Articles Posted in Uncategorized

Published on:

On May 12, 2014, Adam Manson (“Manson”) pleaded guilty to conspiracy to commit securities fraud by engaging in a $96 million Ponzi scheme. Manson’s co-defendant is his brother-in-law and former investment fund manager, Brian Callahan (“Callahan”), who pleaded guilty on April 29, 2014 to securities fraud and wire fraud. According to various court filings, between December 2006 and February 2012, Callahan raised more than $118 million from at least forty (40) investors in connection with four (4) different investment funds. Callahan ensured investors that their money would be safely invested in mutual funds and hedge funds. Contrary to his representations, Callahan misappropriated approximately $96 million of investor funds and began to operate a large scale Ponzi scheme. One of the various ways Callahan misappropriated investor funds was by diverting millions of dollars towards the Panoramic View, an unprofitable beachfront resort and residential development in Montauk, New York that Callahan and Manson co-owned. Further, Manson assisted Callahan in concealing the massive Ponzi scheme by deceiving independent auditors, including by presenting fake promissory notes that overstated the assets of the funds they purportedly managed and by lying about debts owed by the Panoramic View.

Continue reading

Published on:

On April 25, 2014, a FINRA arbitration panel rendered a decision in a case in which Wells Fargo Advisors, LLC (“Wells Fargo”), formerly known as Wachovia Securities, LLC, (“Wachovia”) brought a claim against Steven Grundstedt (“Grundstedt”), one of its former brokers, for breach of three promissory notes dated July 30, 2008, October 23, 2009 and May 28, 2010. (See FINRA Arbitration Case No. 11-02245). The FINRA arbitration panel found that Mr. Grundstedt was entitled to an offset against the outstanding balance of the first promissory note dated July 30, 2008 since Wachovia breached an implied contract and/or the covenant of good faith and fair dealing in the contracts Grundstedt signed, causing him substantial economic damage.

Continue reading

Published on:

The Securities and Exchange Commission (“SEC”) announced fraud charges against American Pension Services Inc. (“APS”), a Utah-based retirement plan administrator, and its founder, president and CEO Curtis L. DeYoung. According to the SEC Complaint, APS and DeYoung defrauded investors by investing their savings in high risk investments, causing them to lose more than $22 million of their savings.

Continue reading

Published on:

Justice Cynthia S. Kern of the New York Supreme Court dismissed a Complaint filed by three (3) former female trainees, Julia Kuo, Sandra Hudson and Catherine Wharton, against Bank of America/Merrill Lynch (“Merrill Lynch”) claiming that they were terminated based upon sexual discrimination. According to Justice Kern’s Decision and Order, the females were employed by BOA/ML starting in 2008 and participated in one of Merrill Lynch’s two training programs, the Practice Management Development Program or the Paths of Achievement Program (which was the predecessor to the Practice Management Development Program), until they were terminated on January 26, 2009. According to their Complaint, the female trainees allege that they were supervised by Joe Mattia, who provided each of the females with a copy of a book entitled, “Seducing the Boys Club.” Further, the female trainees also alleged that Mr. Mattia required the trainees to attend a talk with the book’s author at the BOA/ML Fifth Avenue branch office, during which the author “encouraged women to stroke men’s egos with flattery and manipulation in order to succeed in a male-dominated environment, such as Merrill Lynch.” The Complaint further asserted that after the market downturn in the fall of 2008, and the acquisition of Merrill Lynch by Bank of America, Mr. Mattia was replaced by a new Branch Manager. On January 26, 2009, the new branch manager laid off thirteen (13) trainees, including all of the female trainees, but retained fourteen (14) male trainees who were not meeting their performance goals. Although Judge Kern acknowledged that the talk at the branch office with the author of “Seducing the Boys Club” was “validly assailed as inappropriate,” she ultimately dismissed the case and accepted BOA/ML’s defense that the trainees continually failed to meet their achievement and performance goals. Indeed, Judge Kern’s nineteen (19) page decision stated, “It is undisputed that a computer, and not a Merrill Lynch employee, targeted Ms. Wharton and other underperforming trainees for termination and that the computer did so based on statistical performance metrics.”

Continue reading

Published on:

During the February 13, 2014 FINRA Board of Governors (“Board”) meeting, the Board discussed a new proposed rule that would prohibit conditions relating to expungement of customer dispute information. On April 14, 2014, FINRA sent the proposed rule to the Securities and Exchange Commission (“SEC”) for possible approval. The text of the proposed rule is as follows: “No member or associated person shall condition or seek to condition settlement of a dispute with a customer on, or to otherwise compensate the customer for, the customer’s agreement to consent to, or not to oppose, the member’s or associated person’s request to expunge such customer dispute information from the CRD system.” The SEC has the ability to open the proposal for public comment, modify it or approve it as is.

