When disputes arise between investors and brokerage firms, they are usually resolved through arbitration. The Financial Industry Regulatory Authority (FINRA) offers a streamlined and cost-effective dispute resolution forum for resolving disputes in the securities industry. In this blog post, we’ll take a deep dive into FINRA arbitration, its key features, benefits, and what you should know if you find yourself involved in a securities-related dispute.

Understanding FINRA Arbitration

What is FINRA?

The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization authorized by the United States Congress to oversee and regulate the securities industry. One of FINRA’s essential functions is to provide a forum for resolving disputes between investors, brokerage firms, and individual brokers.

Arbitration vs. Lawsuits: The Key Differences

Unlike traditional litigation, where disputes are resolved through the court system, FINRA arbitration is a private, alternative dispute resolution process. There are several key differences:

1. • Speed and Efficiency: FINRA arbitration typically resolves disputes more quickly than litigation, which can drag on for years. Arbitration cases often conclude within 12-18 months, allowing parties to move on with their lives and investments more quickly.
   • Cost-Effective: Litigation can be expensive due to legal fees, court costs, and other expenses. In contrast, FINRA arbitration tends to be more cost-effective, as it has lower filing fees and streamlined procedures.
   • Less Burdensome Discovery: Discovery is the exchange of relevant documents and information. In a lawsuit, discovery consists of depositions, interrogatories, and the exchange of documents. In FINRA arbitrations, depositions and interrogatories are generally not allowed. As a result, the discovery process is more streamlined, less burdensome, and less costly.
   • Confidentiality: FINRA arbitration proceedings are generally confidential, whereas court proceedings are a matter of public record.

Who Can Initiate FINRA Arbitration?

Parties who can initiate FINRA arbitration include investors, brokerage firms, and individual brokers. Many arbitrations arise over investment losses. Investors often file arbitration claims against their brokerage firms when the firm or its agent broker recommends investments that are not suitable and in the best interest of the investor. Investors also file arbitration claims when their brokers misrepresent or omit material information at the time of the recommendation. Common claims brought by investors include unsuitability, violation of Regulation Best Interest (RegBI), misrepresentation or omission of material information, unauthorized trading, churning, breach of fiduciary duty, and financial elder abuse.

The FINRA Arbitration Process

1. Filing a Claim – The process begins with the filing of a Statement of Claim by the aggrieved party. The respondent (the party against whom the claim is filed) is then given the opportunity to respond
2. Arbitrator Selection – The parties select arbitrators from FINRA’s roster of arbitrators using a strike and rank system. The number of arbitrators that serve on an arbitration panel varies depending on the size of the complaint.
3. Discovery – The exchange of relevant documents and information.
4. Hearing – A hearing is held where both parties present their cases, including evidence and witnesses. The arbitrators evaluate the evidence and arguments presented.
5. Award – The arbitrators deliberate and issue a written decision. This decision is final and binding. Parties are generally required to abide by the decision, and there is limited scope for appeal.

Settlement

At any time during the arbitration process, the parties can resolve their dispute by entering into a settlement. Approximately 69 – 70% of all FINRA arbitrations are resolved through settlement instead of a hearing.

Conclusion

Investors who have suffered investment losses should be aware of their rights to pursue arbitration when disputes arise. Legal representation is often advisable to navigate the complexities of the process effectively.

Investors involved in a securities-related dispute are encouraged to consult with attorneys who have vast experience in FINRA arbitration to help them navigate the process and ensure that their rights and interests are protected throughout the proceedings.

About Iorio Altamirano LLP

Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.

We have over 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

If you have suffered investment losses, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, call the firm toll-free at (646) 330-4624.

In 2021, a federal grand jury brought criminal charges against Lash, David Gentile (founder and owner of GPB Capital), and a third individual, Jeffry Schneider. The charges are related to their management of the company, which has been described as a “Ponzi-like scheme.” In February 2021, the SEC also charged GPB Capital, Ascendant Capital, and Ascendant Alternative Strategies with running a Ponzi-like scheme that raised roughly $1.7 billion from over 17,000 investors, many of whom were retirees.

The criminal complaint alleged that Mr. Gentile, Mr. Lash, and Mr. Schneider used new money invested by retail investors to cover the promised 8% returns to prior investors, yet failed to disclose the source of the distributions to investors.

Mr. Lash could face more than 15 years in prison as a result of the guilty plea for his alleged role in the Ponzi-like scheme. Sentencing is scheduled for October 4, 2023.

A trial for Mr. Gentile and Mr. Schneider is scheduled to begin in June 2024.

Since February 2021, GPB Capital has been operating under the supervision of a court-appointed monitor. Despite liquidating a significant portion of the firm’s assets, the company’s managers have struggled to devise a plan for distributing the cash at their disposal to investors and other claimants.

The court-appointed monitor and the United States Securities and Exchange Commission have recommended putting GPB Capital into receivership, a court-appointed tool that would put the entire company, its assets, and all financial and operating decisions under the control of a single court-appointed receiver. The proposal has been contested by the company’s owner, David Gentile. The Court has yet to act on the receivership proposal.

GPB Capital had stated on its website in April 2023 that it could not come up with a distribution plan or make any distributions to investors until the court rules on a receivership. Limited partners have not received distributions since 2018, while their invested capital remains in limbo.

According to the recent regulatory filings, it appears that GPB Capital is holding back a significant reserve to cover potential liabilities arising out of numerous regulatory, ligation, arbitration, and other proceedings. The company disclosed that any liability originating from such actions could result in an outflow of cash, which would most likely not occur until 2024 at the earliest.

Further, GPB Capital’s partnerships, such as GPB Automotive, GPB Holdings, GPB Holdings II, GPB Waste Management, or GPB Cold Storage, are setting aside a large amount of money to cover the legal expenses of its current and former officers, directors, principals, representatives, and affiliates, for any legal expenses and costs they are incurring connected within the numerous litigations and disputes that are currently pending. GPB Capital has disclosed in regulatory filings that distributions may be delayed or withheld until such reserves are no longer needed or the escrow period expires.

GPB Fraud and Brokerage Firms’ Liability

GPB Capital Holdings LLC, a private-equity firm based in New York, was established in 2013. It acted as the primary partner of several investment funds, including GPB Holdings, LP, GPB Holdings II, LP, GPB Automotive Portfolio, LP, GPB Waste Management, LP, and GPB Cold Storage, LP.

In February 2021, the SEC accused GPB Capital, Ascendant Capital, and Ascendant Alternative Strategies of orchestrating a Ponzi-like scheme, defrauding nearly 17,000 retail investors across the nation and gathering approximately $1.7 billion via securities issued by GPB Capital.

GPB Capital solicited capital from private retail investors via private placement offerings, which were sold by nearly sixty broker-dealers and investment advisory firms across the country. However, significant concerns have been raised regarding the broker-dealers’ failure to conduct proper due diligence regarding GPB Capital and the GPB funds.

The Financial Industry Regulatory Authority (FINRA) mandates that “reasonable diligence” provides the firm or associated person with a clear understanding of the potential risks and rewards of the recommended security or strategy. Brokerage firms may have neglected to conduct sufficient due diligence into GPB Capital and its funds before selling the private placement offerings to their clients, possibly overlooking numerous red flags, including detecting whether distributions were being paid out from operating revenue or from invested capital. In the case of GPB Capital, the operating revenues of its partnerships were not sufficient to cover the company’s promised 8% distributions, yet the payouts continued. Brokerage firms either failed to detect these discrepancies or ignored them.

Investors may have legal recourse against brokerage firms or investment advisory firms due to such due diligence failures or other sales practice violations. It’s important to note that filing an arbitration claim does not prevent an investor from receiving potential future distributions from the GPB funds.

Investors can potentially recover investment losses by filing claims against broker-dealers or investment-advisory firms that sold GPB private placement offerings for large commissions.

Through 2021, GPB Capital investors have won over $2.4 million in monetary awards in 10 out of 12 (over 83%) arbitration claims that have proceeded to a final hearing.

What Can GPB Investors Do?

Iorio Altamirano LLP, a leading securities arbitration law firm based in New York, NY, is investigating claims on behalf of defrauded investors who were victims in the GPB funds scheme. Investors who have purchased GPB Automotive, GPB Holdings, GPB Holdings II, or GPB Waste Management through a broker or brokerage firm have successfully recovered investment losses by filing securities arbitration claims.

Our law firm pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.

Iorio Altamirano LLP is actively investigating claims on behalf of GPB investors who purchased the security through a broker-dealer or registered investment advisor, including:

• Aegis Capital Corp.
• Aeon Capital Inc.
• American Capital Partners
• Arkadios Capital
• Ausdal Financial Partners, Inc.
• Avere Financial Group, LLC
• Axiom Capital Management, Inc
• BCG Securities, Inc.
• Cabot Lodge Securities LLC
• Calton & Associates, Inc.
• Capital Financial Services, Inc
• Capital Investment Group, Inc.
• Cascade Financial Management, Inc.
• Crystal Bay Securities, Inc.
• David A. Noyes & Company
• Dempsey Lord Smith, LLC
• Detalus Securities, LLC
• DFPG Investments, Inc.
• DH Hill Securities, LLLP
• Dinosaur Financial Group, L.L.C.
• Geneos Wealth Management, Inc.
• Emerson Equity LLC
• Financial West Group
• Great Point Capital LLC
• HighTower Securities, LLC
• IBN Financial Services, Inc.
• Innovation Partners, LLC
• International Assets Advisory, LLC
• Investment Architects, Inc.
• Kingsbury Capital, Inc.
• Landolt Securities, Inc.
• Lion Street Financial, LLC
• Lowell & Company, Inc.
• McDonald Partners LLC
• MML Investor Services
• Moloney Securities Co., Inc.
• Money Concepts Capital Corp
• MSC – BD, LLC
• National Securities Corporation
• Newbridge Securities Corporation
• Orchard Securities, LLC
• Pariter Securities, LLC
• Purshe Kaplan Sterling Investments
• Private Client Services, LLC
• Royal Alliance Associates, Inc.
• SagePoint Financial, Inc.
• Sandlapper Securities, LLC
• Silber Bennett Financial, Inc.
• Stephen A. Kohn & Associates, Ltd.
• Uhlmann Price Securities, LLC
• United Planners Financial Services
• Vanderbilt Securities, LLC
• Vestech Securities, Inc.
• Western International Securities, Inc.
• WestPark Capital, Inc.
• Whitehall-Parker Securities, Inc.
• Wilmington Capital Securities, LLC
• Woodbury Financial Services, Inc.

About Iorio Altamirano LLP

Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses. Our law firm has helped GPB investors recover hundreds of thousands of dollars in losses.

We have over 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

If you have lost money on the GPB funds, contact securities arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com, or toll-free at (646) 330-4624 for a free and confidential consultation and review of your legal rights.

**Update: April 4, 2022** According to the Wall Street Journal, GWG Holdings, Inc. is preparing to file for Chapter 11 bankruptcy in the coming days.

Original Post:

GWG Holdings, Inc. Misses Deadline to File Its 2021 Annual Report with the SEC

On April 1, 2022, GWG Holdings, Inc. disclosed that it was unable to timely file its 2021 annual report with the United States Securities and Exchange Commission (“SEC”). GWG Holdings, Inc. has now failed to timely file annual reports with the SEC in three of the past four years. The latest missed deadline comes after the company defaulted on its financial obligations to GWG L Bond investors earlier this year.

The Notification of Late Filing filed by GWG Holdings, Inc. indicated that the company was unable to file its Annual Report on Form 10-K for the year ended December 31, 2021, because the company required additional time to complete its financial statements and related disclosures.

According to the notice, GWG Holdings, Inc. missed the deadline in part because Grant Thornton, LLP, the company’s prior independent auditor, resigned on December 31, 2021. The accounting firm that replaces Grant Thornton will be GWG Holdings, Inc.’s fourth different independent auditor since August 2019. GWG Holdings, Inc. has not yet engaged an auditor to audit its financial statements for the year ended December 31, 2021. The notice also indicated that the company is in the process of “reviewing potential candidates.”

For the past several months, GWG Holdings has been working with legal and financial advisors to evaluate its restructuring alternatives. According to the Wall Street Journal, GWG Holdings is also seeking rescue financing to avoid bankruptcy, but a Chapter 11 bankruptcy filing is on the table as a last resort.

Meanwhile, GWG L Bond investors remain worried about what is going to happen to their principal investments.

Many investors, including those represented by securities arbitration law firm Iorio Altamirano LLP, are filing securities arbitration claims against the selling broker-dealer in a bid to recover losses.

Investors who purchased the L Bonds offered by GWG Holdings are encouraged to contact Iorio Altamirano LLP for a free and confidential consultation. We can review and analyze potential claims and advise individuals of their legal rights without obligation or cost.

For the latest on Iorio Altamirano LLP’s investigation of GWG L Bonds, visit our firm’s investigation page: Iorio Altamirano LLP’s Investigation of GWG L Bonds

How to Recover Losses or Obtain a Free Consultation

In light of this most recent development, L bond investors are encouraged to contact Iorio Altamirano LLP, a leading securities arbitration law firm, to review their legal rights. Iorio Altamirano LLP is representing numerous GWG L bond investors in filing securities arbitration claims against firms such as Emerson Equity LLC and Centaurus Financial, Inc.for sales practice violations connected to the solicitation and sale of GWG L Bonds.

The L Bonds are speculative, high-risk, and illiquid private placement offerings. They were likely not suitable for investors with liquidity needs, low to medium risk tolerances, or senior or elderly investors.

If you or a loved one has invested in L Bonds offered by GWG Holdings, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, you may call the firm toll-free at (646) 330-4624.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.

Original Post:

GWG L Bond Investor Update: GWG Holdings, Inc. Officially Defaults on Its Obligations to L Bond Investors – February 14, 2022

After missing interest and principal payments to L Bond investors on January 15, 2022, GWG Holdings, Inc. had a 30-day grace period to make the interest and maturity payments before it was officially in an event of default pursuant to the issuing documents for the L Bonds. The 30-day window for GWG Holdings to cure its deficiencies and meet its financial obligations to L Bond owners has now passed, and GWG Holdings is officially in an event of default.

