The Law Planet Blog

As an investor, do you fully understand the power and meaning of your proxy in corporate elections? The Securities and Exchange Commission is taking steps to educate investors on proxy voting and support greater investor participation in corporate elections.

The series of measures include amending the SEC’s e-proxy rules, issuing an Investor Alert, and creating new Internet resources that explain the proxy voting process in plain language.

The Securities Exchange Commission has created a new subsection on the SEC website Spotlight on Proxy Matters.

This new area on the SEC website provides investors educational information on such things as:
New Shareholder Voting Rules, Corporate Elections FAQ, Voting Procedures FAQ, "E-Proxy" or "Notice and Access" and Receiving Proxy Materials FAQ.

According to SEC Chairman Mary L. Schapiro:
"Investor participation in elections at companies they own is critical to effective corporate governance.”

Investors should be aware that last year, the SEC approved a change to the NYSE rule that previously allowed brokers the discretion to vote shares held in customer accounts in an uncontested election of directors without receiving voting instructions from those customers. The new SEC rule only allows brokers to vote those shares in elections at companies if they are instructed by their customers. However, the change does not apply to mutual funds or certain closed end funds.

We encourage investors to make use of the new educational site Proxy Matters and other helpful consumer information provided by the Securities Exchange Commission.

Happy New Year! Today marks the first day of 2010. It marks the beginning of a fresh new start.

Please enjoy a few important highlights from the Securities and Exchange Commission:

The SEC has approved stronger safeguards to Protect Clients’ Assets Controlled by Investment Advisers
The new rules provide safeguards where there is a heightened potential for fraud or theft of client assets. The SEC’s new amended custody rule promotes independent custody and requires the use of independent public accountants as third-party monitors.

According to SEC Chairman Mary L. Schapiro, “The Madoff Ponzi scheme and other frauds have caused investors to question whether their assets are safe when they entrust them to an investment adviser. These new rules will apply additional safeguards where the safeguards are needed most — that is, where the risk of fraud is heightened by the degree of control the adviser has over the client’s assets.”

SEC Charges Houston-Based Broker With Defrauding Florida Municipalities
The Securities and Exchange Commission charged a Houston-based broker with engaging in unauthorized and unsuitable trading on behalf of two Florida municipalities, putting them at risk of losing millions of dollars while he personally made over 14 million in commissions.

$418 Million Fair Fund Distribution to Harmed Investors in Invesco Mutual Funds

The Fair Fund distribution stems from a prior SEC enforcement action against IFG. This distribution also includes money from two other Fair Funds related to separate unlawful marketing timing enforcement actions that affected Invesco investors.

Investment Adviser charged by SEC in Fraudulent Scheme Utilizing Football Stars
The Securities and Exchange Commission filed securities fraud charges against Kurt B. Barton and Triton Financial LLC,
for operating a multi-million dollar scam that used former professional football players to promote its offerings

I am pleased to announce that yesterday our Investment Fraud Seminar in West Palm Beach was a huge success. It was held in the beautiful Phillips Point Club. The beautiful intracoastal was a great backdrop for this well attended Seminar.

The 4 hour seminar, Investing in a Post Madoff Environment: Financial Fraud: How it's accomplished, how to detect it, and how to recover from it was attended by over 100 people from South Florida. The attendees included, CPAs, Attorneys, Bankers, Financial Representatives and a host of other professionals. The Seminar was sponsored by the Financial Services Divsion of LaBovick & LaBovick, P.A.

Attorney Marc Dobin, Director of the Financial Services Division, led the discussions on how industry professionals can help prevent investment fraud.

Speakers at the Seminar included:

William Nortman, Esq., Akerman Senterfitt

Richard A. White, Turris Consulting, LLC

Moderator: Jeffrey S. Grubman, Esq, Jeffrey S. Grubman, P.A.

Topics coverd at the Seminar included areas such as: Investment fraud, Ponzi schemes, FINRA, Churning, Florida Investor Protection Act, Churning, and much more.

We look forward to sharing more information on our next educational seminar on investment and financial fraud.

If you would like to have a transcript of the seminar or more information on investment fraud, let us know.

Our vendor partner for this program, the Daily Business Review, will be publishing a printed version of the transcript in 3 - 4 weeks in their paper as a supplement.

Stay tuned...

Not a minute too soon, Florida Governor Charlie Crist, signed the Florida Investor Protection Plan, Florida House Bill 483, into law, effective July 1, 2009. As we mentioned in a previous post on The Law Planet Blog, this was a new day for Florida investors. In the wake of fraudulent Ponzi Schemes such as, the Bernie Madoff Ponzi Scheme and the new Scott Rothstein Ponzi Scheme, investors need extra protections against investor fraud.

Yesterday, the law blawg, LawUpdates.com, wrote an excellent commentary on the Florida Investor Protection Act

The post gives background on "blue sky laws" and how states regulate securities transactons within their state. The authors provide a clear and concise analysis of Florida's Investor Protection Act that sheds light on how in Florida, the AG and government agencies have more authority to fight investor fraud.

The following excerpt from LawUpdates.com sheds llight on new authority under the new Investor Protection Act:

Specifically, the IPA authorizes the Attorney General, with permission from the state’s Office of Financial Regulation (the “OFR”), to investigate and bring securities fraud actions – criminal and/or civil—against anyone violating the anti-fraud provision under the Florida Securities and Investor Protection Act (“SIPA”). The AG has the ability to seek restitution for victims and obtain other civil penalties. The Florida Department of Law Enforcement has the ability to pay rewards for original information in money laundering investigations under the new law.

As the authors of the LawUpdates.com further point out:

Florida’s IPA has yet to be tested in court. It’s possible that a firm or broker-dealer offering securities in Florida and impacted under this new law will file a court action claiming that federal laws preempt the state’s efforts against it.

All eyes are on Florida once again, for taking Center Stage, on such a significant issue. Time will tell how the new Investor Protection Act will stand up against preemption. We will keep the faith that JUSTICE WILL PREVAIL.

Kudo's to our lawmakers for taking a bold step and passing the Florida Investor Protection Act.

