New York Securities Lawyer BlogOn 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.”
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FINRA Hit With Discrimination Lawsuit By Former Manager
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.
The Importance Of Parties Complying With FINRA Arbitration Discovery Obligations
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).
FINRA Fines Broker-Dealer Berthel Fisher $775,000 for Sales Practice Abuses Concerning Alternative Investments and ETFs
On Monday, February 24, 2014, the Financial Industry Regulatory Authority, Inc. (“FINRA”) fined broker-dealer Berthel Fisher & Co. Financial Services Inc. (“Berthel Fisher”) and an affiliate, $775,000 for compliance and supervisory failures surrounding the inappropriate sale to its customers of alternative investments and nontraditional exchange-traded funds (ETFs), including non-traded real estate investment trusts (REITS), leveraged and inverse exchange-traded funds (ETFs), managed futures, oil-and-gas programs, equipment-leasing programs and business-development companies.
Former Merrill Lynch Financial Adviser Sentenced To 10 Years In Prison For Operating A $2.7 Million Ponzi Scheme
Former Bank of America/Merrill Lynch registered representative, Gary Lane, was sentenced to 10 years in prison for operating a Ponzi scheme that defrauded at least six investors of $2.7 million. Reportedly, Mr. Lane victimized elderly and unsophisticated investors by asking them to deposit funds into an account outside of Bank of America/Merrill Lynch. According to Daniel Bogden, the United States Attorney for the District of Nevada, Mr. Lane guaranteed investors that the money deposited into the account would be invested in U.S. Treasury Bonds, which would generate more than 6% interest and would mature in two years. Mr. Bogden also stated that the bonds never existed, and instead investors’ funds were deposited into Mr. Lane’s wife’s investment account. Mr. Lane would use the funds to pay other investors the purported interest and to pay personal expenses.
FINRA Seeks To Widen Investor Use of BrokerCheck
During the February 13, 2014 FINRA Board of Governors (“Board”) meeting, the Board discussed possible rule proposals related to its BrokerCheck database. According to FINRA’s Website, “BrokerCheck is a free tool to help investors research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives.”
Former Morgan Stanley Employee, Vincent Romano, Wins $525,000 FINRA Arbitration Award And Expungement Of His Form U-5
On September 4, 2012, financial adviser Vincent W. Romano (“Romano”) filed a Statement of Claim with the Financial Industry Regulatory Authority, Inc. (“FINRA”) against his former employer, Morgan Stanley Smith Barney, LLC (“Morgan Stanley”). In his Statement of Claim, Romano raised libel and slander causes of action relating to his Form U-5 termination form and alleged that Morgan Stanley marked his employment record in order to harm Romano’s campaign for political office in Illinois. Romano stated that, “[Morgan Stanley] feared a loss of business with the city of Chicago and the state of Illinois because [Morgan Stanley] has a relationship with House Speaker Michael Madigan, and [Romano] was running on a reform platform that could upset Michael Madigan’s political power.” Romano further alleged that Morgan Stanley “failed to follow its own procedures regarding running for political office and fabricated a reason to terminate [Romano].” As a result of these actions, Romano sought $2 million in compensatory damages and $6 million in punitive damages.
FINRA Arbitrators May Soon Be Able To Direct Cases To FINRA’S Enforcement Division Before The Case Has Concluded
Financial Industry Regulatory Authority Inc. has proposed a new rule to the SEC that would allow FINRA arbitrators to direct cases to FINRA’s enforcement division before the case has closed. As it stands now, FINRA arbitrators are required to wait until the arbitration case has concluded before they can report to FINRA’s Enforcement Department any wrongful conduct or concerns that they learn during the arbitration proceedings about a broker/registered representative or broker dealer. Pursuant to FINRA’s proposed rule change form filed with the SEC to amend Rule 12104 of the Code of Arbitration Procedure for Customer Disputes and Rule 13104 of the Code of Arbitration Procedure for Industry Disputes to broaden arbitrators’ authority to make referrals during an arbitration proceeding, “Finra is concerned that the current rule’s requirement that arbitrators in all instances must wait until a case is concluded before making a referral could hamper Finra’s efforts to uncover threats to investors as early as possible. . . Finra is proposing, therefore, to broaden the arbitrators’ authority under the Codes to make referrals during the hearing phase of an arbitration in those extremely rare circumstances in which investor protection requires that the referral not be delayed.”
FINRA IS FOCUSING ON BROKER VIOLATIONS RELATING TO EXPENSES
The Financial Industry Regulatory Authority Inc. (FINRA) has a new focus on cracking down on brokers who submit inappropriate or falsified corporate expense reports. In recent years, FINRA is increasingly imposing fines and barring brokers from the industry for violations relating to inappropriate submission of personal expenses. To some observers and registered representatives that face FINRA in cases related to allegedly inappropriate submission of expenses, it does seem that these matters are being treated on the same level as sales practices violations involving a customer.
Lax & Neville Investigates Gilford Securities and Adam F. Coblin
Lax & Neville was recently retained by an investor to file a claim regarding alleged sales practice abuses by Gilford Securities Inc. (“Gilford”), a broker-dealer, and Adam Coblin (“Coblin”), CRD# 2005853, one of its former financial advisors who resigned in July 2013 while under review by Gilford for customer complaints. We believe that Coblin may have engaged in similar sales practice abuses with many of his customers and are currently investigating whether Coblin churned and charged excessive commissions in his customers’ brokerage accounts, and whether he sold unsuitable securities such as Delcath Systems, Prospect Global Resources or Vivus Inc. to customers. It should be noted that according to Coblin’s FINRA BrokerCheck Report, several customers have recently filed customer complaints against him based on alleged sales practice abuses. For example, one of his former customers filed an arbitration claim against him and Gilford in November 2012 alleging compensatory damages of $910,555 as a result of alleged unsuitable investments and excessive trading. Gilford settled that matter for $375,000 in September 2013. Another customer filed an arbitration claim against Gilford and Coblin in October 2013 alleging compensatory damages of $133,000 as a result of alleged misrepresentations, unsuitability, unauthorized trading and other sales practice abuses. That claim and other customer complaints against Coblin are still pending.