On February 14, 2022, GWG Holdings, Inc. confirmed in a letter to investors that it will not make monthly interest and maturity payments on its L Bonds, or dividend payments to preferred stockholders. In addition, GWG holdings has confirmed that it will continue to defer requests for redemptions.

As a result of GWG Holdings, Inc.’s default, L Bond owners are left holding securities that cannot be sold or redeemed, and no longer paying their promised income.

New York securities arbitration law firm Iorio Altamirano LLP continues to evaluate potential claims for L Bond owners.

Investors who purchased the L Bonds offered by GWG Holdings are encouraged to contact Iorio Altamirano LLP for a free and confidential consultation. We can review and analyze potential claims and advise individuals of their legal rights without obligation or cost.

For the latest on Iorio Altamirano LLP’s investigation of GWG L Bonds, visit our firm’s investigation page: Iorio Altamirano LLP’ Investigation of GWG L Bonds

GWG’s February 14, 2022 Letter to Investors

On February 14, 2022, GWG Holdings sent a notice to investors that the company would not make monthly interest and maturity payments on its L Bonds or dividend payments to preferred stockholders while the company continues to identify and evaluate restructuring alternatives with its advisors.

The company, which also disclosed that it would continue not to honor redemption requests at this time, stated that the process of identifying and considering various alternatives would take at least another three to four weeks and may take longer.

How to Recover Losses or Obtain a Free Consultation

In light of this most recent development, L bond investors are encouraged to contact Iorio Altamirano LLP, a leading securities arbitration law firm, to review their legal rights. Iorio Altamirano LLP is representing numerous GWG L bond investors in filing securities arbitration claims against firms such as Emerson Equity LLC and Centaurus Financial, Inc. for sales practice violations connected to the solicitation and sale of GWG L Bonds.

The L Bonds are speculative, high-risk, and illiquid private placement offerings. They were likely not suitable for investors with liquidity needs, low to medium risk tolerances, or senior or elderly investors.

If you or a loved one has invested in L Bonds offered by GWG Holdings, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, you may call the firm toll-free at Alternatively, you may call the firm toll-free at (646) 330-4624.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.

Iorio Altamirano LLP has been contacted by numerous senior and elderly retail investors who were recommended and sold GWG’s L Bonds by Mr. Barouti. GWG’s L Bonds are speculative, high-risk, and illiquid securities that were sold as private placement offerings. Brokerage firms received a commission of up to 5% of the principal amount sold.

On January 15, 2022, GWG Holdings Inc. missed interest and principal payments to L bond investors. The company is also reportedly seeking rescue financing in an effort to avoid bankruptcy after facing a series of accounting issues, financial stress, and an SEC investigation. In addition, GWG’s independent auditor resigned at the end of 2021, and the company has disclosed that its 2021 financials are not likely to be completed on time. These are just a few recent developments that have GWG L Bond investors concerned.

GWG L Bonds were likely not suitable for investors with a low-to-moderate tolerance for risk or investors who had liquidity needs.

Investors who purchased the L Bonds offered by GWG Holdings through Tony Barouti or Emerson Equity LLC are encouraged to contact Iorio Altamirano LLP for a free and confidential consultation. We can review and analyze potential claims and advise individuals of their legal rights without obligation or cost.

See Also:

GWG L Bond Investors Seek Recourse After GWG Holdings, Inc. Files for Chapter 11 Bankruptcy

Tony Barouti (CRD No. 3031995)

Tony Barouti, who also goes by Ahmad Barouti, has 22 years of experience in the securities industry. Mr. Barouti is the CEO of Barouti Financial Services, LLC, which sells securities through Emerson Equity LLC. Mr. Barouti has been registered with Emerson Equity LLC in Los Angeles, CA, since June 2017.

Before joining Emerson Equity LLC, Mr. Barouti was associated with eight other brokerage firms throughout his career, including a firm that has since been expelled from the industry by FINRA.

According to his public disclosure report, Mr. Barouti has been the subject of two customer disputes. Most recently, in 2015, a customer filed a written complaint alleging that Mr. Barouti misrepresented a product when he was soliciting the client to purchase the product in or around August 2009. The dispute is pending. The other complaint occurred in 2001 and was closed after the individual that filed the complaint failed to take further action.

About the L Bonds

An L bond is a specialty high-yield bond created and issued by GWG Holdings.

The L Bonds are speculative, high-risk, and illiquid private placement offerings. They are secured by the assets of GWG Holdings and a pledge of all of the common stock by its largest stockholders.

Brokerage firms are required to make investment recommendations that are in the best interest of their customers. Financial advisors also have an obligation to be truthful and disclose all material facts and risks to customers when making investment recommendations. Firms and brokers are also required to conduct reasonable due diligence of products they offer before recommending them to any clients. Iorio Altamirano LLP is investigating whether Mr. Barouti and Emerson Equity LLC met these obligations in connection with their sale of L Bonds to retail investors.

About Iorio Altamirano LLP

Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.

We have nearly 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

If you have invested in GWG L Bonds as a result of a recommendation made by Tony Barouti or Emerson Equity LLC, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, you may reach the firm by phone toll-free at (646) 330-4624.

On January 15, 2022, GWG Holdings Inc., a company known for selling life-insurance bonds, missed interest and principal payments to L bond investors. The company is also reportedly seeking rescue financing in an effort to avoid bankruptcy after facing a series of accounting issues, financial stress, and an SEC investigation.

GWG’s L Bonds are speculative, high-risk, and illiquid securities that were sold as private placement offerings.

GWG sold the L bonds through Emerson Equity LLC and a network of regional broker-dealers, who pitched the products to individual retail investors. Emerson Equity LLC, an SEC-registered broker-dealer and FINRA member based in San Mateo, California, received a commission ranging from 0.75% to 5.00% of the principal amount of the L Bonds sold. The firm also received additional compensation and commissions, up to 8% of the aggregate gross proceeds from the sale of L Bonds. The network of regional broker-dealers who shared in the commissions included Centaurus Financial, Inc., Aegis Capital, LLC, NI Advisors, Western International Securities, Inc., and over 100 other firms.

Brokerage firms are required to make investment recommendations that are in the best interest of their customers. Financial advisors also have an obligation to be truthful and disclose all material facts and risks to customers when making investment recommendations. Firms and brokers are also required to conduct reasonable due diligence of products they offer before recommending them to any clients. There are serious concerns that some broker-dealers recommended GWG’s L Bonds to individuals even though the product was not suitable for them. There are also concerns that firms failed to perform reasonable due diligence about GWG’s L Bond before selling the risky products to their customers.

Investors who purchased the L Bonds offered by GWG Holdings through Emerson Equity LLC, Centaurus Financial, Inc., Aegis Capital, LLC, NI Advisors, Western International Securities, Inc., or any other broker-dealer are encouraged to contact Iorio Altamirano LLP for a free and confidential consultation. We can review and analyze potential claims and advise individuals of their legal rights without obligation or cost.

See Also:

GWG L Bond Investors Seek Recourse After GWG Holdings, Inc. Files for Chapter 11 Bankruptcy

About the L Bonds

An L bond is a financial instrument created by GWG, which pooled money from bond investors to purchase life-insurance policies on the secondary market, and then used payouts from the policies when people died to repay investors.

GWG Holdings began selling L Bonds in 2012. According to a firm Form 8-K, it began selling a $2 billion L Bond offering in the summer of 2020 to a growing network of advisors from 127 firms.

GWG Holdings offered the L Bonds with a maturity ranging from 2 to 7 years and paying an interest rate of 5.50% to 8.50%.

The L Bonds are speculative, high-risk, and illiquid private placement offerings. They are secured by the assets of GWG Holdings and a pledge of all of the common stock by its largest stockholders. According to the June 2020 offering prospectus, the key features and risks of the L Bonds include:

• Speculative, High-Risk, Illiquid: “Investing in our L Bonds may be considered speculative and involves a high degree of risk, including the risk of losing your entire investment…. The L Bonds are only suitable for persons with substantial financial resources and with no need for liquidity in this investment.”
• Illiquid: “We do not intend to list our L Bonds on any securities exchange during the offering period, and we do not expect a secondary market in the L Bonds to develop. As a result, you should not expect to be able to resell your L Bonds regardless of how we perform. Accordingly, an investment in our L Bonds is not suitable for investors that require liquidity in advance of their L Bond’s maturity date.”
• 6% charge to redeem early: “In the event we agree to redeem L Bond upon the request of an L Bond holder — other than after death, bankruptcy or total permanent disability— we will impose a redemption fee of 6% against the outstanding principal balance of the redeemed L Bond.
• Subordinate Debt: “We maintain senior borrowing arrangements that subordinate to our senior lenders the right to payment on, and the collateral securing, the L Bonds. In addition, these borrowing arrangements restrict our receipt of distributions from certain of our operating subsidiaries, subject to certain exceptions. These provisions will restrict cash flows available for payment of principal and interest on the L Bonds. From time to time we may add or replace senior lenders and the particular arrangements under which we borrow from them.”
• L Bonds Sold as “Units” of $1,000: L Bonds will be sold as “Units,” with each whole Unit representing $1,000 in principal amount of L Bonds.

L Bonds were likely not suitable for investors with a low-risk tolerance or investors who had liquidity needs.

About Iorio Altamirano LLP

Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.

We have nearly 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

If you have invested in L Bonds offered by GWG Holdings, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, you may reach the firm by phone toll-free at (646) 330-4624.

Mr. Buffett’s words of wisdom can also be applied to investment recommendations made by a financial advisor in a bull market. Almost everyone looks like a genius in a booming market, including financial advisors. However, when the stock market enters into a correction, or something even more dreadful, the real risks of an investment or investment strategy are exposed, often leaving a trail of investment losses in their wake.

Investors who have suffered investment losses due to unsuitable or misleading investment recommendations by brokers or brokerage firms should consult with a lawyer to review their legal rights.

Fresh off its historic arbitration award against Robinhood, New York securities arbitration law firm Iorio Altamirano LLP offers free and confidential consultations to investors who may have been financially harmed.

Who Should Consult a Lawyer?

Brokerage firms and financial advisors are required to have a customer’s best interest in mind when they make investment recommendations or offer investment advice. This obligation is mandated by the SEC.

Specifically, when a financial advisor makes an investment recommendation, it must be in the investor’s best interest and must not place the interest of the financial professional or brokerage firm ahead of the interests of the retail investor. This standard of care, which is commonly referred to as “Regulation Best Interest” or “Reg BI,” applies to recommendations to purchase securities, sell or hold securities, implement an investment strategy, or open a specific type of account.

Financial advisors must also be truthful and disclose all material facts and risks to the customer when making an investment recommendation. If the financial advisor omits or misrepresents material facts or risks, they could be liable for investment losses.

Investors who have suffered financial losses due to investment recommendations that were not in their best interest, or misleading investment advice, may be able to file a lawsuit, in the form of a FINRA arbitration, to recover losses.

About Iorio Altamirano LLP

Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.

We have nearly 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

If you have suffered investment losses, contact securities arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com, or toll-free at (646) 330-4624 for a free and confidential consultation and review of your legal rights.

Additionally, the FINRA AWC alleged from July 2014 to June 2019, Aegis Capital failed to establish, maintain, and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 when selling leveraged, inverse, and inverse-leveraged Exchange-Traded Funds (Non-Traditional ETFs) to retail customers. As a result, Aegis Capital failed to identify customers who purchased and held Non-Traditional ETFs for extended periods of time or whose purchase was inconsistent with their recorded investment objective, risk tolerance, or finances.

Customers of Aegis Capital, including customers that have been notified that they may be receiving restitution, should consult with a securities arbitration law firm. If you or a loved one were a customer of Aegis Capital, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation and review of your legal rights.

Iorio Altamirano LLP represents investors that have disputes with their financial advisors or brokerage firms, such as Aegis Capital Corp.

FINRA Letter of Acceptance, Waiver, and Consent No. 201605174305

FINRA and Aegis Capital entered into a Letter of Acceptance, Waiver, and Consent No. 201605174305on November 8, 2021, after FINRA alleged that between July 2014 through December 2018, Aegis Capital failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 as it pertains to excessive trading.

