FINRA Arbitration Awards: Scofflaw Hell

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Latest Study: 1 in 4 Brokers Don’t Pay Claimants in FINRA Securities Arbitration matters. Investors left with no recourse and stuck in Scofflaw Hell.

If you habitually don’t pay parking tickets, the odds are you will find your name standing out in the local newspaper where you are listed as a scofflaw. If you are a broker-dealer who fails to honor an arbitration award made by a FINRA panel of arbitrators, you would be one of many that have seemingly ‘ripped up the ticket’ and walked away.

Those arbitration awards are apparently not worth the paper they are written on FINRA letterhead if you are one in four investors who has miraculously prevailed in an action against a broker-dealer that was adjudicated by the so-called “independent arbitrators” appointed by FINRA (7% of investors prevail, and in 93% of cases, the brokerage prevails)  

(BankInvestmentConsultant.com)-Willie Cabbil worked for General Motors for 30 years, at one point as a janitor, only to lose his $340,000 retirement savings in 2011 to former Resource Horizons Group broker, Robert Gist.

FINRA arbitrators found that Gist ran his advisory practice like a Ponzi scheme and used the retirement of the 62-year-old retiree from Alabaster, Ala., to pay other clients’ returns on a non-existent investment.

They awarded Cabbil $300,000.

“I was ecstatic to have finally got my life back,” he says.

However, Cabbil saw none of that money. FINRA later shut down Murrietta, Ga.-based Resource Horizons over its inability to pay millions in client claims, and Cabbil was one of many of Gist’s former clients who never regained a penny.

A former Resource Horizons officer who supervised Gist now works at Kovack Securities in Murrietta, along with other former Resource employees. Cabbil says stress related to the loss of his savings has caused health problems that prevent his return to work.

Cases like Cabbil’s are far from unique.

1 IN 4 DOLLARS UNPAID

A study released today finds that one in three awards granted to investors in FINRA arbitration disputes went unpaid in 2013. That amounts to one in four dollars that aggrieved investors never see from their awards, according to the Public Investors Arbitration Association, which conducted the study.

“FINRA, like the NASD before it, has remained quiet regarding the issue of unpaid awards,” Hugh Berkson, the author of the study, writes. That’s because “the unpaid award statistics do not paint a favorable picture of the industry.”

DIGGING DEEPLY

PIABA researchers began with a single FINRA-released statistic: that $62 million in awards went unpaid in 2013. Then they added up all the cases the regulator published on its website, and found that 225 decided in favor of investors. Of those, 75 went unpaid.

FINRA did not make Chairman Richard Ketchum or Richard Berry, its director of dispute resolution, available for interviews.

For the full story, click here

 

 

WSL Best Broker-Dealers Are…

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(MarketsMuse)-If not as widely-covered as the GOP or DNC primaries, financial industry publication Wall Street Letter (“WSL”) held its 6th Annual Institutional Trading Awards ceremony last night at NYC venue 583 Park Avenue and recognized best-in-class broker-dealers across 7 major categories, including Best Broker Dealer (OverAll), Best Broker-Dealer Research, Best BD-Client Service and Best Broker-Dealer across equities, futures and options. The WSL Awards also recognized the firms considered to be the top within technology offerings, including electronic trading applications and electronic exchange platforms.

Taking home the gold for Best Broker-Dealer “Overall” :Wolverine Execution Services (WEX). Runners-up included Bloomberg Tradebook, Interactive Brokers, Mischler Financial Group and Dash Financial. Best Broker-Dealer Research was awarded for the third consecutive year to Mischler Financial Group, the industry’s oldest minority broker-dealer owned and operated by Service-Disabled Veterans. Runners up in the Best Research category: Stifel Nicolaus and Sandler O’Neil.

Best Broker-Dealer Equities was awarded to Fidelity Capital Markets and  in the client service category BNP Paribas took the prize. Best Options Platform was awarded to Interactive Brokers and Best Options Broker was awarded to WallachBeth Capital.

