Securities Fraud

California Edward Jones Advisor Suspended for Customer Loans

Published on: March 28, 2023 | by Greco & Greco, P.C.

FINRA recently suspended an Edward Jones financial advisor from Sunset Beach, California for borrowing money from a customer without firm authorization. The FINRA Letter of Acceptance, Waiver and Consent against Scott P. Smith can be found here.

According to the AWC, Mr. Smith borrowed money in five different loans from a single customer without advising his firm about the loans. Loans from customers to stock brokers are generally prohibited unless they fall into several limited exceptions such as when the customer is a family member. The loans were allegedly discovered when the customer died and the estate raised questions about the loans. Mr. Smith subsequently resigned from Edward Jones while under investigation.

The FINRA AWC imposed a year suspension on the financial advisor, and a $10,000 fine.

New Jersey broker Craffy barred by FINRA

Published on: March 10, 2023 | by Greco & Greco, P.C.

New Jersey securities broker Carz Levinski Craffey (aka Caz Craffy) was recently barred from the securities industry by securities regulator FINRA. Mr. Craffy had been registered with Monmouth Capital Management and previously was registered with Newbridge Securities Corp.

Mr. Craffy’s Brokercheck report from FINRA discloses that he was discharged by Monmouth for failing to “disclose Outside Business Activity.” It also states that he has one customer complaint pending with allegations of negligence, fraud, breach of contract and breach of fiduciary duty.

The FINRA Letter of Acceptance, Waiver and Consent states that Mr. Craffy failed to appear to testify regarding his “potential conversion of customer money, loans or gifts from customers, active trading in customer accounts, and failure to fully disclose certain outside business activities.” He was barred from associating with any FINRA member in all capacities.

Western International Censured and Fined for non-traded REIT sales

Published on: February 10, 2023 | by Greco & Greco, P.C.

After being charged by the SEC with Regulation Best Interest violations relating to GWG, Western International Securities has now been censured and fined by FINRA for a different alternative investment product – non traded REITs.

REITs – Real Estate Investment Trusts – are investment companies that invest in a portfolio of various real estate properties. A non traded REIT is not traded on any exchange, and often is illiquid with no short term method of selling the investment.

FINRA charged Western with failing to implement and follow a reasonable supervisory system to ensure that REIT sales were suitable for the customers to whom they were recommended. Although Western had a REIT suitability form, they system did not require supervisors approving sales to review important suitability information from new account forms such as age, objectives, risk tolerance, income, etc.

Janney Montgomery Scott fined by FINRA for Oil and Gas MLP Concentration

Published on: January 12, 2023 | by Greco & Greco, P.C.

FINRA censured, fined, and ordered restitution payments from Philadelphia, Pennsylvania based Janney Montgomery Scott last month. The Letter of Acceptance Waiver and Consent (AWC) discussed how two of Janney’s advisors “recommended that 11 customers unsuitably concentrate their accounts in certain energy-sector securities, including master limited partnerships focused on the exploration or development of natural resources” in violation of the FINRA Suitability Rule, 2111. This subjected the customers to a high risk of loss if oil and gas prices declined.

The AWC discussed the fact that Janney’s supervisory system red flagged these concentrations, but Janney “failed to take reasonable steps to understand the potential risks and rewards.”

In addition to being censured by FINRA, Janney was fined $100,000 and ordered to pay restitution to the customers that had not yet received restitution in the total amount of $145,019.

J.P. Morgan Broker Edward Turley Barred from Industry by FINRA

Published on: November 21, 2022 | by Greco & Greco, P.C.

FINRA recently issued a Letter of Acceptance, Waiver, and Consent relating to J.P. Morgan broker Edward Turley from San Francisco, California that resulted in Mr. Turley being barred from the securities industry by FINRA.

The letter alleges that Mr. Turley has been registered with J.P. Morgan Securities LLC since 2009, and that he was terminated by J.P. Morgan in 2021 for “[l]oss of confidence concerning adherence to firm policies and brokerage order handling requirements.” According to FINRA, Mr. Turley has had five FINRA multi-million dollar arbitrations filed in 2020 – 2021 relating to allegations regarding sales practice violations and unsuitable trading. One of these resulted in an arbitration award.