According to a recent report issued by the Office of the Inspector General (OIG), the Securities and Exchange Commission’s (SEC) enforcement division needs to improve its processes and procedures for investigating and managing the fight against securities fraud. The main example cited in the report was the most current and most blatant example of the SEC’s failure to properly investigate securities fraud complaints - Bernard Madoff’s multi-billion-dollar Ponzi scheme. The report issued by the OIG stated that complaints about Mr. Madoff’s possible involvement in securities fraud were received by the SEC as long ago as 1999. Even though complaints of alleged fraud were made to the SEC in regard to Mr. Madoff, SEC staff failed to recommend that the SEC take action on these complaints.

The purpose of the OIG’s report was to determine the SEC enforcement department’s shortcomings and to identify those areas in which the department needs to make improvements to better fight securites fraud. The goal of the report was to bolster SEC enforcement measures in an effort to prevent another securities fraud case with such far-reaching implications and consequences as the Madoff case. It is the SEC’s job to protect investors from securities fraud. When the department fails to properly carry out its job duties the ramifications can spell disaster for investors.

The following systemic problems within the SEC’s enforcement department were identified in the OIG’s report: staff’s failure to thoroughly review complaints; due diligence was not exercised regarding complaints; inexperienced staff conducted unsupervised investigations; complaints were not sufficiently reviewed; staff failed to seek assistance from other departments and divisions; staff did not verify information with independent third-party representatives; administrative tasks were not completed in a timely manner. According to the OIG report, additional areas in which staff felt changes needed to be made and information clarified included: case handling procedure, program priorities, and working relationships.

The report issued by the OIG offered 21 recommendations to the department in order to create a more effective program. These recommendations focused on management control, establishment of formal guidelines, and a review of existing policy and procedures. The Director of Enforcement at the SEC stated that these measures would be implemented.

To read more on the this of OIG Recommendations view the following: Office of Inspector General (OIG) Audit on SEC - Program Improvements Needed within the SEC's Enforcement Division, Housingwire.com

LaBovick & LaBovick, PA filed a FINRA arbitration against Ameriprise Financial Services, (NYSE: AMP), formerly known as American Express Financial Advisors (AEFA) for stockbroker misconduct and negligence. The claim alleges that Deborah Amilowski, Financial Advisor for Ameriprise Financial Services, failed to properly advise a Senior investor on risks associated with unsuitable products for a person of that age, at the time of the initial investment and negligence in properly identifying the beneficiary resulting in additional loss to the trust.

The FINRA Statement of Claim, filed on August 13, 2009, stated that Ms. Amilowski, recommended a RiverSource variable annuity as an initial investment to a 77 year old investor at the time of purchase, thus ineligible for a guaranteed death benefit. This investment was too risky for someone of this age.

"Ameriprise Financial had the perfect opportunity to fix the problem, but compounded the error through their negligence and failure to act in the best interest of the client. Brokerage firms and their advisors must act with their client's best interest first. It is not acceptable for a firm to take advantage of Senior investors for profit," stated Marc S. Dobin, Esq., Director of Financial Services, LaBovick & LaBovick, PA.

Click on the following link to learn more on the FINRA Arbitration claim against Ameriprise Financial.

Barry Kaye, who allegedly made his fortune in the life settlement market is facing more bad news. First, he was forced to reduce his contribution to Florida Atlantic University to $5,000,000 from his planned $16,000,000. Now Investment News is reporting, that the Ohio Department of Insurance is investigating his life settlement sales in that state. The article reports that he has been sued by an 81 year-old life settlement investor for a failed transaction.

A life settlement begins with the purchase of a high value life insurance policy by an investor. The investor can either pay with their own cash or borrow the cash from a willing borrower, usually a financial institution. So, either using their own, or someone else’s, cash the investor pays the premiums for two years, to avoid the contestability period. At that point, the policy becomes a free asset and can be sold. It was commonly believed that policies had higher values in the resale market than their cash value.

The problem, not surprisingly, is that the entire transaction was based on the availability of willing buyers. Like many great ideas of 2001-2007, these ideas don’t look so good in 2008 and 2009. The new owner of the policy has to pay the premiums, a significant sum in many cases. So the original investor ends up with no buyer, a policy they didn’t need but were convinced that they did, and possibly a significant loan that they don’t want, can’t afford and expected to be able to repay upon sale of the insurance policy. Oops.

No free lunches people. This was too good to be true and it was a sham to begin with. But the sellers of these schemes should have known better and made better disclosures.

After all of the grief that Stanford caused to investors he swindled $7 billion from, can you believe he is complaining about intolerable conditions in jail. His $500,000 bail was revoked because he was considered a flight risk by the Judge.

The WSJ shared his Stanford's complaint to the Judge asking for a transfer in the article "Allen Stanford on His Life in Jail: ‘Conditions Are Intolerable". Jail is not supposed to be a walk in the park or a country club experience.

Texas Billionaire Allen Stanford shared the following through his Attorney, Dick DeGuerin:

1. For at least a week, during the hottest part of the summer, with outside temperatures of 100 [degrees] or more, the place where Allen Stanford is being held as a pretrial detainee has had no air conditioning and for part of that time was without power altogether.

2. Allen Stanford is housed in a single cell with between eight to ten other men. For part of the time last week, they were in total darkness and so far (this motion is prepared on Sunday, July 26) the cell has been without air conditioning for at least a week. There are no windows for light or ventilation and the conditions are intolerable.

3. Allen Stanford urgently asks the Court to transfer him to the Federal Detention Center in downtown Houston run by the Bureau of Prisons and renews his request for transfer, both because of the oppressive conditions under which he is suffering, as well as the impossible conditions for preparing for his complex trial.

4. Regarding the inability of Allen Stanford to consult with his lawyers, the discovery in this case is by electronic means and none of the visiting conditions at the Joe Corley Detention Facility allow the use of electronics. Allen Stanford will be denied his constitutional right to review the evidence in his case if he is detained pretrial at the Joe Corley Detention Facility.

5. Counsel for Allen Stanford has tried to address the conditions with the Marshal’s Service and the Joe Corley Detention Facility, but thus far to no avail. See Exhibit A, a letter to United States Acting Marshal Saenz.

Respectfully Submitted,
Dick DeGuerin

He should not get preferential treatment. Let us know what you think of Stanford's current conditions. Is this fair or cruel and unusual treatment?

