FINRA Arbitration Awards: Scofflaw Hell


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)  

( 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.


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.”


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



Industry’s Largest Firm, LPL Financial, Hit With Huge Fine

lplfinancial blog update profiles Finra hitting LPL Financial, the industry’s largest independent brokerdealer firm, with a huge fine. The firm reportedly failed to properly supervise sales of complex products, such as ETFs, variable annuities and non-traded REITs. In addition to paying a fine to Finra, LPL Financial will also have to pay a substantial amount of restitution to certain customers who purchased non-traditional ETFs, and may pay additional compensation to ETF purchasers following an additional review of its ETF systems and procedures. This update is courtesy of InvestmentNews’ article, “LPL Financial fined $11.7 million for ‘widespread supervisory failures‘”, with an excerpt from the article below.

The Financial Industry Regulatory Authority Inc. ordered LPL Financial to pay $11.7 million in fines and restitution for what it deemed “widespread supervisory failures” related to sales of complex products, according to a settlement letter released Wednesday.

From 2007 to as recently as April, LPL failed to properly supervise sales of certain investments, including certain exchange-traded funds, variable annuities and nontraded real estate investment trusts, and also failed to properly deliver more than 14 million trade confirmations to customers, according to Finra.

LPL, for example, did not have a system in place to monitor the length of time customers held securities in their accounts or to enforce limits on concentrations of those complex products in customer accounts, Finra said.

The systems that LPL had in place to review trading activity in customer accounts were plagued by “multiple deficiencies,” Finra said. The firm failed to generate proper anti-money laundering alerts, for instance, and did not deliver trade confirmations in 67,000 customer accounts, according to the settlement letter.

To continue reading about the industry’s largest independent broker-dealer firm’s huge fines from Finra, click here.

FINRA Tickets New York Broker Dealer Firm With Hefty Fines

FINRA Ticket blog update is courtesy of  a press release from the Financial Industry Regulatory Authority (FINRA).

California based broker dealer firm, Brookville Capital Partners LLC, has been sanctioned $1.5 million and their president, Anthony Lodati, has been barred for fraud charges. FINRA claims that from January to October of 2011, the firm defrauded its clients by investing their clients money into a  pre-initial public offering shares of a California-based automaker, Fisker Automotive,  through a private placement offering, called Wilshire Capital Partners Group LLC. However Brookville Capital Partners failed to disclose the criminal and poor regulatory background of a key individual connected to the automaker.

An excerpt from the FINRA press release is below.

The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered Brookville Capital Partners LLC, based in Uniondale, NY, to pay full restitution of more than $1 million to the victims and fined the firm $500,000 for fraud in connection with sales of a private placement offering. FINRA also barred Brookville President Anthony Lodati from the securities industry.

FINRA found in its settlement and alleged in a May 2014 complaint that Brookville and Lodati defrauded Brookville customers in connection with the sale of a private placement offering called Wilshire Capital Partners Group LLC, through which investors would purportedly have an indirect interest in pre-initial public offering shares of Fisker Automotive. The conduct took place from January 2011 to October 2011.

During the time Brookville solicited customers to invest in the offering, Lodati learned that John Mattera, an individual with a significant criminal and regulatory background, had effected transactions on behalf of Wilshire as Wilshire’s CEO and Managing Director. Instead of disclosing that, among other things, Mattera had been sanctioned by the Securities and Exchange Commission (SEC) in 2010 for securities fraud and convicted of a felony in Florida in 2003, Lodati and Brookville purposely withheld this information and information about Mattera’s involvement with Wilshire, and continued to solicit its customers to invest. In total, Brookville sold over $1 million worth of interests in Wilshire to 29 customers. Brookville received more than $104,000 in commissions for the sales.

To read the entire press release from FINRA, click here.


BrokerDealer Smacked With Price Gouging Penalty-Class Action Award for $850k Against Newbridge

price gouging blog update couresy Bruce Kelly of InvestmentNews from 25 February.

An independent broker-dealer, Newbridge Securities Corp., has reached an agreement to settle a class action suit costing the firm $850,000. The suit filed was filed by Newbridge clients from June 2008 to January 2013. The former clients alleged the firm price gouged clients for postage and handling on securities transactions. In addition to the class action suit, Newbridge Securities Corp., was fined $138,000 by FINRA for failing to buy and sell corporate bonds at a fair price for their customers. 

