FINRA

The Frankowski Firm is investigating potential claims against Morgan Stanley Smith Barney LLC, based on a $3.25 million fine and $9.78 million in customer restitution ordered by the Financial Industry Regulatory Authority (“FINRA”) against the firm for its supervisory failures related to short-term trades of unit investment trusts (UITs). A UIT is a company that sells units in a portfolio of securities with a termination of a specific maturity date; often between one and two years. UITs come with a number of fees and expenses, including deferred sales charges and a creation and development fee. Brokers who recommend a strategy of continual rolling over of investments from one UIT to another before their maturity date can incur increased fees and sales charges over time, which can be a lucrative strategy for the broker but wholly unsuitable for an investor. FINRA found that from January 2012 through June 2015, hundreds of Morgan Stanley brokers executed short term UIT rollovers in thousands [...]

The Financial Industry Regulatory Authority (“FINRA”) conducts more than 99% of the securities-related legal disputes in the United States, pursuant to FINRA’s code of arbitration procedures. Participants in FINRA arbitration may represent themselves, may have an attorney representative, and (subject to certain exceptions) may even hire a non-attorney representative. FINRA’s New York-based director of dispute resolution, Richard Berry, speaking at a Practicing Law Institute conference in September, warned customers regarding the use of non-lawyer arbitration representatives. Berry called attention to allegations of exploitation of claimants by non-lawyer representatives who charged claimants $25,000 in non-refundable deposits for their representation, taking settlement money of which the claimants were not aware, and some even representing the customer claimants without getting their consent. Attorneys engaging in such conduct would not only be subject to discipline, including disbarment, by their state bars, but also would have malpractice insurance coverage. Non-lawyer representatives are not subject to such discipline and, as far as Berry was aware, do [...]

The Financial Industry Regulatory Authority (“FINRA”) has accepted a letter of Acceptance, Waiver, and Consent from Questar Capital Corporation, of Minneapolis, Minnesota, for its failure to identify and apply sales charge waivers to eligible retirement accounts and charitable organizations. Without admitting or denying any findings made against it, Questar accepted a censure from FINRA and agreed to pay restitution to eligible customers an estimated $796,892. According to FINRA’s findings, Questar sold mutual funds to certain retirement plans and/or charitable organizations which were eligible for up-front waivers of sales charges associated with the funds’ Class A shares. Questar failed to apply the waivers to mutual fund purchases made by the eligible customers and instead sold them Class A shares with the higher fees and expenses associated with Class B or C shares. FINRA further found that Questar failed to reasonably supervise the application of sales charge waivers to eligible mutual fund sales. Specifically, Questar failed to maintain adequate written policies or [...]

Financial abuse of senior citizens is a growing trend as more and more Americans are living longer. All the wise steps financial advisors recommend to working adults saving for retirement can backfire spectacularly when retirees become the target of financial predators. To combat this, FINRA has drafted a new rule to target the financial exploitation  of adults over 65 and any person 18 years or older who has a mental or physical impairment and cannot protect their own interests. The new rule will be FINRA Rule 2165, titled “Financial Exploitation of Specified Adults,” and will go into effect on February 5, 2018. Targeting disbursement rather than transactions FINRA’s suggestion was that brokers be able to freeze accounts and prevent disbursements (the payment from a fund). It seems that investment professionals have noted a greater frequency of unlawful disbursement requests than simple trades or transactions, which makes sense, as those looking to defraud vulnerable investors are likely looking for immediate profit. [...]