The FBI has announced that former key executive for Morgan Stanley, Darin Demizio, will serve 38 months imprisonment and three years of supervised release for conspiring to commit securities fraud and wire fraud and lying to the FBI. The trial took place in March before United States District Judge John Gleeson. United States Attorney for the Eastern District of New York, Benton J. Campbell announced the sentence.

Mr. Demizio routinely directed business from Morgan Stanley’s securities lending division to smaller brokerage firms for kickbacks that were paid to his father and Craig DeMizio, his brother. The amount of the kickbacks was over $1.6 million from 2000 – 2004. His brother was sentenced to 21 months after pleading guilty to commit securities fraud and wire fraud.

Investors can be assured that the FBI is taking bribery and kickbacks seriously in the securities business. The Demizio conviction is the 29th conviction stemming from an ongoing industry-wide investigation.

The trial for USA v Tzolov and Butler 08-370 started this week in New York's U.S. District Court for the Eastern District.

The case involves two former Wall Street brokers that worked for Credit Suisse Group AG, Eric Butler and Julian Tzolov. They were charged with fraudulently dealing in subprime mortgage-backed auction rate securities (ARS) for corporate clients who specifically requested much safer investments.

The trial seems to be a pass the blame for the defense. The prosecution's argument is that the brokers mislead clients about auction rate securities deals, because of greed in trying to earn millions of dollars in commissions for risky investments instead of much safer investments such as government-guaranteed student loans. The defense cites an entirely different argument, they attribute the losses of the investments to the collapse of the real estate market instead of GREED.

It is important to note that one of the brokers, Tzolov, saw the writing on the wall and recently struck a deal with the prosecution. Eric Butler, pleaded not guilty, and decided to try his luck with a jury. His former partner in crime, Tzolov, struck a deal after pleading guilty, and will be a witness for the prosecution. His testimony should really be interesting.

According to a recent article published by Reuters

"The defendant and his partner promised something better, a better opportunity," U.S. prosecutor Greg Andres said in opening arguments to the jury.

"They did not honor that promise. They invested in securities the clients didn't ask for and didn't want."

This is an important trial to watch regarding investment fraud. The defense is trying to blame the market for the loss of the investors, instead of what seems to plague many Wall Street brokers and others accused of Securities and Investment fraud: GREED.

This makes me think of a statement from the famous fictional villain, Gordon Gekko, in the Oliver Stone movie Wall Street, "Greed is Good". I imagine that people such as Bernie Madoff, Michael Milken, Robert Allen Stanford, Arthur Nadel would all agree that "Greed carries a high price tag".

What will happen in the USA v Tzolov and Butler 08-370 case and the fate of former broker Eric Butler's fate? Time will tell...

Stay tuned...

As part of FINRA’s ongoing effort to consolidate and reconcile the former NASD and NYSE manuals, changes are in the works. FINRA recently filed a proposed rule change that is going to make changes to FINRA suitability rules, as we have known them, noticeably different.

FINRA’s proposed rules governing Suitability and Know Your Customer Obligations will expand the obligations of registered representatives when recommending securities or investment strategies­ to customers. This is interesting because it looks like FINRA is moving towards codifying a fiduciary standard, or at least a modified fiduciary standard.

In the past, a fiduciary duty in a non-discretionary account related to only the execution of trades and custody of assets. Now, if an investment strategy encompasses assets away from the firm, that strategy falls within the proposed rule. For instance, the recommendation to retain stocks in an account at another brokerage firm may be considered recommending an investment strategy as may the recommendation to hold, and not sell, a particular stock.

This represents a significant change in the relationship a broker has with his/her client and will broaden the areas of responsibility when making suitability determinations.

It's a new dawn. It's a new day and investors in Florida should be feeling good. Florida Governor Charlie Crist signed House Bill 483 into law on Monday, which adds protections for Securities investors today, designed to protect securities investors from Bernie Madoff type ponzi schemes.

The Bill's sponsor, State Representative Tom Grady (R- Naples) is quoted as saying the following in a recent interview:

“Our economy will grow stronger if investors have confidence in our financial markets. By increasing the tools available to the state to prosecute violators of our securities laws, we protect investors and foster needed trust in the system."

House Bill 483 gives additional power to the Office of Financial Regulation for prosecution of violations of the Florida Securities and Investor Protection Act. Whistleblowers will also be compensated with rewards for orginal information regarding money laundering investigations.

Governor Crist issued the following statement on House Bill 483 :

“Investors play a critical role in the success of Florida’s economy, and this legislation helps ensure their hard-earned money is protected. I am committed to maintaining the integrity of our markets. Enhancing protection measures and oversight is the best way to crack down on fraudulent activity and increase consumer confidence.”

HB 483 - Investor Protections received overwhelming support from legislators. This Bill provides the following Investor Protections according to the House of Representatives site:

Expands jurisdiction of Office of Statewide Prosecution to investigate & prosecute specified additional offenses; revises various provisions of law relating to viatical settlements; exempts specified transactions in viatical settlement investments from specified registration requirements; revises registration requirements; excludes post judgment interest from payments from fund; expands class of persons related to or associated with applicant or registrant for which specified violations may result in adverse actions taken against registrations; requires Financial Services Commission to adopt rules relating to disciplinary guidelines & temporary disqualification; authorizes OFR to apply to court for specified orders; specifies additional investigation & enforcement authority of AG; authorizes AG to recover costs & attorney fees; authorizes OFR use of such information in prosecution actions; increases amount of specified administrative fines; authorizes OFR to bar specified persons from submitting applications or notifications for license or registration under specified circumstances; revises criteria for prohibited practices relating to commodities; authorizes FDLE to enter into agreements to pay rewards for specified information; expands subject matter jurisdiction of statewide grand jury to include specified additional offenses.

If you have original information regarding Investor fraud you may want to contact an attorney to discuss your rights. If you want to learn more on Securities litigation and your rights as a whistleblower, visit the following pages on Securities Litigation and Stockbroker fraud.

Today, I came across an interesting article from Bloomberg News on the Arbitration debate over financial investments. It was a Commentary written by Bloomberg News Columnist Susan Antilla entitled "Obama Fails to End Kangaroo Courts for Investors".

In the article, Susan highlights the following statement from President Obama:

The Securities and Exchange Commission “should study the use of mandatory arbitration clauses in investor contracts,” and then pursue legislation if appropriate,

At the end of the Commentary, she adds:

That argument is more bogus today than ever, because cases increasingly involve the mass-marketing of financial products by multiple brokerage firms.

