Securities Fraud Blog

SEC charges Western International with violations of Regulation Best Interest (BI)

Published on: June 17, 2022 | by Greco & Greco, P.C.

The United States Securities and Exchange Commission (SEC) has filed a Complaint charging a Broker-Dealer for the first time with a violation of the recently enacted Regulation Best Interest (Reg BI). The subject of the Complaint was Western International Securities, and five of its registered brokers, Nancy Cole, Patrick Egan, Andy Gitipityapon, Steven Graham, and Thomas Swan.

The Complaint alleges that Western and its brokers sold high risk and potentially illiquid L bonds issued by GWG Holdings, Inc., with many of the sales to customers on fixed incomes and with moderate risk tolerances. The SEC’s press release alleged that the Defendants “failed to comply with Reg BI’s “Care Obligation” both because they did not exercise reasonable diligence, care, and skill to understand the risks, rewards, and costs associated with L Bonds, and also because they recommended L Bonds to at least seven particular customers without a reasonable basis to believe the bonds were in their customers’ best interests.”

The SEC also claimed that the activities and sales violated the compliance component of Reg BI which requires firms to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI.

Virginia Securities Broker Barred by FINRA After Loan Investigation

Published on: June 2, 2022 | by Greco & Greco, P.C.

Former Richmond, Virginia Oppenheimer & Co. Inc. financial advisor Warren E. Rowe Jr. was barred from the securities industry by FINRA recently after an investigation related to alleged loans taken from customers.

According the the FINRA Letter of Acceptance Waiver and Consent found here, Mr. Rowe refused to provide documents in response to a request of FINRA investigators. The AWC, signed by Mr. Rowe, imposed a bar on Mr. Rowe’s association with any FINRA member in all capacities.

Mr. Rowe’s FINRA Brokercheck report reveals that he voluntarily resigned from Oppenheimer in May 2020 after an allegation that he took a loan from a client without disclosing it to the firm. The report also references multiple customer complaints related to alleged loans, as well as complaints related to unauthorized trading, and inappropriate margin use. Interestingly, a customer complaint regarding a loan made after his separation from Oppenheimer is still listed as “denied” by the firm.

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.

Losses and Attorneys’ Fees Recovered for Northern Virginia Couple

Published on: April 4, 2022 | by Greco & Greco, P.C.

Greco & Greco represented a retired Northern Virginia couple in a NASD arbitration seeking the recovery of savings lost by their stockbroker which they had intended to use to buy a new house. The broker had invested all of their life savings and house sale proceeds in the stock market through the use of a money manager. The arbitration panel awarded the couple $195,000 in damages (an amount higher than their out-of-pocket losses), $65,000 in attorneys’ fees, and interest from July, 2003. Read the NASD award.

Stock Loss and Attorney Fees Awarded for Private Placement “Selling Away” Case

Published on: April 4, 2022 | by Greco & Greco, P.C.

Greco & Greco’s client was awarded her entire investment ($100,000) plus interest and 1/3 attorney’s fees by a Washington, D.C. FINRA arbitration panel. The award was entered jointly against the brokerage firm, despite its claims that it was unaware of its representative’s sale of the non-approved security, and its claim that a release barred the recovery. Read the FINRA award.

Investment Losses Recovered for Disabled Charlottesville Woman

Published on: April 4, 2022 | by Greco & Greco, P.C.

An NASD arbitration panel in Richmond recently awarded a disabled Charlottesville, Virginia woman represented by Greco & Greco all of her losses in her investment account ($60,530) plus interest. Her brokerage firm had unsuitably invested her account aggressively in growth stocks despite the woman’s need for income from the account for living expenses for the rest of her life. Read the NASD award.

First FINRA Arbitration Award Against UBS of Puerto Rico Regarding Bond Funds

Published on: April 4, 2022 | by Greco & Greco, P.C.

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.

Recovery of losses incurred in Trust and IRA accounts of Washington, DC retiree as a result of unsuitable investments and stock trading

Published on: April 4, 2022 | by Greco & Greco, P.C.

This case involved Trust and IRA accounts relied upon by a retiree to pay living expenses. The broker and firm were advised that the accounts were not to be invested in the stock market or other risky investments. Despite the conservative objectives for the accounts, the brokerage firm unsuitably invested the accounts primarily in stock/equities, and aggressively daytraded the accounts in initial public offerings and high risk investments. The FINRA arbitration panel awarded $124,156.00 in damages plus interest since January, 2009. See the award here.

Greco & Greco recovers $75,000 Paid out of Disabled Woman’s Account to Alleged Business Venture of Broker

Published on: April 4, 2022 | by Greco & Greco, P.C.

A Norfolk, Virginia NASD arbitration panel found a brokerage firm liable for $75,000 in savings paid out of a disabled woman’s brokerage account to an alleged business venture of her stock broker on the last day of employment at the firm by her broker. The firm had taken the position that it was not responsible for the “investment” made outside of the firm. Read the NASD award

Registered Rep Awarded Back Commissions Owed from Split Fee Agreement

Published on: April 4, 2022 | by Greco & Greco, P.C.

Greco & Greco’s client in this case was a Norfolk, Virginia broker who had agreed with his partner to set up introductory meetings with institutional clients and to subsequently split the fees earned from these clients. An NASD arbitration was filed seeking the broker’s share commissions which were not correctly split and paid. The arbitration panel awarded $509,732 in back commissions and interest to Greco & Greco’s client. Read the NASD award.