A federal jury convicted Vegas Big-Wig Billy Walters of an insider-trading scheme with the former CEO of Dean Foods (Thomas Davis) that netted him $43 million. The jury returned a guilty verdict on all 10 counts of conspiracy, securities fraud and wire fraud charges.  Walters will be sentenced on July 14, 2017, facing up to 20 years in prison for each of eight counts, plus five years apiece on the other two.

Dean Foods is the company behind Land O’Lakes, Horizon and other major supermarket brands.

Walters’ co-conspirator, former Dean Foods chairman Thomas Davis has already pleaded guilty to sharing tips on Dean Foods that allowed Davis to profit by tens of millions of dollars between 2008 and 2014.

FINRA (Financial Industry Regulatory Authority) announced that the National Adjudicatory Council (NAC) revised guidelines regarding financial exploitation of vulnerable individuals or individuals with diminished capacity. In addition, the new Sanction Guidelines include three new guidelines relating to systemic supervisory failures, borrowing and lending arrangements, and short interest reporting. The NAC revised the guidance concerning sanctions imposed by other regulators, indicating that these sanctions may be considered as mitigating factors.

The NAC is FINRA’s appellate tribunal for disciplinary cases and is a 15-member committee composed of industry and non-industry members. The Sanction Guidelines were originally published in 1993 and were most recently updated in May 2015.  The purpose was to familiarize member firms with some of the typical securities law or FINRA rule violations that occur, and the range of disciplinary sanctions that may result from those rule violations.

The Sanction Guidelines are intended to assist FINRA’s adjudicators—Hearing Panels and the NAC—in imposing appropriate sanctions consistently and fairly in disciplinary proceedings. FINRA’s Sanction Guidelines are also used in determining the appropriate level of sanctions to seek in settled and litigated cases.

FINRA (Financial Industry Regulatory Authority) issued an Investor Alert warning anyone involved in binary options trading through unregistered non-U.S. companies. Binary options are inherently risky all-or-nothing propositions. When a binary option expires, it either makes a pre-specified amount of money, or nothing at all, in which case the investor loses his or her entire investment.  Consumers using unregistered non-U.S. trading platforms or services may be particularly vulnerable to follow-up scams.

Customers of binary options platforms hear from individuals who appear to know about their accounts and claim to be able to help them get back lost funds, provided the customers pay an upfront fee.

Another scam involves phone calls from an IRS imposter claiming that taxes are owed because of binary options trading. The IRS imposter asks for a debit or credit card number, or may pressure for payment with a prepaid debit card. The IRS never calls taxpayers and demands that they wire or send money — instead the IRS sends a written notification of any tax due through the U.S. mail.

The SEC charged Allen with fraud for allegedly operating a $31 million Ponzi Scheme.  Allen, with his accomplice Susan Daub, formed a company that made high-interest, short-term loans to athletes.  The loans were funded by money from investors, but Allen used the capital for various expenses. More than 40 people invested money in Allen’s Ponzi scheme dating back to 2012,

Prosecutors say former cornerback Will Allen and partner Susan Daub pleaded guilty to federal fraud, conspiracy and money laundering charges in federal court in Boston. Prosecutors say they took in more than $35 million and repaid less than $22 million.

The indictment details that Allen received $4.1 million of the proceeds and that Daub, who was accused of committing 20 felonies, received $239,000.  Allen’s indictment includes 12 counts of wire fraud, six counts of aggravated identity theft, one count of conspiracy to commit wire fraud and four counts of illegal monetary transactions. If convicted, Allen faces up to 20 years on each wire fraud charge and shorter sentences for the remaining felonies.

Frank H. Black and his Firm Southeast Investments NC failed to comply with applicable securities laws by retaining business related emails and to establish, maintain and enforce, supervisory systems.

Southeast Investments N.C. which was established in 1997 and has close to 130 registered representatives, according to FINRA. Forty percent of the firm’s revenues are from sale of variable annuities; 40% from mutual funds; and most of the remaining 20% from real estate investment trusts, according to the FINRA panel.

September 2012, FINRA requested documentation records for Southeast Investments’ branch office inspections.  Mr. Black produced a three-page inspections calendar, listing 43 branch offices that he claimed he inspected between March 2010 and August 2012.

The Securities and Exchange Commission (SEC) announced Feb. 14, 2017 that Morgan Stanley Smith Barney will pay $8 million and admit wrongdoing after allegations related to single inverse ETF (exchange –traded fund) investments it recommended to advisory clients.

The ETFs are supposedly unsuitable for long-term investing.  EFTs generally should be sold within one trading cycle.  Morgan Stanley, however, allegedly solicited the ETFs to clients for retirement.

“Morgan Stanley recommended securities with unique risks and failed to follow its policies and procedures to ensure they were suitable for all clients,” said Antonia Chion, associate director of the SEC Enforcement Division.