“The concern is that the industry arbitrator could be on a panel telling others that ‘everybody does it,’” says Brian Smiley, the president of Piaba.

And in a closed justice system where nobody can come to court and watch, who would ever know?

The Arbitration Commentary gives food for thought and highlights the key issues, but it is hard to argue over, which side Susan is on in the Arbitration argument. She makes her point very clear on the issue.

It is safe to say that after losing a loved one, a widow has a lot on their plate, However, this loss does not mean that Financial Advisors can ignore them or mismanage their account. A recent study by Allianz Life found that

About 44% of widows are inclined to obtain financial advice in new ways, and that 70% of those using financial advisers considered firing their advisers in the first three years after their husbands' deaths.

This tragic loss does not give Financial Advisors the right to prey upon Widows with risky financial investments, mismanagement of funds or simply ignoring the widow alltogether.

Five simple steps that a widow can use for Financial Guidance and respect from Financial Advisors include:

Step one: Deal with your emotional needs first after the death of your spouse. Having a clear mind and perspective is key before making major decisions,

Step two: Organize your finances and make a budget. Looking at your entire financial picture allows you to see what you need financially to live on.

Step three: Calculate your net worth. Take a look at all of your assets, investments, stocks, home, bank accounts, bonds, and everything that is of value. Ask your Financial Advisor to give you a report of what your portfolio is worth, present value and a comparison of what it was worth when your husband was alive. Give them a specific timeframe of when you expect this data.

Step four: Identify a few key Financial Advisors and Interview them for your business. Compare the Financial Advisor that was working with your spouse to the new ones that are recommended by reliable sources. Make a checklist of things that are important to you in an advisor. Rate each Advisor with a score for each of your checklist items and come up with a ranking system for comparison. Try to be objective and compare each advisor on the same benchmarks.

Step five: Sit down with your Chosen Financial Advisor and develop a long-term financial plan for your investments. Share with the selected Financial Advisor that they were selected after a careful screening process. This will allow them to see that you are serious about service and expect excellent Customer Service. Set aside a specific timeframe for a review, that you are comfortable with, i.e., monthly, bi-monthly, quarterly, semi annually. Make sure that the Financial Advisor agrees to this timeframe to go over your portfolio and hold them to it. If they fail to service your account properly, go back to your list and replace them with someone that will treat you the way that you expect to be treated.

Read the book, On Your Own: A Widow's Passage to Emotional & Financial Well-being,by Alexandra Armstrong and Mary R. Donahue for more information on how a Widow can take charge of their life and finances without being taken advantage of by a Financial Advisor. The book retails for under $20 on Amazon and other online retailers.

If you are a Widow, please note that you are not alone, According to an article on the subject from Investment News, nearly 800,000 women become widows each year. There is much comfort in numbers. Join a support group for women that are recent widows. You may find that sharing your experiences present, past and future can help you cope with your loss.

To learn more on other ways for Widows to protect themselves against Investor fraud, view some of the following Financial Services pages on Stockbroker fraud, Securities Issues, or dispute resolutions.

Today, marks a milestone in the life of The Law Planet Blog. This is our 100th Post our Blog covering Securities, Stock Fraud and Employment/LaBor Law issues.

It is also a great day for Senior Investors. A series of Grasssroots campaigns will be launched in Florida, Colorado, Vermont, North Carolina, and Washington state to protect seniors from investment fraud. The Financial Industry Regulatory Authority (FINRA) outlined new initiatives aimed at protecting and educating investors. The initiatives include a national advertising campaign and a 60-minute video, "Tricks of the Trade: Outsmarting Investment Fraud."

The video is part of the FINRA Foundation's new "fraud-fighting" education series for investors, which also includes in-person workshops and events in five states across the country this year: Colorado, Florida, North Carolina, Vermont and Washington state. These state-wide campaigns, which will be expanded to five additional states next year, are being presented in partnership with AARP, state securities regulators and other fraud-fighting organizations to help senior citizens identify and steer clear of investment fraud. A central feature of these campaigns is the presentation of an educational curriculum that has been tested and shown to reduce seniors' susceptibility to investment fraud by over 50 percent among participants.

To order a copy of the DVD Click on the FINRA link Fraud Fighting.

Stay tuned for more information on Investor protections to fight against fraud for Seniors.

The SEC announced today that it, along with Alabama Securities Commission has charged Aura Financial Services with “rampant” churning of customer accounts, “widespread” supervisory failures and other securities violations. This is stunning. It is rare that an entire firm is charged with churning. Usually it is an individual broker or office. For a firm to be charged must be pretty bad.

What do you do if you’re a client of Aura and can’t figure out what happened to your account? Contact a qualified securities arbitration attorney to look at your account statements and determine the best route to follow.

This gets back to the basics of investing. If you don’t understand what’s going on, don’t do it. If your Broker is doing things you don’t like, get another Broker. When you think you’ve been mistreated, ask a professional for a second opinion.

To learn more on this Aurora Financial Fraud case, read the SEC Press Release and Investment News article "SEC charges Birmingham B-D with churning"

The truth will always come out. This is a hard lesson that Fund Manager, Matthew D. Weitzman, just recently learned. He has been charged with investment adviser fraud, securities fraud, and wire fraud. If convicted he faces up to a maximum of 15 years imprisonment and over $5 million in fines.

Mr. Weitzman was co-founder of AFW, financial planning and investment management firm. AFW managed more than $190 million in assets at the end of 2008. According to reports in the North Country Gazette,, Mr. Weitzman converted investor money for his own use.

The Golden Goose is no more for Mr. Weitzman. His misdeeds caught up with him and now he must face the music for his crimes. Hopefully, the Investors in AFW will seek legal counsel to discuss how they can get their stolen funds back.

As we speak to Clients and give Seminars we are constantly asked "How can an investor preotect themselves against Stock Fraud?" Here are a few points that anyone can remember. Please feel free to share them with loved ones that are consistent investors. Enjoy...

1. Read your mail. Account statements are confirmations are sent for a reason. If the value of your account dropped or grew more than expected, read the prior month’s statement and try to figure it out. Ask your broker for help. If the broker won’t help, get a new broker

2. Diversify your investments. No matter how much your broker says “This is great” don’t put all your money in one place. No competent money manager does this. A private investor shouldn’t either.

