Raymond James Agrees to Buy Back $300M Worth of Auction-Rate Securities

Broker-dealer Raymond James has agreed to buy back $300 million in auction-rate securities and to pay a $1.7 million fine as part of a settlement with the SEC and eight states: Florida, Texas, Indiana, Missouri, New York, North Carolina, Pennsylvania, and South Carolina ("Raymond James to Pony Up $300M to Buy Back ARS," InvestmentNews, June 29, 2011).

Morgan Stanley Smith Barney Allows Brokers to Use Twitter, LinkedIn

Morgan Stanley expects to be the first major brokerage to allow its brokers to use social networking sites in light of FINRA's strict compliance guidelines.

FINRA Suspends Pinnacle Partners and its President Over Alleged "Boiler Room"

Recently, FINRA announced that it had indefinitely suspended Pinnacle Partners Financial Corporation, of San Antonio, Texas, and its President, Brian K. Alfaro.

FINRA Continues Reg D Crackdown

FINRA releases details on the first series of disciplinary actions against various broker-dealers and executives over Regulation D private placements.

LPL Financial Corp. Fined $220K in March

FINRA fined LPL Financial Corp. a total of $220K in March for three separate matters. Two of the three matters related to failures in supervisory systems.

FINRA Fines Southwest Securities for Second Time This Month

Dallas-based Southwest Securities, Inc. was hit with a $650,000 fine this week, the second fine imposed on the firm by FINRA in less than 30 days.

FINRA Announces Focus on Municipal Bond Dealers

FINRA has plans to increase inquiries into the $2.9 trillion municipal bond market.

FINRA May Pursue Action Against E*Trade Over Auction-Rate Securities

On Feb. 9, FINRA sent a Wells Notice to the online brokerage E*Trade that said it may soon pursue an enforcement action against the company over the sale of auction-rate securities (“E*Trade faces FINRA action over auction-rate sales,” Reuters, Feb. 23, 2011). E*Trade announced the receipt of the notice in an annual report recently filed with the SEC. E*Trade’s securities customers currently hold approximately $138 million in auction-rate securities, according to the article. FINRA is considering action based on “alleged violations” in the sale of those securities. The securities, which were marketed to investors as liquid cash-equivalents with the returns of longer-term debt products, have been the cause of numerous FINRA actions and arbitration claims since the market froze in 2007. When Wall Street banks decided to stop holding the auctions where the securities were bought and sold, investors were stuck holding the untradeable products. As reported in the article, over the past three years, federal and state regulators have required many of the securities’ underwriters (such as UBS and AG) to repurchase millions of dollars of illiquid auction-rate securities from investors. In 2010, regulators began to bring enforcement actions against secondary brokerage firms as well, many of which have since settled and agreed to repurchase the securities. About our law firm: The law firm of David P. Meyer & Associates represents individuals across the country who have been harmed by investment fraud. All of our cases are handled on a contingency fee basis and we never request a retainer of any kind. Contact us toll-free at 1.866.429.2360 for more information or complete the online form on the top of this page and we will respond promptly.

National Securities Is Latest Broker-Dealer to Be Disciplined in FINRA’s Crackdown

Earlier this month, FINRA officials announced that Regulation D private placements and non-traded real estate investment trusts (REITs) would be FINRA’s top areas of focus this year. The increased scrutiny is largely the result of the self-regulatory agency’s concerns over the lack of due diligence many independent broker-dealers have exhibited and continue to exhibit in the sale of private placements and non-traded REITs. (For more information, see our Feb. 10 post on the announcement.) In January, National Securities Corp., a broker-dealer that sold approximately $3.7 million of Provident Royalties LLC private placement notes, received notice from FINRA that the agency planned to bring an enforcement action against the firm (“Finra goes after yet another B-D in private-placement crackdown,” InvestmentNews, Feb. 15, 2011). As reported in the InvestmentNews article, FINRA plans to bring an action against National Securities Corp. for “violations of product suitability rules, e-mail supervision rules, and standards of commercial honor and principles-of-trade rules” in the sale of a “private placement.” The Provident Royalties private placement notes (along with those issued by Medical Capital Holdings) have contributed to the closure or FINRA sanction of over two dozen broker-dealers in the last year or so, ever since the SEC brought a complaint against Provident Royalties in 2009. The complaint alleged that the oil and gas private placements issued by Provident Royalties were fraudulent. The firm has since declared bankruptcy. National Securities Corp. did not offer a comment on the impending action to the InvestmentNews staff. The firm’s profile on FINRA’s BrokerCheck tool has been updated to reflect the notice. About our law firm: The law firm of David P. Meyer & Associates represents individuals across the country who have been harmed by investment fraud. All of our cases are handled on a contingency fee basis and we never request a retainer of any kind. Contact us toll-free at 1.866.429.2360 for more information or complete the online form on the top of this page and we will respond promptly.

