In this FINRA Arbitration held in Jackson, Mississippi, Greco & Greco represented a retiree who was cold-called by a New York broker. The broker’s investments ultimately lost a significant amount of the client’s savings in several overconcentrated stock positions. The FINRA panel awarded $80,000 in damages, $15,000 in punitive damages for “reckless disregard of Claimant’s rights,” and expert witness costs. Read the FINRA award.
W. Scott Greco, working with local Puerto Rico co-counsel, represented multiple customers in FINRA arbitration hearings 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 award 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.
In this case taken pro bonoby Greco & Greco, the FINRA arbitrator awarded the full amount of compensatory damages and interest requested based on claims of negligence, breach of fiduciary duty, and unsuitable recommendations. The arbitrator found that the brokerage firm “failed to recommend suitable investments based on [Claimant’s] request, age, needs, income status, and need for security.” The firm had ignored Claimant’s request for safer investments as her IRA declined with the market in 2008. Read the FINRA award.
McLean, Virginia based law firm Greco & Greco, P.C. is currently investigating the activities of Ameriprise and its former financial advisor, James W. Dunn, who operated out of an office in Vienna, Virginia.
As more fully set out in his FINRA Brokercheck Report (www.brokercheck.finra.org), former Ameriprise financial advisor James W. Dunn resigned in October, 2021 while under review for “potential violation of company policy related to suitability, unauthorized trades and texting with clients.” The Brokercheck report also reveals that Mr. Dunn was terminated by Wells Fargo in May 2019 regarding “concerns regarding mutual fund trades that were marked unsolicited.”
Mr. Dunn currently has 11 customer complaints listed on his Brokercheck report, totaling alleged losses of over three million dollars. The complaints reference allegations of unauthorized trades in 2021 in stocks and foreign securities.
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.
The U.S. Securities Exchange Commission charged multiple Investment Advisory Firms and Broker-Dealers with unsuitable sales of exchange traded products to their customers.
According to the SEC Press Release, the firms recommended the purchase and holding of these products, despite the fact that the products were only supposed to track the short term volatility in the market, and would likely decline if held long term.
The exchange traded funds (ETFs), attempted to track the short term volatility expectations of the market. Examples referenced in the SEC Orders were iPath S&P 500 VIX Short–Term Futures ETN (“VXX”), Velocity Shares Daily Inverse VIX Short Term ETNs linked to the S&P 500, VIX Short-Term Futures Index (“XIV”), and another volatility-linked security called the ProShares VIX Short-Term Futures ETF (“VIXY”).
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:
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.
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.
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.
Securities Fraud Blog
