September 2010 Archives

September 28, 2010

FINRA Takes Steps to Level the Playing Field for Investors

Today, the Financial Industry Regulatory Authority (FINRA) announced plans that should help level the playing field for investors pursuing securities arbitration claims against their stockbroker or financial advisor. FINRA's proposed rule change would give investors the option of selecting an arbitration panel that is composed entirely of "public" arbitrators.
Under the existing rule, a three-arbitrator panel must include two "public" arbitrators and one "non-public" arbitrator. A "non-public" arbitrator is an arbitrator that is affiliated with the securities industry, such as a brokerage firm employee or a defense attorney. Many have argued that industry arbitrators have an inherent bias or tendency to favor brokers over customers. In my experience, having industry arbitrators on panels has been a mixed blessing. At a minimum, the presence of an industry arbitrator gives an appearance of bias. Giving investors the ability to choose whether or not to have an industry arbitrator on their panel is, in my opinion, a compromise solution meant to counter criticism that mandatory arbitration of securities disputes is fundamentally unfair.

FINRA plans to file the rule proposal with the Securities and Exchange Commission (SEC) next month. So far, as as many as 560 cases have already elected to to utilize "all public" arbitration panels under a pilot program established in October 2008 by FINRA through an arrangement with 14 brokerage firms that volunteered to participate in the pilot program.

See related blog posting: FINRA Dispute Resolution Expands Pilot Program for Securities Arbitration Panels

September 27, 2010

U.S. Justice Department Files Securities Fraud Lawsuit Against San Francisco Man for Perpetrating a Ponzi Scheme

The U.S. Attorney's office has charged a San Francisco man with securities fraud for perpetrating a Ponzi scheme that allegedly collected more than $25 million from 80 investors. Maher Talal Muhawieh was charged with obtaining loans from victims which he claimed would be used to renovate residential properties that would later be sold at a profit. Muhawieh told victims that the loans paid a high rate of return, had limited risk and were secured by deeds of trust. According to the indictment, Muhawieh operated a Ponzi scheme in which he misappropriated funds for his own personal and used borrowed funds to reimburse earlier investors.

In testimony before the U.S. Senate last week, an FBI official reported that securities fraud involving high yield investment products was on the rise. According to the FBI, this year 291 new high yield investment fraud cases have already been opened. See related blog posting: FBI Reports 105% Increase in High Yield Investment Fraud Investigations

September 23, 2010

California Stockbroker Discipline Report for August and September 2010

Thumbnail image for Thumbnail image for Thumbnail image for warning_flag.jpgThe following information regarding broker misconduct and disciplinary activities taken against California stockbrokers was released by the Financial Industry Regulatory Authority (FINRA) in August and September 2010:

Michael Frederick Siegel, formerly with BMA Securities and FSC Securities was fined $30,000 and suspended from association with any FINRA member in any capacity for two consecutive six-month terms in connection with the sale of securities to customers that were unsuitable and also for participating in private securities transactions without approval from his employing firm.

Michael Alcide Poutre, formerly of Brookstone Securities and also Maxxtrade was suspended from association with any FINRA member in any capacity for 30 days for charging excessive markups in connection with the sale of corporate bonds. According to FINRA, because the corporate bonds were readily available and involved large transactions of higher priced securities, a percentage rate of less than 3 percent was appropriate.

Craig Lee Randall with Planmember Securities Corporation and formerly with National Planning Corporation was censured, fined $35,000 and suspended from association with any FINRA member in any capacity for seven months in connection with the use of presentation materials that contained misleading, exaggerated and unwarranted statements that violated NASD advertising rules.

Steven Craig Vanderhoof, formerly with Linear Financial Services in Santa Ana, California, was fined $10,000 and suspended from association with any FINRA member in any capacity for 30 business days in connection with the misleading use of a website and television advertisements which marketed an "equity repositioning strategy" to investors that involved investing home equity loan proceeds in mutual funds with the goal of having the investment returns more than offset the cost of the home loan.

Thomas George Fullerton, formerly with Liberty Partners Financial Services in Bakersfield, California, was barred from association with any FINRA member in any capacity in connection with allegations that he intentionally or recklessly excessively traded customers' accounts without their authorization.

Christopher Anthony Lee, formerly with LPL Financial, IFMG Securities, and Citigroup Global Markets, was named as a respondent in a FINRA complaint alleging that he altered customer documents causing annuity companies to mail customer checks to his home address so that he could deposit the checks in his personal bank account and use the funds for his own purposes.

Hansel Clarence Cua Lee, formerly with Morgan Stanley & Co. and also Banc of America Securities was named as a respondent in a FINRA complaint alleging that he misappropriated customer funds by depositing the proceeds from customer securities sales in a checking account he opened in the customer's name without the customer's consent or knowledge.

September 10, 2010

Medical Capital Movie "The Perfect Game" Strikes Out

Investor hopes of recovering some of their Medical Capital securities fraud losses were dashed today when the court appointed receiver made the following announcement in his Fourteenth Status Report:

The film asset "The Perfect Game" was released in Mexico on April 2, 2010, and on April 16, 2010 in the United States and Canada. Box office receipts have not met projections and the Receiver does not expect a return from the theatrical sales of the film. The Receiver has terminated the distribution agreement for cause, and has taken various actions to protect the receivership's interest in the film.

Latest box office receipts for the movie have totaled approximately $1.1 million since the movie's release in April.

homestretch.jpgUpate: On September 23, 2010, the Medical Capital receiver sought court approval to sell a yacht named "Home Stretch" for $1.8 million. No word yet on whether there will ever be a sale of MedCap's ownership interest in Vivavision Inc., whose only product was a live video feed of a hamster in a cage.

Click here for all Medical Capital blog postings.

September 7, 2010

Investor Alert: Beware of Stockbrokers That Prey on Bank Customers

Thumbnail image for old bank.jpgAs both a securities lawyer and adjunct professor at the University of San Francisco where I supervise the law school's Investor Justice Clinic, I have seen a never ending stream of victims who had a local bank teller steer them to a stockbroker sitting at a nearby desk inside the bank branch who promised them a much better yield than they were currently earning in their savings account or Certificate of Deposit ("CD"). All too often, the customer is not even aware that they are dealing with a stockbroker employed, not by the bank, but by the bank's broker-dealer affiliate. In the most egregious cases that I have seen, the bank customer did not understand that the better yielding investments being recommended by the stockbroker were risky, uninsured products such as variable annuities and mutual funds.

See related blog posting: FINRA Sanctions Brokerage Firms Affiliated with Wells Fargo and Washington Mutual Banks for Variable Annuity Sales Violations

On June 16, 2010, FINRA implemented a new rule (Rule 3160) that was intended to require stockbrokers who conduct business on the premises of a bank to clearly identify themselves and to disclose the fact that investments offered are not FDIC insured, not guaranteed and may lose value. In my opinion, the new rules fall far short of curbing a bank's ability to indiscriminately "switch" conservative banking customers out of savings accounts or CDs and into riskier uninsured securities products. Furthermore, Rule 3160 does not offer any real protection to banking customers. Based on my experience, requiring stockbrokers to give boilerplate written warnings will do very little to protect an unsophisticated investor from an aggressive stockbroker. What the investing public needs are rules that require enhanced supervision in situations where a bank customer is induced to "switch" from bank products to securities products. Furthermore, in the case of senior investors, there should be a presumption that the "switch" is unsuitable unless a supervisor has made an affirmative suitability determination.