SEC Issues Risk Alert on Broker-Dealer Controls

risk alert

SEC Issues Risk Alert on Broker-Dealer Controls Regarding Retail Sales of Structured Securities Products blog update is courtesy of the following extract from

On August 24, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations’ National Examination Program staff (Staff) released a Risk Alert summarizing findings from an examination of 10 broker-dealers (Firms). The Staff evaluated whether the Firms effectively supervised and monitored the risks and activities associated with sales of structured securities products (SSPs) to retail investors. provides the world’s most comprehensive database of broker-dealers operating in more than 30 countries throughout the world.

The examinations revealed significant deficiencies in all of the Firms, including that they failed to maintain and enforce adequate controls to determine suitability of SSP recommendations. The Staff noted that the Firms’ written supervisory procedures related to reviews of representatives’ determinations of customer suitability were also deficient and the Staff cited all of the examined Firms for such deficiencies.

Click here to read the Risk Alert.

Top Broker-Dealer: Cambridge Investment Research

best-in-class brokerdealer

FAIRFIELD, Iowa–(BUSINESS WIRE)–Cambridge Investment Research, Inc. (Cambridge) reported that Investment Advisor magazine has announced Cambridge as ‘2015 Broker-Dealer of the Year in Division IV’ – the division representing independent broker-dealers with over 1,000 producing advisors. The honor is based on the results of the annual poll conducted by the magazine in June of this year. Cambridge has earned this honor seven of the last nine years, and was previously honored in 2014, 2013, 2012, 2010, 2008, and 2007 as Broker-Dealer of the Year in Division IV and in 2003 for Division III. provides the world’s largest database of registered brokerdealers and information on broker-dealers operating in more than thirty countries across the world

“We are grateful and honored to be named Broker-Dealer of the Year,” said Eric Schwartz, Cambridge Chairman and CEO. “We can only earn this honor if our advisors value our services and take time from their independent businesses to engage in this poll. It is quite humbling to be complimented by those we passionately serve.”

“Our purpose is to make a difference in the lives of our advisors, and being recognized as Broker-Dealer of the Year is an honor driven by our advisors,” said Amy Webber, Cambridge President. “As we strive to make a difference in the lives of our advisors, we believe together we can make a difference in the lives of their clients.

For the entire press release, please click here


Morgan Stanley Hit With $20mil Whistleblower Suit

whistleblower morganstanely

Two ex-brokers hit brokerdealer Morgan Stanley with a $20 million lawsuit this week, alleging that they were fired in retaliation for complaining about improper practices and violations of securities law at the wirehouse, according to news from

whistleblowingIn a news story filed Aug 27, Jamie Feldman-Boland and her husband, John Boland, say that they witnessed trainees and interns entering in trades on behalf of advisors, and presumably doing so with brokers’ access codes in violation of the broker-dealer firm’s policy.

Other misconduct they say witnessed: an advisor trying to improperly get an insurance commission; cancelling a business deal worth $200 million to punish Feldman; and harassment of Feldman by another advisor and her branch manager.

Morgan denies the allegations. maintains the world’s largest database of registered broker-dealers operating within 30+ countries throughout the civilized world.

“These former financial advisor trainees have filed numerous unsubstantiated claims since their terminations in 2011.  To date, none have been found to have any merit. We believe this latest claim is equally without merit and will be dismissed,” a Morgan spokeswoman said.

Alice Keeney Jump, an attorney at law firm Reavis Parent Lehrer who is representing the Feldman and Boland, rebutted Morgan’s argument, saying that the couple’s allegations are straightforward.

“I disagree any arbitration panel has settled these claims,” Jump says.

She adds, “My clients are fully confident in the truth of their allegations and have decided to pursue their rights.”


Feldman, 38, joined Morgan in 2008 after four years at Merrill Lynch, according to Finra’s BrokerCheck. Boland followed her to the firm in 2010 while the two were engaged, according to the complaint, which also stated that Morgan knew of their relationship.

When she joined the firm at its Midtown office in New York, she was part of a joint production agreement with two other advisors, according to the complaint. Her partner for high-net-worth clients, Michael Silverstein, had more than thirty years of industry experience, according to FINRA records.

