Legal Matters

The Financial Industry Regulatory Authority (“FINRA”) has fined Cetera Advisor Networks $1.4 million related to short-term mutual fund purchases of a former broker. FINRA fined Cetera $700,000 in penalties and ordered $691,000 in customer restitution for the excessive trading activity. According to the FINRA findings, the former Cetera broker made hundreds of short-term purchases and sales of A-share mutual funds in the accounts of 14 customers. Customers were charged front-end commissions for each trade, costing them nearly $700,000 over a six-year period while enriching Cetera and the broker. This type of unsuitable excessive trading activity is known within the industry as “churning” an account. The broker involved was barred from the securities industry last year for failing to cooperate in FINRA’s investigation into the conduct. FINRA further found that the broker had tried to “mask” the churning via stock trading between mutual fund sales and purchases. FINRA found that Cetera failed to respond reasonably to red flags associated with the [...]

Investors have filed lawsuits against intermediaries and advisory firms – including stockbrokers, financial advisers, financial planners, and insurance agents, for their losses estimated to be at least $100 million in an alleged investment fraud related to Future Income Payments (“FIP”). According to the InvestmentNews article, the claims relate to the sale of “structured cash flows” to clients. Future Income Payments allegedly offered pensioners upfront, lump-sum payments in return for their monthly pension payments over a specific term, often three to five years. Investors were allegedly promised returns in the range of 6%-8%. FIP allegedly used these pension streams to fund the cash flows sold to investors. Some investors also were allegedly urged to fund premium payments for indexed universal life insurance policies with the income from the structured cash flows. FIP has stopped making payments to investors as of April 2018, however, which will likely cause many investors’ policies to lapse. FIP is run by a convicted felon named Scott [...]

Investors in United Development Funding (UDF) Real Estate Investment Trusts (REITs) have lost approximately $1 billion since the FBI raided the UDF offices and the REITs began to collapse in early 2016. A REIT is a type of investment vehicle that functions as a company which owns real estate investments, typically large scale real estate investments or diverse real estate investments. The REIT structure can offer an investor an opportunity to invest in real estate at a lower cost than they might otherwise have. Among the downside risks, however, are volatility (including substantial short-term losses) and for numerous REITs the lack of a publicly-traded exchange. These “nontraded” REITs present significant liquidity risk; meaning investors can have a difficult time selling the REITs in normal conditions and can find themselves “stuck” with a troubled REIT like UDF. Stockbrokers have a duty to make certain that any recommended investment strategy is suitable for a customer. This includes (among numerous factors): making certain [...]

An arbitration panel of the Financial Industry Regulatory Authority (“FINRA”), has entered an Award of over $564,000, plus interest, against UBS Financial Services, Inc. and UBS Financial Services, Inc. of Puerto Rico following a customer arbitration against the firms.  The customer’s claims included allegations of violations of federal and Puerto Rican securities acts, breach of contract, fraud, breach of fiduciary duty, and negligence involving Wells Fargo’s sale of investments including Puerto Rico municipal bonds and closed-end bond funds. The claimant requested compensatory damages in excess of $500,000 to recoup their investment losses. The FINRA panel of arbitrators awarded the claimant compensatory damages of $435,623.33, plus post-judgment interest, $102,000 in attorneys’ fees, $26,936.49 in costs, ordered UBS Financial Services, Inc. of Puerto Rico to repurchase almost all of the securities in Claimant’s account, and denied UBS’s request for expungement of the records of the stockbrokers involved in the conduct at issue.  FINRA enforcement previously fined UBS Financial Services of Puerto Rico [...]