Excessive Trading

Specifically, with regard to excessive trading, FINRA alleged the following:

• Between 2014 and 2018, Aegis Capital employed on average more than 350 registered representatives across more than 20 branch offices, with the majority working in the firm’s Melville, 40 Wall Street, and Seventh Avenue branches.
• More than 10% of the firm’s registered representatives disclosed personal financial issues, such as outstanding liens, judgments, or bankruptcies on FINRA’s Central Registration Depository.
• During the relevant period, Aegis Capital used boilerplate WSPs prepared by an outside vendor for supervision of registered representatives’ trading in customer accounts.
• Aegis Capital’s WSPs instructed its branch managers to monitor trading for suitability issues during their daily review of Aegis Capital’s trade blotters but did not explain how the firm’s supervisors should conduct the daily trade review or use the trade blotters and other available customer information to identify potentially unsuitable or excessive trading in Aegis Capital’s customers’ accounts.
• The WSPs also did not define or require supervisors to calculate or consider, turnover rate, or cost-to-equity ratio.
• Additionally, Aegis Capital did not provide its branch and assistant branch managers training to compensate for the lack of guidance in the WSPs.
• Aegis Capital’s trade blotters were not designed to flag excessive trading activity, as they did not show the trading history in an account or the holding period between buys and sells in the same security. The blotters also did not include cost-to-equity or turnover, or information regarding the use of margin, even though many of the firm’s registered representatives recommended the use of margin to their customers.
• Aegis Capital’s WSPs also required branch managers to conduct monthly and semi-annual reviews of customer account activity to monitor for suitability and churning, and the firm’s chief compliance officer or their designee to review “active accounts” (defined as accounts with more than 20 transactions per month and $5,000 in commissions), to determine if the type, size, and frequency of trades were consistent with the customer’s investment objectives. However, these reviews were not performed for most of the relevant period.
• Aegis Capital had access to additional supervisory tools to monitor and identify excessive trading. Aegis Capital received exception reports from its clearing firm specifically designed to identify accounts with turnover rates and commission-to-equity ratios indicative of excessive and unsuitable trading. The exception reports were triggered when the annualized cost-to-equity ratio in accounts with an aggressive or speculative investment objective exceeded 5% or 6%, respectively, for three or more consecutive days, or the turnover exceeded 500% for five or more consecutive days.
• From July 2014 to December 2018, the active, in-and-out trading conducted by Aegis Capital’s registered representatives generated thousands of exception reports identifying customer accounts with potentially unsuitable turnover rates and commission-to-equity ratios. Approximately one-third of the exception reports related to trading in accounts held by senior investors, and more than 900 identified potentially unsuitable trading by eight registered representatives who worked in Aegis Capital’s Melville and Wall Street branches (the Representatives).
• These exception reports were active and viewable in the trade review system that Aegis Capital’s supervisors used to conduct their daily trade reviews. However, for most of the relevant period, Aegis Capital’s WSPs did not reference the exception reports or require its supervisors to review and address them.
• Aegis Capital also received more than 50 complaints from customers alleging excessive, unsuitable, or unauthorized trading in their firm accounts, including at least 13 complaints from customers whose accounts were managed by the Representatives.
• Aegis Capital failed to take reasonable steps to investigate these numerous red flags of potentially excessive and unsuitable trading by its registered representatives. Instead, Aegis Capital and its supervisors sent disclosure letters designed to document a customer’s general acknowledgement of the trading in their accounts and the trading costs they incurred. However, the letters did not include the actual costs of the trading, the costs incurred due to the use of margin, or explain what trades (or series of trades) prompted Aegis to issue the letter.
• During the relevant period, Aegis Capital’s compliance department prepared reports documenting the “key compliance issues” identified during its review and testing of Aegis Capital’s supervisory systems, procedures, and controls. Aegis Capital’s annual testing reported that:
• Aegis Capital lacked specific procedures to monitor turnover and commission-to-equity ratios in customers’ accounts.
• Aegis Capital should use exception reports that monitor commission activity and trading velocity (or turnover) to ensure “adequate” commission-to-equity ratios in its customers’ accounts.
• Aegis Capital was not utilizing specific alerts provided by its clearing firm that would ensure adequate commission-to-equity ratios.
• Aegis Capital’s WSPs did not identify which clearing firm exception reports that it would use to conduct supervisory trading reviews or the principals responsible for reviewing them.
• Aegis Capital needed additional compliance personnel to keep pace with Aegis Capital’s rapid hiring and growth.
• Although many of these findings carried over from year-to-year, Aegis Capital did not immediately address the deficiencies identified by its annual testing. Aegis Capital did not supplement its daily trade reviews with systems, surveillance, or reviews specifically designed to monitor or calculate commission-to-equity ratios or turnover rates in customer accounts or require its supervisors to review the exception reports provided by its clearing firm. Aegis Capital also did not update the daily trade blotters to include information that would enable its supervisors to identify patterns of trading, commissions, or accumulated losses in customer accounts.
• In 2018, Aegis Capital retained a third-party vendor to provide new automated trade surveillance and alerts. In 2019 and again in 2020, Aegis Capital also retained independent consultants to conduct comprehensive reviews of its WSPs and supervisory controls, and its remediation is ongoing.
• Even so, during the Relevant Period, Aegis Capital failed to identify potentially excessive and unsuitable trading in hundreds of customer accounts. Aegis Capital’s unreasonable supervisory system, combined with the failure to respond to the red flags discussed above, also allowed the Representatives to make unsuitable recommendations and excessively trade the accounts of 31 customers. The trading by the Representatives in the accounts of those 31 customers resulted in annualized turnover rates ranging from 4.2 to 199.8 and cost-to-equity ratios ranging from 21.2% to 164.6%, and more than $2.9 million in costs and $4.6 million in losses.
• Accordingly, Aegis Capital violated NASD Rule 3010 and FINRA Rules 3110 and 2010.

Excessive trading occurs when a financial advisor makes many trades in a customer’s account, not to benefit the customer but to generate commissions for the broker.

There are two primary indicators used to evaluate whether a financial advisor excessively traded an account. The first is turnover rate, which represents the number of times a portfolio of investments is replaced for another portfolio of investments. Generally, a turnover rate of six suggests excessive trading, but a turnover rate below four can be excessive in some cases. According to FINRA, the accounts at issue had a turnover rate between 4.2 and 199.8.

The second indicator used to assess whether trading is excessive in an investment account is its cost-to-equity ratio. The cost-to-equity ratio measures the amount an account must appreciate to cover commissions and other expenses. That is, how much the account needs to grow just to break even. A cost-to-equity ratio of 20% generally indicates excessive trading has occurred. According to FINRA, the accounts at issue had cost-to-equity ratios between 21.2% and 164.6%.

The practice of excessively trading customers’ accounts is unethical and illegal. Such conduct is also a violation of securities rules and regulations and can cause enormous harm to customers.

Non-Traditional ETFs

The FINRA AWC also alleged from July 2014 to June 2019, Aegis Capital failed to establish, maintain, and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 when selling leveraged, inverse, and inverse-leveraged Exchange-Traded Funds (Non-Traditional ETFs) to retail customers.

Specifically, with regard to Non-Traditional ETFs, FINRA alleged the following:

• Exchange-Traded Funds (ETFs) are typically registered unit investment trusts or open-end investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index. Shares of ETFs often are listed on national securities exchanges and traded throughout the day at prices established by the market.
• Leveraged ETFs seek to return a multiple of the performance of the index or benchmark they track. Some Non-Traditional ETFs are “inverse” or “short” funds, meaning they seek to deliver the opposite of the performance of the index or benchmark they track. Some funds are both inverse and leveraged, meaning that they seek to achieve a return that is a multiple of the inverse performance of the underlying index or benchmark. Most Non-Traditional ETFs reset daily, meaning they are designed to achieve their stated objectives only over the course of one trading session – usually a single day.
• In June 2009, FINRA issued Regulatory Notice 09-31. Regulatory Notice 09-31 reminded member firms that the performance of Non-Traditional ETFs over periods of time longer than a single trading session “can differ significantly from the performance … of their underlying index or benchmark during the same period of time.” Because of these risks and the complexity of these products, the notice further advised that “[w]hile the customer-specific suitability analysis depends on the investor’s particular circumstances, inverse and leveraged ETFs are not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.”
• In January 2012, FINRA issued Regulatory Notice 12-03. Regulatory Notice 12-03 reminded member firms that Non-Traditional ETFs that reset daily are complex products that require heightened supervision. The notice explained that member firms should have: (i) a well-designed system of internal controls; (ii) adequate training, so its registered representatives understand how Non-Traditional ETFs are expected to perform in normal market conditions and the risks associated with them; and (iii) monitoring systems or procedures reasonably designed to determine that Non-Traditional ETFs are recommended and sold only to customers who understand their essential features and for whom the product is suitable.
• From July 1, 2014, to June 1, 2019, Aegis Capital’s registered representatives executed more than 3,000 transactions, with a total principal value of more than $400 million, in Non-Traditional ETFs that reset daily. The transactions were executed in 524 retail customer accounts and generated approximately $422,000 in sales compensation for Aegis Capital and its registered representatives.
• Consistent with Regulatory Notice 12-03, Aegis Capital’s WSPs designated Non-Traditional ETFs as a complex product requiring heightened supervision. For example, Aegis Capital’s WSPs required the firm to provide its registered representatives with mandatory training on the features and risks of Non-Traditional ETFs and clear instructions regarding the types of customers for whom Non-Traditional ETFs were suitable. Aegis Capital’s WSPs also required the firm to appoint a product manager responsible for determining the type of investor for whom the purchase or sale of Non-Traditional ETFs was suitable and tasked the firm’s branch managers with reviewing each Non-Traditional ETF transaction for customer-specific suitability.
• Aegis Capital failed to conduct the heightened supervision its WSPs required. Aegis Capital did not designate an individual to act as the product manager or require its branch managers to perform the heightened suitability review its WSPs mandated for sales of Non-Traditional ETFs. Aegis Capital did not provide its registered representatives with any training on Non-Traditional ETFs until November 2018 or establish guidance regarding the types of customers for whom the purchase of Non-Traditional ETFs was suitable until June 2019.
• Aegis Capital’s supervisory systems were also not reasonably designed to detect potentially unsuitable transactions involving Non-Traditional ETFs. As discussed in Regulatory Notice 09-31, a primary risk associated with Non-Traditional ETFs is that their performance over longer periods of time can differ significantly from the performance of their underlying index or benchmark, particularly in volatile markets. Aegis Capital relied on its daily trade review to monitor how long customers who purchased Non-Traditional ETFs held the security before selling it. However, the trade blotter did not include information that allowed the branch managers to identify whether a customer held a Non-Traditional ETF for more than one day, and Aegis Capital did not track the holding periods of Non-Traditional ETF positions.
• As a result, Aegis Capital failed to identify customers who purchased and held Non-Traditional ETFs for extended periods of time up to and including a year or longer and customers whose purchase was inconsistent with their recorded investment objective, risk tolerance, or finances. Fifteen of those customers – including seniors and individuals with conservative or moderate risk tolerances – incurred total realized losses of $132,463.
• Accordingly, Aegis Capital violated NASD Rule 3010 and FINRA Rules 3110 and 2010.

Sanctions

Aegis Capital consented to the imposition of the following sanctions: a censure, a fine of $1,050,000, and restitution of $1,692,256.44.

Aegis Capital Corp: 2021 Disciplinary Actions

This blog has repeatedly written about Aegis Capital and its brokers’ propensity to engage in excessive and unsuitable trading in customers’ accounts.

The following chart summaries disciplinary actions that have been taken against Aegis Capital and its brokers in 2021 and also includes links to previous blog posts:

Unfortunately, Aegis Capital’s misconduct is not new. Aegis Capital Corp has a long history of allegations of wrongdoing.

In 2017, Aegis was included in a Reuters study that analyzed FINRA data and identified 48 firms whose brokers have been flagged for serious incidents. The Reuters’ analysis showed that Aegis Capital had 39% of its brokers with at least one of the most serious red flags, per the study, on their public disclosure reports.

The alleged conduct by the brokers that have been sanctioned this year, such as excessive trading, churning, and unauthorized trading, are common practices for “boiler room” broker-dealers.

Aegis Capital Corp. – A Duty to Supervise

Financial institutions like Aegis Capital Corp. must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as annuity switches, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.

Iorio Altamirano LLP Investigates Aegis Capital Over GPB Funds

According to publicly available records filed with the SEC, Aegis Capital likely received sales compensation for selling the private offerings by GPB Capital to retail investors.

Iorio Altamirano LLP is investigating claims on behalf of defrauded investors who were victims in the GPB funds scheme. The GPB funds were marketed to independent broker-dealers and investment advisers who would, in turn, sell the GPB funds to their retail investors.

If you lost money investing in private offerings by GPB Capital with Aegis Capital Corp, including GPB Automotive, you might have a claim.

The SEC has charged GPB Capital, Ascendant Capital, and Ascendant Alternative Strategies with running a Ponzi-like scheme that raised roughly $1.8 billion from securities issued by GPB Capital. The SEC believes that as many as 17,000 retail investors nationwide have been defrauded.

Nearly $1.7 billion of that total was invested in GPB Capital’s four flagship funds:

• GPB Holdings, LP / GPB Holdings Qualified, LP (“Holdings Qualified”) (collectively, “Holdings I”), launched in March 2013;
• GPB Automotive Portfolio, LP (“Automotive Portfolio”), launched in May 2013;
• GPB Holdings II, LP (“Holdings II”), launched in April 2015; and
• GPB Waste Management, LP (“Waste Management”), launched in August 2016.

See Also: Iorio Altamirano LLP Files GPB Automotive Claim Against Aegis Capital Corp

If you invested in the GPB funds with Aegis Capital, contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account. We have nearly 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

Related actions have also been initiated all over the country. The New York State Attorney General filed a complaint against GPB Capital. According to the complaint, as of June 2019, GPB Capital estimated the fair market value of its funds’ portfolio assets at approximately $1 billion – representing a more than 40% loss on investors’ initial capital contributions. The exact portfolio asset values are unknown, as the funds have not issued audited financials since 2016.

In addition to the State of New York, Massachusetts, Georgia, Illinois, Missouri, South Carolina, and Alabama have initiated similar legal proceedings.

You can read more about our firm’s investigation into the GPB funds and the SEC action here.

How to Recover Financial Losses or Obtain a Free Consultation

If you have suffered investment losses with Aegis Capital Corp. or suspect other inappropriate activity occurred in your investment or retirement account, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential review of your legal rights.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

Original Post:

SEC Charges John Woods of Southport Capital With Operating $110 Million Ponzi Scheme By Selling Units of Horizon Private Equity, III, LLC

On August 20, 2021, the United States Securities and Exchange Commission (“SEC”) filed an emergency action to stop a fraudulent Ponzi scheme allegedly perpetrated by Marietta, Georgia resident John Woods and two entities he controls: registered investment adviser Livingston Group Asset Management Company, d/b/a Southport Capital (“Southport”), and investment fund Horizon Private Equity, III, LLC.

The complaint alleged that John Woods has been running a massive Ponzi scheme for over a decade. At the end of July 2021, Woods and Southport have raised more than $110 million from over 400 investors in 20 states by offering and selling membership units in Horizon Private Equity, III, LLC (“Horizon”).

Many of the victims are elderly retirees preyed upon by investment advisers at Southport Capital (“Southport”), a registered investment advisory firm owned and controlled by Woods. According to the SEC’s complaint, Woods, Southport, and other Southport investment adviser representatives allegedly told investors that their Horizon investments were safe and they would receive returns of 6-7% interest, guaranteed for two to three years. Investors were also allegedly told that they could get their principal back without penalty after a short waiting period.

Additionally, Mr. Woods and his accomplices at Southport generally told investors that Horizon would earn a return by investing their money in, for example, government bonds, stocks, or small real estate projects.

According to the complaint, however, these statements were false and misleading. Instead, because Horizon did not earn any significant profits from legitimate investments, the 6-7% returns promised to earlier investors were paid out of new investor money.

The SEC’s complaint also alleges that Woods repeatedly lied to the SEC during regulatory examinations of Southport.

