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Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How do You Recover Your Investment Losses?

If you are reading this article, we are guessing you had a bad experience recently in either a securities-backed line of credit (“SBL”) or margin account that suffered margin calls and was liquidated without notice, causing you to realize losses. Ordinarily, investors with margin calls receive 3 to 5 days to meet them; and if that happened, the value of the securities in your account might have increased within that period and the firm might have erased the margin call and might not have liquidated your account. If you are an investor who has experienced margin calls in the past, and that is your only complaint then, read no further because when you signed the account agreement with the brokerage firm you chose to do business with, you probably gave it the right to liquidate all of the securities in your account at any time without notice. On the other hand, if you are an investor with little experience or one with a modest financial condition who was talked into opening a securities-backed line of credit account without being advised of the true nature, mechanics, and/or risks of opening such an account, then you should call us now! Alternatively, if you are an investor who needed to withdraw money for a house or to pay for your taxes or child’s education but was talked into holding a risky or concentrated portfolio of stocks and/or junk bonds in a pledged collateral account for a credit-line or a margin account, then we can probably help you recover your investment losses as well. The key to a successful recovery of your investment loss is not to focus on the brokerage firm’s liquidation of the securities in your account without notice. Instead, the focus on your case should be on what you were told and whether the recommendation was suitable for you before you opened the account and suffered the liquidation. Should either one of those leveraged accounts have been recommended at all by a financial advisor in the first place? Should the broker-dealer have even allowed you to open one of those type of accounts based upon your investment profile and financial condition? Did the financial advisor misrepresent the nature, mechanics, and/or risks of the securities backed line of credit and/or margin account? Once the accounts were opened, did the financial advisor make unsuitable securities recommendations to purchase especially volatile securities in that account? Did the financial advisor recommend that you over-concentrate your investment portfolio in stocks in any particular sector (such as the oil and gas, hospitality, gaming, air travel, and/or cruise industry) in the leveraged account? Those are the facts and circumstances that probably caused losses but may give you an opportunity to recover all or some of your losses from your stockbrokerage firm. The leverage and liquidation to meet margin calls with or without notice probably only magnified and accelerated the inevitable losses. Your stockbroker had a duty to not only understand but explain the nature, mechanics and all of the risks associated with those investments before he/she sold them to you! Your stockbroker also had a duty to make sure they were suitable investments before they were recommended in light of your risk tolerance and financial condition and not over-concentrate investments in volatile emerging market stocks or any industry in your portfolio. Leveraged investments are not suitable for clients with conservative and moderate risk tolerance. All securities-backed lines of credit and margin accounts employ leverage, and leverage is a “speculative” investment strategy. Individuals close to retirement who are depending upon income from their investment portfolio cannot afford to speculate in leveraged accounts. If your financial advisor misrepresented the nature, mechanics, and/or risks of those accounts; or the investments or the risks were not fully explained; or you were over-concentrated (more than 10%) in any investment sector; or if it was not in your best interest (or unsuitable); and your investments were liquidated with or without notice due to margin calls, you may have the right to bring an arbitration claim against your financial advisor and/or the brokerage firm who employed him. One thing is certain, there is no way you will recover your losses in any SBL or margin account case without some legal action. At The Law Offices of Robert Wayne Pearce, P.A., we represent investors in investment disputes for misrepresented and unsuitable investments in FINRA arbitration and mediation proceedings. The claims we file are for fraud and misrepresentation, breach of fiduciary duty, failure to supervise, and unsuitable recommendations in violation of SEC and FINRA rules and industry standards. Attorney Pearce and his staff represent investors across the United States on a CONTINGENCY FEE basis which means you pay nothing – NO FEES-NO COSTS – unless we put money in your pocket after receiving a settlement or FINRA arbitration award. Se habla españolCONTACT US FOR A FREE INITIAL CONSULTATION WITH EXPERIENCED SBL AND MARGIN ACCOUNT INVESTMENT FINRA ARBITRATIONS ATTORNEYS The Law Offices of Robert Wayne Pearce, P.A. have highly experienced lawyers who have successfully handled many SBL and margin account “blow-out” cases and other securities law matters and investment disputes in FINRA arbitration proceedings, and who work tirelessly to secure the best possible result for you and your case. For dedicated representation by an attorney with over 40 years of experience and success in SBL and margin investment cases and all kinds of securities law and investment disputes, contact the firm by phone at 561-338-0037, toll free at 800-732-2889, or via e-mail.

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Regulation Best Interest (Reg. BI): Better But Not the Best!

Finally, ten years after the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) was enacted to bring about sweeping changes to the securities industry, the best regulation the U.S. Securities & Exchange Commission (“SEC”) could pass, SEC Regulation Best Interest, is now the law governing broker-dealers giving investment advice to retail customers. Although the SEC had the authority to impose a uniform and expansive “Fiduciary Duty” standard throughout the country upon broker-dealers and investment advisors, it yielded to the stock brokerage industry demands and enacted Regulation Best Interest (“Reg. BI”), which is better than the Financial Industry Regulatory Authority (“FINRA”) “Suitability Rule,” but not the best that it could have been done to protect investors. Last month FINRA amended its Suitability Rule to conform with SEC Reg. BI and made it clear that stockbrokers now uniformly have duties related to disclosure, care, conflicts and compliance, which are equivalent to the common law “fiduciary duty” standard when making recommendations to retail customers. See, FINRA Regulatory Notice 20-18. 1 The controversy of the standard of care applicable to stockbrokers in a non-discretionary account relationship with their customers has been ongoing for decades. Broker-dealers have long advocated for two standards: one standard being a non-fiduciary standard governing the non-discretionary account relationship and a fiduciary standard only governing the stockbroker with a discretionary account relationship. On the other hand, the investment advisory firms have been crying foul for years and advocating for a level playing field where stockbrokers and investment advisers alike are both held to the same “fiduciary” standard in their entire relationship with customers. The investment advisory industry recognized the importance of working in the “best interest” of their clients all of the time and the damage that stockbrokers (who are held to a lower standard) do to the reputation of “investment advisers,” especially those stockbrokers palming off the name “advisers” when doing business with the public. Stockbrokers were able to take advantage of the goodwill and trust associated with “investment advisers” but not accountable to their clients as “fiduciaries.” At the very least, the public was confused about the kind of “adviser” they were dealing with and the degree of investment professional duties the “adviser” owed to them. The SEC recognized that although Congress, in enacting Dodd-Frank authorized it to impose a uniform “fiduciary” standard on stockbrokers, it was not going to do so. It made that decision after the Trump administration took control. Are you surprised? The SEC’s public rationale was a bogus cost factor consideration; it reasoned if the standard was elevated broker-dealers would have to increase the transaction costs to investors with non-discretionary accounts to offset the increased compliance costs. The SEC supposedly wanted to avoid destroying the commission-based broker-dealer business model but expand broker-dealer and stockbroker obligations when they give advice to retail investors. The compromise was Reg. BI which I will attempt to summarize below. First, it is important to point out the new regulation only imposes new obligations upon broker-dealers and their associated persons when making recommendations to natural persons or their personal representative, such as trustees, executors, etc., who are retail customers (not institutions). It’s unclear whether an individual’s wholly owned corporation or family limited partnership would reap any benefit from the new “best interest” rule even though those entities would probably be relying on recommendations for “personal, family or household purposes.” Second, Reg. BI only applies to broker-dealers and their stockbrokers when they make recommendations of any securities transaction or investment strategy involving securities (including securities account type recommendations) to a retail customer. Next, in general terms, the “Best Interest” rule imposes four obligations upon broker-dealers and their associated persons: Disclosure: to provide disclosures about the type of relationships they will have with their customer before or at the time of any recommendations (which will probably be buried somewhere in their website or the fine print of the 80-100 page customer agreement and disclosure booklets only made available via the internet when the account is opened). Due Care: to exercise reasonable diligence, care and skill in making the recommendation. Conflicts: to establish, maintain, and enforce written policies and procedures reasonably designed to address conflicts of interest, preferably to avoid or mitigate them and if they cannot be avoided to make sure they are disclosed to the retail customer in a way the customer will understand the conflict and appreciate its impact on the recommendation. Compliance: to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg. BI. It goes without saying that the new SEC rule also requires broker-dealers to comply with new recordkeeping requirements to be sure Reg. BI is being implemented and enforced. To retail investors, the “Due Care” and “Conflict” obligations will hopefully have the greatest impact. This is because up until this point in time, broker-dealers and their stockbrokers would say, if we can match an investment recommendation to a customer’s profile, we have done our job and complied with FINRA Rule 2111 (formerly NASD Rule 2310), end of story. For example, in the past, the recommendation of high fee proprietary structured products might fit the customer’s profile and be a suitable recommendation. However, now that type of investment might not be in the “best interest” of the retail customer, particularly if the risk-reward analysis of another non-proprietary, plain vanilla, and less expensive security is the same. To make it clear that Rule 2111 was no longer the rule when it came to future recommendations to retail customers, FINRA amended its rule (effective June 30, 2020) to state that Rule 2111 no longer applies to recommendations governed by Reg. BI because Reg. BI incorporates and enhances the principles found in Rule 2111. Some writers of blogs for the defense bar have focused only on the Due Care obligation and said nothing has changed from the old suitability rule. If that were true, the SEC and FINRA would have said so and the new rule would be meaningless! Instead FINRA said it “incorporates and enhances the...

