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Registered Reps
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Due Diligence Fracas Widens As REIT Suitability Prompts Big FINRA Charges |
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Thursday, June 02, 2011 11:02
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Tags: FINRA David Lerner Associates is the center of FINRA's latest due diligence complaint, this time over the suitability of proprietary REIT securities that the regulator says were too aggressively sold and too lightly researched.
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FINRA's problem with DLA's sales practices does seem a little confusing. The official complaint lambastes the firm's marketing tactics and disclosure, but then classifies those practices as "failing to conduct adequate due diligence."
According to FINRA, the REITs in question should be considered dangerous because they are illiquid and have been increasingly leveraged in order to achieve their stated performance goals.
Because DLA did not disclose these red flags -- and went on selling the securities anyway -- FINRA concludes that the firm must not have done its homework.
Much of the rest of the complaint goes on to attack the firm's marketing practices.
DLA is fighting this one, calling the case against it "baseless" and blaming the sudden interest in "due diligence" on regulators' guilt over failing to catch ponzi schemes like Bernie Madoff on their own.
This is going to be tricky. On the one hand, the REITs in question represent a much more concentrated part of DLA's sales program than bad medical debt ever amounted to at much bigger firms like Securities America.
Securities America, with over 1,900 advisors in the network, only sold $700 million in Medical Capital Holdings paper, and "due diligence" complaints almost wrecked the firm -- even though insiders tell me that all the homework on these instruments was done up to standard.
DLA has only 375 advisors but over the years has sold $6.8 billion in REIT shares from the companies under the microscope here over the years, $300 million of it since January. FINRA estimates that these assets represent 60% of the firm's total business.
The firm's sales practices have definitely received their share of investor criticism.
But if the working definition of "due diligence" is shifting from "finding out all you can" to "disclosing all the red flags that exist" then we may be seeing a lot more of this kind of regulator action in the future.
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Raymond James Disappointed By $1.7 Million Annuities Fine |
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Monday, May 23, 2011 11:28
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Tags: FINRA | Raymond James A rep who was allegedly churning annuity sales in at least one elderly client's account has cost Raymond James $1.7 million for failing to supervise him, even though he's no longer their affiliate.
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Paul Davis, the advisor, is based in Amarillo, Texas. Early last decade, he reportedly shifted a $3.8 million client's portfolio out of muni bonds and into annuities.
So far so good, but then he seems to have sold those annuities and bought an entirely different set of contracts.
At the time, the clients made a lot of money -- a full $800,000 -- on the various transactions, so they were happy to stick with Davis when he himself moved to LPL from Raymond James in 2006.
During his tenure at LPL, however, the market shifted and Davis kept trading, using the annuities as collateral and leaving the clients with $2 million in liens on the contracts.
FINRA found that Raymond James "did nothing to inject itself" into what must have looked like unsuitable trades during Davis's time there. The firm now owes $1.7 million in fines.
LPL settled separately and quietly. Raymond James is not happy and is considering its options.
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FINRA Moves Forward On Controversial Fund/Advisor Revenue-Sharing Disclosure |
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Friday, May 13, 2011 11:26
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Tags: FINRA | mutual funds Years after initially proposing a rule that mandates centralized public disclosure of all mutual fund revenue-sharing arrangements, FINRA has filed the paperwork to make it happen.
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At the moment, broker-dealers only have to reveal which fund companies pay them in the small print.
But as part of its ongoing consolidation of the rules it inherited from the NASD days, FINRA wants them to set up a website or toll-free number that shows the world exactly what cash compensation relationships each firm has with each fund company.
"Preferred" fund vendors would also need to be flagged, making those relationships transparent to all clients, prospects, and the public.
In theory, this could pave the way to setting up "fiduciary watchdogs" who monitor fund sales activities for conflicts of interest.
FINRA tried to institute this change two years ago, but at the time brokers argued that it would be too confusing to their clients.
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UBS Pays $160 Million In Muni Bond Charges |
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Thursday, May 05, 2011 12:07
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Tags: sec To settle far-reaching charges that it "rigged" the muni bond investment process, UBS has agreed to pay $160 million.
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The Swiss bank will return $47 million to the municipalities the SEC claims it manipulated in order to capture the money they raised in their bond offerings.
After all, muni borrowers need to invest all the cash they raise in their debt offerings before they spend it on roads, schools, and other projects.
As a major agent bidding for that business, UBS allegedly steered that money to favored products without respecting the process.
Bank of America settled a similar case late last year, paying $137 million.
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St. Louis Reps Plead Guilty In $5 Million Client Fraud Scheme |
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Tuesday, May 03, 2011 11:09
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Tags: fraud A 32-year-old rep in St. Louis and an associate have confessed to using $5 million in client funds to pay various business and personal costs.
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The details of the scheme that Joshua Gould and David Rubin got stuck in are old news. Get a client to sign over funds, spend the money, repeat.
Before you know it, you've burned through $5 million trying to start various new ventures or pay back an earlier set of clients who now want to cash out.
Gould and Rubin have pleaded guilty to fraud charges and now face jail time up to 20 years per count.
But what's interesting is that Gould turned himself in. The psychology behind his crimes -- and we can call them that -- is never an excuse, but it's always educational to see where these problems emerge.
Those who have to monitor their colleagues or subordinates -- which is to say, just about everyone in the industry -- should take notes.
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