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.
In a recent disciplinary action against Cadaret, Grant & Co., Inc., FINRA discusses various red flags that should have been investigated by the firm to discover and prevent the sale of a ponzi scheme investment to its customers.
The Letter of Acceptance, Waiver and Consent (found here) states that the firm "failed to reasonably supervise the activities of a registered representative even after becoming aware of red flags of sales practice violations." According to the AWC, a securities salesperson at Cadaret, Grant created and controlled three ponzi scheme entities, promising annual returns as high as 8% despite the fact that the entities were shell companies with no revenues or business operations. The broker never disclosed he was selling the investments to his customers at the firm, however, the AWC found the firm liable for failing to supervise his activities.
The AWC discusses various red flags that should have been discovered and investigated by the firm when complying with its duty to supervise under FINRA Rule 3110, including the following:
Seventeen months passed from the receipt of the complaint letter until the termination of the broker, during which time the broker continued to operate the scheme causing further harm.
In the AWC, the firm consented to a censure and a fine of $200,000. FINRA did not impose restitution because the firm settled arbitration claims brought by the harmed customers. However, a review of Brokercheck shows that most of the settlements with customers were for amounts well below the damages claimed.
FINRA securities firms have duties to supervise their financial advisors, and implement reasonable supervisory systems to detect and prevent fraudulent activity such as ponzi schemes. Such firms can be held liable in FINRA arbitrations for the fraudulent acts of their agents, and for their failures to supervise. If you are the victim of a ponzi scheme or other wrongful activity relating to investments, and you would like to discuss your potential claims for free with an attorney, please contact W. Scott Greco at Greco & Greco, P.C.
W. Scott Greco has decades of experience recovering stolen funds on behalf of investors.
According to the SEC, Mr. Carter has plead guilty to related federal criminal charges.
FINRA securities firms such as Morgan Stanley have duties to supervise their registered representatives such as Mr. Carter, and implement reasonable supervisory systems to detect and prevent fraudulent activity. Such firms can be held liable in FINRA arbitrations for the fraudulent acts of their agents, and for their failures to supervise. If you were a victim of Mr. Carter, or any other fraudulent scheme relating to investments, and you would like to discuss your potential claims for free with any attorney, please contact W. Scott Greco at Greco & Greco, P.C. here: https://www.grecogrecolaw.com/contact
FINRA issued a Letter of Acceptance, Waiver and Consent against Suntrust Investment Services, Inc. in May of 2020 related to the recommendation and failure to supervise non-traditional ETFs to customers.
Non Traditional ETFs include ETFs designed to, on a daily basis, return a multiple of an underlying index or benchmark, or the inverse of the return of an underlying index or benchmark. Because these products are often meant as a day trading vehicle, and are reset daily, their performance over longer lengths of time may differ significantly from the performance of the index or benchmark.
These risks were set out by FINRA a decade ago in Regulatory Notice 09-31 which discussed the fact that “inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.” FINRA further has required member Broker-Dealers to have supervisory systems in place to ensure compliance with industry Rules, and importantly customer specific suitability under Rule 2111.
The AWC against Suntrust (here) stated as follows with regard to failures to supervise:
“During the Relevant Period, SunTrust failed to establish, maintain and enforce a supervisory system or WSPs reasonably designed to achieve compliance with FINRA's suitability rule as it relates to NT-ETFs, particularly in connection with certain of the unique features and risks associated with NT-ETFs, including the risks associated with holding NT-ETFs for extended periods. Specifically, SunTrust's WSPs recognized that NT-ETFs "c[ould] be inefficient and problematic long-term investments" and required the positions be monitored by the representative, supervising principal and the Central Supervision Group (CSG). However, SunTrust did not have reasonable procedures or guidance to representatives or supervisors regarding how to determine whether an NTETF was suitable for customers given the unique features and risks of those products. The Firm also did not have any systems in place, such as an alert or exception report, to assist in monitoring the holding periods for NT-ETFs. There is also no evidence that anyone at the Firm conducted a customer-specific suitability analysis for NT-ETF positions held for more than one day, nor did the WSPs require such an analysis.”
FINRA fined Suntrust $50,000 and required restitution payments to customers of $584,466.13.
If you have suffered losses in leveraged, inverse, short, or Ultra ETFs recommended by your financial advisor or firm, and would like to discuss your claims for free with an attorney, please contact W. Scott Greco.
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.
W. Scott Greco, working with local Puerto Rico co-counsel, represented multiple customers in FINRA arbitrations in 2019 against UBS of Puerto Rico that resulted in monetary awards to the customers.
The first, a case involving overconcentration in risky UBS Puerto Rico closed end funds, resulted in an award of $4,813,161.00 which were the principal losses from February, 2013 forward, despite UBS’s claims that the accounts had a net out of pocket profit.
The second FINRA arbitration in 2019 involved overconcentration in a few Puerto Rico bonds, and resulted in an arbitration award of $195,000 including attorney fees, again despite UBS claims of a net out of pocket profit.
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."
Greco & Greco is pleased to report the first FINRA Arbitration Award against UBS Financial Services of Puerto Rico relating to the crash of UBS closed end bond funds in 2013 which were sold to Puerto Rico residents. W. Scott Greco represented the Claimant customer in the case of Bauza v. UBS Financial Services of Puerto Rico, et al. The arbitration panel awarded $200,000 in damages to the Claimant, despite claims by UBS that Claimant's net out of pocket losses were less than $10,000.
The case involved a heavy over-concentration of the Claimant's UBS account in proprietary UBS closed end bond funds pursuant to UBS's recommendations. The funds invested heavily in Puerto Rico bonds using leverage (a speculative investment technique), and had significant geographic concentration risk.
Read about the arbitration award in this Reuters article.
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.”