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Ron Quigley, Mgn.Dir. Mischler Financial Group

Noted Mischler Financial Group Managing Director Ron Quigley, who accepted the award on behalf of his firm, “Its a great honor to even be considered as a contender for an industry award when considering the pedigree of the other great firms that were nominated. It’s always good to be in good company and its best to be recognized for capabilities.”

The full list of nominees and winners of Wall Street Letter 6th Annual Institutional Trading Awards is available via this link

SEC Chair Wants To Reign In ETFs

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(MarketsMuse.com) SEC Chair Has A Dream (to reign in complex ETFs, make brokers and advisers pledge to be fiduciaries and to impose more exams on brokers)

SEC Mary Joe White has a dream, and even if she aspires to leverage the inspirational outlook of  Dr. Martin Luther King, securities industry members are debating whether her dream could prove to be a reality any sooner than the civil rights agenda expressed by Dr. King so many years ago.  In a series of comments during the past several weeks from Chairperson White regarding the SEC’s agenda for the remainder of her tenure as President Obama’s designated SEC Chairperson, Ms. White, who is operating with only 3 of 5 Commissioners until two open vacancies are filled before the Second of Never,  she is vowing one of the top three items on her list includes “better understanding exchange-traded funds aka ETFs before the SEC approves prospectuses.” That makes sense.

One only wonders why that elementary concept had never occurred to any one previously—despite repeated calls from among others, former SEC Commissioner Steve Wallman (1994-1997) who has long questioned the approval process for many of the complex exchange-traded products the SEC has rubber-stamped, including inverse and commodities-related products that even professionals often do not understand.  Since his departure from the SEC, Wallman has proven adept at doing the right things while serving at the helm as Founder/Chairman/CEO of the investment firm Foliofn.com.

Other matters of importance according to White include “the desire on part of SEC to introduce “fiduciary definitions for registered advisers and brokers..” which in plain speaks means : White’s agenda is to figure out how to completely change the culture of the securities brokerage industry by forcing people to be ethical and moral. MarketsMuse sources have indicated White is proposing to have those folks swear an oath that says:

“My first obligation is to protect my clients’ interest above all else and to make sure I never even think of trying to sell them something that might be inappropriate for their goals or possibly even toxic—despite the fact my office manager says I have to sell house product only or I’m out of a job. After I meet that first obligation, my second obligation is to then make enough money to pay for my kids college and have enough left over for that condo in Florida.”

Insiders familiar with White’s agenda have told MarketsMuse that she has acknowledged her seemingly altruistic mission is not without challenge or headwinds given that the “securities industry at large is much like the NRA when it comes to influential prowess.”

Directly and indirectly, Wall Street firms and its executives contribute hundreds of millions of dollars every year to lobby SEC Officials and members of Congress(which the SEC reports to) on behalf of their interests—which presumably includes two big drivers that have driven the investment industry since the days of Joe Kennedy Sr.: (i) selling investment vehicles that look great on paper and in marketing collateral [even if they might or might not prove to be toxic at some point and might or might not be appropriate for a specific individual given that people’s moods change a lot] (ii) how to pay the mortgage on the brokers’ first house, the $200k for each of their kids college tuition bills, the country club memberships that provides venues in which to sell those investment products,  sharpen up the golf game, and of course, pay for the second and third homes, etc etc.

Another item on White’s laundry list is to expand the  exam program for registered brokers and advisers. Currently, 10% of the nearly 12,000 advisers sit and take ‘refresher tests’ that are abridged versions of the Series 7—an exam that has approximately 40% brokers FAIL the first time and 30% fail the second time. Some could argue the test is maybe too difficult, given the national average score is 67 vs. a passing grade of 72. Or, one could argue the barrier to entry to become a registered broker or adviser is simply being a good test taker. Idiots and Muppets can get licensed, as long as they take 8 practice exams the night before the actual exam and memorize the correct answers. So, Chairperson White wants more folks taking more tests; a good thing for the SEC because this is big a revenue-generator for the Agency—which has repeatedly claimed it does not have enough money to even pay for air conditioning in its Washington DC office. Staff members have said this alone is vexing, given that SEC examiners and enforcement agents have become accustomed to keeping windows wide open five months of the year and continuously grapple with files on their desks blowing out of their windows and many of those files pertain to complaints filed by investors and updated paper notes sent by from enforcement agents in the field via courier pigeons.