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FINRA Arbitration: What To Expect And Why You Should Choose Our Law Firm

If you are reading this article, you are probably an investor who has lost a substantial amount of money, Googled “Securities Arbitration Attorney,” clicked on a number of attorney websites, and maybe even spoken with a so-called “Securities Arbitration Lawyer” who told you after a five minute telephone call that “you have a great case;” “you need to sign a retainer agreement on a ‘contingency fee’ basis;” and “you need to act now because the statute of limitations is going to run.” You may want to ask yourself whether that attorney is as bad as the stockbrokers you were concerned about in the first place. Some attorneys will rush you to hire them before you speak to anyone else and not tell you about the clause in their contract that allows them to drop you as a client later on if they cannot get a quick settlement. They will solicit you without a real case evaluation and/or without any explanation of Financial Industry Regulatory Authority (“FINRA”) proceedings. The scenario above is not the way for attorneys to properly serve clients, and it is not the way we do business at The Law Offices of Robert Wayne Pearce, P.A. If you are planning on speaking or meeting with us or any other attorney, let us introduce you to the FINRA arbitration proceeding by giving you some information in advance to help you understand the different stages of FINRA arbitration, what you should expect from skilled and experienced FINRA securities arbitration lawyers, and what you should expect to personally do in order to have the best outcome: 1. CASE REVIEW Before we accept any case, our attorneys conduct a thorough interview of you to understand: the nature of your relationship with your broker; the level of your financial sophistication; the representations or promises made to you in connection with any investment recommendation; and your personal investment experience, investment objectives, and financial condition at the time of any recommendation or relevant time period. We will review your account records, including, but not limited to: account statements; confirmations; new account opening documents; contracts; correspondence; emails; presentations; and marketing materials that you may have received in connection with your accounts and the investments made therein, etc. Investors rarely contact our office without knowing whether they have suffered investment losses, but sometimes that occurs because the particular investor does not have all their records and/or is unsophisticated, inexperienced, and unable to decipher the account records they retained. If you retained your account statements and provide them, we should be able to at least estimate (under the different measures of damages) the amount you may be able to recover if you win your arbitration proceeding. If you do not have those records, we will help you retrieve them without any obligation so that all of us are fully aware of the amount we may possibly recover for you if we are successful in arbitration. In addition, we will spend the time necessary to get to know you and the facts of your dispute to have a good chance of success in proving your case. After all, it does not benefit either you or our law firm to file an arbitration claim that, months or years later, we discover has little chance of success. Ultimately, we want to know, and so should you, whether or not you have a claim with merit and are likely to recover damages if we go through a full arbitration proceeding. The fact is Attorney Pearce does not take cases unless he and his team believe you suffered an injustice and are likely to succeed at the final arbitration hearing. 2. THE STATEMENT OF CLAIM Many of these young and/or inexperienced attorneys with flashy websites and Google Ad Word advertisements (to get them to the top of the page) are more interested in marketing and signing up cases to settle early than they are in going all the way and winning your case at a final arbitration hearing for a just result. Oftentimes, they will insert your name in a form pleading, one that they use in every case, which states little more than if you (the “Claimant”) were an investor with brokerage firm ABC and stockbroker XYZ (the “Respondent(s)”) made misrepresentations, failed to disclose facts, made unsuitable recommendations, and violated laws 123, you are entitled to damages. They are unwilling and/or fail to take the time necessary to study the strengths and weaknesses of your case and write a detailed Statement of Claim (also referred to as the “Complaint”) with all of the relevant facts necessary to inform the arbitrators what happened and why you are entitled to recover your damages. That is not the way Attorney Pearce, with over 40 years of experience with investment disputes, files a Statement of Claim, the first and sometimes the only document that the arbitrators will read before the final arbitration hearing. 3. THE ANSWER After we file the Statement of Claim and it is served, the brokerage firm and/or stockbroker will have forty-five (45) days to file the Answer to your allegations. Oftentimes, the Respondent(s) will ask for an extension of time to file the Answer and we will give it to them provided no other deadline is extended, particularly the deadlines associated with the selection of arbitrators and scheduling of the initial pre-hearing conference, where all of the other important deadlines and dates of the final arbitration hearing are scheduled. Some clients have asked why would you give them extra time to file their best Answer? Well, we believe after 40 years of doing these FINRA arbitrations, that it is better to know the story they intend to tell the arbitrators early on and lock them in so we can come up with the best strategy and all the case law necessary to overcome their best defenses and win your arbitration. In other words, we would rather know about the defense early on than be surprised at the final hearing. Besides, Respondent(s) can always try to file...

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A Stockbroker’s Introduction to FINRA Examinations and Investigations