Per Investment News:

The Financial Industry Regulatory Authority Inc. fined the firm $138,000 for allegedly failing to buy and sell corporate bonds at a fair price for their customers. The firm allegedly failed to take into consideration relevant circumstances “including market conditions with respect to each bond at the time of the transaction, the expense involved and that the firm was entitled to a profit,” according to Newbridge’s BrokerCheck profile. The firm did not admit or deny the allegations as part of the settlement.

The firm lost $434,600 on $37.9 million in revenue in 2013, according to its most recent annual audited financial statement submitted to the Securities and Exchange Commission.

In May 2011, Finra CEO and chairman Richard Ketchum raised the issue of postal price gouging by broker-dealers in a speech to industry executives.

Postage and handling fees charged by broker-dealers ranged at the time from $3 or $4 to as high as $75 per transaction, executives said. Some firms had been inflating postage and handling fees after the financial crisis as a way to boost profits.

The issue of postage and handling costs has been hanging over Newbridge for four years. In April 2011, the Connecticut Banking Commissioner fined Newbridge $10,000, alleging that the firm charged a “handling fee” that was unrelated to actual transactional costs and that the firm failed to tell customers the fee included a profit to Newbridge, according to BrokerCheck. Finra in January 2013 fined Newbridge $50,000 over the same issue.

For the entire article from InvestmentNews, click here

Broker-Dealer Enforcement Cases and Developments: Fines & Restitution Record

SEC Fines blog update is courtesy of the law firm, Morgan Lewis.

In a record year for enforcement, the SEC brought a landmark number of cases, and FINRA imposed an exceptional level of fines and restitution.

This LawFlash highlights key U.S. Securities and Exchange Commission (the SEC or the Commission) and Financial Industry Regulatory Authority (FINRA) enforcement developments and cases regarding broker-dealers during fiscal year 2014. The full 2014 Year in Review is available here.


There were few significant personnel changes at the SEC last year. The Commission’s composition was stable in 2014 with Chair Mary Jo White continuing to lead the SEC. The other commissioners are Luis A. Aguilar, Daniel M. Gallagher, Kara M. Stein, and Michael S. Piwowar. Notable changes were made with appointments in two major SEC divisions (Stephen Luparello was named the director of the Division of Trading and Markets, and Stephanie Avakian was named the new deputy director of the Division of Enforcement). New directors were also appointed to lead the Philadelphia and Atlanta regional offices.

The enforcement statistics compiled by the SEC during fiscal year 2014 (which ran from October 1, 2013 through September 30, 2014) set several records. Other aspects of the enforcement program led the Commission to dub fiscal year 2014 “A Year of Firsts.”

In fiscal year 2014, the SEC brought a record 755 cases, a figure likely boosted by the number of open investigations carried over from the prior year. Moreover, the SEC’s actions resulted in a record tally of monetary sanctions being imposed against defendants and respondents.

With respect to its caseload, in what has become a trend, the SEC brought 7% fewer cases against investment advisers and investment companies—130 cases in fiscal year 2014, compared to 140 actions in fiscal year 2013. To contrast, in fiscal year 2014, the SEC reversed its downward trend from fiscal year 2013, bringing 37% moreactions against broker-dealers—166 in fiscal year 2014, compared to 121 in fiscal year 2013. Nevertheless, taken together, the SEC continues to devote significant resources to investigating regulated entities: cases in these areas have represented about 39% of the Commission’s docket in each of the last two fiscal years.

After a sharp decline in 2013, the Commission brought 52 insider trading cases in fiscal year 2014, an 18% increase from fiscal year 2013, but this increased number is still lower than the fiscal year 2012 total. We will see in the coming year how changes to the legal landscape may affect the SEC’s enforcement in this particular area.


An interesting enforcement record emerged at FINRA last year. Although it instituted fewer disciplinary cases in 2014, its fines doubled from the prior year. Moreover, the amount of restitution that FINRA ordered in 2014 more than tripled the amount that had been returned to investors in 2013.

Specifically, in 2014, FINRA brought 1,397 new disciplinary actions, a noticeable decline from the 1,535 cases initiated in 2013. Along the same lines, FINRA resolved 1,110 formal actions last year; 197 fewer cases than it had in the prior year. With respect to penalties and restitution, in 2014, FINRA levied $134 million in fines (versus $60 million in 2013) and ordered $32.3 million to be paid in restitution to harmed investors (versus $9.5 million in 2013).

FINRA’s use of Targeted Examination Letters seems to be declining. In 2014, FINRA posted only two letters on its website, versus three in 2013 and five in 2012. Last year’s letters sought information on cybersecurity threats and order routing/execution quality. (In February 2015, FINRA published its Report on Cybersecurity Practices.)

To read the entire article from Morgan Lewis, click here.