New York Securities Lawyer Blog

Published on: May 31, 2022

Liquidating or Exchanging Annuities May Be Unsuitable for Investors

Annuities are insurance contracts that make routine payments to customers either immediately or at some point in the future. This insurance contract allows investors to protect and grow their retirement savings while providing them with guaranteed income. Some brokers and financial advisors recommend selling or exchanging annuities for “better” investment opportunities. However, liquidating or exchanging an annuity comes with a high price– commissions, tax implications, and the loss of benefits associated with the original annuity. For these reasons, liquidating or exchanging an annuity without very clear financial reasons may be unsuitable for customers. The securities fraud lawyers at Rich, Intelisano & Katz, LLP (RIK) have recovered millions for investors who suffered from annuity-related losses.

When investors sell or exchange their annuities, it comes with a heavy price. First, when customers sell their annuity, they are subjected to costly fees and penalties. For example, the customer may incur surrender charges and high cancellation fees. Second, customers will lose all benefits associated with the annuity, such as legacy protection which is a death benefit to help provide a legacy for your loved ones. Third, the customer forfeits expected benefits from the annuity– the customer will no longer have guaranteed income. Fourth, taxes may become immediately due on the proceeds. Lastly, there are often high commissions associated with the sale of annuities.

Regardless of the costs and losses associated with selling or exchanging annuities, brokers and financial advisors sometimes recommend such actions to customers in order to generate commissions for themselves. Essentially, liquidating or exchanging annuities could potentially be a scheme for your broker or advisor to take money out of your savings and put it into their pocket. What’s worse is that the broker or advisor will use your money from the sale of the annuity to purchase another annuity or other investment products further increasing commissions and fees. Just like with any scheme to take advantage of customers, this is ill-suited and exceedingly improper.

Published on: March 16, 2022

Unsuspecting Investors Lost Millions Due to UBS’s Failure to Make Adequate Disclosures about Its Yield Enhancement Strategy (“YES”)

By Lax & Neville LLP

Many investors of UBS’s Yield Enhancement Strategy (“YES”), if not all, would never have invested in YES if UBS made full and fair disclosures related to its risks. YES was marketed as an overlay strategy for additional incremental investment income. Put simply, UBS advertised YES as an “iron condor” strategy that used customers’ investment accounts as collateral for options trading. Customers that enrolled in the strategy were required to sign disclosure documents, including margin agreements and options forms. Despite these disclosure documents, UBS never adequately disclosed the true risks of YES – that it was a high risk, low reward strategy. Because of UBS’s failure to adequately disclose the nature of YES, investors were shocked to learn about their astronomical losses at the end of 2018, and again in early 2020.

Generally, when investors trade on margin or trade options, they are required to sign risk disclosure documents. Enrolling in YES was no exception – as it is an options strategy that trades on margin. However, when YES investors were opening YES accounts, some UBS financial advisors downplayed the significance of the risk disclosure forms. For example, in several cases handled by Rich, Intelisano & Katz (“RIK”), the financial advisors dismissed the written disclosures describing them as boilerplate and/or stating that the YES portfolio manager limited risk by employing a low risk “iron condor” strategy. Representations such as these undermine the legal effect of the risk disclosure documents. Moreover, because the YES accounts are professionally managed, UBS and its financial advisors have a duty of full and fair disclosure regarding the investment the Firm recommends to its investors and to not mislead its customers. See S.E.C. v. Cap. Gains Research Bureau, Inc., 375 U.S. 180, 194 (1963) (“Courts have imposed on a fiduciary an affirmative duty of ‘utmost good faith, and full and fair disclosure of all material facts,’ as well as an affirmative obligation ‘to employ reasonable care to avoid misleading his clients.’”) Such conduct falls well below that standard.

RIK’s lawyers have pursued several multi-million dollar arbitrations on behalf of investors to recover for losses sustained due to UBS’s YES program (read more here). It is no surprise that UBS has attempted to shield itself from liability by hiding behind the risk disclosure forms. Not only were the communications related to the risk disclosure documents improper, but the disclosure documents themselves were entirely deficient because they contained a number of ambiguous, contradictory, and misleading statements concerning risk that further undermine the disclosures’ purported legal effect. For instance, in addition to generically disclosing risks, the disclosure documents also state specifically how risks associated with YES were mitigated or limited. These mitigation statements give investors a false impression that the strategy is protected from the high risks described in the “boilerplate” disclosure documents.

Published on: March 7, 2022

Brokerchalk Podcast – Shocking Revelations Around Merrill’s CTP Program

By Lax & Neville LLP

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Major bracket Wall Street banks have only recently institutionalized substantial retirement packages for senior advisors to sunset out with very few restrictions. Inheriting advisors who care to take over these books of businesses face an enormous opportunity to convert these books, yield a solid short-term return, and a terrific long-term opportunity to own and grow these books.