Brokers and financial advisors oftentimes do not understand what their responsibilities and obligations are and what may result from a Financial Industry Regulatory Authority (FINRA) examination or investigation. Many brokers do not even know the role that FINRA plays within the industry. This may be due to the fact that FINRA, a self-regulatory organization, is not a government entity and cannot sentence financial professionals to jail time for violation of industry rules and regulations. Nevertheless, all broker-dealers doing business with members of the public must register with FINRA. As registered members, broker-dealers, and the brokers working for them, have agreed to abide by industry rules and regulations, which include FINRA rules. In order to check for compliance with industry rules and regulations, FINRA conducts routine examinations or investigations of broker-dealers, which consist of inspections occurring once every one, two, or three years depending on the firm’s business model, its size, and its perceived risks. FINRA may also conduct an examination if it has reason to believe that a rule violation has occurred – an examination may be initiated based on a Form U-4 or U-5 disclosure, a customer complaint, an arbitration claim, information received from another regulator or law enforcement agency, or information received in the form of tip from a competing broker-dealer. The purpose of the examinations is to make sure that a firm is operating with sufficient capital, is properly supervising it employees and business operations, and has proper internal systems and controls in place. The examinations generally focus on unethical sales practice behavior such as conversion of funds, forgery, theft, selling away, undisclosed outside business activities, unauthorized trading, unsuitable recommendations, and misrepresentations or omissions. Consulting an attorney is highly recommended when facing a FINRA examination because all brokerage firm “Members” and stockbroker “Associate Members” of FINRA have agreed to be subject to its jurisdiction, rules, procedures, disciplinary proceedings and sanctions which could have serious consequences. These disciplinary proceedings are like trials in a courtroom but under FINRA’s lopsided rules and procedures to the stockbroker’s disadvantage. You need to be on guard – FINRA can make referrals to the U.S. Securities & Exchange Commission (“SEC”) for injunctions, fines and/or to federal and state prosecutors for criminal prosecution. THE EXAMINATION PROCESS Upon initiating an examination, FINRA examiners will usually send a written request for information to the broker-dealer as well as to the broker, which seeks basic information about a complaint or other disclosure. A request letter to the broker will often ask for a written response to the allegation, and a request letter to the firm will usually seek a written narrative of the complaint or other disclosure and the firm’s findings. A request letter to a firm may also include a request for relevant documents such as communications with customers and account records. Once FINRA has obtained such information, it will determine whether the issue is one over which FINRA has jurisdiction. FINRA will also determine whether there is a potential rule violation or if any other threshold has been met, which would allow it to continue to review the matter at issue. Examiners obtain the vast majority of information needed to conduct an investigation through written correspondence. Letters requesting information and documents and responses to specific questions sent to firms, brokers, and involved personnel are not uncommon. In many cases, FINRA will require the broker to respond to a specific question with a signed, written statement. Brokers tend to receive two to four or more of such letters. In addition, examiners may conduct telephone interviews with brokers, managers, compliance employees, and customers to obtain relevant information. Although these interviews are considered informal, brokers should proceed with caution because anything they say may be used against them. The majority of examinations that lead to a disciplinary action include an on-the-record interview (OTR), which requires the broker or other associated persons of a firm to meet with the regulators. OTRs are similar to depositions taken in civil proceedings as the witness is sworn to tell the truth, a court reporter is present to record the interview, and transcript of the interview is prepared. Seeing as brokers are permitted to have a lawyer appear at the OTRs with them, brokers are encouraged to obtain legal counsel to assist in preparing for an OTR, for the OTR proceeding itself, and for any future enforcement action. As soon as the examiners believe that they have gathered all the relevant information, documents, and other evidence, a report of the examination is prepared and submitted to a supervisor. The supervisor’s role is to review the report and the evidence and make a recommendation to close the file without action, to pursue some type of informal disciplinary action, or to pursue a formal disciplinary action – matters may also be resolved through a combination of the foregoing choices. FINRA JURISDICTION AND IMPORTANT RULES Brokers should know that FINRA does not have jurisdiction over individuals not affiliated with the securities industry. Therefore, since FINRA cannot ask for or force cooperation from non-affiliated individuals, many examinations are never fully completed if such cooperation is necessary to establish evidence of a violation. This does not mean that brokers should encourage customers to avoid or not cooperate with the authorities because this is a violation of FINRA rules itself, which can lead to sanctions, Brokers should also know that they themselves are not obligated to respond to FINRA requests for information, but this decision may come with a significant price, such as a permanent ban from the industry. Still, FINRA makes use of Rule 8210, which serves as subpoena for FINRA examinations. Rule 8210 requires broker-dealers, registered representatives, and any other individuals subject to FINRA’s jurisdiction to cooperate in an examination and provide written, electronic, and oral information when requested. If a broker chooses not to respond, he or she may be barred from association from any FINRA member firm in any capacity in addition to other sanctions. This consequence may seem contrary to one’s 5th Amendment right...

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J.P. Morgan Sued for Edward Turley and Steven Foote’s Alleged Margin Account Misconduct

J.P. Morgan Securities, LLC (“J.P. Morgan”) employed San Francisco Financial Advisor Edward Turley (“Mr. Turley”) and his former New York City partner, Steven Foote (“Mr. Foote”), and is being sued for their alleged stockbroker fraud and stockbroker misconduct involving a highly speculative trading investment strategy in highly leveraged margin accounts1. We represent a family (the “Claimants”) in the Southwest who built a successful manufacturing business and entrusted their savings to J.P. Morgan and its two financial advisors to manage by investing in “solid companies” and in a “careful” manner. At the outset, it is important for our readers to know that our clients’ allegations have not yet been proven. We are providing information about our clients’ allegations and seeking information from other investors who did business with J.P. Morgan, Mr. Turley, and/or Mr. Foote and had similar investments, a similar investment strategy, and a similar bad experience to help us win our clients’ case. INTRODUCTION This case is about alleged misrepresentations and misleading statements relating to investments and an investment strategy that were not only allegedly unsuitable for the Claimants but allegedly mismanaged by J.P. Morgan investment advisors and stockbrokers, Mr. Foote and Mr. Turley. Mr. Foote represented, in writing, the investment strategy only involved “solid companies with good income producing securities.” Later, Mr. Foote represented, in writing, that Mr. Turley and he would only “carefully add leverage to the accounts to enhance returns.” Notwithstanding the representations, Mr. Foote and Mr. Turley took control of Claimants’ accounts and engaged in a speculative, over-leveraged fixed income investment strategy involving excessive trading of high yield “junk” bonds, foreign bonds, preferred stocks, exchange traded funds (“ETFs”), master limited partnerships (“MLPs”), and foreign currencies. In March 2019, Mr. Foote became too ill to manage Claimants’ accounts, and Mr. Turley took sole control of the portfolio. Thereafter, Mr. Turley recklessly increased the risks (market, over-concentration, interest rate, leverage, commodities, and foreign currency) to which Claimants and their accounts were allegedly exposed. The family’s portfolio became even more over-concentrated in the financial and energy sectors under Mr. Turley’s control. He made a multi-million dollar investment in unregistered Nine Energy Senior Notes rated by S&P B- (speculative) in Claimants’ accounts. Mr. Turley also allegedly turned over the fixed income assets with new investments in “new issue” preferred stocks underwritten by J.P. Morgan, for which he allegedly received “seller concessions” paid at a much higher percentage than regular commissions on other securities transactions. Over the next six months, the margin balances increased by millions of dollars, and the Claimants’ accounts became ticking time bombs ready to explode at any moment. Indeed, they did explode in March 2020 when the market collapsed and Claimants realized substantial losses in their accounts. THE RELEVANT FACTS Our clients live on a ranch in a remote area in northern Texas. They regularly commute by private airplane to work and elsewhere for business and pleasure. One of our clients is a member of the Citation Jet Pilot Owners Association (“CJP”), an organization of many wealthy business people who own Citation jets. This organization holds its meetings throughout the country. It so happened that Mr. Foote and Mr. Turley were also members of the CJP. In the summer of 2016, Mr. Foote successfully solicited our clients at their ranch in Texas to manage their investment portfolio. At that ranch meeting, Mr. Foote described an investment strategy that he and his partner, Mr. Turley, managed for all of their biggest and best clients. According to Mr. Foote, they conservatively managed a fixed-income strategy that included investments in corporate bonds, notes, and preferred stocks. At that meeting and repeatedly thereafter, Mr. Foote told our clients that Mr. Turley and he only invested in “solid companies with good income producing securities.” Mr. Foote boasted that Mr. Turley and he were first in line for the best investment opportunities at J.P. Morgan because of their status at the firm. Our clients were impressed by Mr. Foote and especially by what he told him about Mr. Turley. They appeared to share our clients’ passion for aviation and the CJP and, more importantly, their religious beliefs. They agreed to transfer one-half of the investment portfolio to J.P. Morgan under Mr. Foote and Mr. Turley’s stewardship. The other half was managed by a UBS Financial Services, Inc. (“UBS”) financial advisor. In the beginning, Mr. Foote was the primary manager of the relationship with Claimants. All of the investments in the Claimants’ accounts were either allegedly “solicited” by Mr. Foote or executed by Mr. Foote and Mr. Turley’s use of “de facto” discretion because, on information and belief, none of the Claimants ever executed any documents giving either Mr. Foote, Mr. Turley, or any other person at J.P Morgan written discretionary authority over the Claimants’ accounts. The Claimants did not think this was unusual because they had a special relationship with Mr. Foote, whom they placed their trust and confidence in to manage their accounts as their investment adviser and portfolio manager. By the spring of 2017, Mr. Foote and Mr. Turley had fully invested Claimants’ accounts, so they injected leverage into their speculative investment strategy to make more commissions. Mr. Foote allegedly told our clients they also “carefully” managed a fixed-income strategy that would profit primarily from the difference in the high interest paid on corporate bonds, notes, and preferred stocks and the low margin interest rates. Mr. Foote allegedly assured Claimants that the strategy was safe and was used all of the time by banks and institutional and other wealthy clients to make money when interest rates were low to take advantage of the spread in interest rates. In fact, at that time, Mr. Foote misrepresented, in writing, that “we will keep pursuing solid companies with good income producing securities and we will continue to carefully add leverage to the accounts to enhance returns.” To the contrary, Mr. Foote and Mr. Turley quickly and recklessly ratcheted up the margin balances to over $7.1 million by the end of August 2017. It...

