February 28, 2018, the Securities Exchange Commission (“SEC”) announced the settlement of charges against Ameriprise for recommending high-fee mutual fund shares to their customers when less expensive share classes were available from the same mutual fund.  As part of the settlement, Ameripise will pay a fine of $230,000 “without admitting or denying” the SEC’s findings of malfeasance.  According to the SEC’s investigation, more than 1,700 customer accounts were charged $1,778,592 in unnecessary mutual fund fees and charges.  Unfortunately, investors will not be entitled to any restitution under the terms of the SEC’s settlement.  Affected investors, however, are free to pursue their own remedies—usually through the filing of a securities arbitration matter before the Financial Industry Regulatory Authority (“FINRA”).

Ameriprise’s Conduct Amounted to Securities Fraud

As an investment advisor, Ameriprise is subject to both the Investment Advisers Act of 1940 and the Securities Act of 1933.  According to the SEC’s findings, Ameriprise willfully violated Sections 17(a)(2) & 17(a)(3) of the Securities Act by engaging in a course of business that operates as a fraud or deceit upon its customers and by omitting or failing to disclose material facts to its customers.  Specifically, Ameriprise failed to provide its customers with material information regarding the compensation they received for selling more expensive mutual fund shares such as Class A shares that carried up-front sales charges or Class B and C shares with contingent deferred sales charges (“CDSCs”) and higher internal fees and expenses.  More importantly, Ameriprise failed to disclose that the firm would earn increased revenue when customers these more expensive mutual fund shares. As noted by the SEC, “information about this cost structure would accordingly be important to a reasonable investor.”

I get just as excited about a $15,000 win by the University of San Francisco School of Law’s Investor Justice Clinic (“IJC”) as I do by a six-figure recovery at my securities law firm.

On October 30, 2017, an arbitrator with the Financial Industry Regulatory Authority (FINRA) awarded $14,750 plus interest to a 63-year-old woman from Lake Forest, California who was invested in a risky and unsuitable investment strategy that involved commodities futures.  Given the small dollar amount involved and the level of effort required to pursue this case, it is doubtful that the customer would’ve been able to afford to hire an experienced securities arbitration lawyer.

FINRA’s Simplified Arbitration Process

During Mediation Settlement Month, FINRA is reducing their standard mediation fees and costs in order to promote the benefits of mediation. As a longtime securities arbitration lawyer, I am a big supporter of mediation to resolve FINRA securities arbitration claims. The more successful attorneys that I know spend more face-to-face time with mediators than they do before actual arbitrators. With the assistance of a good mediator, even parties that appear to have irreconcilable differences stand a fair chance of reaching a settlement. According to FINRA, 80% of the cases that go to mediation are settled—but this assumes everyone involved is willing to make some compromises.

As part of FINRA’s Mediation Settlement Month promotion, parties who agree to mediation by October 31st and conduct their mediation by December 21st will get a discount on FINRA’s mediation fees. For detailed information, click here to see FINRA’s Mediation Settlement Month flyer.

When is the Best Time to Mediate?

A company insider was recently awarded more than $1.7 million by the Securities and Exchange Commission pursuant to the SEC’s securities fraud whistleblower program.  Whistleblowers who provide the SEC with original and credible securities fraud tips may be eligible to receive an award ranging from 10% to 30% of the money collected by the SEC.  The identify of the whistleblower is confidential; however the SEC did acknowledge that that the awardee was “a company insider who provided the agency with critical information to help stop a fraud that would have otherwise been difficult to detect.”

Although the SEC will take reasonable measures to protect the confidentiality of whistleblowers.  Whistleblowers who submit a securities fraud tip through an attorney can do so on a totally anonymous basis.

See related blog post:  A Securities Lawyer’s Advice to Would-be Whistleblowers

For the past ten years, I have had the pleasure of serving as the supervising attorney for the University of San Francisco School of Law Investor Justice Clinic (IJC). The IJC provides free legal services to financial consumers who wish to pursue a securities arbitration claim against their stockbroker or investment advisor. Nearly all arbitrations handled by the IJC are held before the Financial Industry Regulatory Authority (FINRA). The IJC accepts clients with a family income under $75,000/year that have suffered financial losses that are less than $50,000.   However, these requirements are sometimes relaxed when a prospective client cannot find an attorney to take their case.

