FINRA Sanctions Four Firms $9.1 Million for Stockbroker Fraud (Part 1)
Who was Sanctioned for Stockbroker Fraud?
On May 1, 2012 the Financial Industry Regulatory Authority (FINRA) sanctioned Citigroup Global Markets, Inc; Morgan Stanley & Co., LLC; UBS Financial Services; and Wells Fargo Advisors, LLC more than $9.1 million for stockbroker fraud. FINRA says it sanctioned the firms for selling “leveraged and inverse exchange-traded funds (ETFs) without reasonable supervision and for not having a reasonable basis for recommending the securities.” Of the sanctioned funds, $7.3 million was for fines and $1.8 for restitution to certain customers who made unsuitable leveraged and inverse ETF purchases based on bad advice due to the firm’s failure “to conduct adequate due diligence regarding the risks and features of the ETFs.“ [1]
FINRA’s Stockbroker Fraud Sanctions Break Down
The negligence displayed by the four firms is a form of stockbroker fraud called misinformation. Misinformation for any reason will lead a client to make a decision they would not otherwise have made if they had known the true risks and features of the investment. FINRA distributed the sanctions on the four companies like this:
- Wells Fargo to pay $2.1 million in fines and $641,489 in restitution.
- Citigroup to pay $2 million in fines and $146,431 in restitution.
- Morgan Stanley to pay $1.75 million in fines and $604,584 in restitution.
- UBS to pay $1.5 million in fines and $431,488 in restitution.
FINRA Comments on Stockbroker Fraud
How did the firms commit stockbroker fraud though neglect? Executive Vice President and Chief of Enforcement for FINRA, Brad Bennett, said “”The added complexity of leveraged and inverse exchange-traded products makes it essential that brokerage firms have an adequate understanding of the products and sufficiently train their sales force before the products are offered to retail customers. Firms must conduct reasonable due diligence and ensure that their representatives have an understanding of these products.”
Next on Stockbroker Fraud
Next in this news series on the most recent FINRA sanctions, we’ll talk about how the complexities of ETF’s, a type of UIT, may have contributed to the misconduct.
If you are not getting anywhere with resolving your investment disputes, believe you are the victim of stockbroker fraud or just need help discussing your options with the securities arbitration process, call S. David Anton of Anton Legal Group!
S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.
FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP
AT (813) 443-5249
Stockbroker Fraud: FINRA Warnings on Non-Trade REITs (Part 4)
Stockbroker Fraud, Non-Trade REITs and Extra Risks
Last time, we talked about an abundance of hidden fees on non-trade REITs making it easy to commit stockbroker fraud and, at least, eating up your dividends and principal. Today I’d like to finish with a couple more high-risk factors involved with non-trade REITs. Look out for:
- Investment properties not being specified. Many non-trade REITs start out as blind pools, where no exact property is specified for purchase. Others may mention only part of the properties the REIT plans to purchase or may mention properties in different stages of acquisition which have not yet been acquired. This takes away your ability to assess the assets of the REIT before you invest. When you cannot research an REIT’s assets, you are going on blind trust in a broker or a firm, making you a ripe target for stockbroker fraud. Always ask what percentage of your non-trade REIT’s properties have been specified and what percentage has been fully acquired.
- Diversification can be more limited than you think. As a class, REITs can help you diversify your portfolio, however, investing in only one REIT, even if it’s in different phases of the same REIT, is just putting all of your eggs back into one single higher risk basket.
- There are individual risks for each different type of property. Understand the risks of the specific type of real estate your REIT holds and how it leverages to acquire assets. Make sure you carefully discuss specific risks with your broker and carefully study the prospectus.
The Best Help with Stockbroker Fraud
If you are not getting anywhere with resolving your investment disputes, believe you are the victim of stockbroker fraud or just need help discussing your options with the securities arbitration process, call S. David Anton of Anton Legal Group!
S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.
FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP
AT (813) 443-5249
[1] http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/REITS/P124232
Stockbroker Fraud: FINRA’s Warning on Non-Trade REITs (Part 3)
Stockbroker Fraud, Non-Trade REITs and Tax Consequences
If you are caught investing in an REIT that is actually a stockbroker fraud, you could loose much more than your investment. Distributions for REITs are subject to different tax rates based on where the capital comes from. To recap on parts 1 and 2 of this blog, non-trade REITs may take capital for distributions from sources other than accumulated earnings and profits. Borrowing to cover distributions, making an REIT look more profitable than it really is, is one of the many alternate sources of funds that may be used to provide regular distributions to investors. Some of the differences in tax rates include but are not limited to:
- Distributions from accrued earnings and profits are taxed as ordinary income instead of being taxed as qualified dividends with a 15% tax cap.
- If some of your distribution come from a return of your capital, that portion is not taxable until your investment is sold or liquidated.
Your best bet is to speak with a tax advisor about all of the details of the investment your are considering before investing.
Stockbroker Fraud, Non-Trade RIETs and Hidden Fees
The fees from non-trade REITs that make stockbroker fraud so lucrative can quickly become an expensive loss, above and beyond you original investment. Front end fees usually have two parts:
- Selling compensation and expenses, which cannot exceed 10% of the investment amount.
- “Issuer Costs”, or additional offering and organizational costs, which are paid from offering proceeds.
Florida state regulatory guidelines place a cap on these fees, saying both fees cannot equal more than 15% of the investment. That means, on an investment of $10,000.00, only $8,500.00 of that investment actually went to the purchase of shares, removing $1,500.00 of your hard earned cash in fees. Usually, fees for exchange-traded REITs are around 7%. So, with an exchange-traded REIT, your fees would be roughly $700.00 for the same investment.
Next on REIT Stockbroker Fraud
Next in this on-going series, we’ll take a look at some final issues with non-trade REITs that can lend themselves to stockbroker fraud. If you are not getting anywhere with resolving your investment disputes and need help to discuss your options with the securities arbitration process, call S. David Anton of Anton Legal Group!
S. David Anton, Esquire is a Certified Arbitrator for the Financial Industry Regulatory Authority (FINRA), formerly the NASD, which is the national organization responsible for overseeing the securities industry. He has served as a Judge/Panelist and rendered decisions in many securities arbitration, giving him a unique perspective on his client’s cases.
FOR SECURITIES ADVICE, PLEASE FEEL FREE TO CONTACT DAVID ANTON OF THE ANTON LEGAL GROUP
AT (813) 443-5249
[1] http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/REITS/P124232
25th Anniversary Guavaween Family Fun Fest.
Happy Halloween to All! the Anton Legal Group would like to let everyone know about Ybor City’s Guavaween Family Fun Fest. It is a free event that runs from 10 AM to 3 PM on Saturday, October 30th. The event benefits the Ybor City Chamber of Commerce. Many activities are planned for families, kids and the young-at-heart, including pumpkin decorating,
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25th Anniversary Guavaween Festivities
Image by greyhound dad via Flickr
On October 30th, the Anton Legal Group will be participating in the daytime Guavaween festivities in Ybor City. Guavaween of course offers the unique shopping and dining of historic Ybor City, recently voted “Best Party District” in the Bay Area by Creative Loafing! Celebrate Continue reading “25th Anniversary Guavaween Festivities” »
Piaba Conference Next week
I am excited to announce that I will be attending the PIABA (Public Investors Arbitration Bar Association) conference from October 13th through October 16th. This year it is in Northern Florida at a location named Sawgrass. I look forward to updating my contacts and I look forward to seeing many of my colleagues for this once a year gathering of the minds. I hope to learn a lot about the new statutes and such as well. I will try to update as I am on the road.
Beginning
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