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SEC Obtains TRO and Asset Freeze in Investment Scheme Involving Seniors

The Securities and Exchange Commission today announced an emergency asset freeze and temporary restraining order against a Chicago-based investment adviser and his financial management company accused of scamming elderly investors out of millions of dollars.

The SEC alleges that Daniel H. Glick and his unregistered investment advisory firm Financial Management Strategies (FMS) provided clients with false account statements to hide Glick’s use of client funds to pay personal and business expenses, purchase a Mercedes-Benz, and pay off loans and debts among other misuses.

According to the SEC’s complaint, Glick was barred by FINRA in 2014 and had his Certified Financial Planner designation and Certified Public Accountant license revoked for conduct unrelated to today’s SEC charges.

The SEC’s complaint also names Glick Accounting Services, Glick’s business partner David B. Slagter, and Glick’s business acquaintance Edward H. Forte as relief defendants for the purposes of recovering client funds that Glick transferred or paid them in the form of advances or loans.

The complaint alleges that Glick and FMS violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

The court issued a temporary restraining order against Glick and FMS at the SEC’s request, and issued an order freezing the assets of Glick, FMS, and Glick Accounting Services.

FINRA Dispute Resolution Issues Status Report on Arbitration Task Force Recommendations

Action Taken on 35 of 51 Recommendations to Date

The Financial Industry Regulatory Authority (FINRA) today released a status report on the recommendations made in the FINRA Dispute Resolution Task Force’s Final Report issued in December 2015. In July 2014, FINRA had formed a 13-member task force composed of individuals representing a broad range of interests in securities dispute resolution to consider possible enhancements to its arbitration and mediation forum. FINRA released an interim status report in October 2016 and today’s report sets forth further progress made to date. FINRA has discussed all of the task force recommendations with the National Arbitration and Mediation Committee (NAMC). FINRA has taken action on 35 of the 51 recommendations; 16 are pending.

Robert Cook, FINRA’s President and CEO, said, “We are very pleased to report that we have already implemented many of the task force’s recommendations, and we are diligently responding to the remaining recommendations. Many of the recommendations we are putting in place are meaningful changes that will position the forum to better serve all parties involved. The NAMC and FINRA staff are doing an effective job of comprehensively reviewing and promptly taking action on the recommendations.”

Many of the recommendations, particularly those involving forum transparency, arbitrator recruitment and training, and case administration processes did not require rulemaking and were implemented in 2016. Among those, the report notes that FINRA received 945 arbitrator applications in 2016, far exceeding its goal to recruit 750 new arbitrators. FINRA’s latest arbitrator demographic survey, which was conducted by an external consulting firm, showed particular progress in adding women and African-Americans to the roster. In 2016, 33 percent of the arbitrators added were women (compared to 26 percent in 2015) and 14 percent were African-American (compared to 4 percent in 2015).

FINRA commenced the rulemaking process on six of the recommendations. Of those, the SEC has already approved two proposals related to the number of public arbitrators on lists and motions to dismiss; there are four proposals in various stages in the rulemaking process, including a proposal addressing the task force recommendation to develop an intermediate form of adjudication for small claims.

The task force’s recommendations were reviewed by the NAMC, FINRA’s standing Board advisory committee, which recommended items to implement immediately, items that would require further discussion and items that may not be feasible.

FINRA, the Financial Industry Regulatory Authority, regulates securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.

Morgan Stanley Financial Advisor Barry Connell Arrested for Stealing more than $5 million from Client Accounts

On January 3, 2017, Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that former Morgan Stanley financial advisor Barry Connell had been arrested and charged with wire fraud and aggravated identity theft for allegedly using his position as a financial adviser at Morgan Stanley to defraud multiple clients out of at least $5 million over a one-year period. (“Former Financial Adviser At Global Bank Charged In Manhattan Federal Court With Multimillon-Dollar Scheme To Defraud Clients”).

According to the press release that announced the indictment and arrest of financial advisor Connell, “as alleged, Barry Connell used his clients’ bank accounts as his own, siphoning off millions of dollars to pay for his extravagant lifestyle, including a country club membership and private jet expenses.”

According to the allegations in the indictment that was unsealed in the Manhattan federal court, from December 2015 to November 2016, Mr. Connell effected numerous unauthorized transactions from five accounts belonging to a single family of Morgan Stanley clients, and as a result, defrauded the clients of at least approximately $5 million.