Blum Law Group, along with Place and Hanley, LLC is pleased to report a FINRA Arbitration Award against UBS Financial Services of Puerto Rico relating to the crash of UBS closed end bond funds in 2013 which were sold to Puerto Rico residents.  Darren Blum along with trial attorneys Randall Place and Sara Hanley, represented the Claimant customer in the case of Matus Trust v. UBS Financial Services of Puerto Rico, et al.  The arbitration Panel awarded over $400,000 (including the interest) as damages to the Claimant, despite the fact that the account was profitable overall! The Panel also awarded all of Claimant’s attorneys fees to be paid by UBS.

The case involved a heavy over-concentration of the Claimant’s UBS account in proprietary UBS closed end bond funds pursuant to UBS’s recommendations.  The funds invested heavily in Puerto Rico bonds using leverage (a speculative investment technique), and had significant geographic concentration risk.  UBS failed to supervise and was found liable for fraud!

If you wish to discuss claims against UBS involving these funds, please contact Darren Blum at 1-877-786-2552 (Stock Law), www.stockattorneys.com for a free consultation.

FINRA has made brokerage firm “culture” one of its top priorities for 2016. FINRA refers to “culture” as how management sets the bar for the firm and how culture effects their brokers interaction with clients and their business. According to FINRA, firm culture has a profound influence on how a broker-dealer conducts its business, including how it manages conflicts of interest. This is a new area FINRA is trying to investigate.

One way FINRA is looking into culture is to see if there are any forms of payments and commissions that could affect an employees behavior. FINRA is reaching out to the industry by seeing where firms stand versus enforcing strict “culture” rules on how a brokerage firm must act. Recently, FINRA sent more than a dozen firms 8 questions regarding their firms “culture.” The questions were the following:

” 1. A summary of the key policies and processes by which the firm establishes cultural values. In the summary, include whether this is a board-level function at your broker-dealer or at the corporate parent of the firm. If it is a board-level function, describe the board’s involvement. Also, provide a description of any steps you have initiated or completed in the past 24 months to promote, strengthen or change your firm’s culture.

Advisor Independence Achilles Heel for Gigantic Investment Organization

LPL Financial is one of the nation’s largest broker/dealer investment firms, yet it is not an investment firm in the traditional sense. Whereas most investment firms offer specific investment vehicles, LPL Financial’s business model differs from many other companies in the investment industry. Formed in 1989 as the result of a merger of two brokerage firms, Linsco and Private Ledger, LPL Financial is actually an aggregation of investment advisors which exceeds 13,000 employees. As a result, LPL Financial has the responsibility to adequately supervise those advisors to ensure that they are not only following the best investment practices to benefit their clients, but that they are also following those practices which are mandated by state laws, federal laws, and the rules set forth by regulatory agencies.

When you consider the number of regulatory actions against LPL Financial in recent years, it becomes clear that upholding these supervisory obligations seems to be an ongoing issue for the company. This is not surprising when you consider that many of the advisors which it licenses are in small or individual offices located across the United States. Just this year alone, the Financial Industry Regulatory Authority (FINRA) fined LPL Financial with nearly $3 million in penalties as a result of the company’s faulty “three-tiered supervisory system”. This system was supposed to ensure accuracy in the processing and reviewing of their alternative investments, and that its representatives and supervisory personnel were adequately trained. Unfortunately, this system broke down on every level.

Top Executives Foster Flagrant Fraud Practices

It goes without saying that there is a lot of money to be made in the investment industry. Even when investment firms and advisors follow the rules that govern the industry, they stand to earn substantial sums in commissions if they are skilled at their profession. Knowing this makes it particularly deplorable when brokerage firms and their employees engage in acts of misconduct in order to increase their profits. The firms and advisors that do so may benefit from these misdeeds, but their clients suffer financial losses as a result of their shady business practices. Regrettably, there are many ways to surreptitiously increase profits for advisors. Not all of these methods are illegal, but do fall under the category of breach of fiduciary duty and fraud when the best interests of the clients are set aside for the sake of profits.

Recently, the Securities and Exchange Commission leveled charges against Southern California-based Total Wealth Management for just such infractions. According to the SEC complaint, Total Wealth Management’s chief executive officer and owner, Jacob Cooper; their chief compliance officer, Nathan McNamee; and an investment advisor, Douglas Shoemaker, all breached their fiduciary responsibilities. The enforcement division of the SEC claims that these individuals held revenue sharing agreements that were not disclosed to their clients. These agreements resulted in kickbacks that were paid to the individuals as “revenue sharing fees.” This created conflicts of interest because the investments that were being suggested were proprietary funds known as the Altus family of funds. The company also misrepresented the level of due diligence that it provided on the investments that it recommended.