with an attorney, please contact W. Scott Greco here.
An all-public arbitration panel of the Financial Industry Regulatory Authority Inc. has awarded five clients of UBS Financial Services more than $521,000 in compensatory damages in a case related to the clients' investments in Puerto Rican bonds and closed-end bond funds.
The clients, all residents of Puerto Rico, claimed UBS violated the Puerto Rico Uniform Securities Act and engaged in securities fraud, common law fraud and constructive fraud, in addition to breaching its fiduciary duty and negligently supervising its personnel.
A FINRA arbitration panel issued an award of damages to Greco & Greco clients against UBS of Puerto Rico on February 23, 2018. The arbitration involved multiple Puerto Rico customers of UBS who had been invested primarily in UBS Puerto Rico Closed-End Mutual Funds and Puerto Rico Bonds.
The award, totaling $521,075.00 in damages, was significant because most of the damages were incurred in investments that UBS claimed were conservative (the Puerto Rico AAA Portfolio Bond Fund and COFINA bonds), and UBS further unsuccessfully claimed that the customers had not lost any money because of the interest/dividends they had earned over the years in the investments.
As set out in more detail at Greco & Greco’s website (http://www.securities-lawyers.net/ubs-puerto-rico) the UBS Puerto Rico Closed-End Funds (CEFs) were high risk investments which used leverage (a speculative investment technique) and which did not have a market (they were traded by UBS’s trading desk but UBS had the ability to stop trading of the funds at any time).
Investigation Regarding Terry Trenchard (aka Teryl Lee Trenchard) of Capitol Securities in Reston, Virginia.
Greco & Greco is currently investigating possible claims regarding a Reston, Virginia financial advisor, Terry Trenchard. Mr. Trenchard was registered to sell securities with Capitol Securities Management from 2009 to 2015, with Aegis Capital from 2003 to 2009, and with Voss & Co. from 2001 to 2003.
According to FINRA's Brokercheck, Mr. Trenchard was discharged by Capitol Securities in March, 2017 while "under investigation for fraud."
FINRA fined Prudential Annuities Distributors $950,000 this month for its failure to detect and prevent the theft by its agent, Travis Wetzel, of almost $1,300,000 from a customer's variable annuity. The FINRA Letter of Acceptance, Waiver, and Consent may be found here.
Mr. Wetzel, who was a former registered representative of LPL Financial, allegedly submitted multiple forged wire transfer requests from the variable annuity, to be paid to a third party account in Mr. Wetzel's wife's maiden name.
As set out in this SEC Order from an Administrative Law Judge (https://www.sec.gov/alj/aljdec/2016/id1033jeg.pdf), Dawn Bennett has been barred from the securities industry by the SEC. Dawn Bennett was a Washington DC area advisor who was previously registered to sell securities with Western International Securities.
Judge Grimes also imposed over one million dollars of fines and disgorgement against Ms. Bennett. The findings in the above Order included the following:
"Respondents repeatedly overstated their AUM [Assets Under Management] by at least $1.5 billion in Barron’s magazine, on a radio show hosted by Bennett, and in various other advertisements and communications with existing and prospective clients to create the impression that Respondents were larger and more successful players in the industry than was actually the case."
Since 1995, UBS has been the underwriter of fourteen Puerto Rico closed-end funds (CEFs) with a total market capitalization of approximately $4 billion. UBS has also been the underwriter and dominant market maker for nine co-managed Puerto Rico closed-end funds with more than $1 billion in total market capitalization.
The UBS CEFs include the following funds:
The North American Securities Administrators Association’s (NASAA) has published a top ten list of investment scams, including ponzi schemes, affinity fraud, unlicensed securities sellers, prime bank schemes, and variable annuities sales practices:
NASAA Top Ten Investment Scams.
The Rhode Island Department of Business Regulation fined Morgan Stanley $250,000 for failing to supervise sales representatives at its Providence, Rhode Island office. According to the Rhode Island press release below, the charges related to the replacement of mutual funds with more expensive mutual funds and variable annuities.