However, for these inheriting advisors, the rules associated with the restrictive covenants, the non-solicitation clauses, and the timeframe to yield any return differ substantially at Merrill’s CTP program from those at Morgan Stanley’s FAP program, Wells Fargo Summit Program, and UBS’s Alpha Program.

Published on: March 3, 2022

Advisor Talk with Frank LaRosa – Legal Perspective Series – Advance Your Financial Advisor Career with Brian Neville

By Lax & Neville LLP

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The legal nuances behind making a move to a new firm partner intimidate many an advisor, but it’s time to move past that block. In this first episode in Advisor Talk’s Legal Perspective Series, Elite Consulting Partners CEO Frank LaRosa is joined by Brian Neville, Founding Partner of Lax & Neville, to provide insight and context to listeners as to best legal practices when making a transition.

In particular, this episode focuses on client solicitations when making a move. Topics covered by Frank and Brian include:

Published on: February 24, 2022

Advisor Talk with Frank LaRosa – Legal Tips For Financial Advisors Considering a Transition with Brian Neville

By Lax & Neville LLP

CLICK HERE TO LISTEN TO PODCAST

Need legal tips for your financial advisor practice? Recent media coverage of an advisor’s transition from RBC to UBS and then back to RBC has shone a light on the legal missteps an advisor can make when moving their book of business to a new firm partner. In this episode, Elite Consulting Partners CEO Frank LaRosa is joined by Brian Neville, Founding Partner of Lax & Neville LLP, for a discussion that puts their substantial combined industry expertise to work and tackles the broad topic of the legal side of transitions, providing advisors with insights that prove practical and actionable.

Topics covered in the conversation include:

Published on: January 27, 2022

Lax & Neville has Won More Than $30 Million for Former Credit Suisse Advisers Seeking Deferred Compensation in FINRA Arbitrations

By Lax & Neville LLP

Lax & Neville LLP has successfully brought claims on behalf of former Credit Suisse investment advisers for their portion of the over $200 million of deferred compensation that Credit Suisse refused to pay its advisors when it closed its US private bank in 2015, violating the advisers’ employment agreements and the firm’s own deferred compensation plans. Nine have gone to award thus far, including seven brought by Lax & Neville LLP totaling 172 hearing days and resulting in awards of more than $30 million to 25 former Credit Suisse advisers. See Prezzano et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 19-02974, Hutchinson et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 16-02825, Galli, et al. v. Credit Suisse Securities (USA) LLC, FINRA No. 17-01489; DellaRusso and Sullivan v. Credit Suisse Securities (USA) LLC, FINRA No. 17-01406; Lerner and Winderbaum v. Credit Suisse Securities (USA) LLC, FINRA No. 17-00057; Finn v. Credit Suisse Securities (USA) LLC, FINRA No. 17-01277; and Chilton v. Credit Suisse Securities (USA) LLC, FINRA No. 16-03065. All nine FINRA arbitration panels, three New York Supreme Court Commercial Division Judges (Credit Suisse Securities (USA) LLC v. Finn, Index No. 655870/2018 (N.Y. Sup. Ct. 2019); Lerner and Winderbaum v. Credit Suisse Securities (USA) LLC, Index No. 652771/2019 (N.Y. Sup. Ct.), Credit Suisse Securities (USA) LLC v. DellaRusso and Sullivan, Index No. 657268/2019 (N.Y. Sup. Ct.)), and a unanimous panel of the New York Appellate Division have found for the advisers and ordered Credit Suisse to pay the deferred compensation it owes them.

Lax & Neville LLP has won more than $30 million in compensatory damages, interest, costs, and attorneys’ fees on behalf of former Credit Suisse investment advisers. To discuss these FINRA arbitration Awards, please contact Barry R. Lax, Brian J. Neville, Sandra P. Lahens or Robert R. Miller at (212) 696-1999.

Published on: December 7, 2021

Former Credit Suisse Advisers Win $9.5 Million and $9 Million Awards For Unpaid Deferred Compensation in FINRA Arbitrations

By Lax & Neville LLP

On December 23, 2021, a team of seven former Credit Suisse investment advisers represented by Lax & Neville LLP won a $9.5 million FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation. See Prezzano et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 19-02974. This comes just weeks after another FINRA Panel awarded $9 million to a team of eight former Credit Suisse investment advisers represented by Lax & Neville. See Hutchinson et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 16-02825.

