November 2011 Archives

November 18, 2011

Ameritas Investment Corporation Suing Its Own Brokers Over Customer Losses in Sale of Private Placement

As noted in a previous blog posting, ALF is pursuing an arbitration claim against Ameritas Investment Corporation on behalf of an investor who borrowed funds to invest in the IMH Secured Loan Fund (now known as IMH Financial Corporation). In an unusual move, Ameritas responded by filing a cross-claim against the broker who sold the investment seeking "contractual and/or common law contribution and/or indemnity" on the basis that any harm or damage suffered was the result of acts or omissions of the broker. It is believed that the broker in question was, at the time, acting in the capacity of an agent or employee of David White & Associates based in San Ramon, California.

As a result of these developments, ALF is stepping up their investigation into this matter and is reaching out to other IMH investors who purchased through brokers employed or affiliated with Ameritas Investment Corporation and/or David White & Associates. ALF is also interested in speaking with current or former brokers employed or affiliated with Ameritas and/or David White & Associates.

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November 15, 2011

J.P. Morgan Chase Fined $1.7 Million by Securities Regulators for Unsuitable Sales Practices Involving Floating-Rate Funds & UITs

no dumping.jpgOn November 15, 2011 the Financial Industry Regulatory Authority (FINRA) entered into a settlement with J.P. Morgan Chase who consented to a fine of $1.7 million and agreed to reimburse customers in the amount of $1.9 million in connection with the failure to supervise unsuitable recommendations to invest in unit investment trusts (UITs) and floating-rate funds given to unsophisticated investors who had a conservative risk tolerance and little or no investment experience. FINRA further found that firm's brokers made the recommendations absent any reasonable grounds to suggest they were suitable for the affected investors.

"Chase allowed its brokers to sell risky UITs and floating-rate loan funds without providing them with the training, guidance and supervision necessary to determine whether these products were suitable for their customers, which resulted in losses for Chase's customers," said Brad Bennet, FINRA Executive Vice President and Chief of Enforcement.

FINRA found that 260 unsuitable recommendations were made with regard UITs resulting in $1.4 million in losses to customers. Unreimbursed losses to customers based on unsuitable recommendations from brokers to purchase the floating-rate funds totaled $500,000.

A UIT is an investment vehicle comprised of a bundle of securities, which can include risky investments such as high-yield below investment-grade, or "junk" bonds. Floating-rate funds are mutual funds comprised of senior loans made to entities with low credit ratings that increases the credit risk associated with those funds. Generally, both types of instruments are not suitable for inexperienced investors with a low risk tolerance seeking preservation of capital.

Also included in FINRA's finding was that WaMu Investments Inc., which merged with Chase in July of 2009, also made unsuitable recommendations to customers related to the purchase of UITs and floating-rate funds.

J.P. Morgan Chase stipulated to FINRA's findings without admitting or denying the charge. The settlement agreement requires Chase to contact eligible customers and complete the process of making restitution payments by April 13, 2012. Accepting such payments, however, does not foreclose affected customers from pursuing arbitration or mediation to recover losses. FINRA encourages customers to consult with a securities lawyer to discuss their rights.

November 11, 2011

Regulators Concerned About Brokers Claiming to be "Senior Specialists"

Many investors do not realize that the terms Financial Analyst, Financial Advisor, Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager are simply generic terms or job titles commonly used by stockbrokers and investment advisors. Equally as troubling are the use of titles or designations, such as "Senior Specialist," that are designed to gain the trust and confidence of elderly investors and retirees. The use of such designations is often little more than a marketing tool to attract business from the rapidly growing pool of investors who are 65 years or older.

Seniors Reserved Sign.gifRecently, our law firm filed a securities arbitration claim against a financial advisor who touted his qualification as a "Certified Senior Advisor" (CSA) and assured a group of elderly women who attended a free lunch seminar that his firm "worked exclusively with senior investors to protect their financial assets and standard of living." Based on these assurances, they believed that their financial advisor had their best interests in mind when he recommended that they invest the bulk of their assets in a risky high-yield investment.

Our clients are now seeking damages through arbitration before the Financial Industry Regulatory Authority (FINRA). The organization that granted the broker his CSA designation, cannot provide any direct assistance to these investors. Although the Society of Certified Senior Advisors (SCSA) has a mechanism for disciplining CSA designees who fail to adhere to their Code of Professional Responsibility, the SCSA's primary method of discipline is to simply revoke the financial advisor's CSA designation.

FINRA Oversight of Senior Designations

In November 2011, FINRA published a Regulatory Notice urging brokers to pay closer attention to the use of senior designations that imply an expertise or specialty in advising senior investors. According to a survey conducted by FINRA, 68% of firms allow the use of senior designations by their representatives. Of those firms that permit the use of senior designations, 66% require the approval and verification of the credentials, 23% require approval but do not verify credentials, and 11% do not require approval of the certification and do not verify the credentials.

There are a variety of senior designations in use by brokers including: Certified Senior Advisor (CSA), Certified Senior Consultant (CSC), Chartered Senior Financial Planner (CSFP), Chartered Advisor for Senior Living (CASL), Certified Retirement Planning Counselor (CRPC), Accredited Retirement Plan Consultant (ARPC) and Certified Retirement Services Professional (CRSP). FINRA is most concerned with those titles that have little, if any, meaningful qualification standards. California law also precludes broker-dealers and investment advsiors from using senior-specific credentials in the offer or sale of securities where such credentials are non-existent or where the organization does not have reasonable standards for ensuring competency of certified individuals. According to FINRA: "[i]nvestors are unlikely to differentiate between designations that represent an enhanced level of proficiency in dealing with financial matters relevant to senior investors versus a designation that is simply a marketing tool." A brokerage firm that allows the use of any title that conveys expertise in advising for retirement or senior investors where such a specialty does not exist could be in violation of industry rules and also the anti-fraud provisions of the federal securities laws and FINRA rules.

There's No Such Thing as a Free Lunch

A common tactic used by bogus "senior specialists" is the hard to resist free-meal seminar. Elderly investors should be particularly wary of salesmen who are pushing variable or indexed annuities. It is particularly important to make sure that the sales person is properly licensed. Before investing, all investors, especially seniors, should check out a broker's disciplinary history using FINRA's BrokerCheck service.

November 7, 2011

IMH Secured Loan Fund: Here Come the Lawyers!

A number of our California securities law firm clients who suffered investment losses in the IMH Secured Loan Fund (now known as IMH Financial Corporation) have reported receiving a mass-mailed solicitation letter from a law firm located in Florida. California investors should think twice before hiring an out of state law firm to handle their case. For more information, see related blog posting: Why having a California licensed securities arbitration lawyer is so important

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