New York Securities Lawyer BlogOn December 4, 2014, Lax & Neville LLP won expungement relief for James R. Young (“Mr. Young”), a registered representative formerly employed by UBS Financial Services, Inc. (“UBS”) who sought expungement of nine (9) customer complaints on his Central Registration Depository (“CRD”) record pursuant to the FINRA Code of Arbitration Procedure, Rules 2080 and 12805. CRD is the central licensing and registration system for the U.S. securities industry and its regulators, which contains information made available to the public via FINRA’s BrokerCheck. Pursuant to FINRA Code Rules 2080 and 12805, an arbitration panel may grant an expungement of customer dispute information from a registered representative’s CRD record. In the FINRA arbitration, Mr. Young asserted that he and his clients were all victims of UBS’s “product problem” relating to its offering, developing, marketing and selling structured product investments issued by the, now bankrupt, Lehman Brothers Holdings, Inc. (herein “Lehman Principal Protected Structured Products”). Mr. Young requested the expungement of Lehman Principal Protected Structured Products arbitrations and customer complaints from his record on the basis that he was not involved in the alleged wrongdoing.
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Sands Brothers Asset Management LLC Faces Second SEC Administrative and Cease-and-Desist Proceeding Over Alleged Violations of the ‘Custody Rule’
On October 29, 2014, the Securities and Exchange Commission’s (“SEC”) Enforcement Division, in an Order Instituting Administrative and Cease-And-Desist Proceedings (“Order”), alleged that Sands Brothers Asset Management, LLC (“Sands Brothers”), its co-founders Steven Sands and Martin Sands, and its Chief Compliance Officer and Chief Operating Officer Christopher Kelly, violated Section 206(4) of the Investment Advisers Act of 1940, which prohibits a registered investment adviser from engaging in fraudulent, deceptive or manipulative conduct, and the ‘custody rule’ in 17 CFR §275.296(4)-2, which requires an adviser to implement procedures to safeguard customer funds and securities. See 17 CFR §275.296(4)-2. Sands Brothers is a New York limited liability company that was formed in 1998, with offices in Connecticut, New York and California, and provides investment advisory services. As of July 2014, Sands Brothers had approximately $64 million under management.
UBS Ordered to Pay $5.2 Million in Penalties Stemming from Puerto Rico Bond Debacle
The Commission of Financial Institutions for the Commonwealth of Puerto Rico (“OCFI”) ordered UBS Financial Services Inc. of Puerto Rico (“UBS”), a division of UBS Wealth Management Americas, to pay $5,200,000 in fines and restitution in an October 9, 2014 enforcement action. The penalty stems from UBS’ alleged recommendation to customers to use personal loans (“non-purpose loans”) for the purchase of municipal bond funds that ultimately trailed the sinking Puerto Rican economy. The original investment objective was to benefit from the tax advantages that these securities offer, but Puerto Rico’s economic woes have caused the devaluation of municipal bond funds generally. At the losing end of UBS’ practices were its conservative-risk clients who had significant portions of their liquid assets invested in closed-end funds, and whose non-purpose loans were ineligible for use in purchasing such securities.
SEC Pays ‘Whistleblower’ Award to Corporate Compliance Employee for the First Time in History
On Friday August 29, 2014, the Securities and Exchange Commission (“SEC”) awarded a corporate audit and compliance employee $300,000 for ‘whistleblowing,’ the first such award to be handed out by the SEC. The award represents 20 percent of the $1,500,000 fine against the employer, which was the result of an enforcement action brought by the SEC against the employer.
SEC Tightens Regulations of Asset Backed Securities
On August 27th, 2014, the Securities and Exchange Commission (“SEC”) unanimously decided to revise the rules that govern the disclosure, reporting, and offering of asset-backed securities (“ABS”) which would enhance transparency, better protect investors and facilitate capital formation in the market. ABS are financial securities backed by loans, leases or receivables against assets other than real estate and mortgage-backed securities. For investors, ABS are an alternative to investing in corporate debt.