These teams are now among the numerous former Credit Suisse advisors who have successfully brought claims for their portion of the over $200 million of deferred compensation that Credit Suisse refused to pay its advisors when it closed its US private bank in 2015, violating the advisers’ employment agreements and the firm’s own deferred compensation plans. The advisors were terminated without cause when the firm closed its US private bank. As it did with respect to almost every one of more than 300 advisers, and in each and every one of the deferred compensation cases filed against it, Credit Suisse took the position that the advisors voluntarily resigned and forfeited their earned deferred compensation when Credit Suisse closed their branches and eliminated their positions. The FINRA Panels unanimously found that Credit Suisse terminated each of the advisors without cause, breached their employment agreements, and violated their respective states’ labor laws.

Nine arbitrations have gone to award thus far, including seven brought by Lax & Neville LLP. See Prezzano et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 19-02974, Hutchinson et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 16-02825, Galli, et al. v. Credit Suisse Securities (USA) LLC, FINRA No. 17-01489; DellaRusso and Sullivan v. Credit Suisse Securities (USA) LLC, FINRA No. 17-01406; Lerner and Winderbaum v. Credit Suisse Securities (USA) LLC, FINRA No. 17-00057; Finn v. Credit Suisse Securities (USA) LLC, FINRA No. 17-01277; and Chilton v. Credit Suisse Securities (USA) LLC, FINRA No. 16-03065. All nine FINRA arbitration panels, three New York Supreme Court Commercial Division Judges (Credit Suisse Securities (USA) LLC v. Finn, Index No. 655870/2018 (N.Y. Sup. Ct. 2019); Lerner and Winderbaum v. Credit Suisse Securities (USA) LLC, Index No. 652771/2019 (N.Y. Sup. Ct.), Credit Suisse Securities (USA) LLC v. DellaRusso and Sullivan, Index No. 657268/2019 (N.Y. Sup. Ct.)), and a unanimous panel of the New York Appellate Division have found for the advisers and ordered Credit Suisse to pay the deferred compensation it owes them.

Published on: September 8, 2021

Brian Neville and Andrew Parish Discuss The Largest Mistake Made by Teams Looking to Transition

By Lax & Neville LLP

Published on: August 26, 2021

RIK Files Several Multi-Million Dollar Claims Related to Options Trading

By Lax & Neville LLP

Although some registered representatives and financial firms downplay the risks involved with options trading, in reality, options trading can be an aggressive strategy that may entail high risks. Because of the risks associated with option trading, it is generally only suitable for investors with a high net worth, experience, and an appetite for risk. Brokers, financial advisors, and financial firms sometimes ignore a customer’s tolerance for risk and improperly approve options trading in the customer’s account. Unfortunately, this can lead to tremendous losses in their accounts. RIK recently filed several multi-million-dollar cases on behalf of investors to recover for losses relating to improper options trading.

Options are contracts that grant an investor the right, but not obligation, to buy or sell an underlying asset at a set price on or before a specific date. Options trading has become popular amongst investors in recent years. To be successful, options trading requires research, discipline, and constant market monitoring. This type of trading involves high risk and requires special approval from the financial firm.

From the outset, options trading often comes with excessive fees which incentivizes brokers and advisors to recommend options trading to their clients regardless of the clients’ investment objectives and willingness to take on risk. In doing so, the broker or advisor sometimes downplays the risks associated with an options trading strategy by claiming that the only potential downside is the initial cost of the contract or that the advisor can hedge the position. Both notions can be misleading. First, the investor pays a premium for options in addition to paying high commission fees. This means the investor is at a loss the moment an option is purchased. Secondly, hedging options is highly dependent on market conditions and is an extremely risky strategy in the current volatile market.

Published on: August 6, 2021

FINRA is Cracking Down on Improper Options-Trading Approval and Lack of Supervision

By Lax & Neville LLP

In recent years, options trading has become more popular with investors. Because of the high risks associated with options trading, FINRA imposes specific rules and guidelines relating to trading options and which accounts can be approved for options trading. For example, firms are required to have an options principal oversee option trading in accounts. Moreover, in April 2021, FINRA sent a notice to members reminding them that, “[r]egardless of whether the account is self-directed or options are being recommended, members must perform due diligence on the customer and collect information about the customer to support a determination that options trading is appropriate for the customer.” See FINRA, Notice to Members 21-15 (2021).

FINRA’s recent investigations and sanctions against financial institutions, brokers, and advisors for options-related violations demonstrate how serious rules relating to options approval and option trading are. For example, last month FINRA imposed its largest financial penalty ever against Robinhood Financial LLC, in part, for failing to exercise due diligence before approving investors for options trading in self-directed accounts. Below are other recent examples of options-related sanctions FINRA imposed on firms and individuals:

Cambridge Research, Inc. was censured, fined $400,000, and ordered to pay over $3,000,000 in restitutions for improper conduct relating to the firms “risky strategies” that relied on purchasing uncovered options – options where the seller does not hold the underlying stock and is required to have an option margin to show the ability to purchase the stock when needed (FINRA Case No. 2018056443801);