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Securities-Backed Lines of Credit can be More Dangerous Than Margin Accounts!

Securities-Backed Lines of Credit Can Be More Dangerous Than Margin Accounts! Many investors have heard of margin accounts and the horror stories of others who invested on margin and suffered substantial losses. But few investors understand that securities-backed lines of credit (SBL) accounts, which have been aggressively promoted by brokerage firms in the last decade, are just as dangerous as margin accounts. This is largely due to the fact that the equity and bond markets have been on an upward trend since 2009 and few investors (unless you are a Puerto Rico investor) have experienced market slides resulting margin calls due to the insufficient amount of collateral in the SBL accounts. It is only over the last several months of market volatility that investors have begun to feel the wrath of margin calls and understand the high risks associated with investing in SBL accounts. For investors considering your stockbroker’s offer of a line of credit (a loan at a variable or fixed rate of interest) to finance a residence, a boat, or to pay taxes or for your child’s college education, you may want to read a little more about the nature, mechanics, and risks of SBL accounts before you sign the collateral account agreement and pledge away your life savings to the brokerage firm in exchange for the same loan you could have obtained from another bank without all the risk associated with SBL accounts. First, it may be helpful to understand just why SBL accounts have become so popular over the last decade. It should be no surprise that the primary reason for your stockbroker’s offering of an SBL is that both the brokerage firm and he/she make money. Over many years, the source of revenues for brokerage firms have shifted from transaction based commissions to fee based investments, limited partnerships, real estate investment trusts (REITs), structured products, managed accounts, and income earned from lending money to clients in SBL and margin accounts. Many more investors seem to be aware of the danger of borrowing in margin accounts for the purposes of buying and selling securities, so the brokerage firms expanded their banking activities with their banking affiliates to expand the market and their profitability in the lending arena through SBL accounts. The typical sales pitch is that SBL accounts are an easy and inexpensive way access cash by borrowing against the assets in your investment portfolio without having to liquidate any securities you own so that you can continue to profit from your stockbroker’s supposedly successful and infallible investment strategy. Today the SBL lending business is perhaps one of the more profitable divisions at any brokerage firm and banking affiliate offering that product because the brokerage firm retains assets under management and the fees related thereto and the banking affiliate earns interest income from another market it did not otherwise have direct access to. For the benefit of the novice investor, let me explain the basics of just how an SBL account works. An SBL account allows you to borrow money using securities held in your investment accounts as collateral for the loan. Once the account is established and you received the loan proceeds, you can continue to buy and sell securities in that account, so long as the value of the securities in the account exceed the minimum collateral requirements of the banking affiliate, which can change just like the margin requirements at a brokerage firm. Assuming you meet those collateral requirements, you only make monthly interest-only payments and the loan remains outstanding until it is repaid. You can pay down the loan balance at any time, and borrow again and pay it down, and borrow again, so long as the SBL account has sufficient collateral and you make the monthly interest-only payments in your SBL account. In fact, the monthly interest-only payments can be paid by borrowing additional money from the bank to satisfy them until you reach a credit limit or the collateral in your account becomes insufficient at your brokerage firm and its banking affiliate’s discretion. We have heard some stockbrokers describe SBLs as equivalent to home equity lines, but they are not really the same. Yes, they are similar in the sense that the amount of equity in your SBL account, like your equity in your house, is collateral for a loan, but you will not lose your house without notice or a lengthy foreclosure process. On the other hand, you can lose all of your securities in your SBL account if the market goes south and the brokerage firm along with its banking affiliate sell, without prior notice, all of securities serving as collateral in the SBL account. You might ask how can that happen; that is, sell the securities in your SBL account, without notice? Well, when you open up an SBL account, the brokerage firm and its banking affiliate and you will execute a contract, a loan agreement that specifies the maximum amount the bank will agree to lend you in exchange for your agreement to pledge your investment account assets as collateral for the loan. You also agree in that contract that if the value of your securities declines to an amount that is no longer sufficient to secure your line of credit, you must agree to post additional collateral or repay the loan upon demand. Lines of credit are typically demand loans, meaning the banking affiliate can demand repayment in full at any time. Generally, you will receive a “maintenance call” from the brokerage firm and/or its banking affiliate notifying you that you must post additional collateral or repay the loan in 3 to 5 days or, if you are unable to do so, the brokerage firm will liquidate your securities and keep the cash necessary to satisfy the “maintenance call” or, in some cases, use the proceeds to pay off the entire loan. But I want to emphasize, the brokerage firm and its banking affiliate, under the terms of almost all SBL account agreements, are not...

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UBS Puerto Rico Misrepresents Safety of Bond Funds to Investor

The Law Offices of Robert Wayne Pearce, P.A. filed yet another claim against UBS Financial Services Incorporated of Puerto Rico (UBS Puerto Rico). A summary of the allegations the Claimant made against the Puerto Rico based brokerage is below. If you or any family member received similar misrepresentations and/or misleading statements from UBS Puerto Rico and its stockbrokers or found yourself with an account overconcentrated in closed-end bond funds, or if you borrowed monies from UBS Puerto Rico and used your investments as collateral for those loans, we may be able to help you recover your losses. Contact our office for a free consultation about your case. I. INTRODUCTION This arbitration arises out of a series of unsuitable recommendations by UBS Puerto Rico financial advisors that Claimant purchase and hold an excessive concentration of Puerto Rico securities in her individual account and Individual Retirement Account. The Claimant’s investment portfolio was not diversified from not only an asset allocation standpoint but overly concentrated in securities issued in a single geographic area, i.e., Puerto Rico. The Respondent and its representatives continuously disseminated false and misleading information to Claimant about both the nature and risk of both the investment strategy and securities in her accounts. The Respondent and its representatives not only committed fraud but breached their fiduciary duties to Claimant and they were negligent in the advice provided to her. UBS Puerto Rico also negligently failed to supervise its employees. Finally, Respondent has fraudulently concealed this and other misconduct relating to her investments from the Claimant until recently. As a result of Respondent and its representatives’ misconduct, the Claimant suffered substantial damages in an amount to be determined at the final arbitration hearing. II. THE RELEVANT FACTS Claimant is over 62 years of age. She is unmarried and lives alone in San Juan, Puerto Rico. She is a Clinical Psychologist currently earning a modest income.[1] Claimant is also dependent upon income earned on an inheritance from her parents that was deposited in her UBS Puerto Rico brokerage accounts: an individual brokerage account and retirement account. During the relevant period two individuals served as her UBS Puerto Rico stockbrokers. In 2002 and 2003, Claimant inherited what she understood to be bonds and mutual funds from her parents’ UBS PaineWebber accounts when they passed away. Based on her conversations with her stockbrokers, she believed the investments to be safe investments that would generate the income she needed for her support. Claimant was always a passive investor and always listened to her stockbrokers. She did not transact any business in her account on her own. Claimant did not know the true nature, mechanics or risk of the investments that she had inherited and held in her account. She thought she actually owned bonds that would always pay interest until they matured. Neither UBS Puerto Rico nor her UBS Puerto Rico Stockbrokers ever gave her a full explanation of what type of investments she owned in her UBS Puerto Rico accounts. They generally referred to the investments as “fondos de bonos,” i.e., “bond funds.” Claimant did not understand that the investments in her account were closed-end funds and what she actually owned was shares of the closed-end funds (like shares of common stock) that only paid dividends at the manager’s discretion. She did not know that the so-called bond funds were leveraged investments. Nor did she know that they were illiquid and might not be able to be sold when she needed money for her support in some emergency. Claimant did not understand that the so-called bond funds were very risky investments. In October of 2011, Claimant received a document from UBS Puerto Rico requesting that she confirm some account information. She didn’t understand the purpose of the document but saw the words “aggressive/speculative” on the document and immediately called one of her UBS Puerto Rico stockbrokers. Claimant questioned him about the document and why those words appeared. She made it clear she was a “conservative” investor who wanted investments that would not fluctuate in order to preserve her investments. Claimant told him that the investments in her accounts represented almost everything she owned. She reminded him that she could not afford to lose principal in the account that was generating the income she needed for her support. The UBS Puerto Rico stockbroker assured Claimant that he understood what she wanted and that this was a clerical mistake that would be corrected. At that time, Claimant also wanted her UBS Puerto Rico stockbroker’s opinions on every bond and bond fund in her account. She wanted to know if they were indeed “conservative” investments that would not fluctuate in value and continue to provide the income she needed. They reviewed each and every security held in the accounts. They discussed each of the so-called bond funds. The UBS Puerto Rico stockbroker claimed that each of the so-called bond funds had an “excellent track record” and that UBS Puerto Rico management highly recommended them.[2] The UBS Puerto Rico stockbroker also told Claimant that the bonds and so-called bond funds were “protegidos por el gobierno,” i.e., “protected by the government.”[3] The stockbroker told Claimant that the Puerto Rico bonds and the so-called bond funds were exactly what she wanted and needed; i.e., they were suitable investments. Approximately two months later, Claimant received a confirmation that the information on the prior form was changed. She believed the information on the new form was consistent with what she believed her objectives and tolerance for risk to be in connection with her accounts. The key information on the Confirmation was as follows: Investment – Produce Current Income Annual Income – $48,000 Objectives – Net Worth – $350,000 Knowledge of Investments – Very Little Knowledge Risk/Return – Lower Fluctuations Percentage of Investable – More than 80% Objectives – Maintain Capital Assets held at UBS – Risk Profile – Conservative And so, UBS Puerto Rico and the UBS Puerto Rico stockbroker clearly understood Claimant’s low risk tolerance; in UBS Puerto Rico’s own words: the client “seeks to maintain principal, with low risk and volatility to the account overall, even if...