On August 24, 2021, the United States District Court for the Northern District of Georgia granted a temporary restraining order and asset freeze with respect to defendants Woods and Horizon and ordered expedited discovery from Southport, among other relief.

Defendant Southport Capital, registered with the SEC as Livingston Group Asset Management Company, Inc., has more than $824 million in client assets under management. Mr. Woods is the majority owner of the firm and has served as the firm’s President. Southport Capital has been registered with the SEC since June 2001. The firm is licensed in the following states: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Montana, New York, North Carolina, Ohio, South Carolina, Tennessee, Texas, Virginia, Washington, and Wisconsin.

According to the firm’s website, Clay Parker is currently serving as the firm’s President & CEO. Other senior staff at Southport Capital includes Jim Woods (Partner/Investment advisor), Jennifer Greene (Chief Compliance Officer), Jim Wilson (Chief Financial Officer), Paul Guerra (Regional Managing Director), and Bill Gunderson (Portfolio Manager – CIO of Gunderson Capital). Other investment advisors, financial planners, and financial professionals include Cody Kirk, Bruce DiPietro, Nick Seifert, Lynn Witmer, Laurie Dunsmore, Artie Brown, Scott Braddock, Barry Kyte, Britt Wright, Penny Flippen, Stewart Smith, Conrad Levesque, Kevin Beahan, Julie Jones, Henry Lessner, Manita Lam, and Robert Lachica.

What Can Horizon Private Equity, III, LLC Investors Do?

Investors that have purchased Horizon Private Equity, III, LLC should contact a securities litigation law firm to review their legal rights.

Iorio Altamirano LLP is a securities litigation law firm located in New York, NY. We represent investors nationwide and vigorously pursue claims on behalf of investors to recover investment losses.

We have nearly 20 years of combined experience as securities litigation lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm generally represents harmed investors on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.

If you or a loved one have purchased Horizon Private Equity, III, LLC, contact securities litigation lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com, or toll-free at (646) 330-4624 for a free and confidential consultation and review of your legal rights.

Original Post:

FINRA Files Enforcement Action Against Financial Broker Michael Giovannelli, Formerly of Spartan Capital Securities, for Unauthorized Trades in an Elderly Customer’s Account

The Financial Industry Regulatory Authority’s Department of Enforcement has filed a disciplinary proceeding complaint against financial advisor Michael Giovannelli, who also goes by the name Michael Anthony. The complaint alleges that between February and April 2020, while associated with Spartan Capital Securities, LLC, Mr. Giovannelli made 12 unauthorized transactions in the account of an elderly customer. The complaint also alleges that Mr. Giovannelli attempted to conceal the unauthorized trades from FINRA and testified falsely at his on-the-record interview.

Separately, FINRA alleged that between September 2018 and March 2019, while registered with Richard James & Associates Inc. (“Richard James”), Mr. Giovannelli made 100 trades in the accounts of four Richard James’ customers without obtaining the customers’ prior authorization for the trades. Mr. Giovannelli did not have written authorization to make discretionary trades in the four customers’ accounts from either the customers or Richard James.

If you or a loved one were a customer of broker Michael Giovannelli, Spartan Capital Securities, LLC, or Richard James & Associates, Inc., contact securities arbitration law firm Iorio Altamirano LLP for a free and confidential review of your legal rights.

FINRA Disciplinary Proceeding No. 2019061941101

On June 17, 2021, the FINRA Department of Enforcement filed a complaint against broker Michael J. Giovannelli. The complaint includes the following allegations related to the unauthorized trades at Spartan Capital Securities:

• On September 6, 2019, at the age of 87, an elderly customer opened an account with Spartan Capital Securities through Mr. Giovannelli. The customer is a farmer from Oklahoma.
• Spartan Capital Securities did not allow discretionary accounts, and the customer did not authorize Mr. Giovannelli to make discretionary trades in his account.
• The elderly customer authorized two transactions in his account that were executed on January 31, 2020, through Mr. Giovannelli: a sale of 275 American Depository Receipts of BP, PLC, and a purchase of 200 shares of Advanced Micro Devices.
• Between February 1 and early May 2020, Customer A did not authorize Mr. Giovannelli to place any trades in his account.
• However, during that period, Mr. Giovannelli executed 12 unauthorized transactions in the account of an elderly customer.
• The unauthorized trades Mr. Giovannelli made in the customer’s account generated trading costs of approximately $2,281, including $1,380 in commissions.
• Giovannelli’s unauthorized trading in the customer’s account caused $1,494 in realized losses.
• The customer filed a complaint with Spartan Capital on April 29, 2020.
• Spartan Capital’s phone records did not reflect phone calls between Mr. Giovannelli and the elderly customer’s phone number that demonstrated the customer could have authorized the trades in his account between February and April 2020.
• In connection with Spartan Capital’s investigation of the matter, Mr. Giovannelli provided his telephone records for January through June 2020, containing records for four different cellular telephone numbers.
• The telephone records Mr. Giovannelli provided to Spartan Capital do not show any calls to the customer’s phone number between February and April 2020.
• After investigating the matter, Spartan Capital reversed the unauthorized trades in the customer’s account and discharged Mr. Giovannelli.
• On October 29, 2020, as part of its investigation into Mr. Giovannelli’s unauthorized trading in the elderly customer’s account, FINRA staff requested that Mr. Giovannelli provide to FINRA, among other things, copies of itemized telephone records and any related documents showing all incoming and outgoing calls he made between January and July 2020.
• On November 29, 2020, Mr. Giovannelli produced five pages of telephone records for the cellular phone number ending in 1594, which included calls made on February 4, February 24-28, April 13-14, and April 16-21, 2020, but no calls made on any other dates.
• Before providing the February and April 2020 phone records to FINRA on November 29, Giovannelli altered them to make it appear as though he made calls to the customer from the cellular telephone number ending in 1594 on five of the six dates that the unauthorized trades occurred.
• Specifically, Mr. Giovannelli altered the phone records to falsely reflect calls to the customer on: February 4, 2020, at 4:01 PM; February 25, 2020, at 12:16 PM; February 27, 2020, at 1:36 PM; April 14, 2020, at 11:43 AM; and April 20, 2020, at 2:50 PM.
• Giovannelli never made these telephone calls.
• On two dates (February 4 and 27, 2020), the altered records purport to show telephone calls between Mr. Giovannelli and the customer after the trades were executed on those dates.
• In fact, Mr. Giovannelli placed and received other telephone calls on those dates and times, as is clear from the unaltered telephone records that he provided to Spartan during its investigation.
• On December 21, 2020, Mr. Giovannelli appeared for and provided on-the-record testimony, where he falsely testified that he did not alter any of the telephone records that he provided to FINRA.

The complaint includes the following allegations related to Mr. Giovannelli’s discretionary trading without written authorization at Richard James & Associates Inc.:

• Between September 2018 and March 2019, Richard James’ written supervisory procedures provided that “registered representatives will not exercise any discretionary power in a customer’s account unless the customer has given prior written authorization to a stated individual and the account has been accepted by the Firm,” as a discretionary account.
• Giovannelli did not have any discretionary accounts at Richard James.
• No customer gave Mr. Giovannelli written authorization to exercise discretionary power in their account, and Richard James did not accept any Mr. Giovannelli customer account in writing as a discretionary account.
• Giovannelli exercised discretion in the accounts of four Richard James’ customers between September 2018 and March 2019.
• Specifically, Mr. Giovannelli made 100 trades in the accounts of Richard James’ customers without receiving the customers’ prior authorization.

Financial Advisor Michael John Giovannelli (CRD No. 4989449)

Mr. Giovannelli has 14 years of experience in the securities industry and has been associated with 12 different firms, including four firms that have been expelled from the industry by FINRA.

Since January 2014, Mr. Giovannelli has been associated with the following brokerage firms:

• Spartan Capital Securities, LLC in Garden City, NY, from July 2019 until August 2020.
• Richard James & Associates, Inc. in Syosset, NY, from May 2017 until April 2019.
• Salomon Whitney Financial in Melville, NY, from August 2015 to May 2017.
• Legend Securities, Inc. (expelled by FINRA) in Melville, NY, from April 2015 to August 2015.
• Brookville Capital Partners (expelled by FINRA) in Melville, NY, from January 2014 to March 2015.

Spartan Capital terminated Mr. Giovannelli in July 2020 for engaging in unauthorized trading.

Mr. Giovannelli public disclosure report also discloses that he has been the subject of at least three customer disputes, including:

• Customer Dispute (April 2020): A customer filed a securities arbitration complaint alleging $97,292 in damages. The complaint alleged the following causes of action: unsuitability, over-concentration, churning, excessive trading, commission abuse, failure to supervise, breach of fiduciary duty, negligence, fraudulent misrepresentation, breach of contract, respondeat superior, lost opportunity damages, and California Elder Abuse and Dependent Adult Civil Protection Act. The causes of action related to investments in Square, Inc. and Barclays IPATH S&P 500 VIX Short Term ETN. The alleged conduct occurred while Mr. Giovannelli was employed by SW Financial. An arbitration panel held Mr. Giovannelli jointly and severally liable and awarded the customer $97,292.
• Customer Dispute (November 2017): A customer filed a complaint with Salomon Whitney Financial, the firm that employed Mr. Giovannelli at the time of the allegations. The customer alleged $15,000 in damages as a result of unauthorized trades. The firm settled the matter for $5,000. Mr. Giovannelli continues to deny wrongdoing.

Unauthorized trading often occurs in non-discretionary accounts, where a customer retains discretion. In non-discretionary accounts, brokers must obtain a customer’s permission every time before placing a trade.

Spartan Capital Securities, LLC and Richard James & Associates, Inc. – Supervisory Duties

Brokerage firms like Spartan Capital Securities, LLC and Richard James & Associates, Inc. must properly supervise financial advisors and customer accounts. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise its financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.

How to Recover Financial Losses or Obtain a Free Consultation

If you or a loved one were a customer of broker Michael Giovannelli, Spartan Capital Securities, LLC, or Richard James & Associates, Inc., and either sustained financial losses or suspect that Mr. Giovannelli did not have your best interest in mind when recommending investments or making account transactions, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential evaluation of your account or annuity.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

If you have suffered financial losses investing with Marc R. Lippman or Folger Nolan Fleming Douglas Incorporated, contact securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation.

Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as Folger Nolan Fleming Douglas Incorporated.

FINRA Letter of Acceptance, Waiver, and Consent No. 2021071514101

Marc R. Lippman and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on June 17, 2021, after FINRA alleged that Mr. Lippman provided false information to FINRA during on-the-record testimony regarding whether he was aware that his customer was deceased at the time of entering a securities transaction in the customer’s account. Specifically, FINRA alleged:

• On February 25, 2017, Mr. Lippman’s customer died.
• On February 27, 2017, Mr. Lippman was aware that the customer had died and placed a trade in the customer’s account, selling approximately $80,000 in securities.
• Despite knowing that the customer died, Mr. Lippman effectuated this transaction without permission or consent.
• Following the transaction, Lippman distributed the funds to one of the customer’s family members.
• FINRA investigated Mr. Lippman concerning whether he knew a customer was deceased at the time he entered a securities order in the customer’s account.
• Pursuant to FINRA Rule 8210, FINRA took his on-the-record testimony under oath.
• During his on-the-record testimony, Mr. Lippman falsely stated that he was unaware of his customer’s death at the time of entering a securities transaction in the customer’s account.

Accordingly, Mr. Lippman violated FINRA Rule 2010 for placing unauthorized trades, and FINRA Rules 8210 and 2010 for providing false testimony.

Financial Advisor Marc Romeyn Lipman (CRD No. 1575995)

Marc Lippman had 33 years of experience in the securities industry and has been associated with seven different firms. In December 2009, Mr. Lippman became affiliated with Folger Nolan Fleming Douglas Incorporated in Washington, DC. Folger Nolan Fleming Douglas Incorporated terminated Mr. Lippman’s employment in December 2020. In connection with the termination, the firm alleged that it had learned that statements made by Mr. Lippman regarding the date he became aware of a client’s death were inconsistent with an email he had written prior to making such statements.

According to his BrokerCheck report, Mr. Lippman was the subject of a customer dispute in February 2020. The customer alleged that Mr. Lippman breached his fiduciary duty and caused $686,000 in damages related to a mutual fund. The matter was settled by Folger Nolan Fleming Douglas Incorporated and Mr. Lippman for $326,500. Mr. Lippman personally contributed $75,000.

Supervisory Duties

Brokerage firms like Folger Nolan Fleming Douglas Incorporated must properly supervise financial advisors and customer accounts. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise its financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.

How to Recover Financial Losses or Obtain a Free Consultation

If you have lost money with financial advisor Marc R. Lippman or Folger Nolan Fleming Douglas Incorporated, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential evaluation of your account.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

Mr. Flower was also ordered to pay restitution plus prejudgment interest to harmed customers. However, it is unclear whether he will be able to satisfy the judgment.

Mr. Flower was associated with Spartan Capital Securities, LLC since June 2019. Previously, he was associated with SW Financial from December 2015 to June 2019.

Customers of Mr. Flower, including customers that have been notified that they may be receiving restitution, should consult with a securities arbitration law firm. If you or a loved one were a customer of James Flower, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation.

Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as Spartan Capital Securities, LLC and SW Financial.

FINRA Disciplinary Proceeding No. 2017052701101

Mr. Flower was a registered representative with SW Financial, from January 1, 2016, through July 31, 2018. He is now registered with another FINRA member firm. Although he is in New York, he generates business by cold calling people all over the country, focusing primarily on older customers who are small business owners and retirees.

The five customers involved in this case resided in Louisiana, Maryland, Oklahoma, and Texas when they started working with Flower. They ranged in age from mid-fifties to late-seventies. Four of the customers own small businesses; the fifth is a retired aircraft maintenance worker.

After a six-day hearing conducted in January 2021, the FINRA Hearing Officers “Hearing Officers” held that Mr. Flower excessively traded in five customers’ accounts, executed 17 unauthorized trades, and mismarked 58 transactions:

Excessive Trading and Churning

The FINRA Hearing Officers “Hearing Officers” concluded that Mr. Flower engaged in excessive trading and churning in five customers’ accounts for his own benefit in reckless disregard for his customers’ interests.

