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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.”

Aidikoff, Uhl & Bakhtiari associate Katrina Boice to speak at 2016 PIABA program

Aidikoff, Uhl & Bakhtiari associate Katrina Boice has been invited to participate as a speaker at the 2016 Public Investors Arbitration Bar Association (PIABA) conference program on Thursday, October 27, 2016 and Saturday, October 29, 2016. Ms. Boice’s panel is focused on “Case Management: The Key to Maximizing Client Returns and Growing Your Practice.” This panel will include office processes, procedures and technology e.g. software to make your office run smoothly.

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

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

SEC Obtains Asset Freeze in Case of Investor Funds Stolen for Shopping Sprees

The Securities and Exchange Commission today announced an asset freeze it has obtained against three men who aren’t registered to sell investments and allegedly went on lavish shopping sprees with more than $5 million raised from investors to purportedly develop a resort.

In an emergency action filed in federal court in Atlanta, the SEC alleges that Matthew E. White, Rodney A. Zehner, and Daniel J. Merandi fraudulently issued $1 billion in unsecured corporate bonds out of a shell company they own and claimed the money would be used to fund the resort project.  But they never came close to raising the funds necessary to start the project, and meantime they pocketed the $5.6 million they did raise and used it for personal purchases at Saks Fifth Avenue, Gucci, Louis Vuitton, Prada, and Versace.

“We allege that these men stole millions of dollars from investors for personal use and orchestrated sham transactions to prop up the price of the worthless, expired bonds at the center of the fraud,” said William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office.

The SEC’s complaint filed yesterday alleges that White, Zehner, Merandi, and their companies violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5. The SEC seeks permanent injunctions, disgorgement, and penalties against all of the defendants.  The court order obtained late yesterday freezes defendants’ cash held in a brokerage account and freezes the bonds held in a separate brokerage account.

Market Drop Eliminates More than $2 Trillion from Investor Portfolios

The stock market rout is starting to get really expensive — destroying $2.3 trillion from the market’s top last year and $1.5 trillion in net wealth just this year.

The giant companies that predominantly populate the Standard & Poor’s 500 have fallen an average of 8.9% this year — which, when translated into dollars, is real money. The S&P 500 is down 8% this year already — including another 2.2% Friday — in what’s been the worst start to a year ever. Since the market peak on May 21, 2015, the market has declined 11.7%.

The U.K.’s referendum to leave the European Union was a costly decision in more ways than one.

Worldwide markets hemorrhaged more than $2 trillion in paper wealth on Friday, according to data from S&P Global, the worst on record. For context, that figure eclipsed the whipsaw trading sessions of the 2008 financial crisis, according to S&P.  The prior one day sell-off record was $1.9 trillion back in September of 2008.  According to S&P’s Broad Market Index, combined market capitalization is currently worth nearly $42 trillion.

Massive demand for safe-haven assets is outstripping supply, he added, meaning currencies like the yen and U.S. dollar, as well as government bonds and gold, are likely to keep booming.


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