November 2009 Archives

November 30, 2009

California Stockbroker Discipline Report for November 2009

The following information regarding broker misconduct and disciplinary activities taken against California stockbrokers was released by the Financial Industry Regulatory Authority (FINRA) in November 2009:

Lisa Ann Tomiko Nouchi of Fairfield, California, was suspended from association with any FINRA member in any capacity for 90 days and fined $10,000 for allegedly entering inaccurate and false customer information while she was employed at UBS Financial Services.

Marc Winters of Chatsworth, California, was suspended from association with any FINRA member in any capacity for 90 days and fined $19,882 for allegedly entering inaccurate and false customer information while he was employed at UBS Financial Services.

Gary Thomas Armitage who is the principal of AGA Financial and was formerly with ePLANNING Securities, Inc. in Roseville, California, was named in a complaint filed by FINRA alleging unauthorized transactions in customer accounts and participating in unreported private securities transactions.

November 17, 2009

Wells Fargo Bank and Bank of New York Mellon Involved In Medical Capital Securities Class Action

Thumbnail image for Thumbnail image for medcap.jpgOn November 2, 2009, a class action was filed in the Central District of California against Wells Fargo Bank and Bank of New York Mellon on behalf of investors who purchased Medical Capital notes. The class action alleges that the banks failed to safeguard investor assets while acting as trustees of the Special Purpose Corporations created by Medical Capital Holdings. The action, Michel Rapoport v. Wells Fargo Bank, National Association et. al, has not yet been certified by the court.

There are currently two separate class actions arising from the Medical Capital fiasco. In addition, a growing number of investors are pursuing securities arbitration claims directly against the financial advisors that solicited their purchase of Medical Capital notes.

See related blog entry: Medical Capital Class Action or Arbitration: Investors Should Consider Their Options

November 10, 2009

SEC Reaches Settlement With San Francisco Brokerage Firm Regarding Failure to Supervise Securities Fraud Committed by Rogue Stockbroker

Today, the Securities Exchange Commission (SEC) issued an order finding that Jon Merriman, founder of San Francisco brokerage firm Merriman Curhan Ford, and Christopher Aguilar, the firm's former general counsel, had failed to supervise broker David "Scott" Cacchione who was engaging in securities fraud.

Although the firm had placed Cacchione on heightened supervision because of prior disciplinary actions, the SEC found that the firm ignored red flags signaling potential fraud, including an elderly investor's complaint that Cacchione purchased risky penny stocks without her permission. According to the SEC, Cacchione committed securities fraud by placing unauthorized and unsuitable trades in customer accounts and also by helping an accomplice obtain more than $45 million in personal loans using securities held in the accounts of unsuspecting customers as collateral for the loans. After pleading guilty to securities fraud, Cacchione was sentenced to five years in prison and ordered to pay restitution of $47.5 million.

Without admitting or denying any wrongdoing, the three parties agreed to pay the following fines associated with their failure to supervise Cacchione: Merriman Curhan Ford $100,000; Jon Merriman $75,000; and Christopher Aguilar $40,000. In addition, Merriman and Aguilar agreed to a 12-month suspension from serving in any supervisory capacity.

November 1, 2009

Encouraging News for Securities Arbitration Claimants?

Although my earlier blog posting about securities arbitration results in San Francisco was less rosy, today's Wall Street Journal article, "Investors Win More Broker Cases," did contain a bit of encouraging news for brokerage firm customers who may be considering whether to file a securities arbitration claim. The article noted that customers who went all the way to hearing before the Financial Industry Regulatory Authority (FINRA) have prevailed 45% of the time so far this year compared to just 37% in 2007. In other words, investors are winning a larger percent of cases than they did in the past, but they are still losing 65% of the time. The WSJ article also noted that awards to investors for claims under $1 million were averaging about 50% of the damages requested.

[Blogger's note: See my year-end update, "Securities Arbitration Award Results for 2009 Better Than Expected for San Francisco Investors"]

Most Investor Claims Involve Mutual Funds

The WSJ article also makes a point of saying that a "good chunk" of the cases filed in the last two years involve auction rate securities. FINRA started keeping track of ARS cases on January 1, 2008. A total of 299 ARS cases were filed in 2008. This year, there have been 215 ARS cases filed through September 2009. A significant trend that was overlooked in the WSJ article is the fact that disputes involving mutual funds are the most frequently arbitrated type of securities product. This year, there have already been 1,272 mutual fund cases filed through September 2009--an amount that eclipses the total number of mutual fund cases filed in 2007 and 2008 combined.

Most Investor Claims Allege Breach of Fiduciary Duty and Misrepresentation

According to FINRA, the two most common types of customer complaints for 2009 are breach of fiduciary duty and misrepresentation. However, there are limitations to FINRA's statistics. For example, FINRA only includes four claim types for every case that is filed. This may explain why unsuitability--a widely alleged customer complaint--did not rank as high as it probably should have.