The IJC’s latest FINRA securities arbitration win involved a claim by a resident of Olympia, Washington, against LPL Financial LLC. The customer was awarded $25,000, which represented nearly all of her investment losses that occurred between October 2013 and December 2015. During this same period of time, a properly managed portfolio would have enjoyed a reasonable gain, rather than suffer a loss.

With summer almost over, the IJC students will be available to work on new and existing cases beginning August 20, 2017. However, anyone who believes they have a potential securities arbitration claim that meets the IJC’s guidelines should seek assistance without delay.  Click here for the IJC website.  For immediate assistance–or when school is not in session–use the Contact Us link on this website.

Last week, a securities arbitration panel in Los Angeles, California, found Morgan Stanley Smith Barney (“MSSB”) liable for elder financial abuse by aiding and abetting an unaffiliated individual’s financial exploitation of their customer. The decision, which was arbitrated before the Financial Industry Regulatory Authority (FINRA), ordered MSSB to pay compensatory damages, interest and attorney fees totaling $396,623 pursuant to California’s Elder Abuse Statute. Although one of the three arbitrators dissented, the majority found that MSSB failed to protect their elderly customer from being victimized by a third party who exploited the customer’s paranoid delusions and bilked her out of $300,000 for home security equipment. The funds were withdrawn from the customer’s MSSB account over a 4-month period. Prior to the fraud, the customer had only withdrawn $375 per month from the account. The panel majority concluded that MSSB knew or should have known of the fraudulent conduct and failed to take adequate measures to counteract it.

FINRA’s Proposed Rule to Curtail Financial Exploitation of Seniors

In October 2015, FINRA released Regulatory Notice 15-37 adopting Rule 2165 which gives firms the authority to temporarily place a hold on accounts of elderly customers when there is a reasonable belief that financial exploitation has occurred. The rule takes effect February 5, 2018.

Whistleblower Tips are on the Rise

Increased public awareness of the SEC’s Whistleblower Program has lead to a tremendous growth in whistleblower tips and complaints.  In Fiscal Year 2016, the SEC received a record number of tips totaling more than 4,200.  That same year, the SEC paid over $57 million in awards to whistleblowers.  Eligible whistleblowers are entitled to an award equal to 10% to 30% of the monetary sanctions collected by the SEC.  The largest amount paid to a whistleblower in 2016 was $22 million.  The payment of significant awards to whistleblowers has undoubtedly led to a flood of tips and complaints.

Only “High-Quality” Information Will be Rewarded

  1. Reject aggressive salespeople. Don’t feel pressured to act quickly. Give yourself time to do your homework. Don’t be afraid to say “no.” Request to be put on the “do not call” list.
  2. Ask questions. Ask what licenses the salesperson has. Get copies of all documents you signed and all information shown to you. Never sign blank or incomplete documents.
  3. Get help. Ask for help from a trusted family member, friend, attorney or CPA. Don’t be embarrassed if you don’t understand the investment. Don’t invest in something that you don’t understand.

rusty barrel.jpgToday, the New York Stock Exchange (NYSE) announced their decision to proceed with delisting Magnum Hunter Resources Corporation (NYSE: MHR). Trading in MHR’s common stock will be suspended immediately causing irreparable harm to many main street investors who had invested heavily in MHR.

Related Story: ALF is investigating complaints by investors that suffered significant losses when two Wells Fargo brokers bet heavily on the small cap energy sector, including Magnum Hunter Resources.

symbol_hazard.pngBy now, readers of this blog are hopefully aware that we are very negative on the marketing and sale of leveraged and inverse exchange-traded funds (“ETFs”) to average investors. The New York Times recently published a news piece declaring that ETFs, like those offered by Direxion, were “Public Enemy No. 1.”

Still not convinced? Take a look at the year-to-date results for the worst performing Direxion ETFs through 10/7/2015 according to Morningstar–all of them triple-leveraged funds:

Direxion Daily Nat Gas Rltd Bull 3X ETF (GASL) -84.36%