Articles Posted in Brokerage Firms

On November 7, 2019, an arbitration panel for the Financial Industry Regulatory Authority (FINRA) ordered Watsonville, California, stockbroker Kenneth Barroga and Crown Capital Securities, L.P. to pay over $160,000 in damages to a customer who had invested her entire life savings in non-traded real estate investment trusts (REITs) and business development companies (BDCs).  The award included damages for elder financial abuse.

The REITs and BDCs involved are listed below:


  • Business Development Corporation of America
  • Sierra Income Corporation
  • Steadfast Income REIT Inc.
  • ARC Realty Finance Trust Inc.
  • Benefit Street Partners Realty Trust, Inc.
  • ARC Healthcare Trust II
  • Healthcare Trust, Inc.
  • Northstar Healthcare Income

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lpl-150x150On November 1, 2018, the Financial Regulatory Authority (“FINRA”) entered into a $2.75 million settlement with LPL Financial for supervisory failures related to the firm’s anti-money laundering (“AML”) program and customer complaint reporting practices.  Most disturbing for financial consumers is LPL’s failure to disclose and report customer complaints.  Customer complaints must be reported to FINRA within 30 days of a qualifying event.

Although LPL entered into the settlement without having to admit or deny any of FINRA’s findings, FINRA’s factual findings reflect badly on LPL’s supervisory practices which have already been the subject of numerous fines and regulatory inquiries.  LPL recently settled a multi-state action agreeing to pay a fine of $499,000 to each participating jurisdiction that could ultimately reach $26,000,000.

Accurate tracking and reporting of customer complaints is critical to the supervision and monitoring of stockbrokers.  According to FINRA, LPL avoided reporting customer complaints by narrowly interpreting the disclosure rules.  As a result, customer complaints that should have been reported were not.  This disciplinary information is also valuable to financial consumers and is publicly available through FINRA’s BrokerCheck system.  BrokerCheck provides useful information that all financial consumers should use when evaluating and selecting a stockbroker or investment advisor.

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wells-fargo-wagon-300x225On June 25, 2018, Wells Fargo Advisors settled a cease-and-desist proceeding by the SEC over securities law violations involving fraudulent sale of market-linked certificates of deposit (“MLCDs”) and market linked notes (“MLNs”).

Sort-Term Trading:  The High Cost of Investing and Re-Investing

MLCDs and MLNs are intended to be long-term investments with limited liquidity that are usually held until maturity.  According to the SEC, Wells Fargo customers were charged large upfront fees equal to approximately 5% – 6% of their principal amount.  The SEC alleged that Wells Fargo representatives encouraged customers to redeem their MLCD and MLN investments prior to maturity at a loss and use the proceeds from the early redemption to re-invest in new MLCDs and MLNs with the exchange causing a loss in investment value of 7% or more.  The SEC noted that one Wells Fargo representative engaged in 1,167 such exchanges that involved 201 accounts over a 2 1/2 -year period.

sec crestOn 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.”

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.

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%

Thumbnail image for lpl.jpgAs previously reported in this blog, LPL Financial has recently been faced with numerous fines from various regulators and also securities lawsuits from unhappy investors over the firm’s uncontrolled sale of non-traded REITs and leveraged ETFs.

Multi-State Task Force Concludes LPL Overly Sold REITs to Individual Investors

Today, LPL reached yet another million dollar settlement–this time with a Task Force of state regulators. The Task Force investigation determined that LPL sold non-traded REITS in excess of the requirements set forth in the REIT prospectuses, various state concentration limits and LPL’s own guidelines. The investigation also concluded that LPL’s supervisory system was inadequate. Under the settlement, LPL will remediate investor losses for all sales of non-traded REITs from January 2008 through December 2013 that exceeded the requirements of the REIT prospectuses, applicable state concentration limits or LPL’s own guidelines. The Task Formed by the North American Securities Administrators Association (NASAA) included securities regulators from California, Texas, Colorado, Nevada, Maine, Ohio and Virginia.

The Alcala Law Firm has filed a FINRA arbitration claim against LPL Financial LLC arising out of the actions of their registered representative/investment advisor Jane Everingham doing business as Everignham O’Malley in Larkspur, California. The claim, filed on behalf of a customer of Ms. Everingham, involves the following highly risky and speculative investments:

  • Proshares Trust Short 20+ Year Treasury [Symbol: TBF]. An Exchange Traded Fund (“ETF”) that seeks to achieve the inverse of the daily performance of the Barclays U.S. 20+ Year Treasury Bond Index. Because these ETFs are reset daily, this type of ETF is unsuitable for investors who plan to hold the fund for longer than one trading session due to the effects of compounding.
  • Federated Equity Funds Prudent Bear Fund [Symbol: BEARX]. A mutual fund that seeks capital appreciation primarily through short positions on domestic stocks. “Selling short” generally refers to the act of selling borrowed shares with the hope that the shares can be bought back at a lower price.

Charles Lynch, a financial advisor with Wells Fargo Advisors in Irvine, California, has one or more pending customer complaints alleging “unsuitable concentration in energy sector.”[1] ALF is currently conducting an investigation into related conduct by Mr. Lynch.[2] If you have any questions or information regarding these events, please use the “Contact Us” link above.


[1] Customer complaint information was verified through FINRA’s BrokerCheck system.

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