On December 26, 2018, FINRA released an arbitration award against Morgan Stanley awarding $3,332,000 to James Groves, a Mega Ball Lottery winner in 2013, and $879,000 to Asante Samuel, who retired in 2013 from the NFL after an 11-year career with the New England Patriots, Philadelphia Eagles, and Atlanta Falcons.

Groves and Samuel were represented by Curtis Carlson and Chase Carlson of Carlson & Associates in Miami, Florida and Matt Johnson of Dowd Bennett, LLP in Denver, Colorado.

Groves and Samuel were guided in their investments by Morgan Stanley financial advisor Aaron Parthemer, who is now barred from the securities industry for his activities relating to inducing his professional athlete customers to purchase investments away from Morgan Stanley, including the investment in Club Play, a high-profile hip-hop nightclub located in Miami Beach, where investors lost most of the funds they invested.  While employed at Morgan Stanley in Fort Lauderdale, Parthemer ran the Club on a day-to-day basis and represented himself to the public as the owner of the Club until it failed.

“The main point of the case was that Morgan Stanley knew he was down there running the Club and management did nothing about it,” said Curtis Carlson.  The arbitrators found that Morgan Stanley was liable for “negligence, negligent supervision and violation of FINRA Rules 3110 and 3120.”

The FINRA arbitration hearings were held over six days in October and November, 2018, in Miami, Florida.

This is Carlson & Associates’ second victory against Morgan Stanley for Parthemer’s activities in investing his professional athletes’ funds in outside investments.  In 2016, an arbitration panel awarded $608,300 to Keyon Dooling, a former NBA player with the Miami Heat among other teams, and $206,000 to John St. Clair, a former NFL player with the Miami Dolphin and other teams.

• James Scherr of Boca Raton, FL;
• Deborah Dora of Lighthouse Point, FL;
• Sharelene F. Mesite of St. Lucie, FL; and
• James O’Neil of Jupiter, FL.

All four individuals have held securities licenses at some point in the recent past. According to the SEC, this was a longstanding fraud scheme that improperly diverted bonds to broker-dealers at the expense of ordinary investors. Here, our Miami investment fraud attorneys review the specific allegations raised in the SEC’s complaint.

SEC Complaint: Bond Fraud 

The Investment Fraud Scheme  

The SEC filed its complaint against Core Performance Management et. al. in the United States District Court for the Southern District of Florida. The agency alleges that the perpetrators used CPM to improperly place retail orders on behalf of broker-dealers, thereby preventing actual retail investors from receiving the proper priority on these municipal bond offerings.

The Mechanics  

Federal regulators allege that CPM created the false impression that they were purchasing bond offerings on behalf of ordinary investors. By doing so, they were able to receive priority on certain orders. They concealed the true identity of their business operation by:

• Providing fraudulent zip codes to qualify for certain restricted municipal bond offerings;
• Creating a scheme of false accounts and false entities to maximize the number of orders they could place; and
• Employing deceptive means to conceal the fact that they were purchasing bonds solely for the purpose of flipping them.

Altogether, more than 25 different fake business names were used to get access to these offerings. The SEC contends that the perpetrators used names such as Dockside Asset Management and Chapel Bay Asset Management to give false impressions that retail investors were getting access to these priority bond offerings.

Ordinary Investors Were Damaged

In most cases, municipal issuers mandate that underwriters provide retail investors with the highest priority. This is particularly true of investors who actually reside within the jurisdiction of the municipal bond issuer. By taking advantage of priority that should not have been available, CPM took in millions in illicit profits and forced investors to pay unfair prices.

In this case, NW Capital Markets Inc. (CRD#: 17622) and its former representative Charles Kerry Morris (CRD#: 1047626) allegedly received illegal kickbacks to help CPM get around these regulations. NW Capital and Mr. Morris have been fined more than $340,000 for their role. Mr. Morris was also suspended to the securities industry for six months.

Get Help From Our Miami Investment Fraud Lawyers

At Carlson & Associates, P.A., we advocate for investors. If you or your family member sustained serious investment losses, our FINRA arbitration lawyers are ready to help. For a no fee, no risk review of your claim, please contact us at our Miami law office today.

Resources:

sec.gov/news/press-release/2018-153

brokercheck.finra.org/firm/summary/17622

brokercheck.finra.org/individual/summary/1047626

sec.gov/litigation/complaints/2018/comp-pr2018-153.pdf

According to FINRA investigators, TradeStation Securities executed extended hours trades without following the proper protocols. FINRA believes that the brokerage firm failed to put an adequate supervisory system in place. As a result, customers were not assured that they were getting fair prices on certain trades.