Excessive trading occurs when a financial advisor makes many trades in a customer’s account, not to benefit the customer but to generate commissions for the broker.

Churning is a more egregious variation of excessive trading. Churning refers to a situation where the broker executed an excessive number of trades and did so with the intent to defraud or reckless disregard for the customer’s interest.

There are two primary indicators used to evaluate whether a financial advisor excessively traded an account. The first is turnover rate, which represents the number of times a portfolio of investments is replaced for another portfolio of investments. Generally, a turnover rate of six suggests excessive trading, but a turnover rate below four can be excessive in some cases. The Hearing Officers found that the accounts at issue had annualized turnover rates ranging from 16 to 33.

The second indicator used to assess whether trading is excessive in an investment account is its cost-to-equity ratio. The cost-to-equity ratio measures the amount an account must appreciate to cover commissions and other expenses. That is, how much the account needs to grow just to break even. A cost-to-equity ratio of 20% generally indicates excessive trading has occurred. The accounts examined by FINRA had cost-to-equity ratios ranging from 69% to 176%.

The Hearing Officers also found that Mr. Flower engaged in in-and-out trading in the accounts, buying and then selling the same stock in a matter of days. In-and-Out trading is a hallmark sign of excessive trading. For example, in one account, Mr. Flower bought 5,000 shares of Advanced Micro Devices, Inc. on November 13, 2017, but then sold all the shares two days later, on November 15, 2017, for a realized loss of $2,668. Among others, he made similar trades in stocks of Cirrus Logic Inc. and OPKO Health Inc.

Further, the Hearing Officers found that the customers were unsophisticated investors. None of the investors had actively traded securities before; none of them tracked what was happening in their accounts in any meaningful way, and none of them had much of an understanding about the way securities brokers are paid or, or Mr. Flower was paid. They had no idea of the costs they were incurring from the frequent trading and use of margin in the accounts. In fact, the Hearing Officers concluded that Mr. Flower discouraged the customers from trying to understand what was going on in their accounts.

Mr. Flower’s accounts decimated the value of the customers’ accounts. The five customers together suffered realized losses (including all trade costs, fees, and margin interest) totaling roughly $223,000. During the same period, Mr. Flower charged commissions on the trading in the five accounts of nearly $185,000, of which he received 70%, or nearly $130,000.

FINRA’s investigation began in September 2017, then a nephew of one of Mr. Hicks’ customers called FINRA’s Senior Helpline. The customer was 90 years old, suffering from dementia, and needed to sell her shares to help pay for the cost of her nursing home care. Mr. Hicks had sold the customer two REITs, one when she was 87 years old and the second when she was 88.

In April 2018, the Senior Helpline received another call. This time, the call came from the son of an 85-year-old woman who had 90 percent of her investment in non-traded REITS.

Unauthorized Trading

Unauthorized trading often occurs in non-discretionary accounts, where a customer retains discretion. In non-discretionary accounts, brokers must obtain a customer’s permission every time before placing a trade.

The account of the retired aircraft maintenance worker was a non-discretionary account. The Hearing Officers held that Mr. Flower did not seek prior authorization from the retired aircraft maintenance worker for 17 trades. Mr. Flower executed 16 of those trades while the customer was experiencing serious medical issues that interfered with his daily living. The unauthorized trading resulted in more than $30,000 in market losses. The Hearing Officers concluded that the misconduct aided Mr. Flower’s excessive trading and churning.

Excessive trading, churning, and unauthorized trading are unethical and illegal practices. They are all also violations of securities rules and regulations and can cause enormous harm to customers.

Mismarked Orders

A “solicited” trade is a trade that was the broker’s idea. It is a trade where the financial advisor initiated and recommended the buy or sell transaction to the client. An “unsolicited” trade is a trade that the customer initiated. It is a trade made by the client on their own initiative, without recommendations, suggestions, or prompting from the broker.

The distinction between solicited and unsolicited is important to determine whether the broker’s suitability and best interest duties arise. If the trade is solicited, or recommended by the broker, the broker has a duty to make a suitable recommendation that is in the best interest of the customer. Click here to read more about solicited v. unsolicited trades.

The Hearing Officers found that Mr. Flower mismarked 58 sales in various accounts as unsolicited, when in fact, the trades were solicited. According to the Hearing Officers, Mr. Flower’s own testimony revealed that he prompted the customers to act. The trades occurred after he called his customers to tell them a stock in their portfolio was losing value, to suggest that there was a profit to be taken, or to recommend a purchase that would require the sale of an existing position. Most of the purported unsolicited trades were sales at a loss. The mismarking of the sales as unsolicited made it seem that the customers had chosen to take the losses and helped obscure Mr. Flower’s excessive trading and churning. This misconduct caused SW Financial’s books and records to be false and inaccurate.

Financial Advisor James William Flower (CRD No. 2817701)

James Flower had 23 years of experience in the securities industry and has been associated with 16 different firms, including eight firms that have been expelled by FINRA:

• Spartan Capital Securities, LLC in Garden City, NY, from June 2019 to the present.
• SW Financial in Melville, NY, from December 2015 to June 2019.
• Laidlaw & Company (UK) Ltd. in Melville, NY, from May 2014 to December 2015.
• Global Arena Capital Corp (expelled by FINRA) in Melville, NY, from November 2010 to May 2014.
• Prestige Financial Center, Inc. (expelled by FINRA) in Melville, NY, from October 2009 to November 2010.
• Brookstone Securities, Inc. (expelled by FINRA) in Garden City, NY, from August 2009 to November 2009.
• Prestige Financial Center, Inc. (expelled by FINRA) in Garden City, NY, from April 2008 to September 2009.
• Obsidian Financial Group, LLC (expelled by FINRA) in Woodbury, NY, from April 2008 to May 2008.
• Westrock Advisors, Inc. (expelled by FINRA) in Woodbury, NY, from April 2006 to April 2018.
• P. Turner & Company, L.L.C. in Garden City, NY, from August 2004 to May 2006.
• Westrock Advisors, Inc. (expelled by FINRA) in New York, NY, from August 2004 to August 2004.
• Granite Associates, Inc. in Delray Beach, FL, from January 2007 to July 2004.
• Continental Broker-Dealer Corp. in Carle Place, NY, from April 2003 to January 2004.
• Harrison Securities, Inc. (expelled by FINRA) in Port Washington, NY, from January 2001 to May 2003.
• Whitehall Wellington Investments, Inc. in Port Washington, NY, from September 1998 o December 2000.
• Tasin & Company, Inc. (expelled by FINRA) in Hauppauge, NY, from January 1998 to September 1998.
• Duke & Co., Inc. in New York, NY, from December 1997 to January 1998.
• Gaines, Berland Inc. in Bethpage, NY, from September 1997 to November 1997.

Historically, Long Island, New York, has been a haven for boiler-room brokerage firms. This notoriety has inspired blockbuster movies such as “Boiler Room” and “The Wolf of Wall Street.” The Wolf of Wall Street was based on the true story of broker Jordan Belfort and his firm, Stratton Oakmont. Jordan Belfort pleaded guilty to securities fraud and money laundering in 1999.

The term “boiler room” often refers to an outbound call center that sells questionable investments through unfair, dishonest, and high-pressure sales tactics.

Many broker-dealers still use boiler room tactics such as cold-calling customers and high-pressure or aggressive sales tactics. Other modern-day boiler room brokerage firms have a propensity for broker misconduct, such as excessive trading, churning, and unauthorized trades. Mr. Flower has been accused of doing all of the above.

Regulatory Disclosure

In 2017, Mr. Flower was suspended for three months by FINRA for recommending that 13 of his customers invest in a highly volatile exchange-traded note without having a reasonable basis for recommending the transactions. The findings stated that at the time Mr. Flower was recommending the exchange-traded note, Mr. Flower incorrectly believed that it traded inverse to the S&P 500 index. This erroneous perception led him to recommend that customers purchase and hold the exchange-traded note as a hedge to an anticipated overall market decline. Based on Mr. Flower’s recommendations, 13 customers suffered losses in excess of $249,000 after holding their shares for periods ranging from two weeks to over one year. Mr. Flower lacked a sufficient understanding of the mechanics of the exchange-traded note to form a reasonable basis upon which to recommend the purchase of it to his customers.

Customer Disputes

According to his BrokerCheck report, Mr. Flower has been the subject of at least three customer complaints:

• Customer Dispute (September 2015): A customer submitted a written complaint to Laidlaw and Company (UK) Ltd alleging that Mr. Flower churned the customer’s account and made unsuitable investment recommendations. The complaint alleged $90,000 in damages. The firm settled the matter for $45,000.
• Customer Dispute (September 2015): A customer filed a securities arbitration complaint alleging $250,000 in damages. The customer alleged over-concentration, unsuitability, excessive use of margin, and churning. The dispute was stayed due to Mr. Flower filing for bankruptcy in 2016.
• Customer Dispute (April 2010): A customer filed a securities arbitration complaint alleging $100,000 in damages. The customer alleged that Mr. Flower misrepresented the characteristics and risks associated with multiple purchases of an Exchange-Traded Fund and that he failed to execute a stop-loss order. The customer also alleged that Mr. Flower made misrepresentation in connection with using margin in the account. The dispute settled for $67,500.

Spartan Capital Securities, LLC and SW Financial – Supervisory Duties

Brokerage firms like Spartan Capital Securities, LLC and SW Financial must properly supervise financial advisors and customer accounts. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity, such as excessive trading, churning, and unauthorized trading, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise its financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.

How to Recover Financial Losses or Obtain a Free Consultation

If you have lost money with financial advisor James William Flower, Spartan Capital Securities, LLC, or SW Financial, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential evaluation of your account.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

The former stockbroker, Lawrence (Larry) Fawcett, was barred from the securities industry by FINRA in March 2018 for failing to cooperate with a FINRA investigation into his outside business activities. FINRA subsequently revoked Mr. Fawcett’s securities license for failing to pay a fine and suspended him for failing to comply with an arbitration award. Mr. Fawcett, who had only been in the securities industry for five years, had an extensive history of customer complaints, regulatory sanctions, associations with disreputable brokerage firms, and an employment termination after allegations of wrongdoing.

If you have lost money with Lawrence Fawcett or Westpark Capital, Inc., contact FINRA arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.

Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as Westpark Capital, Inc.

Charles A. Hailey and Karen G. Hailey v. Westpark Capital, Inc., FINRA Case No. 20-00320

On May 25, 2021, a FINRA Dispute Resolution Services arbitration panel awarded customers Charles A. Hailey and Karen G. Hailey nearly $800,000.

In the Statement of Claim, filed in January 2020, Claimants asserted the following causes of action: breach of fiduciary obligations; breach of contract; negligence/professional negligence; violations of the Virginia Securities Act and blue sky statutes; violations of federal securities law; common law fraud/ misrepresentations and, omissions; unsuitability, including both quantitative and qualitative, specifically including overconcentration and use of significant margin; failure to supervise; violations of state and federal rules and regulations; agency, respondeat superior and control person liability; and general equitable principle that apply in arbitration.

The causes of action related to private placement investments in Monster Digital, Inc., Miramar Labs, Inc., Protagenic Therapeutics, Inc. stock, the volume of trading (i.e., excessive trading/churning) in other securities. In addition, the claim sought damages for the recommended purchase of gold, through GFS Associates, and precious metals, through Omega Knight 2 LLC. In 2018, Omega Knight 2, LLC was charged by the Commodity Futures Trading Commission for fraud. The investments in GFS Associates and Omega Knight 2 LLC were private securities transactions sold by Mr. Fawcett without the approval of his firm, Westpark Capital, Inc.

In a rare occurrence, the arbitration panel devoted uncompensated time to drafting and issuing an explained decision which the parties did not request. A summary of the panels’ findings are below:

Private Placements:

The arbitration panel found that Mr. Fawcett had no prior experience in recommending private placement investments to customers prior to joining Westpark Capital, Inc. in June 2015. The panel also found that the customer, Mr. Hailey, had invested in only one private fund prior to following Mr. Fawcett’s recommendations and investing in the subject private placements. The prior private fund related to real estate and was recommended by people whom Mr. and Mrs. Hailey had known well from their years of experience in the Richmond, Virginia scene. Accordingly, the arbitration panel concluded that the three private placement investments recommended by Mr. Fawcett were far outside of Mr. Hailey’s range of sophistication, and therefore unsuitable for him. The panel also concluded that the illiquid private placement investments were unsuitable given the Hailey’s advanced age and lack of liquidity in their assets. Ultimately, the panel determined that the recommendations to invest in the private placements were made for Mr. Fawcett’s best interests, not those of the customers.

Private placements are private securities offerings exempt from registration with the Securities and Exchange Commission (SEC). There are significant risks associated with investments in private placements, particularly their lack of liquidity and speculative nature.

Churning:

The arbitration panel concluded that the level of activity in the customers’ accounts was unsuitable for any investor and that it was done in order to generate commissions. The panel held Westpark Capital, Inc. liable for permitting the churning and responsible for returning the commissions to the Haileys.

Excessive trading occurs when a financial advisor makes many trades in a customer’s account, not to benefit the customer but to generate commissions for the broker.

Churning is a more egregious variation of excessive trading. Churning refers to a situation where the broker executed an excessive number of trades and did so with the intent to defraud or reckless disregard for the customer’s interest.

Excessive trading and churning are unethical and illegal practices in the securities industry. They are all also violations of securities rules and regulations and can cause enormous harm to customers.