3. Be proactive in dealing with your investment professional. A broker is supposed to make recommendations that are appropriate for your situation. If you’re uncomfortable and want to stay with that firm, talk to the branch manager. If you want to leave the firm, do it.

4. Remember that an investment that sounds too good to be true, isn’t true. All of the Ponzi schemes that fell apart over the last year were all succeeding because people thought they were in on a “secret” program that was always doing better than the market. It turns out there was no valid investment program. Experienced investors thought they had found the magic bullet. They should have known better. They forgot this basic principle.

Yet another financial fraud has been unearthed as part of the bloodletting of 2008/2009. As reported in Investment News, seven members of a church in Queens, New York, defrauded fellow church-goers of more than $12 million. The accused fraudsters were leaders in the church.

The formula does not appear to be different than any other. The fraudsters were trusted, pillars of the community. The promised high returns, some as high as 75% according to the article. In the end, it turned out they were doing what all Ponzi scheme artists do, they funded their "lavish lifestyle."

It's interesting that the investors in these schemes never seem to notice that, in spite of the promise of unrealistically high returns, the promoters are living well. Perhaps they rationalize in their own minds that the promoters are doing so well with their own investments that they can live well and make all their investors rich.

Get with the program people!!!! If these guys were so smart, they wouldn't be marketing only to members of their church and their lavish lifestyle would include owning Manhattan. Folks have forgotten the basic rule. If it sounds too good to be true, it is. Stay away.

Any broker who has moved from one firm to another has heard about, or received, them. They go by various names - Transitional Compensation, Employee Forgivable Loan, and Recruiting Bonus are among the names given to these payments. Essentially, the brokerage firms are hiring experienced brokers and "loaning" the broker money to ease the transition between firms. If a broker is successful at moving the vast amount of his or her production, then the forgivable loan becomes extra money in a good year.

But the past 18 months have been lean ones for brokers. Clients are unhappy. They are hesitant to change firms and follow a broker whom they blame for their losses. Brokers whose books of business are fee-based have seen their fees decrease as their clients' account values decrease.

Even worse off are the bottom quintile (20%) of the production force. The brokerage firms view these brokers, many of whom may have been better producers during better times, as expendable. As part of the consolidation and contraction of the brokerage business, the firms are letting these lower producers go. And the firms want their money back.

I have spoken with an in-house lawyer at a major wirehouse who told me that his firm's collection people are aggressively pursuing these lower quintile producers who were fired or let go in a "reduction in force" layoff. In today's economic times, this hardly seems fair that a broker is hit with the double-whammy of a loss of a job and a demand for repayment from an employer who no longer found the employee desirable. This does not make sense.

Virtually all of these cases must go to arbitration. Soon, we will begin to see an increase in the filing of collection case against former employees. In about nine to twelve months, we will see an increase in arbitration decisions. It will only be then that we will know whether the arbitration system thinks that these firms were being fair.

Should brokers be able to keep profits from the alleged $8billion investment Ponzi scheme ran by Texan billionaire Sir Allen Stanford?

If the Court appointed Receiver, Ralph Janvey, has anything to do with it, this will not be the case. Janvey is seeking the return of the large commissions, bonuses, and other compensation paid by Sir Allen’s company for the sell of certificates of deposit, to 66 Financial advisers.

According to a lawsuit filed by Janvey, the unsuspecting customers that purchased CDs from the Brokers should be entitled to compensation. The Brokers involved, should not be entitled to compensation from the "elaborate and sophisticated” incentive program, since the services they were being compensated for, were not legitimate.

If Janvey prevails in this lawsuit, this will be a huge step in the right direction for investors involved in Stanford ponzi scheme and others around the country.

Read more on the Stanford Ponzi Scheme, by clicking on the following link to the article in the Financial Times, "Official seeks return of Stanford paid commissions" by Joanna Chung.

Why should investors have to wait so long to find justice after losing large amounts of dollars in Ponzi Schemes like Bernie Madoff or Michael Riolo? According to a recent Sun Sentinel article on South Florida investors hurt in Ponzi schemes by Vanessa Blum, the search for assets is a major stumbling block. Other reasons include, the slow pace of litigation, and the heavy workload of law enforcement. One puzzling question for most is why should investors that have lost large amounts of money only recoup pennies on the dollar for these flagrant ponzi schemes?

According to the receiver, Alan Goldberg, the Riolo ponzi scheme took in at least $20 million from investors, which was mostly used to support a lavish lifestyle for Michael Riolo. Unfortunately, there is little left of value apart from a home valued at $1.2 million and about $200,000 in assets.

Investors must be extra cautious in today's market of investing. What can an investor do if they feel they are a victim of a Stockbroker fraud or a Ponzi scheme? Contact an experienced attorney to discuss their rights and what strategies are available to recoup their losses.

"Glaring Red Flags and Returns to good to be true", should have alerted Mr. J. Ezra Merkin to the Madoff Ponzi scheme according to New York Attorney General Andrew Cuomo. He is bringing the suit against Merkin because of his actions and reckless disregard regarding unsuspecting investors losing $2.4 billion. Although his clients lost money, Merkin personally gained $470 million for his careles actions. Merkin is the general partner of Ascot and Gabriel, domestic hedge funds and has been involved with running investment funds since 1989. One would think that with all his experience and credentials, he should have known better.

In a 54-page complaint filed earlier this week, New York Attorney General Cuomo accuses Merkin of duping his customers into believing he was investing their money. He touted himself as an "investing guru" when "in reality" he was only "a master marketeer."

On a positive note, Merkin is not accused of knowing about Madoff's fraud. However, because of his experience and track record, he should have known better. In the complaint, Cuomo is stating that Merkin is guilty of "deceit, recklessness, and breaches of fiduciary duty."

Click here to read more from the Law Journal Article on N.Y. Attorney General Sues Financier Over Madoff Losses

All eyes are on this New York case, because of the implications for other Brokers. Time will tell if Merkin and others will face consequences for client losses in the Madoff Ponzi scheme.

Let's hope that Justice Prevails and that Attorney General Andrew Cuomo has sucess with his suits against Merkin.

Jupiter, Florida">is a long way from Wall Street. Yet the financial explosions that have rocked that bastion of investment have had repercussions in Palm Beach County. Lessons, some new, some old, can be learned and repeated.