According to the complaint, Silverstein did not devote time to meeting with or serving prospective clients that Feldman brought in, which in turn hurt her production numbers at the firm. Feldman alleges that by January 2011 she had presented clients with more than $100 million in assets to Silverstein, but he failed to prepare any investment portfolios.

In their complaint, Feldman and Boland also allege that trainees and interns cold-called Pfizer and Verizon employees close to retirement to urge them to roll-over their 401(k)s to Morgan Stanley, guaranteeing them a 15% return, according to the complaint.

The investments were in fact in closed-end mutual funds which experienced sharp fluctuations in net value, according to the complaint.

In April 2011, Feldman went to her branch manager to complain about these and other violations she had witnessed. The manager, David Turetzky, told her to leave his office, and later asked for a list of her clients, according to the complaint.

The following month, Turetzky called Feldman into his office to tell her that the firm would not pursue “at this time” a $200 million commodities deal that one of her clients wanted, according to the complaint.

Feldman alleges this was retaliation for her earlier complaints as well as a confrontation with Silverstein, who tried to claim that he was in fact the introducing broker and therefore entitled to the fees and commissions.

For the full story: click here

Actively-Managed ETMFs Coming to a BrokerDealer Near You blog update is courtesy of reporting by and profiles deal between RIA titan Envestnet and mutual fund king Eaton Vance, which is now approved to promote its novel, actively-managed ETF product “NextShares.” NextShares are exchange-traded funds that are both actively managed and unlike any other ETF product, does not disclose the underlying components of the respective ETFs. These products now go by the acronym “ETMF”

Since its approval, Eaton Vance has had to work hard to convince competitive money managers to license its patent and persuade broker-dealers that it is in their interest to make NextShares available to advisers even though the funds don’t offer the same underlying fees to encourage distributors. Eaton Vance’s NextShares-promoting subsidiary, Navigate Fund Solutions, has had to make that case before it even has a product on the market or a distribution partner. provides a global directory of regulated securities professionals operating in 30 major countries across the free world.

The deal is a big win for Eaton Vance, an actively managed mutual fund company that’s hoping to replace those products with a potentially more tax-efficient vehicle that could lower costs and improve performance for investors. Envestnet is a major gatekeeper in the fast-growing market of independent financial advisers, providing services for over $700 billion in client assets.

In a statement, an Envestnet executive, Jim Patrick, described NextShares as a “groundbreaking fund structure” and said the company sees offering the funds as part of its mission to help advisers deliver “wealth management services in the most cost- and tax-efficient way possible.”


NextShares was the first and remains the only structure approved by the Securities and Exchange Commission that allows an actively managed open-end fund to trade on exchanges without regularly disclosing its holdings. Portfolio managers resist showing the securities they buy and sell, in part to prevent being taken advantage of by competitors.

Index funds don’t face similar restrictions. Those passive products have dominated the fast-growing $3 trillion global market for exchange-traded funds.

For the full story from, please click here.


Citigroup Bagged By SEC For Defrauding Muni Investors

citigroup fraud muni picks up where leaves off in reporting an outsized fined against big bank broker-dealer Citigroup…

WASHINGTON – Two Citigroup companies on Monday agreed to pay $180 million to settle charges they defrauded investors by misrepresenting that investments in two now-defunct muni-related hedge funds were safe, low-risk and suitable for traditional bond investors.

New York-based Citigroup Global Markets and Citigroup Alternative Investments raised almost $3 billion in capital from about 4,000 investors between 2002 and 2007 through the two funds — ASTA/MAT and Falcon – before they collapsed in 2008 during the financial crisis, resulting in billions of dollars of losses, according to the SEC. maintains the world’s largest database of registered broker-dealers with information extending across more than 30 countries

Without admitting or denying the SEC’s findings, CAI, the investment manager for the two hedge funds, and CGMI, which employed the financial advisors that recommended the funds to investors, agreed to disgorge more than $139. 95 million of ill-gotten gains and pay prejudgment interest of more than $39.61 million to the SEC under the settlement.

Danielle Romero, managing director of global public affairs for Citigroup, said the company is “pleased to have resolved this matter.”

The SEC found the two Citigroup affiliates continued accepting additional investments and assuring investors of the funds’ safety even as they started to decline in late 2007. The “misleading representations” the Citigroup companies made were “at odds with disclosures made in marketing documents and written material provided to investors,” the SEC said in a release.

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