Without admitting or denying any of the alleged misconduct, the Broward County-based broker-dealer consented to the penalties. Here, our experienced Miami investment fraud attorneys discuss the case. For complete details regarding this disciplinary proceeding, please refer to the case number: 2014039942904.

FINRA Findings: TradeStation Securities  

The Violative Conduct  

Upon review of the brokerage firm’s conduct, FINRA officials determined that the firm did not provide the proper disclosure forms to a customer before accepting and executing transactions outside of normal market hours. According to FINRA, this occurred on at least 14 different occasions. As a result, transactions were conducted at ‘average prices’. Yet, the customer was never informed of this material fact. Under FINRA Rule 2265, registered brokerage firms are prohibited from engaging in and facilitating after-hours transactions, unless the firm has provided specific disclosure forms to any customers engaging in those types of transactions. This rule exists because extended hours trading comes with some important and unique risks. These risks include:

• Lower liquidity;
• Higher volatility;
• Risk of sudden price changes;
• Risk of wider spreads; and
• Risk of late news announcement.

TradeStation Securities failed to live up to its obligations in these circumstances. In addition, FINRA investigators determined that the broker-dealer lacked the proper supervisory system to ensure that this type of rule violation would be prevented in the future. There are several different FINRA rules and SEC regulations that are implicated.

The Penalties  

Though the firm did not admit to or deny the violations, TradeStation Securities consented to the penalties proposed by FINRA. The firm was fined $125,000, of which $32,500 was marked to be paid to FINRA, while the remainder was to be paid to other securities industry regulators. In addition to the financial penalties, TradeStation Securities agreed to update its Written Supervisory Procedures (WSPs) in order to ensure compliance in the future. All brokerage firms must have effective WSPs in place. These procedures help to make sure that brokers are complying with industry rules and looking out for the best interests of their customers.

Contact Our Florida Investment Fraud Attorneys Today

At Carlson & Associates, P.A., our dedicated FINRA arbitration lawyers are committed to protecting the rights and interests of investors. If you or a family member lost money due to a brokerage firm’s failure to establish a proper supervisory system, we can help. For a fully confidential review of your legal claim, please call our Miami office now at 1-(305)-372-9700.

Resources:

brokercheck.finra.org/firm/summary/39473

finra.org/sites/default/files/fda_documents/2014039942904%20TradeStation%20Securities%20Inc%20CRD%2039473%20AWC%20Redacted%20sl.pdf

finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=8257

• A $100,000 fine;
• Payment of $72,715.82 in financial restitution;
• Public censure; and
• Review and revision of its internal protocols.

In this post, our experienced Miami investment fraud attorneys highlight the specific allegations against GWN Securities. For full information regarding this case, please reference the official FINRA document: Disciplinary Proceeding No. 2016047566601.

The Background 

This case involved a financial product called unit investment trusts or UITs. Essentially, a UIT is an exchange traded mutual fund that has a definite life. Under current FINRA rules, registered broker-dealers are required to develop and implement written supervisory procedures (WSPs) to ensure that customers receive the most advantageous possible price when purchasing UITs. Regulators have made it clear that it is the brokerage firm’s responsibility to ensure that it is looking out for the best interests of its customers in recommending or facilitating UIT purchases. Investors should be able to have confidence that their broker is always getting them the best available price.

Violative Conduct  

During the review period in this case, FINRA officials determined that GWN Securities failed to apply available sales discounts on at least 340 different transactions. In all, these errors caused the company’s customers to pay more than $72,000 in avoidable transaction fees. In addition, FINRA determined that this brokerage firm had inadequate written supervisory procedures in place. The ineffective WSP made it difficult for the firm’s compliance department to spot violations.

Beyond the failure to apply available fee waivers and discounts, there was also at least one instance discovered in which a securities representative instructed a customer to trade a UIT on a short-term basis. For several different reasons, this is an unsuitable investment strategy. Brokerage firms have a duty to ensure that securities representatives are only offering appropriate investment advice that is truly tailored to the individual needs of the customer. WGN Securities has been instructed to update its WSPs to ensure compliance in the future.

Contact Our Miami FINRA Arbitration Attorneys Today

At Carlson & Associates, P.A., our investment fraud lawyers have extensive experience handling FINRA arbitration cases. If you lost money due to broker negligence, or any other type of misconduct, we can help you get the full settlement offer that you are owed. To arrange a fully private evaluation of your legal claim, please call our team today at 1-(305)-372-9700. With an office in Miami, we serve investors throughout Florida.

Resources:

brokercheck.finra.org/firm/summary/128929

finra.org/sites/default/files/fda_documents/2016047566601%20GWN%20Securities%20Inc%20CRD%20128929%20AWC%20sl.pdf