First, and I've said this before, your mother was right. If it's too good to be true, you should avoid it. Like a diet that says "eat all you want and lose weight" an investment product that has consistently high returns through all markets is likely a fraud. Nobody is that good.

Second, just because it's called a CD, doesn't make it FDIC insured. The Stanford investment product was called a CD, but the bank (in Antigua, of all places) was not FDIC insured. And it was not in the business of lending money at a higher rate. It was investing the money in whatever it felt like. That makes these CDs much more like shares in a mutual fund or investment partnership than a CD. And there was absolutely no FDIC insurance.

Third, another tribute to your mother. Don't put all of your eggs in one basket. There was a recent report of a professional athlete whose entire liquid net worth was frozen by the SEC's action against Stanford. At one point he was quoted as saying that all he had was the $13 in his wallet. Don't let this happen to you.

Finally, trust but verify. In my opinion, part of what made these alleged scams so successful, was the beautiful public face they put on. Who would believe that Madoff, a now-former scion of the securities business, was engaging in the wrongdoing he has admitted? Stanford spent millions building its brand in the arts and sports. But no one bothered to check on how the books were kept or who the auditors were. It turned out the auditors may have been ill-equipped, or fraught with conflict, when it came to these large clients. The SEC said that the Stanford Bank's auditors in Antigua didn't even answer the phone.

Diversify, examine and think. This will provide you with most of the tools to protect yourself from scammers.

That's the view from The Law Planet -- Jupiter, Florida.

I have mentioned in the past that my distaste for Equity Indexed Annuities runs deep. I wondered aloud how a market-based product could be sold by someone with a securities registration. I would like to think that the SEC cares what I think, but I would be wrong. However, SEC Rule 151a went into effect in December and the Index Annuity folks are hopping mad.

They have a website, SEC151a.com, to plead their case. But what struck me most when reading their materials is the first page, which encourages its members to not get registered with either a Series 6 or Series 7. The authors of this site are discouraging people from the additional oversight that having a supervising broker/dealer would bring. Of course, that would likely mean another layer of overrides and reduction in income.

In my view, it would also lead to fewer inappropriate EIA sales. When I last blogged on this topic, I received an email from an annuity marketer taking me to task for blasting this "wonderful" product. It was all I could do to prevent myself from laughing (actually I did laugh). It's real simple in my mind. If you're selling something that relies on the stock market's performance to determine the performance of the underlying investment, you should be registered to sell securities.

Start sharpening your pencils, folks, and please bubble inside the circle only.

That's the view from The Law Planet, Jupiter, Florida.

I was recently retained to represent a client who was both an insurance agent and a registered representative with a related entity. The client was terminated by the insurance company and the broker-dealer. The U-5 that was filed became a problem.

The broker-dealer disclosed on the U-5 that there were two customer complaints from insurance customers regarding fixed insurance products. While this was true that there were two complaints, I felt (actually, I knew but I was being modest) that the disclosure was improper. I wrote to the company and told them to change things.

The company's lawyer wrote back and advised that he felt that the disclosure was proper under U-5 question question 7E(3)(a), which references U-4 question 14I(3)(A). This is essentially a question about the existence of yet-unreported customer complaints. The insurance company/broker-dealer felt that fixed (as opposed to variable) insurance complaints were reportable. I knew they were not.

The FINRA website held the key. FINRA advises that only complaints concerning a security, variable contract that is subject to regulation under the federal securities laws, or commodity exchange product are reportable . Other complaints are not.

There is one caveat, however. If the complaint relates to fixed insurance and alleges forgery, theft, or misappropriation or conversion of funds or securities, then it is reportable on a U-5. This is a slight, but important, difference.

After being educated in their wayward ways, the broker-dealer agreed to arrange to remove the improper disclosures.

That's the view from The Law Planet, Jupiter, Florida.

A friend of mine sent me this picture claiming that it was a protest of Lehman Brothers employees outside their office.

I think he's pulling my leg.

I recently wrote about FINRA's policy on expungements. Of course, FINRA has no control over what any individual state securities commissioner might do. In what appears to be a case of first impression, a state securities regulator has stepped in to try and stop a bargained-for expungement.

Melanie Lubin, the securities commissioner for Maryland, intervened in what is usually a milk-run expungement matter. In an attempt to keep the complaint on broker's record, Ms. Lubin objected to the expungement. At the trial court level she was denied the opportunity to intervene. The DC Appeals court ruled that she could intervene and sent the case back to the trial court.

Get ready boys and girls. Not only will this change the whole expungement atmosphere, it will change the wording of releases. If an expungement is a material part of the settlement, then what will happen if the state regulator intervenes and shouts "STOP!" More litigation, that's what. And for those of us that do litigation, that's good news. For those of you who pay the bills for litigation, this is not a good day.

This is going to become an even more sensitive issue as "product failures", such as Auction Rate Securities, are disclosed on a broker's CRD. Many brokers are already stating that they were just a conduit for the information (or misinformation) given to them by their firms. Does a state securities commissioner really want to stick his or her nose in that one? What a mess.

That's the view from The Law Planet - Jupiter, Florida.

I have recently received several inquiries regarding expungements of U-4 and U-5 information. I have said this more than once, but "in the old days" an expungement was a piece of cake. The parties agreed to it, whether it was a customer or industry dispute, and it was done.

Of course FINRA got wise to this and started slowly tightening the noose around expungements. I have done research on this issue before but wanted to share this one link I found which you, my 3 loyal readers, may find helpful. This page contains the be-all and end-all from FINRA regarding expungements.

There are two classes of expungements - customer and non-customer. Expungements of customer complaints require specific findings. If a U-4 or U-5 disclosure is not customer-related, then a different set of rules applies and the only finding that an arbitration panel needs to make is that the disclosure was defamatory.

There is also a procedural difference once the successful litigant has obtained an expungement Order. If it is customer-related, a court needs to sign off on the change to the U-4/U-5 and FINRA needs to be made a party to the action. If the expunged information is not customer-related, a simple finding of defamation is sufficient for FINRA to remove the information from the CRD system.

Now you're informed. That's the view from The Law Planet - Jupiter, Florida.