Merrill Settles with SEC for $10 Million

On January 25, Merrill Lynch Pierce Fenner & Smith Inc. settled with the SEC on charges of securities fraud. The SEC had alleged that the firm inappropriately used customer information and that it charged investors undisclosed trading fees. In the settlement, the firm agreed to pay a $10 million penalty (“Merrill ponies up $10M to settle ‘clearly inappropriate' actions,” InvestmentNews, Jan. 25, 2011). As reported in the article, the SEC charged the firm with allowing “improper access” of customer order information to the firm’s proprietary traders. According to an SEC press release, the firm allowed its Equity Strategy Desk to obtain information about customer orders, information which clients were told would be released only on a “need-to-know basis,” and then execute orders for the firm (strictly on the firm’s behalf) after the customers’ orders were placed. Scott W. Friestad, Associate Director in the SEC's Division of Enforcement, was quoted in the press release: "The conduct here was clearly inappropriate. Merrill's proprietary traders had improper access to information about the firm's customer orders, and misused it to place trades on the firm's behalf." The SEC’s complaint further alleged that Merrill filled customer orders at prices other than those at which Merrill bought or sold the securities in the market, with unfavorable results for the customers. The SEC said the firm’s “undisclosed mark-ups and mark-downs” were “improper and contrary” to its customer agreements. Merrill declined to comment on the SEC’s allegations. About our law firm: The Ohio-based law firm of David P. Meyer & Associates represents clients who have been harmed by investment fraud. Contact us toll-free at 1.866.827.6537 for more information.

FINRA Seeks Order Against Oil and Gas "Boiler Room" in San Antonio

Last Friday, FINRA announced that it was seeking a Temporary Cease and Desist Order against San Antonio-based Pinnacle Partners Financial Corporation and its president, Brian K. Alfaro, for allegedly operating a "boiler room," according to a Dec. 3 Securities Technology Monitor article by Tom Steinert-Threlkeld.

HSBC Fined $375,000 for Unsuitable Sale of CMOs

FINRA fined HSBC $375,000 for selling unsuitable inverse floating rate Collateralized Mortgage Obligations (CMOs) to unsophisticated retail customers, often without the required supervision.

Financial Industry Regulatory Authority Fines Morgan Stanley $800K

Morgan Stanley was fined $800,000 by FINRA for failing to disclose potential conflict of interest in its analysts’ research notes.

FINRA Orders SunTrust to Pay $1.44 Million

On July 22, FINRA ordered SunTrust Investment Services to pay $1.44 million, including $540,000 in restitution to investors, due to unsuitable trades in unit investment trusts (UIT), closed-end funds (CEF), and mutual funds transactions.

FINRA Issues Compliance Guidelines Regarding Use of Blogs and Social Networking Websites

The Financial Industry Regulatory Authority (FINRA) recently issued Regulatory Notice 10-06 regarding the use of blogs and social networking websites such as Facebook, Twitter, and LinkedIn by brokers to communicate with the public. The Notice makes clear that the use of such “Web 2.0” tools is subject to applicable federal securities laws and self-regulatory organization (SRO) rules, including the supervision, suitability, and record retention rules. The stated goal of the Notice is to ensure that investors are protected from false or misleading claims and representations made by associated persons (i.e., brokers), and to ensure that firms are effectively and appropriately supervising their associated persons’ participation in these sites. At the outset, the Notice makes clear that it is only aimed at the use by a firm or its personnel of social media sites for business purposes; the Notice does not apply to purely personal use. One of the major issues addressed by the Notice is communications which can be regarded as “recommendations.” If a broker recommends a specific investment or product to a client, the broker and firm must ensure that the recommendation is suitable for the client. Any mass or publicly available communication which could be regarded as a recommendation raises a problem in terms of suitability. It is extremely difficult to ensure that it is suitable for each and every client who might view the recommendation. With the increasing use of social media websites for business communications, compliance issues related to their use will surely become more important. Record retention is likely to be a major compliance problem. FINRA acknowledges that adequate technology to keep records of communications made through social media sites may not even exist. FINRA has provided regulatory guidance on web communications before; in 2007, FINRA issued Regulatory Notice 07-59 aimed at electronic communications (emails and text messages) and FINRA has also published a “Guide to the Internet for Registered Representatives.” This latest Notice recognizes the continuing evolution in social media in an increasingly connected world. With each advance in technology, new compliance concerns will crop up, requiring further guidance from FINRA.

FINRA Proposes Expanding Registration to Include Broker-Dealers' “Back Office” Staff

The Financial Industry Regulatory Authority (FINRA) recently issued Regulatory Notice 10-25 in which it proposed expanding registration requirements in the securities industry to include those individuals working in a broker-dealers’ “back office.” The proposed new registration category for these individuals, called “Operations Professionals,” will enhance oversight by requiring individuals “engaged in, or supervising, activities relating to sales and trading support and the handling of customer assets” to register with FINRA. Those required to register as Operations Professionals will also be subject to qualification examination and continuing education requirements. FINRA has traditionally only required registration of individuals who advise customers and effect securities transactions, such as brokers, investments bankers, and traders. FINRA believes that the new registration requirements will help ensure investor protection by enhancing the regulatory structure of a firm’s support operations. FINRA will consider any comments made to the proposal before submitting the rule changes to the Securities and Exchange Commission (SEC). The deadline for submission of comments is July 12, 2010.

Securities America Requests Broker-Dealers Be Subpoenaed in Legal Battle Involving Medical Capital Private Placements

In a move Massachusetts securities regulators are calling an attempt to delay proceedings based on a "dangerous false presumption," Securities America is asking the Court to subpoena other broker-dealers that sold Medical Capital notes, according to Investment News.

Investor Claims Involving "100 Percent Principal Protected Notes" Soar

In the last few years, individual investors have lost billions of dollars collectively due to the marketing of complex, supposedly safe, securities by brokerage firms and securities advisors. Now, investors are bringing new cases against firms and advisors involving another complex security marketed as secure: "100 percent principal protected absolute return barrier notes."

Prosecutors Begin Investigation into Morgan Stanley’s “Dead Presidents” Deal

Following closely on the heels of the SEC’s April investigation into Goldman Sachs, U.S. prosecutors are now looking into whether Morgan Stanley may have misled investors regarding mortgage securities, according to the Wall Street Journal.

Small, Independent Broker-Dealers Facing Tough Times

AFA Financial Group LLC, based in Calabasas, California, recently became the second independent broker-dealer to close up shop in under two months; GunnAllen Financial was shut down by FINRA in March when it could not meet its net-capital requirements. Now, industry analysts are predicting other small, independent broker-dealers could soon follow suit.

Five Broker-Dealers Fined by FINRA

The sale of unregistered securities results in five broker-dealers receiving $385,000 in fines. The fines were handed down by FINRA.

FINRA Issues Regulatory Notice Aimed at Private Placements

In the wake of recent problems with private placement deals, FINRA has weighed in to remind broker-dealers of their due diligence obligations with respect to private placements. Private placement deals gone wrong, for example those with Medical Capital and Provident Royalties, have resulted in a large number of FINRA securities arbitration claims (as well as class action lawsuits) in the past several months. Such offerings face continued scrutiny from securities regulators around the country.

FINRA Expels Broker-Dealer Over Private Placements

The Financial Industry Regulatory Authority (“FINRA”) has now expelled its first broker-dealer from the securities industry over its involvement in such offerings.

Dodd Calls For Investigation of Lehman Brothers

On Friday, March 19th, Senator Christopher J. Dodd, chairman of the Senate Banking Committee, called on Attorney General Eric H. Holder Jr. to commission a task