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What is a Stockbroker’s “Due Care” Obligation Under Regulation Best Interest (Reg. BI)?

We introduced the new U.S. Securities & Exchanges Commission (SEC) Regulation Best Interest (Reg. BI) just after it went into effect and summarized the four obligations now being imposed upon broker-dealers and their associated persons with respect to any post June 30, 2020 securities-related recommendations, namely: Disclosure: to provide disclosures about the type of relationships they will have with their customer before or at the time of any recommendations. Due Care: to exercise reasonable diligence, care, and skill in making the recommendation. Conflicts: to establish, maintain, and enforce written policies and procedures reasonably designed to address conflicts of interest, preferably to avoid or mitigate them; and if they cannot be avoided, to make sure they are disclosed to the retail customer in a way the customer will understand the conflict and appreciate its impact on the recommendation. Compliance: to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg. BI. We promised to elaborate further upon them, so we will start with perhaps the most important obligation to investors, and that is the “Due Care” obligation. Under the “Due Care” obligation, a stockbroker is required to exercise reasonable diligence, care, and skill when making any recommendations to any retail customers, including what type of investment strategy to employ or type of account to open at the brokerage firm. In the past, all a stockbroker needed to do was have a reasonable explanation as to why a particular recommendation to buy, sell, or hold a particular security or continue with an investment strategy was “suitable” for a client; that is, match the client’s supposed investment objectives and risk tolerance, net worth, liquid net worth, tax status, time horizon, etc. with the new account form, usually made up by the stockbroker. But under Reg. BI, the stockbroker’s exercise of “Due Care” is now judged by the “fiduciary” standard; all of the elements of the “Due Care” analysis include a consideration of whether the recommendation is in the “best interest” of the retail customer. According to the SEC, a stockbroker must now exercise reasonable diligence, care, and skill to: Understand potential risks, rewards, and costs associated with recommendation, and have a reasonable basis to believe that the recommendation could be in the “best interest” of at least some retail customers; Have a reasonable basis to believe the recommendation is in the “best interest” of a particular retail customer based on that retail customer’s investment profile; the potential risks, rewards, and costs associated with the recommendation; and that the recommendation does not place the interest of the broker-dealer ahead of the interest of the retail customer; and Have a reasonable basis to believe that a series of recommended transactions, even if in the retail customer’s “best interest” when viewed in isolation, is not excessive and is in the retail customer’s best interest when taken together in light of the retail customer’s investment profile. The reasonable diligence, care, and skill requirement will vary depending on, among other things, the complexity of and risks associated with the recommended security or investment strategy and the broker-dealer’s familiarity with the recommended security or investment strategy. As before with respect to the first prong of the old “suitability rule” (whether the investment or strategy is suitable for at least some investors), the broker-dealer and stockbroker are both required to consider important factors such as: The security’s or investment strategy’s: Investment objectives; Characteristics (including any special or unusual features); Liquidity; Volatility; and Likely performance in a variety of market and economic conditions; The expected return of the security or investment strategy; and Any financial incentives to recommend the security or investment strategy. This inquiry is the “minimum” the SEC believes to be necessary to develop a sufficient understanding of the security or investment strategy and to be able to reasonably believe that it could be in the best interest of at least some retail customers. Next, the SEC has said stockbroker’s making any recommendation must consider the risks, rewards, and costs in light of the retail customer’s investment profile and have a reasonable basis to believe that the recommendation is in that particular customer’s best interest and does not place the broker-dealer’s interest ahead of the customer’s interest. The retail customer’s investment profile has long been defined to include, but is not limited to, the retail customer’s: Age; Other investments; Financial situation and needs; Tax status; Investment objectives; Investment experience Investment time horizon; Liquidity needs; Risk tolerance; and Any other information the retail customer may disclose to the broker in connection with a recommendation In our opinion, the key point being made by the SEC in its interpretation of Reg. BI is that the stockbroker must not simply match the character of the recommendation with the retail customer’s profile, but consider all of the risks, rewards, and costs of the recommended investment, strategy, or account, and be reasonably certain the recommendation is in the “best interest” of that particular customer. In addition, the stockbroker must not place his/her interest in the recommended transaction, strategy, or account type (to maximize commissions or fees, or to avoid the risk of loss by dumping unwanted inventory, etc.) ahead of retail customers. The last component of the “Due Care” Obligation is more applicable to investment strategies and/or account type selection. In this regard the SEC has stated: When recommending a series of transactions, you must have a reasonable basis to believe that the transactions taken together are not excessive, even if each is in your customer’s best interest when viewed in isolation. The requirement applies irrespective of whether you exercise actual or de facto control over a customer’s account. This element of the “Due Care” obligation obviously is targeting the reasonableness of trading strategies; that is, whether excessive trading in any particular account might constitute the form of investment fraud commonly known as “churning.” In its comments, the SEC has made it clear that the element of “control” that had to be proven before Reg. BI is no longer relevant to whether the stockbroker has violated Reg. BI. The...

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UBS Yield Enhanced Strategy Investors: How Do You Recover Your “UBS-YES” Investment Losses?