It is alleged that, in some instances, Mr. Connell effected the fraudulent transactions by submitting Morgan Stanley forms falsely stating that he had received client instructions authorizing wire transfers to third parties for the client’s benefit, when in fact he had not received client authorization and the wire transfers were for financial advisor Connell’s own benefit. In other instances, Mr. Connell effected the fraudulent transactions by using one client’s checks, which had been intended only to pay the client’s bills, to instead pay for his own expenses including a year’s rent for a house near Las Vegas, country club membership fees, and private jet expenses.

Financial advisor Connell also allegedly paid bills for a credit card account in his spouse’s name, and made payments for his own benefit to automobile dealerships, an entertainment company, and a yacht company. Financial advisor Connell’s registration records indicate that, at the time of the events in question, he had been associated with the Morgan Stanley branch office located in Ridgewood, New Jersey.

Copies of both the U.S. Department of Justice press release and the indictment of financial advisor Connell can be found at: https://www.justice.gov/usao-sdny/pr/former-financial-adviser-global-bank-charged-manhattan-federal-court-multimillon-dollar.

If you are an individual or institutional investor who has any concerns about your investments with financial advisor Barry Connell or Morgan Stanley, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

SEC Approves Amendments to the Customer Code of Arbitration Procedure Regarding Panel Selection in Cases with Three Arbitrators

The Securities and Exchange Commission (SEC) approved amendments to FINRA Rule 12403 (Cases with Three Arbitrators) of the Code of Arbitration Procedure for Customer Disputes (Customer Code) to increase the number of arbitrators on the public arbitrator list that FINRA sends to parties during the arbitration panel selection process from 10 to 15. The amendments also increase the number of strikes to the public arbitrator list from four to six, so that the proportion of strikes is the same under the amended rule as it is under the current rule.

The amendments will become effective for all arbitrator lists FINRA sends to parties on or after January 3, 2017, for panel selection in customer cases with three arbitrators.

Full version of the notice:

http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-44.pdf

 

Aidikoff, Uhl & Bakhtiari partner Philip Aidikoff to speak at 2016 PIABA program

Aidikoff, Uhl & Bakhtiari partner Philip M. Aidikoff has been invited to participate as a speaker at the 2016 Public Investors Arbitration Associate Bar Association (PIABA) conference program on Thursday, October 27, 2016 and Friday, October 28, 2016. Mr. Aidikoff’s panel is entitled “Hearing Strategy as Seen by Respondent Counsel”.  This panel will include leading Respondent Counsel Sean Coughlin, David Markun and Tracy Gerber and will discuss preparation and presentation issues as well as how to conduct an effective arbitration.

For more information and to register for the conference, visit https://piaba.org/.

SEC charges investment adviser with cherry-picking and allocating profitable trades for his own account

The Securities and Exchange Commission today announced fraud charges against an investment adviser accused of “cherry-picking” profitable trades for his own account rather than a client’s accounts, and misleading seniors and other clients about the fees he charged and the risks in investments he recommended.  The SEC Enforcement Division alleges that Laurence I. Balter and his Kihei, Hawaii-based firm Oracle Investment Research purchased equities and options in an omnibus account and waited to allocate the trades until after they were executed and Balter knew whether they were profitable.  Balter allegedly allocated profitable trades to his own accounts and unprofitable trades to his client accounts.  The SEC Enforcement Division further alleges that Balter falsely told clients invested in his affiliated mutual fund they would not pay both advisory fees and fund management fees, yet he charged both fees anyway.  Balter also allegedly made trades for the mutual fund that deviated from two of its fundamental investment limitations and ultimately resulted in a non-diversified portfolio that caused significant losses to investors.   “We allege that Balter reaped more than a half-million dollars in ill-gotten gains by siphoning winning trades from his clients and withdrawing more than his fair share of management fees,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Investment advisers breach their fiduciary duty when they favor their own interests and force clients to take less profitable trades without their knowledge.”

UBS Reverse Convertible Note Losses

On September 28, 2016, the U.S. Securities & Exchange Commission announced that it had imposed severe monetary penalties on UBS Financial Services in connection with the firm’s activities involving nearly $10.7 billion of stock-linked reverse convertible notes (“RCNs”) that had been sold to approximately 44,000 customer accounts between 2011 and 2014. (“In the Matter of UBS Financial Services Inc., Exchange Act Release No. 34-78958”)

The penalties, which included more than $9 million in disgorgement and a civil penalty of $6 million, were based on UBS having failed to develop and implement policies and procedures reasonably designed to educate and train its registered representatives in connection with RCNs so that they could adequately understand the risks and rewards of the product and could form a reasonable basis to make suitable recommendations to their customers.

