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Energy losses with Wedbush Securities broker Mark Heiden?

Aidikoff, Uhl & Bakhtiari continues its investigation of the sales practices of Mark Heiden for his management of client accounts and the overconcentration of energy related stocks investments:

  • Energy XXI Bermuda Ltd.
  • Clearbridge American Energy MLP
  • Goldman Sachs MLP Energy
  • Arch Coal
  • Seadrill

We are currently investigating whether all material risks of the recommended investments were disclosed to clients as well as whether Wedbush broker, Mark Heiden, implemented an appropriate risk management strategy.

 

To discuss your options please contact an attorney below.

Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions.

Philip M. Aidikoff, pma@aublaw.com
Ryan K. Bakhtiari, rkb@aublaw.com
Aidikoff, Uhl & Bakhtiari
(800) 382-7969 Toll Free or (310) 274-0666
www.securitiesarbitration.com

FINRA Sanctions Citigroup Global Markets Inc. $11.5 Million for Inaccurate Research Ratings

FINRA announced that it has fined Citigroup Global Markets Inc. (CGMI) $5.5 million and required the firm to pay at least $6 million in compensation to retail customers for displaying inaccurate research ratings for numerous equity securities during a nearly five-year period, and for related supervisory violations.

An equity research rating reflects a firm’s opinion of the future performance of a public security. CGMI disseminated its research ratings to customers on account statements, email alerts and an online portal. CGMI brokers and supervisors, meanwhile, relied on internally disseminated research ratings to make security recommendations and to monitor customer transactions and portfolio allocations.

FINRA found that from February 2011 through December 2015, CGMI displayed to its brokers, retail customers and supervisors inaccurate research ratings for more than 1,800 equity securities —more than 38 percent of those covered by the firm. Because of errors in the electronic feed of ratings data that the firm provided to its clearing firm, the firm either displayed the wrong rating for some covered securities (e.g., “buy” instead of “sell”), displayed ratings for other securities that CGMI did not cover or failed to display ratings for securities that CGMI, in fact, rated. The firm’s actual research reports, which were available to brokers, and the research ratings appearing in those reports, were not affected by these errors.

The inaccuracies in the research ratings feed had widespread, adverse consequences. As a result of the errors, CGMI brokers solicited thousands of transactions inconsistent with the firm’s actual ratings and negligently made inaccurate statements to customers about those ratings. They also solicited transactions that violated certain firm-managed portfolio guidelines, which were premised on CGMI research ratings. For example, the portfolios were prohibited from containing equity securities the firm had rated “sell.” Because CGMI brokers relied on inaccurately displayed ratings, many customers’ portfolios improperly included “sell”-rated securities. CGMI supervisors, relying on those same inaccurate ratings, failed to detect and prevent a substantial number of transactions that were actually inconsistent with CGMI research or portfolio guidelines. The firm also made materially inaccurate statements and omissions regarding more than 19,000 research ratings on customer account statements, sent more than 1,000 customer email alerts with inaccurate ratings, and displayed inaccurate ratings on online portals available to customers.

The firm failed to timely correct the inaccurately displayed ratings, despite numerous red flags alerting the firm to ratings inaccuracies for several securities. The firm also failed to conduct testing reasonably designed to verify the accuracy of research ratings data that it used and distributed.

FINRA Fines Raymond James Financial Services, Inc. $2 Million for Failing to Reasonably Supervise Email Communications

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Raymond James Financial Services, Inc. $2 million for failing to maintain reasonably designed supervisory systems and procedures for reviewing email communications. In addition, Raymond James has agreed to conduct a risk-based retrospective review to detect potential violations evidenced in past emails.

FINRA found that during a nine-year review period, Raymond James’ email review system was flawed in significant respects, allowing millions of emails to evade meaningful review. This created the unreasonable risk that certain misconduct by firm personnel could go undetected by the firm. The combinations of words and phrases – otherwise known as the “lexicon” – used to flag emails for review were not reasonably designed to detect certain potential misconduct that Raymond James, in light of its size, structure, business model, and experience from prior disciplinary actions, knew or should have anticipated would recur from time to time. The firm also failed to devote adequate personnel and resources to the team that reviewed emails flagged by the system, even as the number of emails increased over time.

FINRA also found that Raymond James did not periodically test the configuration and effectiveness of its lexicon-based email surveillance system. The firm’s primary focus was reducing the number of “false positives” that would need to be reviewed rather than ensuring that the system was effectively identifying all potentially problematic categories of emails.

Susan Schroeder, FINRA Executive Vice President, Department of Enforcement, said, “Firms have a clear obligation to reasonably supervise electronic communications, which includes periodically re-evaluating the effectiveness of existing procedures. They should also assess whether their e-mail review and supervisory systems are reasonably designed in light of each firm’s business model.”