Mr. Turley apparently refused to provide on the record testimony to FINRA in response to a Rule 8210 Request.

U.S. SEC Warns Brokers About Sales Contests That Violate Regulation Best Interest

Published on: August 16, 2022 | by Greco & Greco, P.C.

The United States Securities Exchange Commission (SEC) recently issued a Staff Bulletin which discussed the use of sales contests or other sales incentives by FINRA Broker-Dealer firms in the context of SEC Regulation Best Interest (Reg BI).

Reg BI, 17 CFR 240-15l-1, specifically describes the “best interest” obligation as follows in section (a)(1):

“A broker, dealer, or a natural person who is an associated person of a broker or dealer, when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer, shall act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker, dealer, or natural person who is an associated person of a broker or dealer making the recommendation ahead of the interest of the retail customer.”

North Carolina Morgan Stanley Broker Accused by SEC of Operating Ponzi Scheme

Published on: June 24, 2022 | by Greco & Greco, P.C.

Shawn Edward Good, who was a registered broker with Morgan Stanley it its Wilmington, North Carolina office, was recently barred by FINRA by consent agreement. Mr. Good also has a pending SEC Complaint against him alleging the following involvement in a ponzi scheme:

From 2012 until 2022 Mr. Good solicited customers to transfer funds to his personal bank account, allegedly for investments in real estate and government bonds.
In ponzi scheme fashion, the transferred monies were used to repay earlier customers who had also invested, in addition to payment of Mr. Good’s personal expenses.

Caution Urged in 401(K) Plan Investments in Cryptocurrencies

Published on: June 1, 2022 | by Greco & Greco, P.C.

The U.S. Department of Labor has sounded a warning regarding 401(k) plan investments in cryptocurrencies. In Compliance Assistance Release No. 2022-01 (issued March 10, 2022), 401(k) plan fiduciaries are urged to “exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.” Because of the risks and uncertainties associated with cryptocurrencies, the guidance document raises “serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct invest in cryptocurrencies or other products whose value is tied cryptocurrencies.”

Under federal laws governing retirement plans (commonly known as ERISA), the investment manager of a 401(k) plan is considered a fiduciary, who must act solely in the financial interests of the plan participants. Courts hold fiduciaries to very high standards of professional care and prudence. When these standards are breached, the asset manager can be held personally liable for the losses resulting from the breach. For 401(k) plans, the fiduciary is obligated to evaluate independently which investments are suitable to include in the investment options from which plan participants may choose. Offering imprudent investment options to participants is considered a breach of duty.

The Department of Labor identified several areas of concern that make cryptocurrencies and cryptocurrency-tied products exceptionally risky investments for 401(k) participants.

Greco Law Firm wins FINRA arbitration for UBS Yield Enhancement Strategy (YES)

Published on: January 7, 2022 | by Greco & Greco, P.C.

A FINRA arbitration panel issued an award last month to a client of Greco & Greco who had filed securities fraud, breach of fiduciary duty, negligence, unsuitability, and other legal claims against UBS related to its Yield Enhancement Strategy, also known as YES. The award totaled approximately $300,000.00 and included damages, attorney’s fees, and costs.

The attorney’s fees were awarded pursuant to the Washington D.C. Securities Act.

The YES strategy was a high-risk overlay strategy that allegedly was to “enhance” the yield in UBS customers’ accounts through the use of actively managed Iron Condors (an options strategy). Despite claims of limited risk, the strategy caused significant losses in customer accounts in 2018.

Virginia Morgan Stanley Broker Charged With Stealing Millions

Published on: August 26, 2020 | by Greco & Greco, P.C.

The SEC and federal prosecutors recently charged a Mclean, Virginia based Morgan Stanley financial advisor with stealing millions of dollars from his customers from 2007 to 2019 when his fraud was discovered. The SEC Complaint against the broker, Michael Barry Carter (also known as “Mike Carter”), can be found at https://www.sec.gov/litigation/complaints/2020/comp-pr2020-158.pdf

The SEC alleged that Michael Carter stole approximately $6 million by various means, including falsifying internal forms and wire transfers, providing fake account statements, using false email addresses, and making misrepresentations to his customers.

According to the SEC, Mr. Carter has plead guilty to related federal criminal charges.