Failure to Supervise:

The customers argued that Westpark Capital, Inc. failed to adequately supervise Mr. Fawcett and their accounts. They argued that Westpark Capital, Inc. took a laissez-faire approach to supervision, ignoring warning signs of trouble. Their expert concluded that Westpark Capital, Inc.’s failure to follow up on these “red flags” was negligent. The incidents that the panel found the most troubling included the following:

• Westpark Capital, Inc. hired Mr. Fawcett without an in-person interview, despite his brief and checkered history as a broker. Mr. Fawcett twice failed his Series 7 (General Securities Representative Qualification Examination), then moved from firm to firm six times in four years. One of the firms terminated him for “failure to provide services to the firm for he was engaged.” Another was subsequently expelled by FINRA. Although members of the five-person hiring committee testified, they never made clear why they hired someone with such a weak track record in the first place.
• Westpark Capital, Inc. permitted Mr. Fawcett to work from his home in Queens, New York, even though Westpark Capital, Inc. maintained an office in Manhattan. The two members of Westpark Capital, Inc.’s office in Boca Raton, Florida, assigned to supervise Mr. Fawcett had FINRA infractions on their records that did not inspire confidence.
• Six months after Westpark Capital, Inc. hired Mr. Fawcett, FINRA required him to participate in an in-person interview. Two months later, Mr. Fawcett settled an arbitration claim filed by a client at Salomon Whitney by agreeing to pay $30,000.00 out of personal funds. Westpark Capital, Inc. evidently did not regard the claim, interview, or settlement as cause for concern.
• For its only in-home inspection of Mr. Fawcett, Westpark hired Bernard E. Young, who had been banned from the securities industry for participating in a Ponzi scheme. Not surprisingly, Mr. Young noted that Mr. Fawcett had a personal fax machine but did not inquire how it was being used. Nor did he follow up when Mr. Fawcett described Bullhammer, which he listed on his application as an account used for tax purposes, as a software program. No one from Westpark followed up either. Mr. Fawcett used the fax machine to send false information to Mr. Hailey. He used the back account to accept funds from Mr. Hailey for purchases of gold from other firms.

The arbitration panel held that Westpark Capital, Inc. accorded Mr. Fawcett far more freedom and trust than he had earned and that the consequences were predictable.

Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise its financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.

Selling Away:

The arbitration panel concluded that Westpark Capital, Inc. was not liable for Mr. Fawcett selling the gold and precious metal securities that were not approved by the firm.

When a financial advisor participates in a private securities transaction that is not approved by a firm, it is referred to as “selling away.” The prohibitions on selling away are designed to protect investors by ensuring that all brokers’ activities are reasonably supervised by firms that employ them. Further, securities that are sold away from a firm have not been vetted by the firm.

Financial Advisor Lawrence John Fawcett Jr. CRD No. 5851474

Lawrence John Fawcett Jr., who also goes by Larry, was barred from the securities industry in December 2020. Mr. Fawcett’s license was revoked by FINRA for failing to comply with another arbitration award.

Mr. Fawcett, who had only been in the securities industry for five years, had an extensive history of customer complaints, regulatory sanctions, associations with disreputable brokerage firms, and an employment termination after allegations of wrongdoing.

Past Associations:

Mr. Fawcett entered the securities industry in 2012. During the course of his brief 5-year career as a broker, Mr. Fawcett was associated with five different brokerage firms, including two firms that have been expelled from the securities industry by FINRA:

• Westpark Capital, Inc., from June 2015 to March 2018.
• Salomon Whitney Financial, from September 2013 to June 2015.
• Rockwell Global Capital LLC, from June 2013 to September 2013.
• John Thomas Financial (expelled by FINRA), from April 2013 to June 2013.
• Rockwell Global Capital LLC, from August 2012 to April 2013.
• EKN Financial Services Inc. (expelled by FINRA), from April 2012 to August 2012.

One of the firms terminated him for “failure to provide services to the firm for he was engaged.”

Mr. Fawcett was fired from Westpark Capital, Inc. in March 2018 for conducting business from a non-disclosed location and making false representations to the firm.

Regulatory Sanctions:

In November 2017, Mr. Fawcett and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”), after FINRA alleged that Mr. Fawcett recommended unsuitable mutual fund transactions to a customer. Mr. Fawcett consented to a 15-business day suspension and a fine of $2,500.

In March 2018, FINRA barred Mr. Fawcett from the securities industry after he refused to cooperate with FINRA’s investigation regarding Mr. Fawcett’s outside business activities.

In June 2018, FINRA revoked Mr. Fawcett’s license pursuant to FINRA Rule 8320 for failing to pay the monetary fine that was issued in 2017.

In December 2020, FINRA suspended Mr. Fawcett for failing to comply with an arbitration award.

Customer Complaints:

In just five years, Mr. Fawcett racked up numerous customer complaints:

• Customer Dispute (October 2020): A customer filed a securities arbitration complaint alleging nearly $85,000 in damages as a result of unsuitable investment recommendations related to equity positions (common or preferred stock) and private securities. The claim alleged the following causes of action: suitability, churning, unauthorized trading, fraud, negligent misrepresentation, breach of fiduciary duty, breach of covenants of good faith, breach of fair dealing, negligent supervision, breach of contract, Section 20 violations, failure to supervise, unjust enrichment, and lost opportunity. The dispute is pending.
• Customer Dispute (March 2020): A customer filed a securities arbitration complaint alleging negligence, qualitative and quantitative unsuitability, failure to supervise, breach of fiduciary duty, breach of contract, negligent misrepresentation and omissions, and lost opportunity damages. The causes of action related to BlackBerry Ltd. stock and the customer sought $15,633 in damages. An arbitrator found Mr. Fawcett to be liable and ordered him to pay $5,663 in compensatory damages and $30,0000 in punitive damages. As of December 2020, Mr. Fawcett has not paid the arbitration award to the customer.
• Customer Dispute (February 2020): Westpark Capital, Inc. was found liable, and the Haileys were awarded nearly $800,000 in damages, including over $545,000 in compensatory damages, $33,500 in costs, and $215,000 in attorneys’ fees.
• Customer Dispute (May 2018): A customer filed a securities arbitration complaint seeking $33,271 in damages as a result of excessive trading, churning, and unsuitable transactions. The dispute is pending.
• Customer Dispute (April 2018): A customer filed a securities arbitration complaint seeking $260,038 in damages as a result of churning, negligence, unsuitability, unauthorized trading, and breach of contract. The causes of action related to equities (common or preferred stock). The alleged conduct occurred when Mr. Fawcett was employed by SW Financial. The dispute is pending.
• Customer Dispute (June 2017): A customer submitted a written complaint to Westpark Capital Inc. alleging that Mr. Fawcett purchased 1000 shares of Blackberry stock without his knowledge. According to Westpark Capital, Inc., Mr. Fawcett’s supervisor contacted the client, where the client “changed his tone” and stated that he was “sill” for writing the note and that it was “mainly due to buyer remorse.” The client supposedly apologized for the letter and misunderstanding. The dispute was marked closed and withdrawn.
• Customer Dispute (September 2015): A customer filed a FINRA arbitration claim against Salomon Whitney and Mr. Fawcett for unauthorized trading. The claim alleged $20,000 in damages. Salomon Whitney and Mr. Fawcett settled the matter for $13,500.
• Customer Dispute (November 2014): A customer filed a FINRA securities arbitration claim against Salomon Whitney and Mr. Fawcett for unauthorized trading, unsuitable investments, and an unsuitable investment strategy. The claim alleged $214,000 in damages. The parties entered into an agreement to present to the arbitration panel a Stipulated Award. The panel accepted the award and found Mr. Fawcett liable for $30,000.
• Customer Dispute (April 2013): A customer submitted a written complaint to Rockwell Global Capital, LLC alleging unauthorized trades. The customer did not file a securities arbitration complaint. The firm denied the customer any compensation.

How to Recover Losses or Obtain a Free Consultation

If you have lost money with financial advisor Lawrence (Larry) Fawcett Jr. or Westpark Capital, Inc., contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential evaluation of your account.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

Mr. Hicks, a veteran broker of nearly 50 years, has been associated with Southeast Investments, N.C. Inc. since April 2014.

If you or a loved one were a customer of Mercer Hicks III, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation.

Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as Southeast Investments, N.C.

FINRA Disciplinary Proceeding No. 201705287301

FINRA’s investigation began in September 2017, then a nephew of one of Mr. Hicks’ customers called FINRA’s Senior Helpline. The customer was 90 years old, suffering from dementia, and needed to sell her shares to help pay for the cost of her nursing home care. Mr. Hicks had sold the customer two REITs, one when she was 87 years old and the second when she was 88.

In April 2018, the Senior Helpline received another call. This time, the call came from the son of an 85-year-old woman who had 90 percent of her investment in non-traded REITS.

A complaint was filed by FINRA’s Department of Enforcement in December 2019. In responding to the complaint, Mr. Hicks denied the allegations generally but admitted that he made the recommendations. He also admitted that he recommended that four of the customers liquidate investments in variable annuities, which he had previously recommended to them, and reinvest the funds in the REITS and BDCA.

From June 2014 through July 2017, Mr. Hicks recommended eight non-traded REITs to four of his customers and recommended BDCA to two of them. The total invested by the five customers came to nearly $665,000.

A REIT is an entity that allows investors to invest in income-producing real estate. A REIT uses investors’ capital to purchase a portfolio of properties, such as office buildings, hotels, and apartments. There are two types of publicly available REITs: traded and non-traded. Traded REITs are bought and sold on a national securities exchange. Non-traded REITs are not. All of Mr. Hicks recommended REITs were non-traded. Non-traded REITs are not liquid until the REIT liquidates assets or lists its shares on an exchange. These events are not guaranteed or may not occur for more than ten years after an investor purchases shares. A non-traded REIT may allow investors to redeem their shares, but redemption opportunities are limited. The REIT may require that shares be redeemed at a discount, so an investor who redeems shares does not recover the amount invested. A REIT has the discretion to terminate a share-redemption program without notice. Non-traded REITs often charge high fees and may make distributions to investors from their offering proceeds—the investors’ money—reducing the value of shares and the cash available to the REIT to purchase assets. Non-traded REITS are risky investments and are not suitable for investors who need illiquidity.

Business development companies are entities that invest in the debt and equity of small and medium-sized businesses that are not able to acquire capital easily. Non-traded business development companies are not publicly traded and are illiquid, risky investments. Business Development Company of America (BDCA), a non-traded business development company, is a finance company that invests in middle-market companies. As stated on the first page of its prospectus, an investment in BDCA is speculative with “a high degree of risk, including the risk of a complete loss of investment.” The prospectus also warns that investors “should not expect to sell” their shares, and if they are able to do so, they will “likely receive less” than they paid for them.

The BDCA prospectus contains a section describing the company’s suitability standards. It makes clear that BDCA is a high-risk investment. It states that BDCA’s stock is “suitable only as a long-term investment for persons of adequate financial means who have no need for liquidity in this investment.” It specifies that BDCA “will not sell shares” to residents of certain states “unless they meet special suitability standards.” For North Carolina residents to qualify, they must have, at a minimum, both liquid assets of $85,000 and gross income of $85,000, or a minimum liquid net worth of $300,000.

FINRA’s Office of Hearing Officers’ decision also concluded the following findings of fact:

• Hicks and FINRA stipulated that both BDCA and the non-traded REITS that Mr. Hicks recommended were illiquid and exposed investors to a high level of risks.
• Hicks, who was first “introduced” and “exposed” to non-traded REITs and BDCA in 2013, failed to understand non-traded REITs and BDCA.
• Hicks’ understanding of non-traded REITS was seriously flawed. When he recommended BDCA, for example, he testified that he “did not understand the risks, that’s for sure. Mr. Hicks considered non-traded REITs to be conservative or moderate investments.
• Hicks testified that he believed that BDCA was a REIT, but it was not.
• Hicks only read a few pages of a REIT’s prospectus and did not know what, if any, due diligence Capital Investment (his prior employer) or Southeast Investments performed to ascertain suitability of the non-traded REITs and BDCA investments he recommended.

The decision also included a summary of each of Mr. Hicks’ unsuitable recommendations. The following is a summary of each customer and the unsuitable recommendations:

Customer 1:

A retired minister, born in 1933, lives alone in Whispering Pines, North Carolina. Hicks made two investment recommendations to the customer. In 2010, Mr. Hicks recommended a variable annuity. In December 2014, Mr. Hicks recommended BDCA. The customer made two withdrawals from her variable annuity and purchased $25,000 worth of shares of BDCA. The customer had a stated investment objective of “preservation of capital” and risk tolerance of “conservative.” Mr. Hicks also indicated that her investment knowledge was “low.” According to account opening documents. Mr. Hicks stated that the client had a liquid net worth was between $150,000 to $249,999, under the minimum required to invest in BDCA in North Carolina. In late 2020 or early 2021, the customer required that Mr. Hicks liquidate her share so that she could reinvest her funds. He was not able to do so because the shares were illiquid. As of the date of the hearing, the customer was still unable to liquidate her shares.

Customer 2:

A retired school nurse, born in 1934, residing in Pinehurst, North Carolina. The customer, who is also a widow, suffers from severely impaired hearing and high blood pressure. Over the years, Mr. Hicks recommended a variable annuity, BDCA, and an ARC-sponsored non-traded Realty, Realty Finance Trust, Inc. Despite being satisfied with her annuity, in late 2014, when she was 80 years old, Mr. Hicks recommended withdrawing $27,600 from her annuity account to purchase non-traded shares of BDCA, and she did so. Hicks completed the suitability section of the paperwork associated with the BDCA purchase. He characterized her investment objectives as “income,” her risk tolerance as “moderate,” and her investment purpose as “save for retirement,” although she was already retired. However, when interviewed by FIRNA, Mr. Hicks stated that the customer’s risk tolerance was “conservative” and that he had overestimated her net and liquid assets. According to her daughter, the customer had liquid assets of between $50,000 and $100,000, not $100,000 to $50000.

In June 2015, when the customer was 81-year-old, Mr. Hicks made his third recommendation, and she invested $15,000 in non-traded REITS ARC Finance. The account application again misstated her risk tolerance and liquid net worth. Mr. Hicks did not inform the customer of the risks listed in the prospectus, including that the company had no established sources of financing. He did not inform the customer that, according to the prospectus, ARC Finance was an emerging-growth company; investing in it involved “a high degree of risk,” and investors should purchase shares only if they could afford a complete loss.

Mr. Hicks conceded that the customer did not meet ARC Finance prospectus’ minimum suitability thresholds, and the customer did not meet the North Carolina suitability requirements investing with BDCA. Mr. Hicks did not tell the customer this at the time of the recommendations and did not warn her of the risks of investing in BDCA.

