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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.

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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

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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 “FINRA Arbitration Lawyer,” 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.”

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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.

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How To Recover Your Investments from a Ponzi Scheme

If you are an investor who has suffered investment losses as a result of a Ponzi scheme, you’re not alone. In fact, Ponzi schemes are reaching levels that haven’t been seen in a decade, putting many investors in a difficult position. Losing your hard-earned money to a Ponzi scheme can be devastating. And frequently, it can also be surprising. This is because many investors often don’t realize they’ve fallen victim to a Ponzi scheme until it’s too late.  While this can be difficult to process, know that it’s not the end of the road. There are ways that you can fight to recover your investments.  If you need help figuring out how to recover from a Ponzi scheme, the Law Offices of Robert Wayne Pearce, P.A., is ready to help. Investment loss attorney Robert Pearce specializes in getting individuals their money back from bad investments. He has been helping his clients recover for over 40 years and will fight to do the same for you.  Ponzi Schemes: An Overview According to one source, there were an estimated 60 Ponzi schemes uncovered in 2019. In total, these schemes resulted in $3.245 billion in losses to investor funds.  But what exactly is a Ponzi scheme?  Knowing the answer to this question can help you identify whether you may have fallen victim to a Ponzi scheme. If you have, contact our team today to find out how we can help you recover.   Where Does the Name “Ponzi” Scheme Come From? In the 1920s, a man named Charles Ponzi promised investors they would receive a 50% return within 45 days by purchasing discounted reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. Ponzi, in reality, was using the funds of later investors to pay the earlier investors to fund his scheme.  Ponzi operated this scheme for over a year, resulting in over $20,000 in losses to investors. What Is a Ponzi Scheme?  A Ponzi scheme is a form of financial fraud. Typically, a ponzi scheme operates by inducing investments from unsuspecting investors often by promising high, risk-free returns over a short period of time from a purportedly legitimate business venture.  In a Ponzi scheme, money funded by new investors is used to pay returns to older investors, rather than money actually made by the purported business. Essentially, the scheme relies on the constant flow of new investor money to survive.  Key Elements of a Ponzi Scheme A Ponzi scheme is a specific type of investment fraud that has a few distinct characteristics. The key elements of a Ponzi scheme involve: Using new investor funds to pay earlier investors; Representing that the returns are generated from a purported business venture; and Attempting to hide the lack of economic success of the purported venture or defer the realization of loss. If these elements exist in your scenario, there is a chance you may be the victim of a Ponzi scheme. An investment loss attorney can help you determine whether this may be the case and what you can do to recover.  Warning Signs of a Ponzi Scheme Knowing the definition of a Ponzi scheme is one thing. But being able to identify one is another thing entirely.  In fact, identifying a Ponzi scheme is more difficult than you might think. However, knowing the warning signs of a potential Ponzi scheme is the first step to avoid potentially being involved in one.  The Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have published a list of characteristics that are common to most Ponzi-like schemes. When attempting to identify a potential Ponzi scheme, look for these red flags. Promises of High Returns with Little to No Risk All investments inevitably carry some risk. Thus, any promise of a “guaranteed” high-return investment should be treated with skepticism. Typically, investments that yield high returns are riskier than investments that yield low returns. If the promise of returns seems “too good to be true,” it probably is. Overly Consistent Returns It is well-known that the market can be very volatile. Thus, investments usually go up and down over time, rather than remaining constant or going up consistently without any fluctuation.  If you are receiving all positive returns, even during times of market volatility, this could be a red flag. Seek more detailed information about your investments, and if something seems off, contact an attorney to discuss your options.  Unregistered Investments You should always be weary of investments that are unregistered.  Registration provides investors with access to important information about the company offering the investment. If a broker is selling or recommending investments that are unregistered, this may be a sign of a potential Ponzi scheme.  Unlicensed Sellers Always be suspicious of sellers who claim they are exempt from licensing.  In fact, federal and state laws require sellers to be licensed or registered. Many Ponzi schemes involve unregistered sellers or unregistered broker-dealers. Difficulty Receiving Payments As an investor, you should have the ability to cash out your investments when you choose to do so.  If you are unable to cash out your investments easily or if you have received multiple offers to “roll over” your promised payments for an even higher return, this could be a red flag.  I May Have Invested in a Ponzi Scheme—Now What Can I Do? If you believe you might be the victim of a Ponzi scheme, you might feel tempted to give up. But don’t do so quite yet.  Parties that defraud investors through a Ponzi scheme can be held liable for the losses caused by their actions. This includes brokers, financial advisors, and brokerage firms.  Additionally, if a broker-dealer is registered with FINRA, you may be able to file a FINRA arbitration against the broker who defrauded you and caused you to lose money.  So what’s next? Here’s what you need to know about how to recover from a Ponzi scheme.  Gather All Relevant Information If you suspect that you are...