The securities industry, no doubt, has been waiting for the decision in this case for a while. The Securities and Exchange Commission ("SEC") filed an action against NEXT Financial, Inc., an independent broker-dealer firm. The SEC was rightfully unhappy about NEXT's broker transition practices. I've commented on this before, but when you don't work for a brokerage firm and you're accessing that firm's records to enable that firm's broker to transition to your firm, you're doing something wrong. Apparently a few people skipped that class.

An old adage is that "bad cases make bad law." This was a bad case. NEXT had people who would access competitors' computer systems. NEXT had people accessing mutual fund systems using the recruits' user information. And NEXT did nothing to safeguard the information of non-customers on its computer system. The SEC was shooting fish in a barrel.

The Administrative Judge found that NEXT did what the SEC alleged. You can view a copy of the opinion here. It's ugly. Even the proposed changes to Regulation S-P, relating to customer information protection, couldn't help. And now the securities industry is going to have to live with this decision brought about by the overreaching of one of its members.

The lesson here, folks, is don't access other firm's computer systems. Don't take more than you need. And take steps to protect the information you do bring to your new firm.

That's the view from The Law Planet, Jupiter, Florida.

We've all seen them - the books and magazines that look like they feature a financial salesperson. In fact, NBC's Dateline program did an expose on annity sales practices. Several of the agents the show targeted had phony ghostwritten articles.

In FINRA Notice to Members 08-27, the regulators stated that using ghostwritten materials could violate a number of rules, including NASD Rules 2110, 2120 and 2210 and Incorporated NYSE Rule 472. Frankly, the use of the word "could" is fairly silly. How about "does" unless, in a conspicuous place, the financial representative discloses that the only connection he had to the article was possession of a credit card and a digital picture?

This is one of those common sense kind of moments. Others call it the "Wall Street Journal" test. Do you want your behavior displayed on the front page of the "Wall Street Journal"? Generally, no.

FINRA's Notice to Members addresses a recent theme, aggressive sales tactics used in connection with seniors. FINRA has issued pronouncements regarding "free" lunch seminars, the use of certifications that are nothing more than mail order multiple question tests and, now, the use of phony news articles. All of these are good steps to protect those who can least afford to make financial mistakes.

That's the view from The Law Planet - Jupiter, Florida.

In another installment of the incompetent/malevolent broker/dealer guidebook, Barclays Capital partially prevailed on a Motion to Vacate Arbitration Award filed against one of its former employees. In Barclays Capital Inc. vs. Elizabeth Bing Shen, 2008 N.Y. Misc. LEXIS 2327, a NY Supreme Court judge (the lowest level trial court, interestingly enough) found that the ruling in Rosenberg v. MetLife barred recovery of punitive damages.

Rosenberg, as those who have been following this issue will recall, held that incorrect statements on a U-5 Termination Notice were absolutely privileged. In my opinion, regardless of whether you represent a firm or the broker, this is a wrong-headed decision that was decided by judges who ignored the impact on a broker's life a U-5 can have. There has been some discussion by commentators that there are ways "around" Rosenberg. Certainly, one of them is to avoid New York law in contracts. There are others as well, but if I shared them I'd have to shoot you.

Back to Ms. Shen. She was apparently owed a bonus and her U-5 was found to be erroneous by the arbitrators. By the description in the court's opinion, she does not qualify for "Employee of the Year" status by any means, but the arbitrators clearly felt that she didn't deserve the disclosure she received. They awarded her punitive damages.

The court found that the punitive damages could only have been for the U-5 defamation claim and, therefore, vacated that part of the award. We are currently representing brokers whose U-5s, we believe, are defamatory. We are not concerned about the New York choice of law provision because we feel that there are valid arguments against it when the the broker is in Florida. Nevertheless, this creates more stress and anxiety and creates a "free defamation zone" for broker-dealers, honorable and not.

That's the view from The Law Planet - Jupiter, Florida.

Since just about the beginning of time, FINRA (formerly NASD) fines were viewed as a mere nuisance by out-of-business firms and former registered persons. FINRA has been criticized in the past for not collecting regulatory fines or fees from arbitration proceedings. At least in one case, this seems to have changed.

FINRA filed, and won, an enforcement action against John Fiero and Fiero Brothers, the broker-dealer he controlled, obtaining an award for over $1,000,000 in fines and costs. In the past, this would have been a pyrrhic victory for FINRA as it was well-known that they would not pursue collection if the firm was out of business. Well, it looks like this is no longer the case. FINRA filed a lawsuit in New York state court to collect the award.

FINRA was successful in the lower court and the appellate level. There were various defenses raised by Fiero and his company -- all of which were nice attempts but hard to fathom. Their success, perhaps temporary, came at the Court of Appeals, New York's highest court. For the first time in this matter, it appears, a court addressed the issue of jurisdiction over the action. The Court of Appeals found that Section 27 of the Exchange Act of 1934 specifically provides for "exclusive jurisdiction" in Federal Court. Boom, like that, FINRA was foiled.

Probably not for long. And this will be a lesson for those of us who practice in this area. We can no longer advise clients that, out of the business means that FINRA won't come after you. Maybe it's based on dollar level, but we'll see.

That's the view from The Law Planet -- Jupiter, Florida.

Since time immemorial, brokers who left their prior firms have taken copies of customer information. In the "old days", brokers copied their holding pages, new account forms and last monthly statements of their customers. With the advances made in the industry, a broker only needs a customer name, address, account number and phone number to accomplish the transfer. Sure, there's plenty of other data, but it's not needed to effect the transfer. This has been going on since I started as a paralegal in the Prudential-Bache Securities law department in 1983.

The SEC sounds like it wants to change all that. Last month, an administrative law judge held a hearing in a case brought by the SEC against NEXT Financial, a brokerage firm from Texas using the independent contractor model. In that case, the SEC's lawyers maintained that all information is confidential and cannot be transferred without the customer's permission. It is unclear whether this includes names and addresses.

In 2007, we successfully defended two cases brought by major wirehouses against their smaller competitors. In both cases, the firms complained about the transfer of "confidential" information. In both cases, we pointed out the hypocrisy of the argument as those same firms use the same "confidential" information when they recruit from other firms. As I said, this has been going on since time immemorial. The arbitrators in both cases, recognizing that this is the custom and practice in the industry, awarded nominal damages to the wirehouses, not the hundreds of thousands or millions that were sought.