Customer 3:

A retired civil servant, born in 1927, living in a nursing home in Pinehurst, North Carolina. The customer began to suffer from dementia in 2017. In July 2014, when the customer was 87 years old, Mr. Hicks recommended that she invest $37,900 in a non-traded REIT, American Retail Centers of America, Inc. (“ARC Retail”). According to Mr. Hicks, the customer made the investment within an IRA, and he filed out her IRA application.

In June 2015, Mr. Hicks recommended, and the customer purchased, shares of another non-traded REIT, American Realty Capital New York City REIT, Inc. (“ARC NYC”) for $12,500.

Mr. Hicks admitted that he did not speak to the customer when filling out the application forms to determine whether the customer met the minimum suitability standards.

The two investments in non-traded REITS, totaling $50,400, constituted 50% of her liquid assets before she made the investments.

The customer’s nephew was able to eventually liquidate the REITS at discounted prices.

Customer 4:

A retired high school teacher and widow, born in 1941, who lives in a retirement home in Burlington, North Carolina. The customer received an inheritance in 2012 when one of her four daughters had passed away. Shortly thereafter, Mr. Hicks contacted her by a cold call. The customer’s prior investing experience was limited to a retirement account. In 2013, Mr. Hicks recommended two variable annuities. In 2014 and 2015, Mr. Hicks recommended five more investments in non-traded REITS, including American Realty Capital Healthcare II, Inc., ARC Retail, and ARC NYC. The total amount invested was nearly $88,000. Hicks admitted to not describing the REITs as high risk, and if he had, she would not have invested in them. Mr. Hicks viewed the customer as a conservative investor with low investment knowledge. Mr. Hicks did not inform the customer that she did not meet the minimum suitability requirements described in the prospectus because he was not aware of the requirements. Mr. Hicks also improperly inflated his representations of the customer’s net worth and liquid assets in account documents and that he made unfounded assumptions that changes had occurred to improve her financial situation.

Customer 5:

A retired housewife, born in 1932. She lived in Pinehurst, North Carolina, from 2009 until her death in August 2018. Hicks acquired the customer after a cold call. In 2010, he recommended a variable annuity. In 2012, he recommended that the customer purchase a second variable annuity. Starting in April 2014, when the customer was 81 years old, Mr. Hicks began to recommend non-traded REITs. Over a three-year period, Mr. Hicks recommended eight investments in six different non-traded REITS, five sponsored by ARC: ARC Retail, ARC NYC, American Realty Capital Global Trust, Inc, American Realty Capital Hospitality Trust, and Phillips Edison Grocery Center REIT II, Inc. He also recommended one other non-traded REIT, Steadfast Apartment REIT III. The customer funded these investments by withdrawals from her variable annuities and incurred penalties. She was 84 years old in July 2017 when she made her last REIT purchase for $124,000, bringing her total investments in non-traded REITS to $459,272. There were numerous discrepancies on the application forms regarding the customers’ liquid net worth.

Mr. Hicks acknowledged that when he recommended non-traded REITS to the customer, he did not warn her of the high degree of risk involved, and he did not know that investing in them involved a high level of risk, even though the first few pages of each prospectus contain virtually identical warnings making the high risk and illiquidity of investing crystal clear. He also admitted that he did not warn the customer of the risk that she was overconcentrating her assets in illiquid non-traded REITs.

The customer’s health began to decline in 2015 when she began to experience seizures. A seizure likely caused a fall, resulting in a severe head injury in February 2018. She was hospitalized and then, unable to care for herself, transferred to a skilled nursing facility. A month after the customer was hospitalized, the customer’s daughter sought to liquidate some of her mother’s REIT holdings to pay for additional treatments and found she could not. The customer passed away in August 2018.

FINRA’s Office of Hearing Officers concluded that Hicks failed to comply with the requirement that he tailor his recommendations to ensure they were suitable to each customer’s financial situation, needs, and investment objectives.

The panel of hearing officers also concluded that Mr. Hicks did not conduct reasonable due diligence to assess the suitability of BDCA and the non-traded REITs. He did not know that BDCA was a business development corporation. He did not understand what it invested in. He did not understand the risks of investing in BDCA. Nonetheless, he recommended it to customers. His lack of understanding when making the recommendations violated the suitability rule.

Financial Advisor Mercer Hicks III (CRD No. 245170)

Mercer Hicks III had 48 years of experience in the securities industry and has been associated with 15 different firms, including one firm that has been expelled by FINRA.

According to his BrokerCheck report, Mr. Hicks’ employment has been terminated three times by brokerage firms after allegations of wrongful conduct. In 2014, he was discharged from Capital Investment Group, Inc. for allegedly misrepresenting himself as a client in dealing with an insurance company in violation of firm policy and industry standards. In 2009, he was “permitted to resign” after Mr. Hicks submitted a signed variable annuity contract that contained incorrect fees. The firm requested that the forms be fixed and initialed by the client. Mr. Hicks allegedly signed the forms himself. In 1997, Mr. Hicks was fired for not following firm policy when processing an “LOA.”

Mr. Hicks’ public disclosure report with FIRNA also discloses that he has been the subject of numerous tax liens and a civil judgment.

Supervisory Duties

Brokerage firms like Southeast Investments, N.C. Inc. must properly supervise financial advisors and customer accounts. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise its financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.

How to Recover Financial Losses or Obtain a Free Consultation

If you have lost money with financial advisor Mercer Hicks II or Southeast Investments, N.C., Inc., contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential evaluation of your account.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

Can I Sue My Financial Advisor Over Losses?

Yes, you can sue your financial advisor or broker to recover investment losses if the broker did not have your best interest in mind when they made an investment recommendation or offered investment advice. You can also sue your financial advisor or broker if the financial advisor misrepresented or omitted material facts that an investor should have known about the security or investment strategy.

However, the dispute likely will not be litigated in a court of law. Instead, it will be contested in arbitration.

What is Securities Arbitration?

When an investor suffers investment losses due to misconduct by a financial advisor or broker-dealer, the investor can file a securities arbitration claim against their financial advisor and/or broker-dealer in an effort to be compensated. Arbitration, an alternative dispute resolution process, is the primary forum for resolving disputes between investors and brokerage firms because the client agreement, which the customer signs at account opening, contains a mandatory arbitration clause. To read more about securities arbitration, click here.

Securities arbitration is a unique and complex practice area. Investors should seek out experienced counsel who understands the FINRA forum and can navigate the arbitration process to effectively advocate on their behalf.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue individual FINRA arbitration claims nationwide on behalf of investors to recover financial losses from brokerage firms’ wrongful conduct.

Can You Sue Someone for a Bad Investment?

The short answer is “yes” if your advisor did not act in your best interest connected with an investment-related recommendation.

When a broker-dealer makes an investment recommendation, or a registered investment adviser provides investment advice, the investor is entitled to a recommendation (from a broker-dealer) or advice (from an investment adviser) that is in the best interest of the investor, and that does not place the interest of the financial professional or financial institution ahead of the interests of the retail investors.

The “best interest” standard is not limited to “recommendations” to purchase a security. It also applies to recommendations to sell or hold a security. Additionally, it applies to recommendations to purchase, sell, or hold an investment strategy. Finally, the “best interest” standard also explicitly applies to recommendations of types of accounts, including brokerage accounts and investment advisory accounts.

What is Excessive Trading or Churning?

Excessive trading occurs when a financial advisor makes many trades in a customer’s account, not to benefit the customer, but to generate commissions for the broker.

Churning is a more egregious variation of excessive trading. Churning refers to a situation where the broker executed an excessive number of trades and did so with the intent to defraud or reckless disregard for the customer’s interest. Churning is an unethical and illegal practice. It is also a violation of securities rules and regulations and can cause enormous harm to customers.

Excessive trading and churning are unethical and illegal practices. They are also violations of securities rules and regulations and can cause enormous harm to customers.

How Do I Sue an Investment Firm?

Brokerage firms must properly supervise financial advisors and customer accounts. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise its financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.

If you believe you have a claim, you should contact experienced securities arbitration attorneys at Iorio Altamirano LLP for a free and confidential consultation and review of your legal rights.

How Much Do Securities Arbitration Attorneys Charge?

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue individual FINRA arbitration claims nationwide on behalf of investors to recover financial losses from brokerage firms’ wrongful conduct.

Iorio Altamirano LLP generally represents investors through a contingency fee arrangement, which means that if we do not obtain a recovery, we do not collect a fee*.

*We do not collect a fee unless we obtain a recovery via settlement or judgment. You may, however, be responsible for costs and expenses the firm has advanced according to the terms of your agreement with the firm. The firm may recover advanced costs and expenses by deducting the expense from the gross recovery of any settlement or judgment.

• made an unsuitable recommendation to two elderly, married customers;
• participated, without the approval of his firm, in a private securities transaction with those customers;
• willfully failed to timely amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose a civil complaint and arbitration filed by one of the elderly customers, as well as other reportable events;
• entered into a settlement agreement with the customer that contained a prohibited condition — namely, that she would support his request for expungement;
• lied under oath at the expungement hearing;
• lied during on-the-record testimony to FINRA’s Department of Enforcement;
• engaged in a long pattern of unethical business conduct towards another retired customer from whom Mr. Schisler solicited a personal loan that he failed to repay for over six and a half years after maturity;
• made a false statement on a firm compliance questionnaire; and
• caused his firm to fail to preserve books and records by using outside, unmonitored email accounts to conduct securities business.

If you or a loved one were a customer of broker Steven Schisler or IFS Securities, contact securities arbitration law firm Iorio Altamirano LLP for a free and confidential review of your legal rights.

FINRA Disciplinary Proceeding No. 2018058718601

On April 13, 2021, the FINRA Department of Enforcement filed a complaint against broker Steven Schisler. The complaint includes the following allegations:

• In September 2014, Schisler persuaded an elderly, retired, married couple to invest $300,000 in a promissory note to finance a commercial property. That recommendation was not suitable for the customers. The $300,000 was a substantial portion of their retirement savings, and they depended upon those funds to pay down considerable debt. They also had few alternative sources of income in retirement. The recommended investment was a security and, by its own terms, was limited to accredited investors, which the married couple were not. Moreover, Mr. Schisler did not perform the diligence necessary to provide him with a reasonable basis to recommend the investment to his customers. Had he conducted even a cursory internet search, he would have learned that one of the two partners issuing the note had been barred from the securities industry for defrauding investors. By recommending an unsuitable investment, Mr. Schisler violated FINRA Rules 2111 and 2010.
• Schisler facilitated the elderly couple’s investment in the note by, among other things, recommending the investment to them, arranging and participating in a meeting in his own office between them and the issuer, and receiving a $9,500 finder’s fee from the issuer in connection with the transaction. Mr. Schisler participated despite repeated and explicit instruction from his firm that he could not do so. By participating in a private securities transaction without approval from his member firm, Schisler violated NASD Rule 3040 and FINRA Rule 2010.
• When the $300,000 note became due in September of 2016, the issuer defaulted. One of the customers died a few months earlier, and the remaining widow brought a civil lawsuit against Mr. Schisler and others involved in the investment and, subsequently, a FINRA arbitration against Mr. Schisler. Mr. Schisler willfully failed to timely amend his Form U4 to report either the civil lawsuit or the arbitration, despite repeated instructions from his member firm to do so. Schisler also willfully failed to timely amend his Form U4 to disclose the subsequent resolutions of the civil lawsuit and arbitration, as well as his receipt of a Wells Notice advising him that he was the subject of a FINRA investigation. By these willful disclosure failures, Schisler violated Article V, Section 2(c) of FINRA’s By-Laws and FINRA Rules 1122 and 2010.
• In January 2019, Mr. Schisler executed a settlement agreement with the elderly widow to resolve both her civil lawsuit and FINRA arbitration. Under the terms of the settlement, Mr. Schisler improperly required her to execute a declaration to support his request for expungement. By entering into a settlement with this prohibited condition, Schisler violated FINRA Rules 2081 and 2010.
• During the FINRA arbitration panel’s April 29, 2019 hearing on Mr. Schisler’s request for expungement, Mr. Schisler lied to the panel about his involvement in the promissory note, falsely testifying that he did “not personally” introduce the customers to the issuer and otherwise mischaracterizing the nature of his involvement with the note. In so doing, Schisler violated FINRA Rule 2010.
• On February 19, 2020, Mr. Schisler similarly provided false testimony to FINRA’s Department of Enforcement. During on-the-record testimony taken pursuant to FINRA Rule 8210, Mr. Schisler repeatedly and falsely testified that the $9,500 finder’s fee he received in connection with the promissory note investment was a “personal loan” and that he was unaware at the time that Customers H and E had made the investment. By lying during his testimony taken pursuant to FINRA Rule 8210, Schisler violated FINRA Rules 8210 and 2010.
• Schisler’s unethical misconduct extended to another elderly, retired customer. On April 9, 2009, Mr. Schisler solicited the elderly customer to lend him $50,000 in the form of a promissory note that was secured by mortgaged property on the verge of default. Mr. Schisler defaulted on the mortgage a few days after he issued the note to the elderly customer, and he subsequently lost the property through foreclosure. Mr. Schisler failed to disclose both the default and subsequent foreclosure to his elderly customer and then failed to repay her the $50,000 principal and the accrued interest for more than six years after the note matured. Mr. Schisler unilaterally extended the maturity date and repeatedly assured the elderly customer that payment would be forthcoming, only to renege on his promises without justification. After years of unjustified delays and still owing most of the original principal, Mr. Schisler finally repaid Customer P in October 2020. By engaging in this unethical business conduct towards a customer, Schisler violated FINRA 2010.
• When Mr. Schisler joined a new firm in May 2012, he brought the elderly customer with him. At that time, Mr. Schisler falsely responded “no” to a question on the firm’s questionnaire asking whether he had borrowed money from any current or former customers. In fact, Mr. Schisler had borrowed money from two customers, including the elderly customer. In so doing, Schisler violated FINRA Rule 2010.
• Finally, on 44 occasions, Mr. Schisler used non-firm email accounts not copied, captured, or supervised by his firm to communicate with customers regarding securities-related business. By causing his firm to fail to preserve required books and records, Schisler violated FINRA Rules 4511 and 2010.