If you are reading this article, you probably invested in the UBS Yield Enhanced Strategy (“UBS-YES”) and were surprised to learn the UBS-YES program you invested in was not exactly a “market neutral” investment strategy during the recent COVID 19 market crash. Despite your UBS stockbroker’s representations about the UBS-YES managers ability to “manage risk” and “minimize losses” through its “iron condor” option strategy you still realized substantial losses. You are not alone because that is just what many other UBS-YES investors have told us about the pitch made to them to invest in the UBS-YES program and their recent experience. The sad fact is UBS and its financial advisors knew or should have known from the UBS-YES program’s recent history this could happen and still failed to adequately warn and protect investors this year. UBS-YES program investors had the same bad experience in December 2018 and the first few months of 2019 when the UBS-YES managers failed to warn investors and protect them from the market volatility. What exactly were those so-called investments in the UBS-YES program and why did this happen two years in a row? One explanation is that volatility in the market created by the unforeseeable virus caused the loss. Some say it was the extreme volatility that killed the “iron condor” option strategy; the success of that strategy was supposedly dependent upon the price of the S&P 500 Index future contracts staying within certain spreads the managers created in each separately managed account utilizing that strategy. Now UBS argues this risk was adequately disclosed in marketing materials, but that’s not how investors say the managed account program was generally represented by their financial advisors to them. After all, the high net worth investors – the so-called “smart money” investors – were not being promised huge returns for investing in the UBS-YES program. It was represented as a “low risk” strategy to enhance investors’ returns slightly above the yields in the fixed income market. We have heard 3% to 5% was the rate of return touted by many UBS financial advisors. Yet, in late 2018, and then again in February 2019, the UBS-YES strategy realized over 20% in losses. In March 2020, it has been estimated that investors still in the program suffered another 20% loss when the virus caused market panic and whipsawed the S&P 500 futures contract market. The low returns and high risk of the UBS-YES strategy really begs the question: Why would the “smart money” investors take that risk unless the UBS-YES strategy was misrepresented and/or managed differently than it had been managed in the past. The theory of mismanagement has been posited by the Economic PhDs at the Securities Litigation and Consulting Group. See, McCann, Meng and O’Neal, UBS’s Yield Enhancement Strategy (“YES”) Returns – and then the Losses – Were Caused by Equity Market Exposure (2020). They contend that the money managers were not executing a “market neutral” investment strategy. Rather, they believe the UBS-YES strategy involved “actively managed directional bets on the market” and that in late 2018 and early 2019, the managers made bad bets; that is, they bet against the market direction that followed. If the experts at SLCG are correct then UBSs’ representations in its marketing materials about the strategy as well as its financial advisors representations about the so-called “low risk” for an “enhanced return” investment strategy were false and misleading. The UBS-YES strategy was run by the team of Matthew Buchsbaum and Scott Rosenberg of Flatiron Partners in the UBS private wealth management division. At its peak in 2018, the team purportedly managed close to $5 billion for over 1000 of UBS’ wealthiest clients. You needed a minimum net worth of $5 million and to pay a management fee of 1.75% per annum to be admitted to this exclusive club. Interestingly, the fee was not based upon the amount of assets actually traded but the amount of collateral dedicated to the strategy. This was a huge incentive to the UBS financial advisors to recommend the strategy and get clients to commit all of the assets in their accounts as collateral (many clients pledged municipal bond portfolios) for the option strategy without fully understanding and accurately explaining to their biggest and best clients the nature, mechanics and risk of the UBS-YES strategy in managed accounts at the brokerage. Regardless of the reason for the cause of the loss (misrepresentation or mismanagement), there is no way you will recover your UBS-YES losses without some legal action. At The Law Offices of Robert Wayne Pearce, P.A., we represent investors who paid dearly for the UBS-YES strategy in FINRA arbitration and mediation proceedings. Among the claims we file are fraud and misrepresentation, breach of fiduciary duty, failure to supervise, and unsuitable recommendations in violation of FINRA rules and industry standards. Attorney Pearce and his staff represent investors across the United States on a CONTINGENCY FEE basis which means you pay nothing – NO FEES-NO COSTS – unless we put money in your pocket after receiving a settlement or FINRA arbitration award. Se habla español Contact Us For A Free Initial Consultation With Experienced UBS-YES Investment Attorneys In FINRA Arbitrations The Law Offices of Robert Wayne Pearce, P.A. have highly experienced lawyers who have successfully handled many managed account cases and other securities law matters and investment disputes in FINRA arbitration proceedings, and they will work tirelessly to secure the best possible result for you and your case. For dedicated representation by an attorney with over 40 years of experience and success in structured product cases and all kinds of securities law and investment disputes, contact the firm by phone at 561-338-0037, toll free at 800-732-2889 or via e-mail.

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UBS Financial Services, Inc. Sued for Florida and Ohio Advisor’s Alleged Misconduct Involving a Credit-Line Investment Strategy

UBS Financial Services, Inc, (“UBS”) employed a financial advisor (the “FA”) who has offices in Bonita Springs, Florida and Sylvania, Ohio. UBS held out the FA and other UBS employees on his team as investment advisers, investment managers, financial advisers, and financial planners with special skills and expertise in the management of securities portfolios and financial, estate, retirement, and tax planning matters. We represent an elderly widow investor who has sued UBS for the FA’s alleged misconduct as a stockbroker, investment adviser, investment portfolio manager, and financial planner. At the outset, it is important for our readers to know that our client’s allegations have not yet been proven. We are providing information about our client’s allegations and seeking information from other investors who did business with UBS and the FA to help us win our client’s case. Our client was a wealthy widow. Her husband managed the family investment portfolio before his death. She had not participated in any of the brokerage accounts until after her husband’s death. She then turned to and relied upon the FA, who was her husband’s primary financial adviser, to advise and manage her financial affairs. Shortly after her husband’s death, the FA allegedly explained and reassured our client that he and his team of stockbrokers, investment advisers, investment portfolio managers, and certified financial planners would take care of all her investment and finance related needs. For months after her husband’s death she was naturally despondent and no longer comfortable living in the same home they shared. An opportunity arose to purchase a new residence. She consulted with the FA about the purchase and sought his assistance to secure a conventional mortgage in connection with the purchase. At the time, the FA was working at Merrill Lynch and advised her not to seek a conventional mortgage from a bank, but to establish securities based lending (“SBL”) accounts at Merrill Lynch and UBS and use the assets in the two trusts’ brokerage accounts as collateral for loans to be issued by Merrill Lynch and UBS’ banking affiliates to fund the purchase and renovation of the new residence. The SBL at Merrill Lynch was known as a Loan Management Account (“LMA”), and the SBL at UBS was known as a Variable Credit Line.  According to our client, the FA stated the SBL account interest rates were lower than conventional mortgage rates, the financial advisers could continue to manage the Claimants’ assets in the accounts and earn more than the SBL account interest rate being charged, which would more than pay for the loan interest expenses, and she could use the difference in the return on the investment income produced by the investment advisers to pay down the principal and interest amounts of the SBL account loans. Our client relied upon the FA’s recommendation and, with his assistance, established SBL accounts at Merrill Lynch and UBS to help purchase and renovate her new residence. At the FA’s recommendation, she borrowed millions from the SBL accounts at UBS and Merrill Lynch with her securities accounts serving as collateral.  The FA and his team subsequently transferred employment to the UBS offices located in Sylvania, Ohio and Bonita Springs, Florida branch office. At the FA’s request, our client transferred all of her accounts from Merrill Lynch to UBS, including the LMAs. At UBS, the FA allegedly made the same representations about the nature and mechanics of the UBS Variable Credit Lines as he previously made to induce her to open the LMA accounts. According to the FA, these were the same type of UBS Variable Credit Line accounts he persuaded her to previously open with UBS. Our client agreed, and the Merrill Lynch LMA loan balances were transferred to UBS and became UBS Variable Credit Lines. Thereafter, the broker dealer, investment advisory, and SBL relationship at UBS with respect to Claimants’ accounts were managed by the FA. The amount of debt drawn down on the credit-line grew and grew over the years. In 2018, our client allegedly told the FA she planned on selling her residence to pay down the credit-line. Notwithstanding, in July 2019, the FA allegedly persuaded our client to convert the variable credit lines to a fixed interest rate credit line, which had become available to UBS’ high net worth customers. The FA supposedly explained the benefits of switching, including the amount of savings in annual interest expenses. But according to our client, the FA never explained the detriment of switching to the fixed interest rate credit line or his conflict; particularly the fact that when she sold her residence or paid down the loan balance with the sales proceeds, she would be penalized for doing so. Our client has alleged that he recommendation to utilize the fixed interest rate credit line as part of the investment strategy was not only misleading by omission but also a personal conflict of the FA with her best interest and an unsuitable investment strategy recommendation in light of her well known desire to sell the residence to reduce the huge debt and interest expenses. The unsuccessful effort to sell the residence continued into December 2019, and both the FA and our client were frustrated. The FA had allegedly been urging her to reduce the real estate listing price to under $3 million, which meant our client would realize a loss if and when the property sold; a loss our client told the FA she was absolutely unwilling to accept if it could even be sold at that price. There were simply no buyers for an expensive residence like hers in the Naples market at that time. Our client was uncomfortable with the amount of debt she had accumulated at UBS allegedly at the FA’s recommendation and the huge amount of interest she was accumulating on those loan balances. She reminded the FA of his promise to reduce the debt with the profits in the accounts. The FA claimed he had been reducing the debt, but our client did not believe he...

