Securities Arbitration Lawyers Blog

Federal Appeals Court Upholds SEC Ban on Broker-Dealer Principal for Failing to Prevent Churning and Excessive Trading

June 19, 2014 | Silver Law Group

In July 2013, the U.S. Securities and Exchange Commission (“SEC”) issued a lifetime ban upon Carl Birkelbach, the founder and principal of Birkelbach Investment Securities (headquartered in Chicago, Illinois), which prevents him from participating in any working capacity in the securities industry. Mr. Birkelbach appealed the SEC’s ban, claiming in part that the SEC exceeded its authority in imposing such a severe penalty upon him. Earlier this month, the U.S. Court of Appeals for the Seventh Circuit in Chicago denied his appeal and upheld the SEC ban, stating that Mr. Birkelbach’s offenses were sufficiently egregious to warrant the sanction imposed by the SEC.

As the head of Birkelbach Investment Securities, Mr. Birkelbach was required to supervise the trading activities of the company’s registered representatives, including William Murphy. According to the SEC, Mr. Murphy engaged for years in unauthorized conduct, steering clients into unsuitable investments, and churning in client accounts — all of which Mr. Birkelbach was purportedly aware of. Despite Mr. Birkelbach’s alleged knowledge of the wrongdoing taking place at his company, he imposed no discipline upon Mr. Murphy, never disapproved of a single trade by Murphy, and never contacted the most egregiously harmed customer to discuss the high volume of trading in the customer’s account. During the years in question, the revenues from Mr. Murphy’s trading in that account, according to SEC calculations, represented nearly 20% of Birkelbach Investment Securities’ total revenue. Even when the Financial Industry Regulatory Authority (FINRA) requested that Mr. Birkelbach place Mr. Murphy on heightened supervision, Mr. Birkelbach failed to comply. As a result, FINRA imposed upon Mr. Birkelbach a punishment that ultimately became a lifetime ban from the securities industry in any capacity, which the SEC subsequently affirmed in its July 2013 ruling.

If you have questions about your legal rights, or have been the victim of investment fraud, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (800) 975-4345.

FINRA Fines Merrill Lynch $8 Million and Orders it to Repay Over $89 Million to Retirement Accounts for Overcharging for Mutual Funds

June 18, 2014 | Silver Law Group

The Financial Industry Regulatory Authority (FINRA) announced a fine against Merrill Lynch, Pierce, Fenner & Smith, Inc. for $8 million for charging excessive mutual fund sales charges for retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to damaged customers on top of $64 million Merrill Lynch has already compensated damaged investors. According to the FINRA decision, mutual funds offer several classes of shares, each with different sales charges and fees and many mutual funds waive their initial charges for retirement accounts. However, Merrill Lynch failed to pass these savings on to the investors.

Merrill Lynch’s retail platform frequently offered such discounts to retirement plan accounts and disclosed those waivers in their prospectuses. However, Merrill Lynch failed to frequently pass these savings on to the investors including retirement accounts. Accordingly, about 41,000 small business retirement plan accounts, and approximately 6,800 charities and 403(b) retirement accounts available to ministers and employees of public schools, either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. Incredibly, in 2006, Merrill Lynch learned its small business retirement plan customers were overpaying, but continued to sell them more costly shares and failed to report the issue to FINRA for more than five years.

If you believe your portfolio was improperly managed or was charged excessive fees or costs, Silver Law Group will analyze your portfolio at no charge. Additionally, if you have questions about your legal rights, or have been the victim of investment fraud, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (800) 975-4345.

SEC Charges Investment Advisor with Improperly Raising Funds for Ponzi Scheme

May 28, 2014 | Silver Law Group

The U.S. Securities and Exchange Commission (“SEC”) continued its onslaught against Scott Rothstein associates earlier this month when it filed suit in federal court against Barry R. Bekkedam (“Bekkedam”), Chairman and Chief Executive Officer of investment advisory firm Ballamor Capital Management (“Ballamor”). The SEC suit follows a growing number of SEC actions against individuals and corporations accused of providing investor funds and assistance to convicted South Florida Ponzi-schemer Scott Rothstein.

The SEC alleges that Bekkedam, through Ballamor, solicited his clients and other prospective investors to invest $100 million into the Banyon Income Fund (“Banyon Fund’”), an enormous hedge fund that primarily financed Rothstein’s Ponzi-scheme operations. The Banyon Fund was created by Bekkedam and Rothstein investor George Levin to solicit additional funds for Rothstein and, the SEC alleges, bolster Ballamor’s business and protect Levin’s multi-million dollar investments with Rothstein.