Courtesy of  an admittedly more illustrious news media outlet than MarketsMuse might be, the following is ‘official coverage from InvestmentNews.com:

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SEC : New Rule For BDs Too-Big-To-Fail

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BrokerDealer TOP NEWS–courtesy of Law360-Top Story: SEC joins with FDIC in new rule for BDs deemed too big to fail, latest court ruling involving Madoff case, and more.

 

SEC Floats Rule With FDIC On Failing Broker-Dealers

The U.S. Securities and Exchange Commission and Federal Deposit Insurance Corp. jointly proposed a rule Wednesday intended to provide a more efficient liquidation process for large broker-dealers in the event they fail, carrying out a mandate under the Dodd-Frank Act.

Broker Describes IBM Tipping Chain In SEC Insider Case

A broker testified in New York federal court on Wednesday that he relayed information about an impending $1.2 billion IBM acquisition to two former colleagues who are now on trial in a closely watched U.S. Securities and Exchange Commission insider trading case.

Madoff Trustee Shuts Down $11B Investor Suit For Now

A Manhattan federal bankruptcy judge on Wednesday blocked the latest investor suit targeting a Bernie Madoff associate for his role in Madoff’s massive Ponzi scheme, agreeing with the trustee for Madoff’s defunct securities firm that the $11 billion claims in Florida are preempted by a 2011 settlement.

Victims of Bernard Madoff’s fraud cannot pursue a Florida lawsuit to recover $11 billion from the estate of Jeffry Picower, who they say helped perpetuate the swindler’s Ponzi scheme, a Manhattan bankruptcy judge ruled on Wednesday.

U.S. Bankruptcy Judge Stuart Bernstein said the lawsuit by A&G Goldman Partnership and Pamela Goldman, their third effort to sue in Florida, violated an injunction barring Madoff victims from pursuing claims belonging to Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC.

Ex-Wells Fargo Trader Fights SEC’s Insider Trading Finding

A former Wells Fargo trader urged the U.S. Securities and Exchange Commission to overturn part of a finding by the agency’s in-house court that he made four trades on tips from an analyst, but asked it to preserve the court’s finding that cleared him in two other trades, according to a brief filed in the appeal.

SEC Hits More Traders With Newswire Hacking Allegations

The U.S. Securities and Exchange Commission on Wednesday brought more litigation over an alleged scheme to hack into newswires to secure a trading advantage, filing suit in New Jersey federal court against Russian traders who allegedly scored more than $19.5 million in illegal profits.

7th Circ. Won’t Rekindle Steak ‘N Shake Suit Over CEO Deals

The Seventh Circuit on Wednesday refused to revive a shareholder derivative suit against the heads of restaurant chain Steak ‘n Shake filed over deals which purportedly enriched holding company CEO Sardar Biglari at the expense of the company, citing a lack of a sufficient challenge to company leaders’ business judgment.

Ex-Deutsche Bank Analyst In Big Trouble Over Big Lots Rating

A former Deutsche Bank research analyst has been suspended from the securities industry for a year and ordered to pay a $100,000 fine over Securities and Exchange Commission charges that he let his relationship with Big Lots Stores Inc. executives taint his analysis of the company and its stock.

Atty Violated Securities Laws In Fracking Venture, Judge Says

A Texas federal judge on Wednesday found that an attorney violated securities laws in connection with a fracking water filtration venture, but did not immediately rule on $2.5 million in disgorgements and civil penalties sought by the U.S. Securities and Exchange Commission.

POLICY & REGULATION

IRS Locks In Rules On Broker Reporting Obligations

The Internal Revenue Service on Wednesday released final regulations on brokers’ reporting requirements for transactions involving debt instruments and options, including the reporting of original issue discounts on tax-exempt obligations.

