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Archive for February, 2018


SEC Charges Ameriprise With Overcharging Retirement Account Customers for Mutual Fund Shares

The Securities and Exchange Commission today announced that a Minnesota-based broker-dealer and investment adviser has agreed to settle charges for recommending and selling higher-fee mutual fund shares to retail retirement account customers and for failing to provide sales charge waivers.

According to the SEC’s order, Ameriprise Financial Services Inc. disadvantaged certain retirement account customers by failing to ascertain their eligibility for less expensive mutual fund share classes.  Ameriprise recommended and sold these customers more expensive mutual fund share classes when less expensive share classes were available.  Ameriprise also failed to disclose that it would receive greater compensation from the purchases and that the purchases would negatively impact the overall return on the customers’ investments.

“Ameriprise generated greater revenue for itself but lower returns for its retirement account customers by recommending higher-fee share classes,” said Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “As evidenced by our recently announced Share Class Selection Disclosure Initiative, pursuing these types of actions remains a priority for the Division as we seek to get money back in the hands of harmed investors.”

Approximately 1,791 customer accounts paid a total of $1,778,592.31 in unnecessary up-front sales charges, contingent deferred sales charges, and higher ongoing fees and expenses as a result of Ameriprise’s practices.  Ameriprise cooperated with the Commission and voluntarily identified the affected accounts, issued payments including interest to the affected customers, and converted eligible customers to the mutual fund share class with the lowest expenses for which they are eligible, at no cost.

The SEC’s order instituting a settled administrative and cease-and-desist proceeding finds that Ameriprise violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.  Without admitting or denying the findings, Ameriprise consented to a cease-and-desist order, a censure, and a penalty of $230,000.

Western International Securities, Inc. Fined $521,098 in Connection With Sales of Non-Traditional ETFs

On February 28, 2018, FINRA Enforcement entered into a settlement via Acceptance, Waiver and Consent (“AWC”) with Respondent Western International Securities, Inc. (“WIS”) (CRD# 39262).  Specifically, without admitting or denying any wrongdoing — WIS consented to paying a fine of $521,908, in addition to restitution to certain investors in the amount of $125,000 — in connection with FINRA’s findings of fact that from January 2011 – November 2015, WIS allegedly failed to supervise its registered representatives with regard to sales of certain leveraged, inverse, and inverse-leveraged Exchange-Traded Funds (“Non-Traditional ETFs”).

Non-Traditional ETFs are designed to return a multiple of an underlying benchmark or index (or both) over the course of one trading session (typically, a single day).  Therefore, because of their design, Non-Traditional ETFs are not intended to be held for more than a single trading session, as enunciated by FINRA Enforcement in its recent AWC as concerns Respondent WIS:

“[t]he performance of Non-Traditional ETFs over periods of time longer than a single trading session ‘can differ significantly from the performance… of their underlying index or benchmark during the same period of time.”  FINRA Regulatory Notice 09-31.

Pursuant to the AWC, FINRA’s findings of fact allege that WIS registered representatives solicited and effected Non-Traditional ETF purchases that were unsuitable for specific customers.  For example, in one instance, FINRA determined that a 73 year-old customer with a net worth of $200,000 and an investment objective of growth and a conservative risk profile was purportedly steered into five Non-Traditional ETFs.  As alleged by FINRA, this elderly investor held the Non-Traditional ETFs for an average of 356 days, resulting in a net loss of $20,232.

In another instance of purported unsuitable recommendations, FINRA Enforcement determined that a WIS customer with a net worth of $200,000 and an investment objective of growth and a conservative risk profile was also purportedly steered into five Non-Traditional ETFs.  As alleged by FINRA, this investor held the Non-Traditional ETFs for an average of 350 days, resulting in a net loss of $32,865.

Larry Martin Boggs – Ameriprise – Dallas, Texas

An AWC was issued in which Boggs was barred from association with any FINRA member firm in all capacities. Without admitting or denying the findings, Boggs consented to the sanction and to the entry of findings that he engaged in excessive and unsuitable trading in customer accounts. The findings stated that Boggs used his control over the customers’ accounts to excessively trade in them in a manner that was inconsistent with these investors’ investment objectives, risk tolerance and financial situations. Boggs engaged in a strategy that was predicated on short-term trading of primarily income-paying equity securities that were identified on a list of recommended securities by his member firm. Boggs would typically buy or sell these securities based on whether they were added to or removed from this list, and would frequently liquidate positions that increased or decreased by more than 10 percent. The findings also stated that Boggs improperly exercised discretion in these accounts without written authorization from the customers or the firm. The findings also included that Boggs caused the firm’s books and records to be incorrect by changing the investment objectives and risk tolerance for several of these customers in order to conform to his high-frequency trading strategy, even though the customers’ investment objectives and risk tolerance had not actually changed. (FINRA Case #2015045518901)

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

William Fitzgerald White – San Diego, California

An Offer of Settlement was issued in which White was fined $12,500 and suspended from association with any FINRA member in all capacities for 16 months. Without admitting or denying the allegations, White consented to the sanctions and to the entry of findings that he willfully failed to timely amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose a bankruptcy petition, tax liens, FINRA arbitrations and a civil litigation. The findings stated that White failed to timely respond to FINRA requests for documents and information during the course of an investigation into whether he disclosed certain reportable events on his Form U4. The findings also stated that White opened and traded in an outside securities account without giving prior written notice to his member firm and the executing firm. The suspension is in effect from October 2, 2017, through February 1, 2019. (FINRA Case #2015048104602)

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