The brokerage industry has been able to deal with this issue, on its own, for years and years. The problem, of course, is that NEXT's alleged conduct was wrong and the firm did not own up to its failings. As we sometimes say in the practice "Bad cases make bad law." From what the SEC alleged, this was a "bad case" and the industry may find itself suffering from its impact.

That's the view from The Law Planet - Jupiter, Florida

Every stockbroker is required to register with the state in which he or she does business and with, at a minimum, FINRA (formerly known as NASD). A broker's background, as maintained by FINRA, can be found here. Every customer of a broker should look at the broker's background before trusting their life savings to a stranger.

And every broker is a stranger. No matter how much you know about your broker, you will certainly not hear of arbitration awards or regulatory sanctions. The new BrokerCheck generates a very user-friendly report in pdf format which can be saved for future reference. It contains the broker's employment history, registration history, any outside business affiliations and, if applicable, and regulatory/litigation history.

Most brokers have clean records or records with minor dings on them. Other brokers have plenty of dings but they may be due to a product failure, such as Limited Partnerships or firm research stocks. But a consistent history of such magic terms as "unauthorized trading" or "unsuitability" should give you reason to look elsewhere. It may mean that the broker you're speaking with has a difficult time complying with the rules. With over 50,000 registered brokers, you should be able to find one that suits your needs.

That's the view from The Law Planet - Jupiter, Florida.

The newly-minted securities regulator, FINRA just fined Morgan Stanley $12.5 million for failing to produce emails in its possession. To make this even more heinous, Morgan Stanley hid behind the 9/11 tragedy as the reason for its failure to produce. As it turns out, this representation was just wrong and Morgan Stanley knew it.

This problem came to light in a very public way when Morgan Stanley tripped over itself, numerous times, in Palm Beach County Circuit Court litigation with Ron Perelman. Mr. Perelman's lawyers pressed and pressed the firm for emails. And, magically, emails started popping up all over. Eventually, the judge decided that Morgan Stanley couldn't be trusted and shifted the burden of proof to Morgan Stanley to prove that it wasn't liable to Perelman.

We have litigated against Morgan Stanley. In all cases but one, the company fought production of obvious items, produced incomplete documents and stated that documents didn't exist, and then produced the documents when forced. In one case, we were told no documents existed and a witness showed up at a hearing to testify with a big stack of paper that was in a file outside his office.

Litigation is a battle. But there are rules and expectations of lawyers and clients to abide by those rules. Morgan Stanley was fined for more than an oversight and it was deserved. Perhaps this will serve as a warning to other firms who play games in discovery.

That's the view from The Law Planet, Jupiter, Florida.

The Securities and Exchange Commission has issued an Order Instituting Administrative Proceedings against Next Financial regarding Next's transition practices. The SEC has alleged a violation of Regulation S-P regarding customer privacy. It is strange to see the SEC get involved in recruiting matters, but there's a twist here that should have been obvious, but apparently wasn't.

According to the SEC, Next has a "transition team" whose responsibility it was to help new brokers join the firm. No problem there. Next's team had a spreadsheet which the incoming brokers were supposed to fill out. The spreadsheet asked for more information than is necessary to facilitate a transfer, but still no big deal.

So why is the SEC involved? According to the filing, Next employees would access the "losing" firm's computer system and access their customer records. How did they accomplish this? Using the usernames and passwords of the incoming brokers, that's how. Did anyone at Next think this was appropriate? Of course it wasn't. A monkey living in a tree would know that this was inappropriate.

There are areas in the recruiting venue where the SEC has been the equivalent of the piano player in a bordello "You mean this is a house of ill-repute?" Customer information has moved between firms for years and years. This is the way business has been done. Next, as far as getting this information from its recruits in anticipation of their arrival, was doing nothing out of the ordinary.

Accessing another firm's computer system is a whole different story. There are legal implications that are far greater than just a Regulation S-P violation, such as legislation, Federal and State, protecting firms against unauthorized use of their computers by outsiders or hackers. In law school we were taught that bad cases make bad law. This could be a bad case and the fallout could affect the entire securities industry.

That's the view from The Law Planet - Jupiter, Florida.

Every day, a stockbroker is asked to sign an amendment to NASD Form U-4, the securities industry's Uniform Application for Securities Registration. A brokerage firm is required to amend the Form U-4 upon the occurrence of certain specified events as described in the form. In particular, customer complaints and arbitrations which allege damages over the dollar thresholds must be disclosed.

Unfortunately for the brokers, truthful allegations are given the same weight as untruthful ones. A customer can allege unauthorized trading, for example. The firm is required to repeat that allegation on the Form U-4. The firm is not permitted, however, to pass judgment on whether or not the allegations are truthful. For a broker with no particular experience with amendments to the form U-4, signing a form with such heinous allegations is especially distasteful. What's a broker to do in this situation?

Box 28 is the answer. A little-publicized fact is that the broker has the right to provide his/her rebuttal to the disclosure in Box 28. The instructions say that this rebuttal should be written "in the space provided." In many instances, Box 28, when printed, has no space at all. But there is space available for the asking.

What should go in Box 28? A broker should write a brief, truthful, factual rebuttal to the allegations that the firm has disclosed. For instance, in the case of unauthorized trading, if the broker is 100% certain that all trades were discussed with the client prior to entry, a broker could write this fact. In the case of a client who makes allegations of losses in a portfolio, a broker could write that the client's account was profitable for the period the broker handled the account. Again, the Box 28 text must be truthful and, I suggest, should not be opinion, only fact.

In the case of a manager named for "Failure to Supervise," the manager could write in Box 28, if truthful, that the manager was not the manager during the time of the allegations.

Why fill in Box 28? When a customer or prospective employer requests a full CRD printout, Box 28 language will print out along with the customer's allegations. CRD reports are sometimes introduced into evidence at arbitration hearings. Having Box 28 completed with factual, objective, rebuttal language will take some, but not all, of the sting out of disclosing the complaint in the first place.

A lawyer is not required to complete the language for box 28. However, an experienced securities attorney can assist the broker in crafting the rebuttal in a light most favorable to the broker. This entire process, barring any unforeseen glitches, shouldn't take very long and will give the broker some peace of mind and feeling of involvement in the process.

That's the view from The Law Planet, Jupiter, Florida.