Rhode Island Press Release
As set out in this FINRA press release Morgan Stanley was fined and forced to pay restitution to retail customers for overcharging for corporate bond sales and for “having an inadequate supervisory system for monitoring the pricing of corporate fixed income securities sold to customers.”
Hedge funds are largely unregulated investment funds which are typically limited to investment by accredited investors, i.e. high net worth individuals, pension funds, and other institutional investors. These funds are not restricted by many of the regulations and disclosure requirements of mutual funds, and they have evolved into a widely diverse industry investing in an array of traditional and non-traditional investments.
As set out in the NASD Notice to its Members linked below, the NASD / FINRA has expressed its concern regarding the sale of hedge funds by its representatives to retail customers. The Notice emphasizes that the risks and disadvantages associated with hedge funds must be fully disclosed to retail customers, and the sales representative or member must use due diligence to investigate the fund and must make a customer specific determination of suitability for the customer?s situation.
NASD Notice to Members
The SEC reported at its 2nd Annual Senior Summit that it was working on codifying suitability rules as they apply to recommendations for the purchase of securities by stock brokers, and further clarifying sales practice principals for investment professionals. If properly crafted, additional guidance in these areas should help prevent abuse of investors as well as provide additional tools for attorneys representing investors who have been abused by their stock brokers.
The SEC, FINRA, and state regulators also reported the results of their “free lunch” sweep of seminars targeted as seniors. The findings included 59% of the brokerage firms involved failing to properly supervise the seminars, and 23% of the seminars including advice that was unsuitably risky for senior investors.
Morgan Stanley was fined $3 million and forced to pay $9.5 million in restitution to arbitration Claimants as a result of its failure to produce emails in response to document requests in arbitrations with customers. According to the FINRA press release, Morgan Stanley incorrectly represented in the arbitration proceedings that “the destruction of the firm’s email servers in the Sept. 11, 2001 terrorist attacks on New York’s World Trade Center resulted in the loss of all pre-9/11 email.”
The unknown at this point is the amount of financial benefit gained by Morgan Stanley by this behavior through arbitration settlements and awards, and whether this benefit far exceeds the relatively small punishment ordered by FINRA.
The Missouri Higher Education Loan Authority announced this week that it would begin buying back a portion of its auction rate securities at a discount on the Restricted Securities Trading Network. See the related news stories in Forbes and the St. Louis Business Journal.
This news is a mixed blessing for investors stuck with these or other auction rate securities. While such a buy-back will finally allow them to escape from these investments, they will probably have to take a loss on the investment if it is bought back at a discount on a secondary market. Many investors around the country were sold auction rate securities by major brokerage firms who incorrectly claimed they were safe, liquid, cash equivalents. This has turned out to not be the case as evidenced by the collapse of the auction markets earlier this year. Such sales practices can form the basis for claims of federal and state securities fraud among other causes of action.
If you are an investor who was sold Auction Rate Securities, and you would like to discuss your legal options with an attorney, please Contact Greco & Greco.
In this Barron’s article, the author sets out one of the more complete analyses we have seen regarding the various types of frozen Auction Rate Securities, and their likelihood (or unlikelihood) of being redeemed or sold in the future. The various types of ARS reviewed in the article include Municipal Issuers, Taxable Closed-End Funds, Municipal Closed-End Funds, Student Loans, and Collateralized Debt Obligations (CDO).
According to the article, the bleakest outlook is seen for the ARS backed by Student Loan Funds and CDOs which comprise about one-third of the ARS market ($105 billion of the $333 billion market). Only about $1 billion of the $85 billion in student loan ARS have been refinanced to date due to high refinancing costs and little incentive to refinance the comparatively low rates these ARS are paying.
The Collateralized Debt Obligation ARS are an even thornier issue. The Barron’s article states that the $20 billion in these ARS won’t be redeemed and that some may have invested in subprime mortgage securities. The chart at the end of the article estimates the market price of these securities at 50 cents on the dollar.
Many brokerage firms marketed and sold ARS to investors as safe, liquid alternatives to money market funds. If you are stuck with frozen ARS and you would like a free consultation to discuss your legal options with an attorney, please contact Greco & Greco.