Financial Advisor Steven Douglas Schisler (CRD No. 2367961)

Mr. Schisler, who is no longer registered with any brokerage firm, had 25 years of experience in the securities industry and has been associated with the following firms:

• IFS Securities in Grass Valley, California, from June 2012 to September 2019.
• Sterne Agee Financial Services, Inc. in Birmingham, Alabama, from March 2012 to May 2012.
• Synergy Investment Group, LLC in Grass Valley, California, from August 2004 to March 2012.
• Pension Planners Securities, Inc. in Sacramento, California, from October 2003 to August 2004.
• Washington Square Securities, Inc. in Des Moines, Iowa, from March 1999 to August 2003.
• Sunset Financial Services, Inc. in Kansas City, Missouri, from January 1998 to March 1999.
• SunAmerica Securities, Inc. in Phoenix, Arizona, from August 1995 to January 1998.
• Chubb Securities Corporation in Fort Wayne, Indiana, from August 1993 to December 1995.

Mr. Schisler has also been affiliated with a business named Synergy Wealth Management LLC.

In 2017, a customer filed a litigation complaint in Nevada state court, alleging the failure to return trust assets, conversion (theft), and breach of fiduciary duty. The dispute is still pending.

According to public records, in 1981, Mr. Schisler was convicted of Unlawful Possession of a Weapon, a felony. He was sentenced to three years’ probation, 80 hours of community services, and fined.

IFS Securities – Supervisory Duties

Brokerage firms like IFS Securities must properly supervise financial advisors and customer accounts. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity, such as unsuitable trades, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise their financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.

How to Recover Financial Losses or Obtain a Free Consultation

If you or a loved one were a customer of Steven Schisler or IFS Securities and either sustained financial losses or suspect that Mr. Schisler did not have your best interest in mind when recommending investments or making account transactions, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential evaluation of your account.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

The alleged conduct occurred while Mr. Frey was employed by Lincoln Douglas Investments, LLC in Mt. Vernon, Ohio, and Union Capital Company in Tucson, Arizona.

As discussed more fully below, Mr. Frey has a long history of customer complaints, run-ins with regulators, and employment terminations. Throughout his career, Mr. Frey has been suspended six times by regulators, ordered to pay nearly $50,000 in fines, and been the subject of at least six customer complaints.

If you have suffered financial losses investing with Herbert Frey, Lincoln Douglas Investments, LLC, or Union Capital Company, or suspect that Mr. Frey did not have your best interest in mind when recommending investments or making account transactions, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential review of your legal rights.

Iorio Altamirano LLP represents investors that have disputes with their financial advisors or brokerage firms, such as Lincoln Douglas Investments, LLC and Union Capital Company.

FINRA Letter of Acceptance, Waiver, and Consent No. 2019063960201

FINRA and Mr. Frey entered into a Letter of Acceptance, Waiver, and Consent No. 2019063960201 on March 29, 2021, after FINRA alleged that during the period March 1, 2018, through February 28, 2019, while associated with Union Capital and Lincoln Douglas, Mr. Frey excessively traded a customer’s account and placed unauthorized trades in same customer’s account, in violation of FINRA Rules 2111 and 2010. Additionally, FINRA alleged that Mr. Frey caused Lincoln Douglas’s books and records to be inaccurate when he completed the customer’s new account forms with inaccurate information and sent the customer misleading and inaccurate consolidated account summaries. Accordingly, Mr. Frey also violated FINRA Rules 4511 and 2010. Specifically, FINRA alleged:

• Frey engaged in quantitatively unsuitable trading in a customer’s account.
• The customer was a 54-year-old disabled homemaker who was gifted the securities account that she maintained with Frey.
• The customer’s investment objectives were capital preservation and growth.
• Frey executed 679 unauthorized trades in the customer’s account during the relevant period and therefore exercised actual control over the account.
• The trading caused the customer to pay $135,210 in fees and commissions, and Mr. Frey retained $76,137 of these commissions.
• Frey’s trading in the customer’s account resulted in an annualized cost-to-equity ratio of 63.88%.
• The trading in the customer’s account also resulted in the customer incurring a realized loss of $142,805.
• Frey’s trading in the customer’s account was excessive and unsuitable given the customer’s investment profile.
• In January and February of 2019, Mr. Frey provided inaccurate and misleading consolidated account summaries to the customer, making it appear that the customer’s account value was much higher than its true value.
• Frey also directed the customer to sign blank new account forms at Lincoln Douglas, which he then completed with inaccurate information regarding the customer’s investment experience and risk tolerance.
• In both instances, Mr. Frey caused Lincoln Douglas to maintain inaccurate books and records.

Excessive trading occurs when a financial advisor makes many trades in a customer’s account, not to benefit the customer but to generate commissions for the broker.

There are two primary indicators used to evaluate whether a financial advisor excessively traded an account. The first is turnover rate, which represents the number of times a portfolio of investments is replaced for another portfolio of investments. Generally, a turnover rate of six suggests excessive trading, but a turnover rate below four can be excessive in some cases.

The second indicator used to assess whether trading is excessive in an investment account is its cost-to-equity ratio. The cost-to-equity ratio measures the amount an account must appreciate to cover commissions and other expenses. That is, how much the account needs to grow just to break even. A cost-to-equity ratio of 20% generally indicates excessive trading has occurred. The accounts at issue had cost-to-equity ratios of 63.88%.

Unauthorized trading often occurs in non-discretionary accounts, where a customer retains discretion. In non-discretionary accounts, brokers must obtain a customer’s permission every time before placing a trade.

Excessive trading and unauthorized trading are unethical and illegal practices. They are also violations of securities rules and regulations and can cause enormous harm to customers.

Financial Advisor Hebert Garrett Frey (CRD No. 214237)

Herbert Garrett Frey, who has 52 years of experience in the securities industry, has a long history of customer complaints, run-ins with regulators, and employment terminations.

Throughout his career, Mr. Frey has been associated with 12 different brokerage firms. On three occasions, his employment was terminated after allegations of misconduct.

• Lincoln Douglas Investments, LLC in Mt. Vernon, Ohio, from August 2018 to December 2020.
• Union Capital Company in Tucson, Arizona, from November 2017 to September 2018.
• Landolt Securities, Inc., in Cincinnati, Ohio, from July 2016 to December 2017.
• Sigma Financial Corporation, in Cincinnati, Ohio, from June 2015 to June 2016.
• LaSalle St Securities, L.L.C. in Cincinnati, Ohio, from January 2015 to June 2015.
• M. Kohn & Company in Cincinnati, Ohio, from May 2014 to January 2015.
• Jettrade, Inc. in Cincinnati, Ohio, from April 2000 to August 2014.
• M. Kohn & Company in Cincinnati, Ohio, from May 1997 to April 2000.
• Birchtree Financial Services, Inc. in Minneapolis, Minnesota, from June 1992 to April 1997.
• Robert Todd Financial Corp. in New York, New York, from November 1990 to April 1991.
• Queen City Securities Corporation in Cincinnati, Ohio, from November 1979 to January 1990.
• Bache Halsey Stuart Shields Incorporated, from March 1978 to November 1979.
• Harrison and Company, from July 1966 to October 1979.

Mr. Frey’s current suspension is not the first time regulators have sanctioned him. In fact, this is the eighth time Mr. Frey has been sanctioned and the sixth time he has been suspended. Collectively, Mr. Frey has been fined almost $50,000 by regulators throughout his career.

• In 2016 Mr. Frey was suspended for 45 days and fined $5,000. Frey, who was acting as FINOP, caused his firm to fail to maintain its minimum net capital requirements.
• In 1997, the SEC affirmed the NASD’s findings that Mr. Frey failed to comply with and satisfy an arbitration award. Mr. Frey was suspended for 180 days.
• In 1991, Mr. Frey was suspended and fined $10,000 for causing his firm to fail to maintain the required minimum net capital and failing to accurately compute net capital.
• In 1990, Mr. Frey was censured and fined $5,000 to resolve charges in two matters that his firm conducted securities business while failing to accurately compute and maintain net capital requirements.
• 1983, Mr. Frey was censured, fined $5,000, and suspended for five days as a principal. The violations related to, among other things, his failure to reconcile the firm’s checking account and general ledger, to properly post all purchases and sales, to make determinations relative to possession and control of customer securities, and to maintain required net capital.
• In 1978, Mr. Frey was censured, fined $7,500, and barred from being employed in any supervisory capacity for a period of three years. The sanctions were a result of supervisory failures and for filing inaccurate and misleading reports and net capital violations.
• In 1977, Mr. Frey was censured and fined $2,000 for inadequately supervising back-office practices.

Mr. Fry has also been the subject of at least six customer disputes:

• Customer Dispute (November 2019): A customer filed a securities arbitration complaint, alleging over $599,194 in damages as a result of excessive trading since 2012, primarily using an options covered call strategy. The claim was filed against five brokerage firms. Four of the firms settled: Landolt Securities, Inc. contributed $40,000, Union Capital Company contributed $32,500, Sigma Financial Corporation contributed $50,000, and LaSalle St. Securities, LLC contributed $25,000. Lincoln Douglas Investments, LLC did not settle with the customer. The case proceeded to arbitration, and the customer was awarded $45,000.
• Customer Dispute (September 2019): A customer filed a written complaint with Sigma Financial Corp, alleging potential claims for negligence, negligent investment advice, unjust enrichment, unsuitability, churning/overtrading, breach of fiduciary duty, breach of contract, misrepresentation, and margin violations. The customer also purportedly made a claim in connection with Mr. Frey’s personal bankruptcy filing, and the matter was deemed closed by the firm.
• Customer Dispute (November 1989): A customer filed a securities arbitration complaint, alleging nearly $30,000 in damages. The client alleged that Mr. Frey omitted material information in connection with his recommendation to purchase corporate bonds. The customer was awarded $8,000 in damages.
• Customer Dispute (October 1989): A customer filed a complaint alleging $170,000 in damages as a result of violations of federal securities laws, fraud and deceit, and breach of fiduciary duty. The case was settled for $93,585.
• Customer Dispute (September 1989): A customer filed a complaint alleging $10,000 in damages as a result of unauthorized trades. The case was settled for $19,106.
• Customer Dispute (January 1975): A customer filed a litigation after suffering losses from an investment in commercial paper after the issuer filed for bankruptcy. The matter was settled for $37,500.

Mr. Frey’s BrokerCheck report also discloses that he filed for bankruptcy in or about January 2017.

Lincoln Douglas Investments, LLC and Union Capital Company – A Duty to Supervise

Financial institutions like Lincoln Douglas Investments, LLC and Union Capital Company must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as excessive trading, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.

How to Recover Financial Losses or Obtain a Free Consultation

If you have suffered investment losses with Hebert Frey, Lincoln Douglas Investments, LLC, Union Capital Company, Landolt Securities, Inc., Sigma Financial Corporation, or LaSalle St Securities, L.L.C., contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential review of your legal rights.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

On December 21, 2020, FINRA’s Department of Enforcement filed a complaint against Mr. Mancuso, alleging that Mr. Mancuso had his two elderly customers transfer a large part of their life savings to a company with which he was affiliated. One of the sisters was 73 years old and had dementia. The other sister was 68 years old and had multiple sclerosis. The complaint alleges that in 2017, Mancuso recommended that the elder sister use funds from her 401(k) account to purchase a variable annuity offered by a purported Swiss asset management firm, which Mr. Mancuso was affiliated. The complaint also alleges that Mr. Mancuso testified falsely during an on-the-record interview to conceal both his involvement in the transfer and actions he took to potentially change one of the sister’s power of attorney.

Mr. Mancuso failed to respond to the FINRA complaint. FINRA’s Department of Enforcement then requested a default decision, which the hearing officer granted.

If you have suffered financial losses investing with Mr. Mancuso or suspect that Mr. Mancuso did not have your best interest in mind when recommending an investment, account transactions, or annuities, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential review of your account or annuity contract.

Iorio Altamirano LLP represents investors that have disputes with their financial advisors or brokerage firms, such as Crowdvest Securities LLC.

Financial Advisor Gregory Jon Mancuso (CRD No. 5681691)

Mr. Mancuso had eight years of experience in the securities industry and has been associated with the following firms:

• Crowdvest Securities LLC, from December 2019 to October 2020.
• BMA Securities, LLC, from August 2016 to November 2017.
• Craft Capital Management LLC, from April 2016 to August 2016.
• BBVA Securities Inc., from May 2013 to June 2015.
• BBVA Compass Investment Solutions, Inc., from November 2012 to May 2013.
• P. Morgan Securities LLC, from October 2012 to November 2012.
• Chase Investment Services Corp., from December 2010 to October 2012.
• Edward Jones, from September 2009 to November 2010.

Mr. Mancuso was permitted to resign from Crowdvest Securities LLC in October 2020 after FINRA made a preliminary determination to recommend that disciplinary action be brought against Mr. Mancuso. In June 2015, BBVA Securities Inc. also allowed Mr. Mancuso to resign after alleging that Mr. Mancuso failed to follow the firm’s account opening procedures.

According to his BrokerCheck report, Mr. Mancuso has been the subject of at least one customer dispute. A customer filed a securities arbitration claim in August 2013, alleging that Mr. Mancuso misrepresented the term of a note. The matter was settled by BBVA Securities Inc., the firm that employed Mr. Mancuso at the time of the alleged conduct.

Crowdvest Securities LLC – Supervisory Duties

Brokerage firms like Crowdvest Securities LLC must properly supervise financial advisors and customer accounts, especially brokers that are the subject of a FINRA investigation for misconduct. Brokerage firms must also establish and maintain a reasonably designed system to oversee account activity to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to sufficiently supervise its financial advisors or the investment account activity, it may be liable for investment losses sustained by customers.

How to Recover Financial Losses or Obtain a Free Consultation

Securities arbitration is a unique and complex practice area. Investors should seek out experienced counsel who understands the FINRA forum and can navigate the arbitration process to effectively advocate on their behalf.

If you or a loved one were a customer of Greg Mancuso and either sustained financial losses or suspect inappropriate activity in your investment or retirement accounts, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (646) 330-4624 for a free and confidential evaluation of your account.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.

Iorio Altamirano LLP is a bilingual law firm, fluent in both English and Spanish.