Continue reading

Published on:

In March 2014, the Securities and Exchange Commission (“SEC”) issued guidelines concerning the ability of registered investment advisers to use social media to disseminate testimonials or advertisements featuring public commentary about the adviser. The SEC issued these guidelines in response to increased demand from customers for independent commentary or reviews of service providers, including registered investment advisers. Currently, Section 206(4)-1(a)(1) of the Investment Advisers Act of 1940 (“Advisers Act”), known as the “Testimonial Rule,” prohibits any investment adviser from engaging in any act, practice or course of business that the SEC defines as fraudulent, deceptive or manipulative. Specifically, section 206(4)-1(a)(1) states “[i]t shall constitute a fraudulent, deceptive, or manipulative act, practice or course of business . . . for any investment adviser registered or required to be registered under the [Advisers Act], directly or indirectly, to publish, circulate, or distribute any advertisement which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.” Prior to issuing the guidelines, the SEC took the position that advertisements with testimonials were misleading because they emphasized comments and activities favorable to the adviser and ignored those that were unfavorable. In the recently issued guidelines, the SEC analyzes what constitutes a “testimonial,” which although not defined in the Adverse Act, may include public commentary made by a client about his or her experience with, or endorsement of, an investment adviser or a statement made by a third party about a client’s experience with, or endorsement of, an investment adviser. The guidelines emphasize that an adviser’s publication of an article by an unbiased third party regarding the adviser’s performance is not a testimonial, unless it includes a client endorsement. The determination of whether advertisements on social media constitute a prohibited testimonial is extremely fact specific. The SEC guidance assists investment advisers in developing policies and practices for participating in social media without violating SEC rules regarding public commentary in testimonials. Advisers should consult guidelines before posting advertisements or testimonial on social media. The guidelines can be accessed here: http://www.sec.gov/investment/im-guidance-2014-04.pdf

Continue reading

Published on:

The Financial Industry Regulatory Authority, Inc. (“FINRA”) announced that it has expanded its pool of arbitrators who can preside over cases in Puerto Rico in order to administer the hundreds of customer cases regarding the sale of Puerto Rican municipal bond funds. More than 200 cases have been filed in Puerto Rico by customers who allegedly incurred a financial loss as a result of their investments in Puerto Rican closed-end municipal bond funds. Claims have been filed against UBS Financial Services Inc. (“UBS”), Merrill Lynch, Pierce, Fenner & Smith, Santander Bank, Oriental Financial Services, Corp., and other firms. Indeed, as we have previously blogged, numerous lawsuits have been filed against UBS for the sale and marketing of highly leveraged, risky closed-end bond funds that were heavily invested in Puerto Rican municipal debt. It has now been reported that investors’ losses in the Puerto Rico closed-end municipal bond fund investments have risen to billions of dollars. According to reported research, nineteen (19) closed-end local municipal bond funds sold by UBS brokers in Puerto Rico lost $1.66 billion in the first nine months of 2013, with the biggest losers being UBS Puerto Rico funds that had large holdings of municipal bonds that were originally brought to market with UBS as the underwriter.

Continue reading

Published on:

On April 4, 2014, a FINRA arbitration panel awarded a former UBS Financial Services, Inc. (“UBS”) broker, Edward Dulin, $4,000,000 in compensatory damages, $1,000,000 in punitive damages, $250,000 in attorneys’ fees and $85,000 in costs based on its finding that UBS’s Structured Products Department purposely misled its brokers regarding the financial condition of Lehman Brothers and continued to recommend that its brokers sell Lehman Brothers structured products even though UBS had evidence of Lehman’s rapid decline. The Panel also recommended the expungement of thirty-nine (39) Lehman Brothers structured product customer complaints which were contained on Mr. Dulin’s registration records maintained by the Central Registration Depository (“CRD”). The thirty-nine customers had filed complaints with UBS, and UBS in turn filed Form U4s or Form U5s indicating that Mr. Dulin was the subject of such complaints. The Panel specifically found that the U4s and U5s filed by UBS were false and misleading because UBS caused any sales practice violations, not Mr. Dulin. The Panel also held in its Award that the UBS Structured Products Department continued to recommend this product to its brokers and customers “despite (1) mounting evidence that Lehman Brothers’ creditworthiness was crumbling, and (2) increasingly pointed concern among top UBS executives in the U.S., London and Zurich that the sale of Lehman Brothers products should be suspended.”

Continue reading

Published on:

Jill Wile, a former deputy regional director in the Financial Industry Regulatory Authority Inc.’s (“FINRA”) Boca Raton, Florida office, filed a discrimination lawsuit in the United States District Court for the Southern District of Florida, alleging that senior officials at FINRA fired her for reporting her boss’s discriminatory conduct. According to the Complaint, Ms. Wile, age 52, who suffers from a diagnosed anxiety disorder, reported to her superiors that Manley Ray, FINRA’s regional director, discriminated against her because of her age, gender, and mental condition. Ms. Wile alleges in her Complaint that she was terminated in March 2013 after reporting the purported discriminatory conduct, and claims that her termination was unwarranted and retaliatory in nature, as she had received only “exceptional and high-contributor performance ratings.” Also, according to the lawsuit, Ms. Wile alleged that Mr. Ray treated her differently than her younger, male counterparts and would frequently make jokes about the advanced age of certain arbitrators and even about FINRA’s President, Linda Feinberg. FINRA’s response to the Complaint is due on May 2, 2014.

Continue reading

Published on:

All parties in a FINRA arbitration have certain discovery obligations that must be met.  In customer cases, FINRA provides a Discovery Guide to both parties, which contains a list of presumptively discoverable documents for the firm/associated person to produce and a list of presumptively discoverable documents for the customer to produce.  In non-customer FINRA arbitrations, FINRA does not provide similar guidance to the parties.  Regardless of the type of case and whether the Discovery Guide applies, FINRA expects both sides to “cooperate to the fullest extent practicable in the exchange of documents and information to expedite the arbitration.” (See FINRA Code of Arbitration Rules 12505 and 13505).  If a party fails to cooperate in the exchange of documents and information as required by FINRA’s Code of Arbitration, the Arbitration Panel may issue sanctions against that party or may dismiss a claim, defense or proceeding with prejudice.  (See FINRA Code of Arbitration Rules 12511 and 13511). 

Continue reading

Contact Information