FINRA Arbitration Panel Awards Customer $4,500,000 against Morgan Stanley for Negligent Handling of Trust Account
On August 15, 2014, a three (3) member Financial Industry Regulatory Authority (“FINRA”) arbitration panel found Morgan Stanley & Co., Inc. (“Morgan Stanley”) liable for negligence and negligent supervision. Banco Nacional de Mexico SA, known as Banamex Financial Group (a subsidiary of Citigroup, Inc.), as Trustee of the Trust Agreement Numbered 15437-5 (“Banamex”), originally filed a Statement of Claim against Morgan Stanley on March 16, 2012 alleging breach of fiduciary duty, negligence, negligent supervision, conversion, fraud, and tortious interference with a contract. The case related to whether Banamex agreed to pledge the assets held in the Canassi Family Trust sub-accounts (a high net worth client) against a third party debtor (known as a cross-pledge). The trust was established in 2007 by a group of siblings and their mother, who used proceeds from the sale of inherited property. The trust was managed by Morgan Stanley’s banking unit.
On July 24, 2014, James Tagliaferri Was Found Guilty By A Jury In Manhattan Federal Court In Connection With His Fraudulent Scheme
On July 24, 2014, a jury in Manhattan federal court found James Tagliaferri (“Tagliaferri”), a 75 year old former investment advisor and former president of TAG Virgin Islands (“TAG”), guilty on twelve (12) of fourteen (14) counts including investment adviser fraud, securities fraud, multiple counts of wire fraud, and multiple counts of violating the Travel Act in connection with his scheme to defraud his investment advisory clients. Prior to opening TAG in 2007, Tagliaferri offered investment advisory services through another company he owned called Taurus Advisory Group, which was based in Connecticut. According to the Superseding Indictment and evidence presented at trial, beginning in 2007, when Tagliaferri opened TAG, Tagliaferri executed a multi-faceted scheme in order to defraud TAG investment advisory clients.
The Securities And Exchange Commission Charges Investor Relations Executive With Insider Trading
On July 22, 2014, the Securities and Exchange Commission (“SEC”) charged Kevin McGrath (“McGrath”), a partner and account executive at Cameron Associates (“Cameron”), an investor relations firm in New York City, with insider trading on confidential nonpublic information he learned about two Cameron clients for whom McGrath was performing work. The two companies McGrath allegedly traded on nonpublic information regarding were Misonix, Inc. (“Misonix”) and Clean Diesel Technologies, Inc. (“Clean Diesel”).
Dudley Franklin Stephens Suspended And Fined For Taking Confidential And Proprietary Client Information When Resigning From HSBC
On June 16, 2014, the Financial Industry Regulatory Authority, Inc. (“FINRA”) Department of Enforcement issued a Letter of Acceptance, Waiver and Consent (“AWC”) regarding Dudley Franklin Stephens, a registered representative. Pursuant to the AWC, Stephens began working in January 2000 as a General Securities Representative and Principal through association with multiple FINRA member firms. From January 11, 2011 through May 3, 2013, Stephens was associated with HSBC Securities (USA) Inc. (“HSBC”). The AWC concerned Stephen’s removal and use of confidential and proprietary HSBC customer information without authorization. The AWC states, “Stephens took the information with him when he left his employment at HSBC to assist him in opening customer accounts at his new employing broker-dealer. Stephens failed to observe high standards of commercial honor and just and equitable principles of trade in violation of FINRA Rule 2010.” Specifically, Stephens was accused of printing a spreadsheet which contained customer names, account numbers, social security numbers, addresses and other information for approximately 308 customers. Interesting the FINRA AWC states that pursuant to Regulation S-P of the Securities Exchange Act of 1934, that information constituted nonpublic personal information; however the AWC makes no distinction between the client list and the taking of the list with account numbers and social security numbers. FINRA has not taken the position that Protocol compliant lists are Confidential Information under Reg. S-P so this case demonstrates that departing from the strict limitations of the Protocol can result in not only litigation by the firm a registered representatives departs, but also serious regulatory actions. This FINRA action highlights the need for registered representatives to hire experienced counsel prior to making any move between firms.
Steven Burrill of Burrill & Co. Removed from Control as the General Partner of Capital Venture Fund for Making Unauthorized Payments
According to state court documents recently filed in California, G. Steven Burrill, the CEO and founder of Burrill & Co., a San Francisco based financial firm specializing in biotechnology and life sciences, was removed from control as general partner of Burrill Life Sciences Capital Fund III (the “Fund”), a venture capital fund, by 13 large institutional investors that asserted willful or reckless misconduct related to unauthorized payments.