LITIGATION

11th Circ. Won’t Revive Paulson Feeder Fund Investor’s Suit

The Eleventh Circuit on Wednesday refused to revive a Florida investor’s suit against Paulson & Co. hedge fund managers for his losses in a feeder fund, after Delaware’s high court answered a certified question from the appeals court by saying he had no direct claim.

Bankia Commits $2B To Repay Retail Investors For IPO Bust

State-backed Spanish lender Bankia SA said Wednesday it will set aside €1.84 billion ($2.1 billion) to fully refund retail investors for their losses following the company’s doomed, 2011 initial public offering and to resolve ongoing litigation after the bank lost two appeals.

Argentina To Pay $1B To End Debt Fight With EM, Montreux

Argentina has agreed to pay creditors EM Ltd. and Montreux Partners LP as much as $1.1 billion to resolve long-running litigation over the country’s 2001 default, according to documents filed Wednesday in New York federal court.

$27M Goldman CDO Deal Gets Judge’s Initial Sign-Off

A New York federal judge preliminarily approved a $27.5 million settlement Tuesday between Goldman Sachs Group Inc. and a class of investors led by hedge fund Dodona I LLC that sued over toxic collateralized debt obligations.

Ex-Rabobankers Denied Acquittal, New Trial In Libor Scam

A New York federal judge denied acquittal or a new trial Wednesday for two former Rabobank traders convicted of conspiracy and wire fraud in connection with a scheme to manipulate Libor, rejecting arguments their submissions to the global benchmark weren’t misstatements intended to cause harm.

Genworth Says Witness Recantations Ruin Investors’ IPO Suit

Genworth Financial on Wednesday blasted investors opposing the insurance giant’s bid to dismiss multidistrict litigation over an initial public offering delayed by a swell of mortgage insurance claims, telling a New York federal judge that they’ve relied on “irrelevant distractions” in an effort to rescue recanted testimony from the cutting-room floor.

ADT Wants Lookalike $450M Stock Buyback Suit Tossed

ADT Corp. urged the Delaware Chancery Court to toss a shareholder suit over $450 million in stock the company repurchased from a hedge fund, saying Wednesday the case nearly mirrors a challenge the court threw out 10 months ago.

AIG Unit Policy Must Pay Prejudgment Interest, 9th Circ. Told

Nutritional supplement maker Cell Tech International shareholders on Wednesday urged the Ninth Circuit to find that an American International Group unit owes them them millions of dollars in prejudgment interest on a $4.1 million judgment against the insurer, saying a lower court erred in ruling that a $5 million policy limit precludes the interest.

Investor Green Cards Imperiled In EB-5 Fraud Case, Court Told

A group of investors in a real estate project targeted by a $136 million EB-5 fraud suit brought by the U.S. Securities and Exchange Commission urged a Washington federal judge on Tuesday not to let a receiver in the case sell the project without considering their immigration interests.

Lehman Tells 2nd Circ. Treaty Entitles It To Tax Credits

Defunct investment bank Lehman Brothers Holding Inc. told the Second Circuit on Tuesday that its bankruptcy administrators are entitled to $67 million in foreign tax credits under the terms of a 1975 U.S-U.K. income tax treaty favoring newly enacted legislation.

Morgan Stanley Smacked by NY AG For Mortgages

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Law360, New York (February 11, 2016, 10:11 AM ET) — 6-Pack Bank and Global BrokerDealer Morgan Stanley agreed today to pay $3.2 billion to resolve claims that it misled investors about mortgage-backed securities before the financial crisis, New York Attorney General Eric Schneiderman said.

The settlement is the latest among big banks related to the financial crisis, and ends government claims that Morgan Stanley misrepresented to investors the mortgages it packaged into securities. 

The settlement is the latest among big banks related to the financial crisis, bringing to a close government claims that Morgan Stanley told investors that the mortgages it packaged into securities were of higher quality than was actually the case. The firm’s misstatements cost investors billions of dollars and the problematic mortgages helped cause many homeowners to lose their homes or suffer significant financial losses, Schneiderman said.

“Today’s agreement is another victory in our efforts to help New Yorkers rebuild in the wake of the financial devastation caused by major banks,” Schneiderman said in a statement.

For the full story from Law360, please click here