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A Review of The Securities and Commodities Investment Laws

Financial Fraud Has Probably Been Around Since The Dawn Of Commerce. It Has Always Been Perpetrated By Individuals Who Scheme To Take Possessions (Goods And Capital) From Another By Misrepresentations, Misleading Statements, Manipulation And Other Means Declared Over Time To Be Fraudulent Practices, Schemes, Contrivances, And Devices. As Long As There Have Been Schemers, There Have Been Laws Enacted After-The-Fact To Deter And Punish Unscrupulous Men And Women. We Can Find Some Of The Earliest Anti-Fraud Laws In The Mitzvot (Commandments Rooted In The Books Of Leviticus And Exodus), Jewish Law Related To The Protection Of Private Property And Administration Of Justice, Such As: 467. Not to steal money stealthily (Leviticus 19:11)470. Not to covet and scheme to acquire another’s possession (Exodus 20:14) It has been documented as far back as 300 BC, when a Greek merchant, Hegestratos, schemed to defraud an investor who had been given the rights to the merchant’s profits, ship and cargo in exchange for the investment; Hegestratos’ scheme was to sell the corn, sink his boat and not repay the investor, but he was caught and drowned in the process of perpetrating the fraud. One of the first financial frauds in our young nation was an insider trading scheme perpetrated by William Duer, Assistant Secretary to the Treasury, which led to the speculative bond bubble of 1792 and Buttonwood Agreement (the foundation for securities trading rules of the New York Stock Exchange). In the 1800s and early 1900s, as more capital was needed from investors to grow commerce in our nation, so did the growth of fraudulent schemes: “watered stock” sales; “cornering the market;” “poop and scoop;” “pump and dump;” “stock pools;” and other market manipulation schemes. Gradually, our states, and eventually our Federal government stepped in to stop fraudulent schemes and regulate markets, exchanges and brokers. THE BLUE SKY LAW The first securities laws appeared on the books in Massachusetts in the 1850s in response to the speculative trading of railroad stocks. In the early 1900s, Kansas became the first state to enact what are now commonly referred to as “Blue Sky Laws,” a law which one Supreme Court Justice explained as: [T]he name that is given to the law which indicates the evil at which it is aimed, that is, to use the language of a cited case, “ ‘speculative schemes which have no more basis than so many feet of ‘blue sky’; or as stated by counsel in another case, ‘to stop the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines and other like fraudulent exploitations.’ ” The states led the charge of enacting securities laws, and by 1933 all 47 states except Nevada had Blue Sky laws. But it was difficult to comply with laws of all 50 states. In the 1950s, there was a push to make the various state laws consistent with one another because the securities business had grown and state laws impeded interstate offerings of securities. Today 40 of 50 states have Blue Sky Laws patterned after the Uniform Securities Act of 1956 (the “Uniform Act”). The Uniform Act has been amended and revised several times with its latest iteration known as the Uniform Securities Act of 2002 (amended 2005), but so far only 14 states and 1 U.S. Territory have adopted this model law. Florida has never adopted any version of the Uniform Act; rather, it has patterned itself after the Federal securities laws. THE FEDERAL SECURITIES LAWS On the Federal level, there were no securities laws until after the 1929 stock market crash, which devastated thousands of small investors caught up in the stock market euphoria. The 1929 crash which led us into the Great Depression was the impetus for Federal regulation of the securities industry. President Roosevelt and Congress recognized the importance of the capital markets to help us emerge from the Great Depression, and so trust and confidence needed to be restored in the capital markets through Federal government regulation. Congress first enacted the Securities Act of 1933 (the “33 Act”) with a focus upon registration, disclosure and fraud in the initial offer and sale and distribution of securities. One year later, Congress enacted the Securities Exchange Act of 1934 (the “34 Act”) in an attempt to regulate the securities markets and trading of securities after the initial offer to the public, as well as the registration and conduct of exchanges and brokers who were involved in the trading of those securities in the secondary market. This statute included the anti-fraud provision Section 10 (b) and promulgated the well-known Rule 10b-5, which has been interpreted broadly to prohibit all misrepresentations and misleading statements and all kinds of fraudulent schemes, devices and practices in the offer and sale of securities at any stage. The 34 Act included provisions that led to the creation of the Securities and Exchange Commission (the “SEC”) to regulate the markets, exchanges and brokers through securities industry self-regulatory bodies like the New York Stock Exchange and National Association of Securities Dealers now known as the Financial Industry Regulatory Agency (“FINRA”). In 1939, Congress enacted the Trust Indenture Act of 1939, regulating debt securities issued by state and local governments and their agencies, as well as corporations. The next year, the Investment Company Act of 1940 (regulating mutual funds) and the Investment Advisors Act of 1940 (regulating investment advisors) were enacted. The five statutes above are the core Federal securities laws in our country. They have been amended over time as markets grew, as financial crises crippled our economy and new fraudulent schemes were uncovered by the regulators. The amendments included many laws with their own popular names like the Securities Investor Protection Act of 1970, requiring the securities industry to fund a trust to protect investors against misappropriation of funds and securities; the Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988, in an attempt to stop what Mr. Duer and so many greedy insiders have been doing...

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Oil and Gas Investors: How Do You Recover Your Oil and Gas Investment Losses?

Oil and Gas Investors: How Do You Recover Your Oil and Gas Investment Losses? If you are reading this article, we are guessing you invested in one or more of those misrepresented and unsuitable oil and gas stocks, bonds, limited partnerships, commodities, commodity pools and/or structured products as alternative investments linked to the oil and gas sector of the stock and commodities markets. We would not be surprised if you were told that the large oil and gas conglomerates had a proven track record of great dividends much higher than the yields on the fixed income investments you were accustomed but said nothing about the volatility of those types of investments. Maybe you are reading this webpage because your financial advisor recommended you invest your retirement savings in some those more complex and leveraged oil and gas structured products packaged as Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs) or other Exchange Traded Products (ETPs), that were leveraged two to three times and crashed in March this year. These were not suitable investments for retirees with conservative or moderate investor risk profiles. Did your financial advisor recommend you invest without explaining the nature, mechanics or risks of any of those oil and gas investments? Were your investments over-concentrated (more than 10% of your portfolio) by your stockbroker or investment advisor in the oil and gas sector to replace the bonds you owned for the higher dividend paying stocks? Did you lose fifty percent (50%) or more on those oil and gas investments? We’re not shocked because that is just what many other investors have told us about what happened to them recently. Now we are going to tell you what to do about those oil and gas investment losses. Your stockbroker had a duty to not only understand but explain the nature, mechanics and all of the risks associated with those investments before he/she sold you those investments, particularly some of the provisions within the ETNs where the broker-dealer who issued the ETNs or ETPs could redeem or retire them and force you to realize huge losses. Your stockbroker also had a duty to make sure they were suitable investments before they were recommended in light of your risk tolerance and financial condition and not over-concentrate investments in the volatile oil and gas sector in your portfolio. Unfortunately, many financial advisors who did not understand the nature, mechanics or risks sold these investments to clients with conservative and moderate risk who were seeking to enhance their income for their retirement. These were not suitable investments for investors with that kind of profile. If your financial advisor misrepresented the nature, mechanics or risks of those oil and gas investments or the risks were not fully explained, or you were over-concentrated (more than 10%) in the oil and gas sector, or if it was not in your best interest (or unsuitable), and/or your investments were liquidated without notice due to margin calls, you may have the right to bring an arbitration claim against your financial advisor and/or the brokerage firm who employed him. There is no way you will recover your losses on these oil and gas investments without some legal action. At The Law Offices of Robert Wayne Pearce, P.A., we represent investors in investment disputes for misrepresented and unsuitable investments in oil and gas stocks, bonds, limited partnerships, commodities, commodity pools and/or structured products as alternative investments linked to the oil and gas sector of the stock and commodities markets in FINRA arbitration and mediation proceedings. The claims we file are for fraud and misrepresentation, breach of fiduciary duty, failure to supervise, and unsuitable recommendations in violation of SEC and FINRA rules and industry standards. Attorney Pearce and his staff represent investors across the United States on a CONTINGENCY FEE basis which means you pay nothing – NO FEES-NO COSTS – unless we put money in your pocket after receiving a settlement or FINRA arbitration award. Se habla español CONTACT US FOR A FREE INITIAL CONSULTATION WITH EXPERIENCED STRUCTURED PRODUCT INVESTMENT ATTORNEYS IN FINRA ARBITRATIONS The Law Offices of Robert Wayne Pearce, P.A. have highly experienced lawyers who have successfully handled many oil and gas investment cases and other securities law matters and investment disputes in FINRA arbitration proceedings, and who work tirelessly to secure the best possible result for you and your case. For dedicated representation by an attorney with over 40 years of experience and success in structured product cases and all kinds of securities law and investment disputes, contact the firm by phone at 561-338-0037, toll free at 800-732-2889 or via e-mail.