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LPL Financial LLC Sued For Scott Lanza’s Sales Of REITs And BDCs

LPL Financial LLC (“LPL”) is a securities brokerage firm with offices in Boca Raton, Florida and elsewhere. It is regulated by Financial Industry Regulatory Authority (“FINRA”).  LPL offered and sold to Claimants the investments at issue in this arbitration, namely, non-traded Real Estate Investment Trusts and Business Development Companies through Scott Lanza (“Mr. Lanza”) an individual registered with FINRA as an “Associate Member” of LPL.  The brokerage firm LPL has been sued because it is vicariously liable for Mr. Lanza’s acts, omissions and other misconduct described more fully herein.

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How to Sue a Financial Advisor Over Investment Losses

If you have lost a significant amount of money in your investment portfolios you may be asking yourself can you sue your financial advisor to help recover your losses. Can I Sue My Financial Advisor? Yes, you can sue your financial advisor. If you lost money on investments due to either a financial advisor’s advice or their failure to comply with FINRA’s rules & regulations, you have the right to file an arbitration claim to seek financial compensation. Investment Losses? Let’s talk. or, give us a ring at 561-338-0037. People hire financial advisors and brokers to grow and protect their money. Financial advisors have advanced education and training, which should provide their clients with valuable insight and accurate financial advice. Individual investors expect that their advisors will not defraud or harm them in any other way. Market volatility is difficult to predict with any certainty. Markets dip and rebound over time. A financial advisor must guide you through those difficult times and offer you sound investment advice to minimize or avoid losses.  Some investments are riskier than others. Brokers and financial advisors need to understand their clients’ risk tolerance, as well as their clients’ investment needs. Losses could ruin years of hard work and financial planning.  Market volatility is one thing—negligence, deception, and fraud are something else entirely. Therefore, you should review your portfolio closely to see if you are a victim of misconduct.

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Solicited vs. Unsolicited Trades: Understanding the Difference

Ideally, hiring a skilled broker takes some of the risk out of investing. Unfortunately, however, some brokers fail to act with the appropriate level of integrity. As an investor, it’s very important to understand the difference between solicited and unsolicited trades. The distinction has significant consequences on your ability to recover losses from a bad trade. What’s the Difference Between Solicited and Unsolicited Trades? Solicited trades differ from unsolicited trades based on who originally suggested the trade. A solicited trade is one “solicited” by the broker; in other words, the broker sees the potential trade and recommends it to the investor. As a result, the broker is ultimately responsible for the consideration and execution of the trade because he or she brought it to the investor’s attention. In contrast, unsolicited trades are those initially suggested by the investor. The responsibility for unsolicited trades therefore lies primarily with the investor, while the broker merely facilitates the investor’s proposed transaction.

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What Is a Broker CRD Number?

Brokers and brokerage firms in the United States must register with the Financial Industry Regulatory Authority (FINRA). Without registering, firms and individuals may not conduct security transactions. By maintaining a registration system, FINRA can better monitor and record the activities of registered brokers. FINRA offers a free online service for investors to check the history of their brokers for suspensions, sanctions, or other FINRA actions. What Is a Broker CRD Number? FINRA manages the Central Registration Depository (CRD) program. This program covers the licensing and registration of individuals and firms in the securities industry in the United States. When a broker or firm registers with FINRA, the regulator assigns them a CRD number. Investors can use a broker’s CRD number to check that broker’s work history and disciplinary record using BrokerCheck. 

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Non-Discretionary Accounts vs. Discretionary Accounts

When investors first set up an account with a brokerage firm, that account is designated as either discretionary or non-discretionary. Unfortunately, many investors are simply unaware of the status of their account or what it means. This is usually because investment brokers fail to properly explain each type of account. However, knowing what kind of investment account you have is important. The claims available to a victim of investment fraud or broker misconduct depend on the status of your account.

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FINRA Statute of Limitations: A Brief Overview

Investment brokers have a duty to treat their clients honesty and with integrity. Those who take advantage of, mislead, or steal from their clients shake the investing industry’s foundation. Regrettably, broker misconduct occurs all too often.  You need representation from an attorney who has the knowledge, skill, and extensive experience to help you recover your losses if you are a victim of investment broker misconduct. Robert Wayne Pearce and his staff with The Law Offices of Robert Wayne Pearce, P.A., have over 40 years of experience fighting on behalf of investors victimized by broker misconduct. Contact us today to protect your rights. 

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What Is Selling Away?