In seeking disgorgement and civil penalties against Bekkedam, the SEC details allegations of Bekkedam’s material misstatements and omissions to his customers in connection with the Banyon Fund, as well as misrepresentations about his dealings with George Levin, which the SEC alleges were quid pro quo for Bekkedam’s securing investments in the Banyon Fund. The SEC also alleges numerous securities law violations.

Connecticut Securities Regulator Seeks to Bar Meyers Associates from Selling Securities in Connecticut

April 16, 2014 | Silver Law Group

If the Connecticut Department of Banking (the “Department”) has its way, Meyers Associates and its owner, Bruce Meyers, will be barred from selling securities in Connecticut. A February 2014 Order to Cease and Desist issued by the Department, charges Meyers Associates and Bruce Meyers (“Respondents”) with numerous violations of Connecticut securities laws. The Order states the Department’s intent to fine Respondents and revoke their registration to sell securities in Connecticut.

The present charges against Respondents stem from a 2012 examination by the Department, out of which the Department claims to have discovered multiple violations of the Connecticut Uniform Securities Act and FINRA rules. Notably, the Department alleges that Respondents failed to properly supervise employees with known disciplinary histories, violated an order from the Vermont securities regulator, and failed to completely respond to both the Department’s and FINRA’s requests for information and documents.

In seeking fines and revocation of Respondents’ licenses, the Department cites to Meyers Associates’ history of run-ins with the Department over allegations that it employed unregistered agents, offered and sold unregistered securities, engaged in fraud in connection with the sale of securities, engaged in dishonest and unethical practices, violated FINRA conduct rules, and failed to enforce and maintain adequate supervisory procedures. FINRA’s BrokerCheck report for Meyers Associates shows 14 final regulatory events, two pending regulatory events, and nine final arbitrations.

FINRA Arbitration Panel Orders UBS to Pay $5.3 Million for Misleading a Financial Advisor and his Clients about a Proprietary Product Tied to Lehman Brothers

April 15, 2014 | Silver Law Group

A former UBS broker recently won a FINRA arbitration claim against UBS Financial Services for misleading him and his clients about the risks associated with structured notes tied to Lehman Brothers Holdings, which suffered significant losses in 2008. Silver Law Group primarily represents investors in claims against UBS and other brokerage firms. However, this award deserves attention because it highlights a fundamental flaw in Wall Street’s business model. UBS created a system to use its sales force to sell millions of dollars in Lehman Brothers debt. However, faced with undesirable evidence of Lehman’s financial problems, UBS knowingly chose to not inform its financial advisors or retail clients about the problems. Put differently, this was a “top down” problem because the misconduct was by UBS senior management. We are seeing the same set of facts in claims by investors against UBS in Puerto Rico, where UBS senior management served as the biggest supporters of proprietary UBS bond funds and UBS placed no restrictions on financial advisors or on the concentration levels in a customer’s portfolio.

The FINRA arbitration panel awarded $4 Million in compensatory damages, $1 Million in punitive damages and $335,000 in attorneys’ fees and costs, specifically finding UBS had “deliberately prevented the distribution of material information about Lehman Brothers sinking financial condition and continued to recommend the sale of Lehman Brothers [Notes] despite clear evidence of the company’s rapid decline.” The panel also ordered that the 39 complaints filed against this broker be erased from his record.

The backdrop leading to this award is eerily similar to what is happening today at UBS in Puerto Rico (“UBS-PR”). UBS-PR aggressively pushed the sale of closed-end bond funds (CEFs) involving Puerto Rican debt which were proprietary to UBS. UBS allegedly misled the majority of its brokers and clients concerning the risks associated with CEFs. UBS is also alleged to have withheld negative information about the CEFs from its brokers and its clients, thereby preventing a full understanding of Puerto Rico’s deteriorating economy and the effects that decline would have on the leveraged and illiquid CEFs. Could it be that the majority of UBS-PR brokers who now find themselves facing numerous customer complaints were simply following the instructions given by UBS and doing what they were trained to do—sell UBS recommended products?

Investors May Suffer Additional Losses if Puerto Rico Restructures its Municipal Debt

April 14, 2014 | Silver Law Group

The Government Development Bank for Puerto Rico, the Puerto Rican government agency responsible for its debt deals has hired a well-known debt restructuring firm leading many in the financial industry to speculate that Puerto Rico is preparing to revamp its municipal debt.

According to news reports, Puerto Rico officials refused to say whether the firm was hired as part of an effort to restructure the commonwealth’s debt. However, the firm has represented many financially challenged countries such as Greece, Iraq, Iceland and Argentina.