In addition, FINRA found that the firm unreasonably excluded from email surveillance certain firm personnel who serviced customer brokerage accounts. Raymond James also failed to apply its entire lexicon to the emails of approximately 1,300 registered representatives who worked in branches that hosted their own email servers.

FINRA previously issued Regulatory Notice 07-59 which provides guidance regarding the review and supervision of electronic communications.

In settling this matter, Raymond James neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

SEC Charges Woodbridge Group of Companies LLC operators with running $1.2 billion Ponzi

The Securities and Exchange Commission today announced charges and an asset freeze against a group of unregistered funds and their owner who allegedly bilked thousands of retail investors, many of them seniors, in a $1.2 billion Ponzi scheme.

SEC investigators filed this action to prevent further dissipation of investor assets after obtaining court orders in September and November in subpoena enforcement actions that forced the unregistered companies to open their books.

According to the SEC’s complaint, unsealed today in federal court in Miami, Florida, Robert H. Shapiro and a group of unregistered investment companies called the Woodbridge Group of Companies LLC formerly headquartered in Boca Raton, Florida, defrauded more than 8,400 investors in unregistered Woodbridge funds.

“We allege that through aggressive tactics, Woodbridge and Shapiro swindled seniors into a business model built on lies, which the SEC’s Miami Regional Office staff moved to halt,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.

“Our complaint alleges that Woodbridge’s business model was a sham,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

“Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Shapiro used the scheme to line his pockets with millions of investor dollars.”

According to the SEC complaint, Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying Woodbridge 11-15% annual interest for “hard money,” short-term financing.  In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually.  Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that “clients keep coming back to [Woodbridge] because time and experience have proven results.  Over 90% national renewal rate!”  While Woodbridge claimed it made high-interest loans to third parties, the SEC’s complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans.

The SEC complaint alleges that Shapiro and Woodbridge used investors’ money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as “low risk” and “conservative.”  Shapiro, of Sherman Oaks, California, is alleged to have diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry.  According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.

The Honorable Judge Marcia G. Cooke granted the SEC’s request for a temporary asset freeze against Shapiro and a group of his unregistered investment companies, and ordered them to provide an accounting of all money received from investors.

The SEC’s complaint charges Shapiro, Woodbridge, and certain affiliated companies with fraud and violations of the securities and broker-dealer registration provisions of the federal securities laws.  The SEC is seeking return of allegedly ill-gotten gains with interest and financial penalties. A court hearing has been scheduled for Dec. 29, 2017 on the SEC’s request to continue the asset freeze.  The SEC’s motion for the appointment of a receiver over Woodbridge and the related companies is pending.

The SEC’s investigation, which is continuing, has been conducted by Scott A. Lowry, Linda S. Schmidt, Russell Koonin, Christine Nestor, and Mark Dee in the Miami Regional Office with assistance from Alistaire Bambach, David Baddley and Neal Jacobson.  The case has been supervised by Jason R. Berkowitz and Fernando Torres, and the litigation will be led by Mr. Koonin, Ms. Nestor, and Mr. Lowry.  The SEC appreciates the assistance of the Florida Office of Financial Regulation, California’s Department of Justice and Department of Business Oversight, the Colorado Division of Securities, and the Texas State Securities Board.

FINRA fines Merrill Lynch $1.4 million for supervisory lapse

The Financial Industry Regulatory Authority (FINRA) announced that it has fined Merrill Lynch, Pierce, Fenner & Smith Incorporated $1.4 million for failing to establish a reasonable supervisory system and procedures to identify and evaluate extended settlement transactions, and for related rule violations.

Extended settlement transactions have a longer time between trade and settlement than routine securities transactions, and therefore involve an extension of credit and exposure to counterparty, credit and market risk. As a result of its supervisory deficiencies, Merrill failed to collect adequate margin to offset this risk, improperly extended credit to cash-account customers, and miscalculated its outstanding margin and net capital.

FINRA found that from at least April 2013 through June 2015, Merrill’s customers engaged in extended settlement transactions with notional values of hundreds of millions of dollars across numerous firm product lines. Despite the prevalence of these transactions, Merrill’s supervisory system, including written supervisory procedures, was not reasonably designed to identify and evaluate extended settlement transactions for compliance with margin and net capital rules. Consequently, Merrill’s computation of margin requirements and net capital deductions for tens of thousands of extended settlement transactions was inaccurate, resulting in margin rule and net capital violations, as well as inaccurate books and records and FOCUS Report filings.

FINRA also found that Merrill improperly extended hundreds of millions of dollars of margin credit in numerous retail customers’ cash accounts, in violation of Regulation T. These transactions should only have been permitted in margin accounts, not in customer cash accounts.

Merrill knew that its supervisory system was not reasonably designed to achieve compliance in connection with extended settlement transactions by April 2013. However, Merrill failed to implement any remedial measures until mid-2014. Moreover, Merrill failed to establish a firm-wide supervisory system and written procedures to address extended settlement transactions until mid-2015. FINRA found that Merrill’s failures to promptly address the deficiencies after it knew about them unreasonably delayed its compliance with applicable margin, net capital, and books and records rules, as well as Regulation T.

SEC announces temporary suspension of trading in Crypto Currency Company – CRCW

The Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of The Crypto Company (“CRCW”), of Malibu, California at 9:30 a.m. EST on December 19, 2017, and terminating at 11:59 p.m. EST on January 3, 2018.

The Commission temporarily suspended trading in the securities of The Crypto Company because of concerns regarding the accuracy and adequacy of information in the marketplace about, among other things, the compensation paid for promotion of the company, and statements in Commission filings about the plans of the company’s insiders to sell their shares of The Crypto Company’s common stock. Questions have also arisen concerning potentially manipulative transactions in the company’s stock in November 2017. This order was entered pursuant to Section 12(k) of the Exchange Act.

UBS follows Morgan Stanley in leaving broker protocol

UBS is withdrawing from the Protocol for Broker Recruiting Agreement, making it the second wirehouse and original member of the arrangement to do so after Morgan Stanley withdrew from it in October.

The brokerage sent a memo to its advisors Monday morning notifying them the firm would no longer be a member of the agreement as of Friday, Dec. 1.

Morgan Stanley is the nation’s largest wealth management firm with nearly 16,000 advisors and more than $2.2 trillion in assets. UBS is half that size, with approximately 6,900 advisors, though its brokerage force is the most productive based on revenue generated per advisor, according to earnings reports.

SEC Seeks Order Against 235 Entities Affiliated with Woodbridge Group of Companies, LLC to Produce Documents to SEC

The Securities and Exchange Commission has filed a subpoena enforcement action against 235 limited liability companies (the “LLCs”) based in Delaware and Colorado seeking an order requiring the production of documents.

According to the SEC’s application and supporting papers, filed in federal court in Miami:

  • The SEC is investigating whether Woodbridge or others have violated, or are violating, the antifraud, broker-dealer and securities registration provisions of the federal securities laws in connection with Woodbridge’s receipt of over $1 billion of investor funds from thousands of investors nationwide.
  • The LLCs appear to have engaged in financial transactions with the Woodbridge Group of Companies, LLC, of Sherman Oaks, California, and may be owned and/or controlled by Woodbridge’s President, Robert Shapiro.
  • As part of the SEC’s ongoing investigation, on August 16 and 17, 2017, agency staff in the Miami Regional Office served each of the LLCs, through their registered agents, with subpoenas seeking the production of documents which identify corporate membership and financial account information.
  • The SEC’s application alleges that, although the LLCs were required to produce these documents by August 30 and 31, to date, they have failed to produce any documents.

The SEC’s application seeks an order from the federal district court compelling respondents to comply with the SEC’s subpoenas. This is the SEC’s second subpoena enforcement action in its continuing fact-finding investigation which, to date, has not concluded that any individual or entity has violated the federal securities laws.

Morgan Stanley Exits Broker Protocol

Morgan Stanley which saw its total advisor headcount drop slightly in the third quarter, says it will leave the Protocol for Broker Recruiting as part of its drive to make new investments in its advisors.

The protocol, created in 2004, limits litigation among member firms that sign on and agree to a set of rules regarding their advisors leaving and joining another company. In a statement released Monday, Morgan Stanley claimed the protocol had become “replete with opportunities for gamesmanship and loopholes” that undermined the rules. By exiting the agreement, the brokerage said it will be able to invest more in its advisors and drive growth.

But Morgan Stanley’s withdrawal from the agreement could mark a period of uncertainty for an industry already undergoing significant changes.

In addition to Morgan Stanley brokers, there will likely be broad implications for the industry if other Wall Street firms decide to exit as well.

Financial Advisor Charged In $200K Fraud

A Williamsville financial adviser is facing charges that he stole $200,000 from one of his clients.

Michael Giokas, founder of Giokas Wealth Advisors, was arrested on fraud charges Wednesday and later released on bail by U.S. Magistrate Judge Michael J. Roemer.

Assistant U.S. Attorney Paul E. Bonanno said Giokas led his client to believe the $200,00o would be placed in an investment that would yield an 8 to 9 percent return.

“In fact, the money was not placed in any investment and was instead spent by the defendant on personal expenses,” Bonanno told Roemer.

Defense lawyers Sunil Bakshi and John E. Rogowski said their client will challenge the allegations.


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