Without adequate education and training, certain registered representatives made unsuitable recommendations in relation to the offer and sale of approximately 2,500 different RCNs to certain customers – many of whom had little or no relevant investing experience and had identified to UBS modest reported income and net worth, primarily moderate or conservative investment objectives, and some of whom were retired.

RCNs are a type of structured product issued by a financial institution as an unsecured debt obligation that is linked to the performance of an underlying single stock. RCNs are structured to pay a higher interest rate than conventional debt of the same issuer because of the inclusion of the embedded derivative that provides essentially a synthetic put on the underlying stock.

The UBS single stock-linked RCNs at issue in the SEC enforcement action involved certain complex structures, including: (1) Trigger Yield Optimization Notes; (2) Trigger Autocall Optimization Securities; (3) Trigger Phoenix Autocall Optimization Securities; (4) Airbag Yield Optimization Notes; and (5) Airbag Autocallable Yield Optimization Notes.

As noted in the SEC’s Enforcement Order, “UBS’s internal education and training primarily focused on describing the payouts for the various products and . . . it did not provide adequate training on certain important aspects of RCNs. For example, although the Structured Solutions Desk provided potential issuers with information regarding the RCN option features from the ‘investor’s perspective,’ internal educational materials lacked similar information. In addition, UBS’s internal educational materials did not describe sufficiently the role of implied volatility and the potential for breach in the selection of the equity securities underlying the RCNs. As a result, UBS registered representatives were not adequately educated and trained to understand adequately the risk and characteristics of the product, including relevant volatility concepts and the role that volatility played in the selection of the equity securities underlying the RCNs.”

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with UBS Financial Services Inc., please contact us.

Aidikoff, Uhl & Bakhtiari Announces the Filing of a FINRA Arbitration Claim Seeking More than $1.1 Million On Behalf Of Former Customers of Wedbush Securities, Inc. broker Mark Heiden

Aidikoff, Uhl & Bakhtiari announces the filing of a FINRA arbitration seeking more than $1.1 million and its continuing 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.

“Mark Heiden’s transactions in the energy sector raise serious concerns about the level of supervision Wedbush chose to exercise,” added Philip Aidikoff.

“The level of concentration in energy related securities posed a risk that customers could not appreciate,” said Ryan Bakhtiari.

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

Ex-American Realty executives charged with securities fraud

U.S. prosecutors on Thursday announced criminal fraud charges against two former American Realty Capital Properties Inc executives stemming from a 2014 accounting scandal that wiped out roughly $4 billion of the real estate investment trust’s market value.

Former Chief Financial Officer Brian Block, 44, was charged with six criminal counts, including securities fraud, conspiracy and making false statements, according to U.S. Attorney Preet Bharara in Manhattan.

Lisa McAlister, 52, a former chief accounting officer, pleaded guilty on June 29 to four counts, including securities fraud and conspiracy, and is cooperating, Bharara said.

The U.S. Securities and Exchange Commission filed related civil charges against both defendants, seeking fines and officer and director bans.

Block was arrested on Thursday at his home in Hatfield, Pennsylvania. He was released on $1 million bond after appearing in the federal court in Philadelphia, prosecutors said.

The REIT, which has since changed its name to Vereit Inc. and is under new management, declined to comment. Vereit has said in past regulatory filings that it has been cooperating with investigators.

The accounting scandal that rocked American Realty Capital in 2014 represented a significant black eye for the nontraded real-estate investment trust business, which flourished during the years following the 2008 financial crash. Nontraded REITs, which purchased non-flashy commercial property, were popular with small investors because of the relatively high dividends they offered.

But they came under fire from regulators and others because of their high fees and weak disclosure. New regulations have gone into effect in recent years, but the industry’s fundraising efforts have been hurt by the negative publicity.

Aidikoff, Uhl & Bakhtiari partner Ryan Bakhtiari to speak at 2016 PLI Securities Arbitration program

Aidikoff, Uhl & Bakhtiari partner Ryan Bakhtiari has been invited to participate as a speaker at the 2016 Practicing Law Institute (PLI) conference program on Wednesday, September 28, 2016.

The PLI Securities Arbitration program is held at the PLI New York Center and also online by webcast.  The program brings together legal professionals with securities industry regulators to discuss hot topics in the securities arbitration practice area.  This year’s conference features sessions geared toward attorneys, including:  FINRA Update on the Dispute Resolution Task Force Recommendations; the Arbitrator’s Perspective; Employment Disputes; Ethics; Expert Witnesses and Closing Arguments; and other Hot Topics and Future Trends.

For more information and to register for the conference, visit http://www.pli.edu/re.aspx?pk=149779&t=WKE6_FCLTY


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