The securities industry is one of the most regulated, largely because of the high potential for fraud and abuse. Various laws and regulations protect investors by imposing requirements on securities transactions and the people who facilitate them. Individual brokers and brokerage firms must be registered and licensed with the Financial Industry Regulatory Authority (FINRA) before they are permitted to conduct securities transactions. FINRA also administers a number of exams that provide certification for selling specific kinds of securities. All of these regulations exist to protect investors from fraudulent conduct by brokers. Nevertheless, brokers occasionally attempt to skirt the rules and offer private deals to their clients. Not only do these transactions violate FINRA rules, they also pose additional risks for investors. What Is Selling Away? “Selling away” describes the practice of selling securities in unauthorized private transactions outside the regular scope of the broker’s business. Brokerage firms maintain a list of approved securities their brokers are allowed to offer. By approving products ahead of time, brokerage firms ensure that their brokers sell only securities that are vetted and verified as legitimate products. Brokers sell away when they offer their clients securities not on the firm’s approved product list. Brokers may sell away if they want to make extra commissions without sharing with their firm. Selling away is not always malicious; sometimes, a broker means well but isn’t able to offer the securities a client wants through normal channels. Regardless of the broker’s intent, however, FINRA prohibits selling away and sanctions brokers for doing so. Common Examples of Selling Away While there is no specific form a selling-away transaction takes, they frequently involve certain types of investments. These investments include: Private placements involving unregistered securities; Private deals involving promissory notes; and Real estate deals conducted privately and away from the broker’s regular business. Deals that involve selling away often exhibit the same red flags as other types of investment fraud, like Ponzi schemes. Excessively high or consistent returns are indicators that the deal is probably too good to be true. What Are the Risks of Investing in Securities That Are Sold Away? Investments of all kinds carry a certain level of risk. However, investing in a selling-away deal carries more risk because they come without the safeguards that accompany approved investments. Lack of screening First, selling-away deals involve securities that are not screened by the brokerage firm. Brokerage firms screen the products they offer for a reason: to make sure that their customers have access to solid investments. Without these safeguards, investors are taking on significantly higher risk. Lack of disclosures Second, selling away deals rarely include the formal risk disclosures found with approved brokerage products. There is no review of the investment by the brokerage’s compliance department, and the exact nature of the risk involved may be unclear. Less accountability Finally, it may be harder to recover losses. When a broker engages in an approved transaction, the brokerage takes on liability for the broker’s activity. Because brokerages are often completely unaware of selling-away transactions, it is much harder to prove liability on the part of the brokerage. In the case of significant investor losses, this can mean less money recovered overall. Selling-Away FINRA Regulations There are two main FINRA regulations that cover selling away: Rule 3270 and Rule 3280.  FINRA Rule 3270 prohibits brokers from engaging in activities that are outside of the broker’s relationship with their brokerage firm unless written notice is provided to the firm.  FINRA Rule 3280 is similar, and prohibits brokers from engaging in private securities transactions (including selling away) without first providing written notice to their firm. After receiving that notice, the member firm may approve or disapprove the transaction. If the firm approves, then the firm supervises and records the transaction. Disapproval, on the other hand, prohibits the broker from participation in the transaction either directly or indirectly. What Are the Penalties for Selling Away? Both brokers and brokerage firms can be held liable when a broker sells away. FINRA regulations require brokers to offer securities products suitable for each of their client’s needs. Brokers must account for their clients’ objectives, level of investing sophistication, and risk tolerances. When a broker fails to fulfill this obligation, FINRA may sanction, suspend, or bar the broker from the financial industry. According to FINRA’s Sanctions Guidelines, Brokers who engage in selling away open themselves up to monetary sanctions between $2,500 and $77,000 for each rule violation. For serious violations, FINRA may suspend the broker for up to two years or permanently bar them from practicing as a broker. The severity of the penalty depends on several factors: Whether the selling away involved customers of the broker’s firm; How directly the selling away relates to the injury caused to investors; How long the outside activity occurred; The amount of money involved in the sales; Whether the broker misled their firm or clients with respect to the transactions; and How important the broker was in facilitating the transaction. Because selling away involves transactions outside of a broker’s relationship with their brokerage firm, holding the firm responsible for investor losses is more difficult. Nevertheless, a brokerage firm may still be liable for the conduct of its brokers under FINRA regulations. Brokerage firms have an obligation to supervise the brokers with which they are associated. Failure to do so may result in the firm’s liability to the investor. How Do I Recover Losses from Selling Away Deals? Investors can try to recover their losses through several formal and informal methods. Speaking with a securities attorney is the best way to determine which method is right for your situation. FINRA Arbitration Many brokerage firms require their customers to sign mandatory arbitration clauses. If this is the case, then the investor must use FINRA’s arbitration process rather than filing a lawsuit.  Arbitration starts when the investor files a claim. From there, the parties go through similar procedures to those in the regular court system. Each side will engage in discovery and present their...

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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.

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Securities-Backed Lines of Credit Can Ce 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 in margin calls due to the insufficient amount of collateral in the SBL accounts. Securities-Backed Lines of Credit Overview 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 has 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 to 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. The Danger of Investing in SBL Accounts 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 exceeds 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 the 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,...

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