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UBS ETRAC Exchange Traded Note Investors: How Do You Recover Your UBS ETRAC Investment Losses?

If you are reading this article, we are guessing you invested in some of those high-dividend paying UBS ETRAC Exchange Traded Notes (ETNs) your stockbroker recommended to increase your retirement income. We would not be surprised if you were also told the UBS ETRAC investments had a proven track record of great returns. You probably also heard: No need to worry about these investments because they were backed by one of the largest brokerage firms in the world – UBS Financial Services, Inc. (UBS). We’re not shocked because that is just what many other investors have told us about the pitch made to them to invest in UBS ETRACs. Regardless of what you were told, we will bet (dollars for donuts) you didn’t know that you were going to be forced to liquidate your investment at the price UBS set and realize a loss on your investment. Well, if you owned the following UBS ETRAC ETNs, you certainly discovered in March 2020 that UBS could declare a mandatory redemption and force you to sell them back to the company at a loss: ETRACS Monthly Pay 2xLeveraged Dow Jones Select Dividend Index ETN due May 22, 2042 ETRACS – Pro-Shares Daily 3x Inverse Crude ETN linked to the Bloomberg WTI Crude Oil Sub-index ER due January 4, 2047 ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN due May 5, 2045 ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN due December 10, 2043 ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN Series B due December 10, 2043 ETRACS Monthly Pay 2xLeveraged Diversified High Income ETN due November 12, 2043 ETRACS Monthly Pay 2xLeveraged Wells Fargo MLP Ex-Energy ETN due June 24, 2044 ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN due May 5, 2045 ETRACS – Pro-Shares Daily 3x Inverse Crude linked to the Bloomberg WTI Crude Oil Sub-index ER due January 4, 2047 ETN ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN due December 10, 2043 ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN Series B due December 10, 2043 ETRACS 2xMonthly Leveraged Alerian MLP Infrastructure Index ETN Series B due February 12, 2046 2×Leveraged Long ETRACS Linked to the Wells Fargo® Business Development Company Index due May 24, 2041 2×Leveraged Long ETRACS Wells Fargo® Business Development Company Index ETN Series B due May 24, 2041 ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN due October 16, 2042 ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN Series B due October 16, 2042 ETRACS 2xMonthly Leveraged S&P MLP Index ETN Series B due February 12, 2046 ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN due February 6, 2045 What exactly were those so-called investments in the UBS ETRAC ETNs? The first thing you needed to know when you purchased those structured products was that you were not investing—you were speculating! They were high risk bets that you might receive some dividends in a complex product managed by UBS fund managers with multiple conflicts of interest. The UBS ETRAC ETNs were exotic derivative products that not even the most sophisticated institutional investors could understand and calculate the returns one might earn. These products were simply unsecured debts of UBS, and if UBS went bust (like Lehman Brothers), the ETNs UBS sold you would be worthless (like the Lehman Brothers-Principal Protected Notes UBS pushed on its clients a decade ago). The UBS ETRAC ETNs were derivatives that tracked an index of various income producing investments, like mortgage real estate investment trusts, closed-end funds, oil and gas master limited partnerships, andbusiness development companies. Unlike another “ET” (extra-terrestrial) investment known as Exchange Traded Funds (ETFs), the UBS ETRAC ETNs did not buy any shares in any of the indexes. The manager of the ETNs tracked the index performance and decided if and when you get a dividend payment after some very murky math by a quant holed up in an UBS office somewhere in the world. And for those of you who bought any of the UBS ETRAC ETNs beginning with the 2X or 3X, you were leveraged 2 to 3 times the amount of each dollar deposited in the fund. By the way, you also paid extra fees for the 2X to 3X leverage and privilege of losing your money twice or three times as fast as other investors. While these investments may have been suitable for a financial institution making a short term bet on a particular income sector, they were never suitable for any investor with a conservative or moderate risk tolerance seeking a steady stream of income for their retirement. Unfortunately, many financial advisors, intentionally, recklessly and/or negligently did not represent them truthfully or explain all of the risks of these structured products to those type of investors. There is no way you will recover your losses on these structured products without some legal action. Do you think UBS lost any money on those forced redemptions? At The Law Offices of Robert Wayne Pearce, P.A., we represent investors in UBS ETRAC ETNs and all kinds of structured product investment disputes in FINRA arbitration and mediation proceedings. The claims we file are for fraud and misrepresentation, breach of fiduciary duty, failure to supervise, and unsuitable recommendations in violation of FINRA rules and industry standards. Attorney Pearce and his staff represent investors across the United States on a CONTINGENCY FEE basis which means you pay nothing – NO FEES-NO COSTS – unless we put money in your pocket after receiving a settlement or FINRA arbitration award. Se habla español CONTACT US FOR A FREE INITIAL CONSULTATION WITH EXPERIENCED STRUCTURED PRODUCT INVESTMENT ATTORNEYS IN FINRA ARBITRATIONS The Law Offices of Robert Wayne Pearce, P.A. have highly experienced lawyers who have successfully handled many structured product cases and other securities law matters and investment disputes in FINRA arbitration proceedings, and who work tirelessly to secure the best possible result for you and your case. For dedicated representation by an attorney with over 40 years of experience and success in structured product cases and all kinds of securities law and investment disputes, contact the firm...

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Steepener Structured Products

We represent investors nationwide that were sold certain structured products referred to as “steepeners” which are either notes or CDs that pay varying levels of interest depending on the steepness of flatness of the yield curve. When the yield curve flattened in 2018 and long term interest rates were equal to short term interest rates, these steepeners rapidly declined in value and either ceased paying interest or paid significantly lower interest. In 2019, the yield curve inverted and short term interest rates rose to a higher level than long term interest rates causing even more losses. The negative impact on investors that invested in the following types of structured products, including, but not limited to, the following has been dramatic: Structured CDs, Market-Linked CDs, Leverage Callable CMS Curve Linked Notes, Callable Quarterly CMS Spread-Linked Notes, Callable Variable Rate Range Accrual CDs, Callable Interest Rate Spread CDs, Senior Callable CMS Steepener Notes, and Callable CMS Spread Notes. Investors across the United States report being misled by their brokers or financial advisors when they were told that the “notes” or “CDs” were high quality fixed-income investments. In reality, the investments were complex structured products, often with short-term teaser interest rates, long-dated maturities, and obscure features that caused them to lose capital rapidly along with greatly diminished interest payments. Additionally, brokers represented to their clients that the steepeners they solicited and sold to them paid an attractive “yield.” Brokers cited the high credit rating of the issuer in order to induce clients to invest, and some touted the supposed safety and the so-called yield as the central selling points without fully and adequately disclosing the key features and risks attendant to the structured products they were recommending. Furthermore, many brokers employed a strategy of concentrating their customers in these structured products. We are investigating and claims against brokerage firms including Centaurus Financial, Inc., J.P. Turner & Company, LLC, Aegis Capital Corp., Wells Fargo Advisors, and other brokerage firms for structured products investment losses. Please call us if you purchased steepeners through Ricky Mantei (CRD# 1098981), Cindy Chiellini (CRD# 1015592), Katherine Nishnic (CRD# 2499553), Dana Matthew Hawkins (CRD# 5731136), Alan Applebaum (CRD# 500336) or Joseph Andreoli (CRD#1718688). We have been retained by many investors to file FINRA arbitration claims against brokerage firms to recover their losses. Our firm has been very successful in making recoveries for our clients throughout the United States for investment fraud and has recovered over $125 million for investors. Was it just the market or were you mislead to invest in unsuitable steepener investments? Call Attorney Pearce at 1-800-SEC-ATTY (732-2889) with any questions you may have about how you may recover your steepener investment losses.

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