Puerto Rico’s Constitution prohibits it from filing for federal bankruptcy protection like Detroit or other United States municipalities have done in the past. Accordingly, the prospect of restructuring Puerto Rico’s debt has caused uncertainty among Puerto Rico bond investors as to the effect such will have because there is no template or precedence to follow. As Puerto Rico appears to be seeking to reduce its debt load, Puerto Rico investors worry that a restructuring of the debt could result in additional losses to the large losses already suffered on their bond holdings or the closed-end funds held by many of Puerto Rico residents.

Are Private Equity Funds the Next Wave of Lawsuits?

April 9, 2014 | Silver Law Group

The U.S. Securities and Exchange Commission (“SEC”) has formed a new group to increase oversight of private equity and hedge funds. The SEC has assigned two former industry veterans to oversee the unit. The SEC frequently creates these units when it sees increased activity in a particular type of investment product or is concerned that a particular segment of the securities industry may be violating the federal securities laws. Over the last decade, alternative investments such as private equity and hedge funds have become very popular, and sales of these types of funds have expanded from the institutional level to the retail investor level.

The SEC’s 2014 Compliance Outreach Program focused on alternative investments such as hedge funds. Private funds run by private equity firms, hedge funds, venture capital funds and other alternative investments have been the subject of heightened scrutiny during the last several years, furthered by the creation of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the wake of the financial crisis.

At the 2014 SEC Compliance Outreach Program, the SEC brought attention to a number of concerns it has relating to private equity. Among the SEC’s rising concerns in this area are vague limited partnership agreements and poor disclosure practices to limited partnerships at private equity funds, the shifting of fees and expenses at those funds, and misleading performance and valuation metrics at private equity firms and hedge funds.

FINRA Revises Brokerage Firm’s Supervisory Rules

April 7, 2014 | Silver Law Group

FINRA rules establish the core supervisory system procedures which all broker-dealers must follow to protect investors. A broker-dealer or other FINRA member may be sanctioned by FINRA for violating these rules and an investor may bring a FINRA arbitration claim against a brokerage firm for failing to properly supervise a financial advisor or for failing to have in place a reasonable supervisory system in compliance with these rules. Although the systems may be different from one brokerage firm to another, the FINRA code establishes the minimum systems which must be addressed. FINRA Rule 3110 has been revised to address supervision requirements by all FINRA members. These rules codify rules addressing written supervisory procedures, designation of supervisory principals and customer complaints. The rule was published in FINRA Notice to Members 14-10 and can be viewed on FINRA’s website.

CFTC Shuts Down another Florida Ponzi Scheme

April 7, 2014 | Silver Law Group

In March 2014, the U.S. Commodity Futures Trading Commission (CFTC) obtained a supplemental Federal Court Order against Queen Shoals Consultants, LLC (“QSC”) and others to jointly pay in excess of five million dollars in penalties for defrauding customers in a currency or Forex trading scheme. None of the Defendants were registered with the National Futures Association or the CFTC. The Judge initially entered a permanent injunction finding that the Defendants defrauded customers in the Forex scheme and ordered the Defendants to pay restitution, amongst other sanctions.

According to a Court Order, a website “lured customers by claiming QSC and others had a ‘vast background in financial services’ with over 20 years of experience in financial services and a staff of experts ready to assist customers.” In truth, the Defendants were not experienced Forex traders and any promises or guarantees about profits were not true. In fact, there were no Forex accounts and the investors were the victim of a Ponzi scheme.

If you have been the victim of a Forex or commodities trading scheme and would like to discuss your legal rights, contact the Silver Law Group. We represent investors on a contingency fee basis in FINRA arbitration, NFA arbitration and state or federal court. Please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (855) 755-4799.

Silver Law Group Urges FINRA to Lift the Stay of all Puerto Rico Arbitration Claims

March 28, 2014 | Silver Law Group

In February 2014, Bond Buyer magazine featured a story about Silver Law Group’s representation of many Puerto Rico investors in FINRA arbitration claims against UBS of Puerto Rico for losses in leveraged bond funds. The article concluded by highlighting Silver Law Group Managing Partner Scott Silver’s concerns that FINRA was not equipped to handle the large number of claims which could easily be anticipated against UBS for selling this complex alternative investment which lost more than 60 percent of its value last fall.

Last week, FINRA finally took public action to address the issue by recognizing the problem and temporarily halting all claims against UBS Puerto Rico while FINRA creates a protocol to administer the cases. Silver Law Group urges FINRA to quickly address these issues and avoid unnecessary delay.

FINRA and the securities industry force investors to arbitrate all disputes with a broker-dealer through an arbitration clause in the customer agreement. However, FINRA arbitration is promoted as a fast, inexpensive process for deciding disputes. Many investors are now frustrated by a system which cannot administratively manage their claims. Investors have suggested, amongst other solutions: