Unsuitable Investment Recommendations - Russell L. Forkey

John C. Maccoll – High Pressure Sales Primarily Directed at Elder and Retired Clients – South Florida FINRA Arbitration Attorney

Russell L. Forkey — Sat, 18 Aug 2018 15:20:19 GMT

Securities and Exchange Commission v. John C. Maccoll, No. 2:18-cv-12473-SFC-DRG (E.D. Michigan filed August 9, 2018)

The Securities and Exchange Commission recently charged a former registered representative with defrauding his brokerage customers out of nearly $4 million in a long-running investment scam.

According to the SEC’s complaint, John C. Maccoll, who was affiliated with the Birmingham, Michigan branch of a nationwide registered broker dealer and investment adviser, used high pressure sales tactics to solicit at least 15 of his retail brokerage customers to invest in what he described as a highly-sought-after private fund investment. Most of the injured customers were elderly and retired and invested through their retirement accounts. Maccoll told his customers that the purported fund investment would allow them to diversify their portfolios, receive annual investment returns as high as 20%, and give them investment growth potential that was better than the growth they received in their brokerage accounts. As alleged in the complaint, Maccoll’s statements to his customers were false – he did not invest the customers’ money but stole it for his own personal use. In total, the customers invested nearly $4 million in the fraudulent scheme. To conceal the scheme, Maccoll allegedly instructed his customers not to tell others about the purported fund investment, provided some of his customers with fake account statements reflecting fictitious returns, and paid over $400,000 in Ponzi-like payments to certain of the customers to keep the scheme alive.

The U.S. Attorney’s Office for the Eastern District of Michigan today filed criminal charges against Maccoll.

The SEC’s complaint, filed in federal district court in the Eastern District of Michigan, charges Maccoll with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking a judgment ordering Maccoll to disgorge his ill-gotten gains with prejudgment interest, and to pay civil penalties.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Kelly Marvin Barnett – Unauthorized Discretion, Unit Investment Trusts – Boca Raton, Florida FINRA Abribration Attorney

Russell L. Forkey — Sun, 12 Aug 2018 18:10:29 GMT

Kelly Marvin Barnett (CRD #4127608, Sarasota, Florida):

Recently, the Financial Industry Regulatory Authority announced that Kelly Marvin Barnett executed and Acceptance, Waiver and Consent in which Barnett was assessed a deferred fine of $15,000 and suspended from association with any FINRA member in all capacities for six months. Without admitting or denying the findings, Barnett consented to the sanctions and to the entry of findings that he used discretion in five customers’ accounts without written authorization or acceptance of the accounts as discretionary. The findings stated that a customer of Barnett’s died of a heart attack. Barnett was unaware of his customer’s death and two days after his customer’s death, Barnett placed three trades in the customer’s account for the sale of two ETFs and for the purchase of an ETF. Four days after his customer’s death, Barnett placed two additional trades in his customer’s account for the purchase of a UIT and for the sale of an ETF. Barnett’s customer had orally granted him discretion to place trades in the account but had never given him a written grant of authorization to use discretion. Further, Barnett’s member firm had never accepted the account as a discretionary account. The findings also stated that Barnett exercised discretion in four additional customer accounts without a written grant of authorization and without having the accounts accepted as discretionary. The customers had orally agreed to a trading strategy. When Barnett could not reach the customers, he executed the planned strategy without speaking to the customers first. In total, Barnett executed 25 discretionary trades in the four customers’ accounts. The findings also included that Barnett maintained handwritten notes of customer contact in the firm’s customer files in order to document conversations with clients regarding orders and recommendations.

With regards to the trades in Barnett’s deceased customer’s account, after his customer’s death, Barnett created two handwritten documents falsely stating that he had spoken to the customer on the dates of the trades and that the customer had approved the transactions. Barnett maintained the falsified handwritten notes in the firm’s customer file to substantiate his contact with his customer on the dates of the trades. FINRA found that Barnett maintained blank, signed switch disclosure forms in the firm’s customer files. The forms contained important disclosures regarding UIT exchanges. On 19 occasions, Barnett used the blank signed forms to effect UIT exchanges without having each client sign a completed switch disclosure form. Each form detailed the UIT that was being sold, the UIT that was being purchased, provided the reasons for the switch, and detailed the charges associated with the switch. As a result, the switch forms were an instruction given or received in connection with the purchase or sale of a security and was a record that the firm was required to maintain. By completing the blank, signed forms to falsely evidence acknowledgement of disclosures, Barnett falsified the exchange forms and caused the firm’s books and records to be inaccurate. The suspension is in effect from June 4, 2018, through December 3, 2018. (FINRA Case #2015048320901).

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Brian John Hussey, Jr. – Unsuitable Trade Recommendations and Unauthorized Discretion

Russell L. Forkey — Sun, 12 Aug 2018 17:02:02 GMT

Brian John Hussey Jr. (CRD #4640067, Zephyrhills, Florida)

Recently, Brian John Hussey, Jr. entered into an Acceptance, Waiver and Consent with the Financial Industry Regulatory Authority, in which Hussey was suspended from association with any FINRA member in all capacities for seven months. Apparnelty, in light of Hussey’s financial status, no monetary sanction was imposed. Hussey, without admitting or denying the findings consented to the sanction and to the entry of findings that he made unsuitable recommendations to a customer that she sell 100 percent of the mutual fund positions in her individual retirement account (IRA) and invest the proceeds in penny stocks focused on the marijuana business. The findings stated that the thinly-traded penny stocks recommendation was inconsistent with the client’s investment objectives and financial situation. In addition, the transactions were solicited in violation of Hussey’s member firm’s policies prohibiting the solicitation of penny stocks. In order to effect the transactions, Hussey mismarked solicited trades as unsolicited in the customer’s accounts to avoid the firm’s policy preventing its representatives from soliciting the purchase of penny stocks. Moreover, the SEC issued an Order suspending all trading in one of the penny stocks. Hussey had already heavily invested the customer’s accounts in that penny stock. Three days after trading resumed in the penny stock, Hussey purchased an additional $22,679.50 in the account. Hussey eventually had 100 percent of the customer’s portfolio concentrated in the two penny stocks. After the firm made inquiries regarding the trading activity in the customer’s IRAs, and to avoid future compliance issues, Hussey’s recommended that the customer move her account to another FINRA member firm, where Hussey, with the customer’s permission, engaged in discretionary trading of her account using her login credentials. Hussey did not disclose his exercise of discretion or his discretionary authority in this third party account to his firm or to the executing member firm. The customer complained to Hussey’s firm, asserting $58,572 of market losses in her accounts with the firm and the third party firm account, in addition to damages from the lost opportunity to participate in market gains. Hussey’s firm settled for $67,019.24, which he is obligated to pay back to the firm. The findings also stated that as stated above, Hussey mismarked order tickets for trades as unsolicited when, in fact, he solicited the trades and therefore caused his firm to maintain false and inaccurate books and records. The suspension is in effect from June 18, 2018, through January 17, 2019. (FINRA Case #2017053342601).

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Capitol Securities Management, Inc. – Suitability of Short Term Trading of Unit Investment Trusts

Russell L. Forkey — Wed, 08 Aug 2018 02:46:24 GMT

Capitol Securities Management, Inc. (CRD #14169, Glen Allen, Virginia)

FINRA recently announced that on or about May 25, 2018, Capitol Securities Management, Inc. executed an Acceptance, Waiver and Consent in which the firm was censured, fined $100,000 and ordered to pay $44,740.33, plus interest, in restitution to customers. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to detect and prevent unsuitable short-term trading in unit investment trusts (UITs). The findings stated that the firm had no procedures to specifically address the suitability concerns raised by short-term trading in UITs. While the firm instituted a policy requiring the submission of a UIT switch form to detect the premature sales of UITs, the policy was not enforced. In addition, the firm had no surveillance or exception reports designed to detect unsuitable short-term trading of UITs. At least three firm representatives recommended and effected short-term trades of UITs in their customers’ accounts. In addition, on several occasions, these representatives recommended that their customers use the proceeds from the short-term sale of a UIT to purchase another UIT with identical investment objectives. As a result of this trading, customers paid excess sales charges in the amount of approximately $44,740.33. The findings also stated that the firm failed to retain instant messages from employees, including its senior management and compliance staff. (FINRA Case #2017052215401).

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Unauthorized Trading and Unauthorized Discretion Boca Raton, Florida, FINRA Arbitration Attorney

Russell L. Forkey — Sun, 23 Aug 2015 14:19:17 GMT

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

February 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Philip Taylor Lang (CRD #3006186, Jackson, Mississippi) submitted an AWC in which he was assessed a deferred fine of $20,000 and suspended from association with any FINRA member in any capacity for nine months. Without admitting or denying the findings, Lang consented to the sanctions and to the entry of findings that he executed discretionary trades in five accounts belonging to his family member without obtaining the family member’s prior written authorization and without having his member firm’s acceptance of the accounts as discretionary accounts. The findings stated that Lang failed to complete or submit any discretionary account disclosure forms for his family member’s accounts, as required by his firm’s WSPs. Lang completed and submitted annual employee certification forms with inaccurate answers regarding whether he handled any customer accounts on a discretionary basis that had not been previously reported to the firm. The findings also stated that Lang made unsuitable investment recommendations in four of the accounts. Unbeknownst to his family member, Lang changed the investment objective for each account and began speculative trading in the accounts on a discretionary basis. Lang’s speculative trading activity was inconsistent with the family member’s investment objectives, financial situation and needs. Lang, by misstating the investment objectives, caused his firm to maintain inaccurate books and records.

The suspension is in effect from January 5, 2015, through October 4, 2015. (FINRA Case#2012033887601).

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WFG Investments, Inc. – Fort Lauderdale, Florida Unsuitable, Unauthorized Discretion and Outside Business Activity FINRA Arbitration Attorney

Russell L. Forkey — Sun, 23 Aug 2015 13:16:12 GMT

February 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

WFG Investments, Inc. (CRD #22704, Dallas, Texas) submitted an AWC in which the firm was censured and fined $700,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to conduct appropriate due diligence and supervision with respect to a private placement offering that a registered representative sold away from the firm as an approved private securities transaction. All of the private placement investors, who were also firm customers, lost 100 percent of their investments resulting from a related entity’s fraudulent business practices. The firm failed to detect and follow up on red flags that the related entity was engaged in fraudulentbusiness practices. (FINRA Case #2013035346501). To review the entire release, please follow the above link.

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Popular Securities, Inc. n/k/a Popular Securities, LLC – Boca Raton, Florida Puerto Rico Bond and Closed-End-Fund Over Concentration and Unsuitability FINRA Arbitration Attorney

Russell L. Forkey — Sun, 23 Aug 2015 12:55:22 GMT

February 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Popular Securities, Inc. nka Popular Securities, LLC (CRD #8096, San Juan, Puerto Rico) submitted an AWC in which the firm was censured and fined $125,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a supervisory system and procedures reasonably designed to identify and review concentrated securities purchases, including PR municipal bonds and PR closed-end funds. The findings stated that when the PR general obligation bond rating was downgraded, the firm’s customers continued purchasing concentrated positions of PR securities. The firm’s WSPs did not outline the steps that the firm should have taken to review its customers’ securities purchases for concentration, and apart from a procedure that required quarterly reviews of “elderly” customer accounts for concentration of one product in the client’s account, the firm did not establish, maintain, or enforce any systems or procedures that required supervisors to review for concentrated purchases (i.e., concentration in a single security, substantially similar securities, or securities of a single geographic region), including PR securities, or document their reviews.(FINRA Case #2013035309401).

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Mutual Fund – Boca Raton, Florida Mutual Fund Unsuitability and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 04 Oct 2014 23:36:12 GMT

Mutual Fund Unsuitability and Breach of Fiduciary Duty – Boca Raton, Florida FINRA Arbitration and Litigation Attorney.

A mutual fund is a fund operated by an investment company that raises money from shareholders and invests in bonds, options, currencies, money market securities, futures, or stocks. Mutual funds are offered by prospectus. The prospectus describes, among other things, the investment objectives of the mutual fund, the types of investments within the fund, the investment strategies utilized by the fund managers and the risks associated therewith.

Mutual funds offer investors the advantages of diversification and professional management. A management fee is charged for these services, typically between 0.5% and 2% of assets per year. Funds also levy other fees such as a 12B-1, exchange fees and other administrative charges. Funds that are sold through brokers are called load funds and those sold to investors directly from the fund companies are called no-load funds. Mutual fund shares are redeemable on demand at net asset value by shareholders.

Please keep in mind that the above information is being provided for informational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, please contact a qualified professional.

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South Florida Elder and Retirement Financial Abuse and Exploitation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Mon, 15 Sep 2014 21:54:01 GMT

Fort Lauderdale, Boca Raton, Delray Beach, Lantana, Lake Worth and West Palm Beach, Florida Elder Financial Abuse and Exploitation Litigation and FINRA Arbitration Attorney:

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers

The Securities and Exchange Commission recently charged a broker based in Roanoke, Va., with defrauding elderly customers, including some who are legally blind, by stealing their funds for her personal use and falsifying their account statements to cover up her fraud.

According to the SEC’s complaint filed in U.S. District Court for the Western District of Virginia, Donna Jessee Tucker siphoned $730,289 from elderly customers and used the money to pay for such personal expenses as vacations, vehicles, clothes, and a country club membership. Tucker ensured that the customers received their monthly account statements electronically, knowing that they were unable or unwilling to access their statements in that format. The SEC further alleges that Tucker engaged in unauthorized trading and other financial transactions while making misrepresentations to customers about their investment accounts and forging brokerage, banking, and other documents.

The SEC’s investigation resulted from a broker-dealer examination of the firm where Tucker worked that was conducted by the SEC’s Philadelphia Regional Office.

In a parallel action, the U.S. Attorney’s Office for the Western District of Virginia announced criminal charges against Tucker.

Tucker has agreed to settle the SEC’s charges and disgorge the $730,289 in ill-gotten gains either in the criminal case or the civil case. She consented to the entry of an order permanently enjoining her from violating Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The settlement is subject to court approval.

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At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Dawson James Securities, Inc. – Boca Raton, Florida Broker/Dealer Sales Practice Violations FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 27 Jun 2014 00:51:37 GMT

June 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Dawson James Securities, Inc. (Boca Raton, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $75,000, and required to revise its WSPs. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that the firm’s WSPs failed to provide for one or more of the four minimum requirements for adequate WSPs in several subject areas, including registered representatives’ disclosure of potential conflicts of interests to clients; registered representatives’ trading in the opposite direction of solicited customer transactions, sales practice concerns, including unauthorized trading, suitability, excessive trading and free-riding; concentration of securities in clients’ accounts, sharing of profits or losses in clients’ accounts, wash sales, coordinated trading, marking the open and marking the close; cancel-rebill transactions in clients’ accounts and the review of registered representatives’ electronic communications. (Case # 2008012546802). To review the full release, please follow the above highlighted link.

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Deferred Annuity FAQ’s For The Agent Or Company – Boca Raton, Fort Lauderdale and West Palm Beach Annuity Fraud and Abuse FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sun, 08 Jun 2014 12:09:58 GMT

FAQ’s that should be asked to your insurance agent, account executive or company prior to considering the purchase, exchange or sale of a deferred annuity.

There are a series of basic questions that you should ask your agent or company when considering deferred annuities. This list is not designed to be complete in all material respects. It is being provided as a general guide. Thus, it should not be relied upon as legal or investment advice.

Is this a single premium or multiple premium contract?
Is this an equity-indexed annuity?
What is the initial interest rate and how long is it guaranteed:
Does the initial rate include a bonus rate and how much is the bonus?
What is the guaranteed minimum interest rate?
What renewal rate is the company crediting on annuity contracts of the same type that were issues last year?
Are there withdrawal or surrender charges or penaltiesp if you want to end your contract and take out all of you money? How much are they?
Can you get a partial withdrawal without paying surrender or other charges or losing interest?
Does you annuity waive withdrawal charges for reasons such as dealth, confinement in a nursing home or terminal illness?
Is there a market value adjustment (MVA) provision in your annuity?
What other charges, if any, may be deducted from you premium or contract value?
If you pick a shorter or longer payout period or surrender the annuity, will the accumulated value or the way interest is credited change?
Is there a death benefit: How is it set: Can you change it?
What income payment options can you choose?
Once you choose a payment option, can it be changed?

While the above questions are important for anyone considering the purchase of an annuity to ask, these questions are much more important for seniors and retirees. As individuals get older, the pontential that they will need to access their capital for emergencies increases.

Before you decide to buy, exchange or close an annuity, you should review the contract terms and conditions very carefully as the terms of each annuity contract vary. Remember that taking money out of an annuity may mean you must pay taxes.

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Stop Limit Order – Special Order and/or Trading Instruction – South Florida Broker/Dealer, Investment Advisor, Account Executive Breach of Fiduciary Duty, Breach of Contract, Mismanagement, Negligence and Negligent Supervision FINRA Arbitration Attorney

Russell L. Forkey — Sun, 20 Apr 2014 22:34:16 GMT

Special Orders and Trading Instructions – South Florida Broker/Dealer, Investment Advisor and Account Executive Breach of Fiduciary Duty, Breach of Contract, Mismanagement, Negligence and Negligent Supervision FINRA Arbitration and Litigation Attorney:

Special Orders and Trading Instructions:

In addition to market and limit orders, brokerage firms may allow investors to use special orders and trading instructions to buy and sell stocks. One common special order and trading instruction is the “stop-limit order.”

Stop-limit Order:

A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is reached, a stop-limit order becomes a limit order that will be executed at a specified price (or better). The benefit of a stop-limit order is that the investor can control the price at which the order can be executed. Before using a stop-limit order, investors should consider the following: (a) as with all limit orders, a stop-limit order may not be executed if the stock’s price moves away from the specified limit price, which may occur in a fast-moving market, (b) short-term market fluctuations in a stock’s price can activate a stop-limit order, so stop and limit prices should be selected carefully, (c) the stop price and the limit price for a stop-limit order do not have to be the same price. For example, a sell stop limit order with a stop price of $3.00 may have a limit price of $2.50. Such an order would become an active limit order if market prices reach $3.00, although the order could only be executed at a price of $2.50 or better, (d) for certain types of stocks, some brokerage firms have different standards for determining whether the stop price of a stop-limit order has been reached. For these stocks, some brokerage firms use only last-sale prices to trigger a stop-limit order, while other firms use quotation prices. Investors should check with their brokerage firms to determine the specific rules that will apply to stop-limit orders.

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Stop Order – Special Order and/or Trading Instruction – South Florida Broker/Dealer, Investment Advisor and Account Executive Breach of Fiduciary Duty, Breach of Contract, Mismanagement and Negligent Supervision FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sun, 20 Apr 2014 22:04:01 GMT

Special Orders and Trading Instructions:

In addition to market and limit orders, brokerage firms may allow investors to use special orders and trading instructions to buy and sell stocks. One of the most common special orders and trading instructions is the “stop order.”

Stop Order: A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order. A buy stop order is entered at a stop price above the current market price. Investors generally use a buy stop order to limit a loss or to protect a profit on a stock that they have sold short. A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or to protect a profit on a stock that they own. Before using a stop order, investors should consider the following: short-term market fluctuations in a stock’s price can activate a stop order, so a stop price should be selected carefully. The stop price is not the guaranteed execution price for a stop order. The stop price is a trigger that causes the stop order to become a market order. The execution price an investor receives for this market order can deviate significantly from the stop price in a fast-moving market where prices change rapidly. An investor can avoid the risk of a stop order executing at an unexpected price by placing a stop-limit order, but the limit price may prevent the order from being executed. For certain types of stocks, some brokerage firms have different standards for determining whether a stop price has been reached. For these stocks, some brokerage firms use only last-sale prices to trigger a stop order, while other firms use quotation prices. Investors should check with their brokerage firms to determine the specific rules that will apply to stop orders.

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Harry Shaw Hammond – South Florida Selling Away and Unapproved Outside Business Activity FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sun, 30 Mar 2014 12:01:51 GMT

South Florida Broker/Dealer Negligent Supervision, Breach of Fiduciary, Selling Away and Unapproved Outside Business Activity FINRA Arbitration and Litigation Attorney:

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Harry Shaw Hammond (CRD #2261856, Registered Principal, Sarasota, Florida) submitted a Letter of Acceptance, Wavier and Consent in which he was fined $10,000 and suspended from associations with any FINRA member in capacity for 12 months. The fine must be paid either immediately upon Hammond’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Hammond consented to the described sanctions and to the entry of findings that he participated in private securities transactions without his member firm’s approval by referring individuals and entities to invest with private investment company that purportedly specialized in private investment in public equity (PIPE) transactions. FINRA Case No. 2013035961601. To review the entire FINRA release relative to this matter, please follow one of the above referenced links.

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Keith Andrew Halsnik – Florida Excessive Activity (Churning), Breach of Fiduciary Duty and Negligent Supervision FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sun, 30 Mar 2014 00:12:29 GMT

Florida Securities Excessive Activity (Churning), Breach of Fiduciary Duty and Negligent Supervision FINRA Arbitration and Litigation Attorney:

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Keith Andrew Halsnik (CRD #5018189, Registered Representative, Bellefonte, Pennsylvania) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Halsnik failed to timely and fully respond to FINRA’s initial requests for information and documents as part of an inquiry to determine, among other things, whether Halsnik engaged in excessive trading in customer accounts. The findings stated that it was not until FINRA sent Halsnik a notice of suspension pursuant to FINRA Rule 9552 that he responded. The findings also stated that Halsnik failed to respond to additional FINRA requests for information and documents regarding mutual fund transactions in customer accounts. The findings also included that Halsnik failed to respond to a FINRA request for testimony. FINRA Case No. 2011029300801

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Randall Lee Freeze – South Florida Broker/Dealer Negligent Supervision, Breach of Fiduciary and Forgery FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 29 Mar 2014 23:39:30 GMT

South Florida Broker/Dealer Negligent Supervision, Breach of Fiduciary and Forgery FINRA Arbitration and Litigation Attorney:

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Randall Lee Freeze (CRD #3018277, Registered Representative, Aransas Pass, Texas) submitted a Letter of Acceptance, Wavier and Consent in which he was fined $10,000 and suspended from association with any FINRA member in capacity for six months. The fine must be paid either immediately upon Freeze’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Freeze consented to the described sanctions and to the entry of findings that he forged customers’ signatures on books and records suitability update (BRSU) forms, without the customers’ knowledge, authorization or consent, and submitted to them to his firm. FINRA Case No. 2012033798101. Tor review the entire FINRA release relative to this matter, please follow one of the above referenced links.

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Corporate and High Yield Bonds – South Florida Corporate and High Yield Bond Breach of Fiduciary Duty and Unsuitability FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 21 Mar 2014 10:57:23 GMT

Corporate and Corporate High Yield Bond Breach of Fiduciary, Unsuitability, Churining and Unauthorized Purchase and Sale FINRA Arbitration, Litigation and Probate Attorney:

If you are considering or if your account executive or investment advisor is soliciting you to purchase, hold or sell a corporate bond, you may wish to read this post to refresh your understanding of corporate bonds or, if you are an unsophisticated invesotr, arm youself with questions to ask your investment professional.

What Are Corporate Bonds?

A bond is a debt obligation, like an iou. Investors who buy corporate bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due, or matures. To understand bonds, it is helpful to compare them with stocks. When you buy a share of common stock, you own equity in the company and will receive any dividends declared and paid by the company. When you buy a corporate bond, you do not own equity in the company. You will receive only the interest and principal on the bond, no matter how profitable the company becomes or how high its stock price climbs. But if the company runs into financial difficulties, it still has a legal obligation to make timely payments of interest and principal. The company has no similar obligation to pay dividends to shareholders. In a bankruptcy, bond investors have priority over shareholders in claims on the company’s assets to be distributed, if any.

Like all investments, bonds carry risks. One key risk to a bondholder is that the company may fail to make timely payments of interest or principal. If that happens, the company will default on its bonds. This “default risk” makes the creditworthiness of the company-that is, its ability to pay its debt obligations on time-an important concern to bondholders. As set forth below, this default risk has an effect on bond prices.

What are the basic types of corporate bonds?

Corporate bonds issued by listed and non-listed companies make up one of the largest components of the U.S. bond market, which is considered the largest securities market in the world. Other components include U.S. Treasury Bonds, other U.S. government bonds, and municipal bonds.

Companies use the proceeds from bond sales for a wide variety of purposes, including buying new equipment, investing in research and development, buying back their own stock, paying shareholder dividends, refinancing debt, including other bond series, and financing mergers and acquisitions. Call dates on a particular series of bonds are partially designed to assist in the refunding process.

There are a number of factors that you or your stockbroker in recommending the purchase or sale of a bond to you should take into consideration in determining whether a bond transaction is suitable for your investment objective and/or your asset mix. First, bonds can be classified according to their maturity, which is the date when the company has to pay back the principal to investors. Maturities can be short term (less than three years), medium term (four to 10 years), or long term (more than 10 years). Longer-term bonds usually offer higher interest rates, but may entail additional risks.

Second, bonds and the companies that issue them are also classified according to their credit quality. Credit rating agencies assign credit ratings based on their evaluation of the risk that the company may default on its bonds. Credit rating agencies periodically review their bond ratings and may revise them if conditions or expectations change. Based on their credit ratings, bonds can be either investment grade or non-investment grade. Investment-grade bonds are considered more likely than non-investment grade bonds to be paid on time. Non-investment grade bonds, which are also called high-yield or speculative bonds, generally offer higher interest rates to compensate investors for greater risk.

Third, bonds also differ according to the type of interest payments they offer. Many bonds pay a fixed rate of interest throughout their term. Interest payments are called coupon payments, and the interest rate is called the coupon rate. With a fixed coupon rate, the coupon payments stay the same regardless of changes in market interest rates. Other bonds offer floating rates that are reset periodically, such as every six months. These bonds adjust their interest payments to changes in market interest rates. Floating rates are based on a bond index or other bench-marks. For example, the floating rate may equal the interest rate on a certain type of Treasury Bond plus 1%. One type of bond makes no interest payments until the bond matures. These are called zero-coupon bonds, because they make no coupon payments. Instead, the bond makes a single payment at maturity that is higher than the initial purchase price. For example, an investor may pay $800 to purchase a five-year, zero-coupon bond with a face value of $1,000. The company pays no interest on the bond for the next five years, and then, at maturity, pays $1,000-equal to the purchase price of $800 plus interest, or original issue discount, of $200. Investors in zero-coupon bonds generally must pay taxes each year on a prorated share of the interest before the interest is actually paid at maturity.

What happens if a company goes into bankruptcy?

If a company defaults on its bonds and goes bankrupt, bondholders will have a claim on the company’s assets and cash flows. Consider what was just said. The bondholders will have a claim on and will not automatically receive the value of the bond. The bond’s terms determine the bond-holder’s place in line, or the priority of the claim. Priority will be based on whether the bond is, for example, a secured bond, a senior unsecured bond or a junior unsecured (or subordinated) bond. In the case of a secured bond, the company pledges specific collateral-such as property, equipment, or other assets that the company owns-as security for the bond. If the company defaults, holders of secured bonds will have a legal right to foreclose on the collateral to satisfy their claims, which collateral may or may not be sufficient to pay each bondholder in full. Bonds that have no collateral pledged to them are unsecured and may be called debentures. Debentures have a general claim on the company’s assets and cash flows. They may be classified as either senior or junior (subordinated) debentures. If the company defaults, holders of senior debentures will have a higher priority claim on the company’s assets and cash flows than holders of junior debentures. Bondholders, however, are usually not the company’s only creditors. The company may also owe money to banks, suppliers, customers, pensioners, and others, some of whom may have equal or higher claims than certain bondholders. Sorting through the competing claims of creditors is a complex process that unfolds in bankruptcy court.

What are the financial terms of a bond?

The basic financial terms of a corporate bond include its price, face value (also called par value), maturity, coupon rate, and yield to maturity. Yield to maturity is a widely used measure to compare bonds. This is the annual return on the bond if held to maturity taking into account when you bought the bond and what you paid for it.

A bond often trades at a premium or discount to its face value. This can happen when market interest rates rise or fall relative to the bond’s coupon rate. If the coupon rate is higher than market interest rates, for example, then the bond will likely trade at a premium.

What’s the relationship among bond prices, interest rates and yield?

It is important to remember that the price of a bond moves in the opposite direction than market interest rates-like opposing ends of a seesaw. When interest rates go up, the price of the bond goes down. And when interest rates go down, the bond’s price goes up. A bond’s yield also moves inversely with the bond’s price. For example, let’s say a bond offers 3% interest, and a year later market interest rates fall to 2%. The bond will still pay 3% interest, making it more valuable than newly issued bonds paying just 2% interest. If you sell the 3% bond, you will probably find that its price is higher than a year ago. Along with the rise in price, however, the yield to maturity for any new buyer of the bond will go down. Now suppose market interest rates rise from 3% to 4%. If you sell the 3% bond, it will be competing with new bonds that offer 4% interest. The price of the 3% bond may be more likely to fall. The yield to maturity for any new buyer, however, will rise as the price falls. It’s important to keep in mind that despite swings in trading price with a bond investment, if you hold the bond until maturity, the bond will continue to pay the stated rate of interest as well as its face value upon maturity, subject to default risk.

What are some of the risks of corporate bonds?

Credit or default risk:

Credit or default risk is the risk that a company will fail to timely make interest or principal payments and thus default on its bonds. Credit ratings try to estimate the relative credit risk of a bond based on the company’s ability to pay. Credit rating agencies periodically review their bond ratings and may revise them if conditions or expectations change.

The corporate bond contract (called an indenture) often includes terms called covenants designed to limit credit risk. For instance, the terms may limit the amount of debt the company can take on, or may require it to maintain certain financial ratios. Violating the terms of a bond may constitute a default. The bond trustee monitors the company’s compliance with the terms of its indenture. The trustee acts on behalf of the bondholders and pursues remedies if the bond covenants are violated.

Interest rate risk:

As discussed above, the price of a bond will fall if market interest rates rise. This presents investors with interest rate risk, which is common to all bonds, even U.S. Treasury Bonds. A bond’s maturity and coupon rate generally affect its sensitivity to changes in market interest rates. The longer the bond’s maturity, the more time there is for rates to change and, as a result, affect the price of the bond. Therefore, bonds with longer maturities generally present greater interest rate risk than bonds of similar credit quality that have shorter maturities. To compensate investors for this interest rate risk, long-term bonds generally offer higher interest rates than short-term bonds of the same credit quality. If two bonds offer different coupon rates while all of their other characteristics are the same, the bond with the lower coupon rate will generally be more sensitive to changes in market interest rates. For example, imagine one bond that has a coupon rate of 2% while another bond has a coupon rate of 4%. All other features of the two bonds-when they mature, their level of credit risk, and so on-are the same. If market interest rates rise, then the price of the bond with the 2% coupon rate will fall by a greater percentage than that of the bond with the 4% coupon rate. This makes it particularly important for investors to consider interest rate risk when they purchase bonds in a low-interest rate environment.

Inflation risk:

Inflation is a general rise in the prices of goods and services, which causes a decline in purchasing power. With inflation over time, the amount of money received on the bond’s interest and principal payments will purchase fewer goods and services than before.

Liquidity risk:

Liquidity is the ability to sell an asset, such as a bond, for cash when the owner chooses. Bonds that are traded frequently and at high volumes may have stronger liquidity than bonds that trade less frequently. Liquidity risk is the risk that investors seeking to sell their bonds may not receive a price that reflects the true value of the bonds (based on the bond’s interest rate and credit- worthiness of the company). If you own a bond that is not traded on an exchange, you may have to go to a broker when you want to sell it. In addition, the bond market does not have the same pricing transparency as the equity market, as the dissemination of pricing information is more limited for corporate bonds in comparison to equity securities such as common stock.

Call risk:

The terms of some bonds give the company the right to buy back the bond before the maturity date. This is known as calling the bond, and it represents “call risk” to bondholders. For example, a bond with a maturity of 10 years may have terms allowing the company to call the bond any time after the first five years. If it calls the bond, the company will pay back the principal (and possibly an additional premium depending on when the call occurs). One reason the company may call the bond back is if market interest rates have fallen relative to the coupon rate on the bond. That same decline in market interest rates would likely make the bond more valuable to bondholders. Thus, what is financially advantageous to the company is likely to be financially disadvantageous to the bondholder. Bondholders may be unable to reinvest at a comparable interest rate for the same level of risk. Investors should check the terms of the bond for any call provisions or other terms allowing for prepayment.

How can investors reduce their risks?

Investors can reduce their overall investment risks by diversifying their assets, if they so choose. Bonds are one type of asset, along with shares of stock (or equity), cash, and other investments. Investors also can diversify the types of bonds they hold. For example, investors could buy bonds of different maturities-balancing short-term, intermediate, and long- term bonds-or diversify the mix of their bond holdings by combining corporate, treasury, or municipal bonds. Investors with a greater risk tolerance may decide to buy bonds of lower credit quality, accepting higher risks in pursuit of higher yields. More conservative investors, however, may prefer to limit their bond holdings solely to high-quality bonds, avoiding riskier or more speculative bonds. Instead of holding bonds directly, investors can invest in mutual funds or exchange-traded funds (ETFs) with a focus on bonds. Investors should base their decisions on their individual circumstances.

How do I research my bond or bond fund investment?

A prospectus is the offering document filed with the SEC by a company that issues bonds for sale to the public in a registered transaction. Among other things, the prospectus relating to a corporate bond issuance describes the terms of the bond, significant risks of investing in the offering, the financial condition of the company issuing the bond, and how the company plans to use the proceeds from the bond sale. Similarly, if you are investing in a bond-focused mutual fund or ETF, these funds also prepare prospectuses detailing important information about the fund. Investors can ask their broker-dealer for the prospectus of any bond or bond fund in which they are interested. Prospectuses also are available to the public without charge on the SEC’s Edgar website. You can also find a bond fund’s prospectus at the bond fund’s website. Additionally, if you are considering purchasing a private company bond, you should make sure that you receive the same type of information that you are entitled to receive in a registered offering.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, you should consult a qualified expert.

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Exchange Traded Funds (ETFs) – Florida Elder, Senior and Retirement Financial Abuse and Exploitation Unsuitability, Excessive Trading (Churning), Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration, Litigation and Probate Attorney

Russell L. Forkey — Fri, 21 Mar 2014 00:21:44 GMT

Exchange-Traded Funds (ETFs) – Florida Elder, Senior and Retirement Financial Abuse and Exploitation Unsuitability, Excessive Trading (Churning), Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration, Litigation and Probate Estate Attorney:

Exchange-Traded Funds (ETFs):

The solicitation of ETFs by brokerage firms and their account executives seeking to convince their clients to purchase and sell EFTs has recently been on the rise. Thus, claims of unsuitability, excessive trading (churning), fraud and misrepresentation relating to this activity has likewise been increasing. The active purchase and sale of ETFs has become a target rich environment for increased commissions. Because ETFs are offered by prospectus, it is important for the investor to make sure that he or she fully understands all of the terms the particular ETF, the ramifications of investing therein and the costs associated therewith, especially if actively traded.

This post only discusses Exchange-Traded Funds (ETFs) that are registered as open-end investment companies or unit investment trusts under the Investment Company Act of 1940 (the “1940 Act”). It does not address other types of exchange-traded products that are not registered under the 1940 Act, such as exchange traded commodity funds or exchange-traded notes.

Please keep in mind that the following information is general in nature and is not intended to address the specifics of your financial situation. Thus, it should not be considered legal or investment advice. When considering an investment, make sure you understand the particular investment product fully before making an investment decision.

What is an ETF?

ETFs are a type of exchange-traded investment product that must register with the SEC under the 1940 Act as either an open-end investment company (generally known as “funds”) or a unit investment trust. Since the first domestically offered ETF was created in the 1990s, ETFs have become increasingly popular as investment vehicles for both retail and institutional investors. Like mutual funds, ETFs offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. Unlike mutual funds, however, ETF shares are traded on a national stock exchange and at market prices that may or may not be the same as the net asset value (“NAV”) of the shares, that is, the value of the ETF’s assets minus its liabilities divided by the number of shares outstanding.

Initially, ETFs were all designed to track the performance of specific U.S. equity indexes; those types of index-based ETFs continue to be the predominant type of ETF offered and sold in the United States. Newer ETFs, however, also seek to track indexes of fixed-income instruments and foreign securities. In addition, newer ETFs include ETFs that are actively managed – that is, they do not merely seek to passively track an index; instead, they seek to achieve a specified investment objective using an active investment strategy. Certain ETFs can be relatively easy to understand. Other ETFs may have unusual investment objectives or use complex investment strategies that may be more difficult to understand and fit into an investor’s investment portfolio. For example, “leveraged ETFs” seek to achieve performance equal to a multiple of an index after fees and expenses. These ETFs seek to achieve their investment objective on a daily basis only, potentially making them unsuitable for long-term.

Things to Consider before Investing in ETFs:

ETFs are not mutual funds. Generally, ETFs combine features of a mutual fund, which can be purchased or redeemed at the end of each trading day at its NAV per share, with the intraday trading feature of a closed end fund, whose shares trade throughout the trading day at market prices. Intraday trading is described in greater detail below in the section on NAV and Intraday Value. Unlike with mutual fund shares, retail investors can only purchase and sell ETF shares in market transactions. That is, unlike mutual funds, ETFs do not sell individual shares directly to, or redeem their individual shares directly from, retail investors. Instead, ETF sponsors enter into contractual relationships with one or more financial institutions known as “Authorized Participants.” Authorized Participants typically are large broker-dealers. Only Authorized Participants are permitted to purchase and redeem shares directly from the ETF, and they can do so only in large aggregations or blocks (e.g., 50,000 ETF shares) commonly called “Creation Units.” To purchase shares from an ETF, an Authorized Participant assembles and deposits a designated basket of securities and cash with the fund in exchange for which it receives ETF shares. Once the Authorized Participant receives the ETF shares, the Authorized Participant is free to sell the ETF shares in the secondary market to individual investors, institutions, or market makers in the ETF.

The redemption process is the reverse of the creation process. An Authorized Participant buys a large block of ETF shares on the open market and delivers those shares to the fund. In return, the Authorized Participant receives a pre-defined basket of individual securities, or the cash equivalent.

Other investors purchase and sell ETF shares in market transactions at market prices. An ETF’s market price typically will be more or less than the fund’s NAV per share. This is because the ETF’s market price fluctuates during the trading day as a result of a variety of factors, including the underlying prices of the ETF’s assets and the demand for the ETF, while the ETF’s NAV is the value of the ETF’s assets minus its liabilities, as calculated by the ETF at the end of each business day. An ETF’s market price is generally kept close to the ETF’s end-of-day NAV because of the arbitrage function inherent to the structure of the ETF. This is described in greater detail below in the section on Arbitrage.

Some Differences between ETFs and Mutual Funds:

Some differences between ETFs and mutual funds include:

Because of differences in distribution and often lower transaction costs, total operating expense ratios for ETFs often have been historically less than those for corresponding mutual funds.

Many ETFs will disclose to the public their holdings every day, in addition to the quarterly disclosure required for all mutual funds.

ETFs can be more tax efficient than mutual funds because ETF shares generally are redeemable “in-kind.” This means that an ETF may deliver specified portfolio securities to Authorized Participants who are redeeming Creation Units instead of selling portfolio securities to meet redemption demands, which could otherwise result in taxable gains to the ETF. Typically, such taxable gains (if not otherwise offset by the ETF) would be passed through to the retail investor. Very generally, the federal income tax consequences of investing in ETFs and mutual funds are comparable.

Certain Regulatory Requirements:

Regulatory requirements include:

As investment companies, ETFs are subject to the regulatory requirements of the federal securities laws as well as certain exemptions that are necessary for ETFs to operate under those laws. Together, the federal securities laws and the relevant exemptions apply requirements that are designed to protect investors from various risks and conflicts associated with investing in ETFs.

For example, ETFs, like mutual funds, are subject to statutory limitations on their use of leverage and transactions with affiliates. ETFs also are subject to specific reporting requirements and disclosure obligations relating to investment objectives, risks, expenses, and other information in their registration statements and periodic reports. In addition, ETFs are subject to oversight by boards of directors.

NAV and Intraday Value:

An ETF (like a mutual fund) must calculate its NAV (the value of all its assets minus all its liabilities) every business day, which is done typically at the close of the New York Stock Exchange.

Approximately every 15 seconds throughout the business day, an ETF’s estimated NAV is calculated and distributed through quote services. This estimated NAV (called the IIV – for intraday indicative value – or IOPV – for intraday operative value – depending on the exchange on which the ETF lists) is unique to ETFs and is based on the estimated value of the ETF’s holdings (minus its liabilities) throughout the trading day.

You can find an ETF’s intraday value on various financial services websites, many of which are familiar to the general public. Often an ETF’s intraday value may be found by searching the ETF’s ticker symbol followed by “.IV”; however this will vary depending on the service used. You should check with the financial service to find out how it makes an ETF’s intraday value available.

Premiums and Discounts:

For a variety of reasons, an ETF’s market price may trade at a premium or a discount to its underlying value. When an Authorized Participant identifies that an ETF’s shares are trading at either a premium or discount to their estimated net asset value, it may engage in trading strategies that are expected to result in the market price of an ETF’s shares moving back in line with its underlying value. As noted below in more detail, these actions by Authorized Participants, commonly described as “arbitrage opportunities,” are designed to keep the market-determined price of an ETF’s shares close to its underlying value. The premiums and discounts for specific ETFs may vary over time. Information about an ETF’s historical premiums and discounts can be found either in the ETF’s full prospectus or on its website.

Arbitrage:

Arbitrage is the practice of taking advantage of a price differential between two or more markets. An arbitrage opportunity is inherent in the ETF structure because the ETF’s intraday market price fluctuates during the trading day. Due to this fluctuation, the ETF’s intraday market price may not equal the ETF’s end-of-day NAV. Authorized Participants can arbitrage this difference (and make a profit) because they can trade directly with the ETF at NAV as well as on the market. The expected result of the arbitrage activity is that the market value of the ETF moves back in line with the ETF’s NAV per share and investors are able to buy ETF shares on an exchange at a price that is close to the ETF’s NAV per share.

Types of ETFs:

Index-Based ETFs:

Most ETFs trading in the marketplace are index-based ETFs. These ETFs seek to track a securities index like the S&P 500 stock index and generally invest primarily in the component securities of the index. For example, the SPDR, or “spider” ETF, which seeks to track the S&P 500 stock index, invests in most or all of the equity securities contained in the S&P 500 stock index. Some, but not all, ETFs may post their holdings on their websites on a daily basis.

Increasingly, ETFs are based on indexes that are designed to track specific market sectors. Thus, an ETF may be based on an index specifically designed to meet the ETF sponsor’s customers’ interests. Generally, although some information about the index (including, for some, the methodology used to determine what securities will be included in the index) is available, the specific component securities making up the index may or may not be.

Leveraged, inverse, and inverse leveraged ETFs may be considered by some to be index-based ETFs because they seek to deliver daily returns that are multiples (or inverse multiples) of the performance of the index or benchmark they track.

In addition, like index-based mutual funds, ETFs with seemingly similar benchmarks can actually be quite different and can deliver very different returns. For example, the S&P 500 is capitalization weighted, meaning the larger companies make up a much higher percentage of the index than the smaller companies. However, some ETFs will track an S&P 500-styled index that is equal-weighted, meaning all the companies have equal representation on the index, irrespective of the size of the company. Although these two benchmarks may seem similar, they provide very different returns.

Actively Managed ETFs:

Actively managed ETFs are not based on an index. Instead, they seek to achieve a stated investment objective by investing in a portfolio of stocks, bonds, and other assets. Unlike with an index-based ETF, an adviser of an actively managed ETF may actively buy or sell components in the portfolio on a daily basis without regard to conformity with an index.

Actively managed ETFs are required to publish their holdings daily. Because there is no index that can serve as a point of reference for an actively managed fund’s holdings, publishing the specific holdings allows the arbitrage mechanism to function. As explained above in the section on Arbitrage, this arbitrage mechanism generally keeps the market price of the ETF shares close to their NAV.

Final thoughts that you should consider before making an EFT investment:

Before investing in an ETF, you should read both its summary prospectus and its full prospectus, which provide detailed information on the ETF’s investment objective, principal investment strategies, risks, costs, and historical performance (if any). The SEC’s EDGAR system, as well as Internet search engines, can help you locate a specific ETF prospectus. You can also find prospectuses on the websites of the financial firms that sponsor a particular ETF, as well as through your broker.

Be sure to do your research before purchasing an ETF. Before purchasing an ETF, you may wish to think about:

•· How the ETF achieves its stated objectives and whether those objectives are consistent with your goals.

•· Whether the risks associated with a particular ETF are within your tolerance for risk.

•· The amount of brokerage commissions you may pay when buying and selling ETF shares.

•· The other costs of owning an ETF, such as annual operating fees and expenses, and to what extent those fees have historically affected, and may affect, the ETF’s performance.

•· Whether your investment needs are better served by investing in an ETF or in a corresponding mutual fund.

•· Do not invest in something that you do not understand. If you cannot explain the investment opportunity in a few words and in an understandable way, you may need to reconsider the potential investment.

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Michael A. Horowitz, Moshe Marc Cohen – South Florida Variable Annuity and Elder, Senior and Financial Abuse and Exploitation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Thu, 13 Mar 2014 13:55:24 GMT

Florida Variable Annuity Fraud and Elder, Senior and Retirement Financial Abuse and Exploitation FINRA Arbitration, Litigation and Probate Estate Attorney:

SEC Announces Charges Against Brokers, Adviser, and Others Involved in Variable Annuities Scheme to Profit From Terminally Ill

The Securities and Exchange Commission recently announced enforcement actions against a pair of brokers, an investment advisory firm, and several others involved in a variable annuities scheme to profit from the imminent deaths of terminally ill patients in nursing homes and hospice care.

Variable annuities are designed to serve as long-term investment vehicles, typically to provide income at retirement. Common features are a death benefit paid to the annuity’s beneficiary (typically a spouse or child) if the annuitant dies, and a bonus credit that the annuity issuer adds to the contract value based on a specified percentage of purchase payments. The SEC Enforcement Division alleges that Michael A. Horowitz, a broker who lives in Los Angeles, developed an illicit strategy to exploit these benefits. He recruited others to help him obtain personal health and identifying information of terminally ill patients in southern California and Chicago. Anticipating they would soon die, Horowitz sold variable annuities contracts with death benefit and bonus credit features to wealthy investors, and he designated the patients as annuitants whose death would trigger a benefit payout. Horowitz marketed these annuities as opportunities for investors to reap short-term investment gains. When the annuitants died, the investors collected death benefit payouts.

The SEC Enforcement Division alleges that Horowitz enlisted another broker Moshe Marc Cohen of Brooklyn, N.Y., and they each deceived their own brokerage firms to obtain the approvals they needed to sell the annuities. They falsified various broker-dealer forms used by firms to conduct investment suitability reviews. As a result of the fraudulent practices used in the scheme, some insurance companies unwittingly issued variable annuities that they would not otherwise have sold. Horowitz and Cohen, meanwhile, generated more than $1 million in sales commissions.

Agreeing to settle the SEC’s charges are four non-brokers and a New York-based investment advisory firm recruited into the scheme. Also agreeing to settlements are two other brokers who are charged with causing books-and-records violations related to annuities sold through the scheme. A combined total of more than $4.5 million will be paid in the settlements. The SEC’s litigation continues against Horowitz and Cohen.

“This was a calculated fraud exploiting terminally ill patients,” said Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit. “Michael Horowitz and others stole their most private information for personal monetary gain.”

According to the SEC’s orders instituting administrative proceedings, the scheme began in 2007 and continued into 2008. Horowitz agreed to compensate Harold Ten of Los Angeles and Menachem “Mark” Berger of Chicago for identifying terminally ill patients to be used as annuitants. Berger, in turn, recruited Debra Flowers of Chicago into the scheme and compensated her directly. Through the use of a purported charity and other forms of deception, Ten, Berger, and Flowers obtained confidential health data about patients for Horowitz.

According to the SEC’s orders, after selling millions of dollars in variable annuities to individual investors, Horowitz still desired to generate greater capital into the scheme. Searching for a large source of financing, he began pitching his scheme to institutional investors. A pooled investment vehicle and its adviser BDL Manager LLC were created in late 2007 in order to facilitate institutional investment in variable annuities through the use of nominees. Commodities trader Howard Feder, who lives in Woodmere, N.Y., became each firm’s sole principal. Feder and BDL Manager fraudulently secured broker-dealer approvals of more than $56 million in annuities sold through Horowitz’s scheme. Feder furnished the brokers with blank forms signed by the nominees enabling the brokers to complete the forms with false statements indicating that the nominees did not intend to access their investments for many years. Feder understood that the purpose of Horowitz’s scheme was to designate terminally ill patients as annuitants in the expectation that their deaths would result in short-term lucrative payouts. BDL Group received more than $1.5 million in proceeds from its investment in the annuities.

The order against Horowitz and Cohen alleges that they willfully violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 and they willfully aided and abetted and caused violations of the Exchange Act’s books-and-records provisions. Horowitz also acted as an unregistered broker.

Ten, Berger, Flowers, Feder, and BDL Manager consented to SEC orders finding that they willfully violated Section 10(b) of the Exchange Act and Rule 10b-5. They neither admitted nor denied the findings and agreed to cease and desist from future violations. The individuals agreed to securities industry or penny stock bars as well as the following monetary sanctions:

Ten agreed to pay disgorgement of $181,147.64, prejudgment interest of $20,858.80, and a penalty of $90,000.
Berger agreed to pay disgorgement of $119,000, prejudgment interest of $11,579.61, and a penalty of $100,000.
Feder agreed to pay a penalty of $130,000.
BDL Manager agreed to pay disgorgement of $1,550,565.55, prejudgment interest of $196,608.97, and a penalty of $1,550,565.55.

The SEC’s order against Richard Horowitz and Marc Firestone finds that they negligently allowed point-of-sale forms for 12 annuities in the scheme to be submitted to their firm with inaccurately overstated answers to the form’s question asking how soon the customer intended to access his or her investment. These inaccurate answers led to each annuity’s issuance, and Horowitz and Firestone were each paid commissions.

Richard Horowitz and Firestone consented to the order finding that they caused their firm to violate Section 17(a) of the Exchange Act and Rule 17a-3. Without admitting or denying the findings, they agreed to cease and desist from committing or causing future violations of those provisions as well as the following monetary sanctions:

Horowitz agreed to pay disgorgement of $292,767.89, prejudgment interest of $36,512.20, and a penalty of $40,800.
Firestone agreed to pay disgorgement of $127,853.20, prejudgment interest of $17,140.89, and a penalty of $40,800.

South Florida Broker/Dealer and/or Account Executive Negligent Supervision, Selling Away and Unapproved Outside Business Activity FINRA Arbitration, Litigation and Probate Estate Attorney

Russell L. Forkey — Wed, 26 Feb 2014 13:23:31 GMT

South Florida Broker/Dealer and/or Account Executive Negligent Supervision, Selling Away and Unapproved Outside Business Activity FINRA Arbitration, Litigation and Probate Estate Attorney.

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Rinnie KF Chan (CRD #4225956, Registered Representative, Edison, New Jersey) submitted a Letter of Acceptance, Wavier and Consent in which she was fined $5,000 and suspended from association with any FINRA member in any capacity for one month. The fine must be paid either immediately upon Chan’s reassociation with a FINRA member firm following her suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Chan consented to the described sanctions and to the entry of findings that she sold fixed life insurance policies issued by a non-member firm-affiliated insurance company for which she was compensated approximately $69,000 in commissions. The findings stated that Chan did not submit the applications through the firm’s Enterprise General Agency or declare the sales to the firm as an outside business activity. In her annual attestation, Chan falsely certified to the firm that she had not been engaged in any outside business activities, except for those previously disclosed. FINRA Case No. 2011030533101

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