Securities Industry Commentator by Bill Singer Esq

August 8, 2019

A Taxing Case. In the Matter of the Arbitration Between Eugene E. Brucker and the Eugene E. Brucker Revocable Trust DTD 05/20/09, Claimants, v. Wells Fargo Advisors, LLC and David W. Mesker, Jr,, Respondents (FINRA Arbitration Decision 17-02896)
In a FINRA Arbitration Statement of Claim filed in October 2017 and as amended, the public customer Claimants asserted breaches of contract and of fiduciary duty, and negligence/negligent misrepresentation. As set forth in part in the FINRA Arbitration Decision, Claimants alleged that " Mesker solicited the sale of E.E.B.'s entire position in Panera Bread Company (PNRA) stock in the E.E.B. Trust account without communicating or disclosing the significant and unnecessary capital gains tax impact that transaction would create." At the  hearing, Claimants sought $81,533.20 for the alleged post-tax loss on the PNRA sale;  $48,641.89 for failure to re-invest; $1,967.00 for disgorgement of commission; $170,477.50 for attorneys' fees; $6,363.98 for costs; and $300,000.00 for punitive damages.Respondents Wells Fargo and Mesker generally denied the allegations and asserted various affirmative defenses. During the evidentiary hearing, the Panel and Respondents were notified that Claimant Eugene E. Brucker ("E.E.B.") was deceased and that his son would proceed on behalf of the Trust and its beneficiaries, and the Panel granted that request. The Panel found Respondents jointly and severally liable and ordered them to pay to Claimant E.E.B. Trust $81,533.20 in compensatory damages with interest, $2,,181.99 in costs, $85,238.75 in attorneys' fees; and $425 in reimbursed filing fees.

It's a Family Affair for Ameriprise in FINRA Expungement.
In the Matter of the Arbitration Between Timothy Robert Jirak, Claimant, v. Ameriprise Financial Services, Inc., Respondent (FINRA Arbitration Decision 19-00091)
In a FINRA Arbitration Statement of Claim filed in January 2019, associated person Claimant Jirak sought the expungement of a customer complaint from his Central Registration Depository record ("CRD"). Respondent Ameriprise "concurred in Claimant's request for expungement." The complaining customer was deceased by the time of the filing of Claimant Jirak's arbitration. In recommending expungement, the sole FINRA Arbitrator made a FINRA Rule 2080 finding that the customer's claim, allegation, or information is factually impossible or clearly erroneous, and false. The Arbitrator offered this succinct rationale:

The complaint did not concern a sales practice violation or any other professional misconduct. It was an attempt to gain leverage in an unrelated family dispute. The underlying issue was a dispute between the customer's uncles and the Claimant's mother about the division of money in the Claimant's grandmother's estate. That money had no relationship to the Claimant or to his employment in the securities industry. In addition to being unrelated to the Claimant's professional conduct, I found (and the reviewing court found) the complaint to be meritless. In fact, the court awarded damages to the Claimant in a defamation suit against the uncles. Publicizing an unrelated and meritless complaint provides no benefit to the investing public.
FINRA member firm Barclays Capital Inc. ("BCI") offered Matthew Grady a job as an investment representative, and sweetened the deal with a $900,000 employee forgivable loan ("EFL"). The EFL was made by BCI's banking affiliate Barclays Bank PLC.  The terms of the loan stated that it was extended by the bank independent of Grady's employment with the brokerage firm. And as if things weren't odd enough, the loan was made subject to the express understanding that any disputes arising out of the loan would not be subject to FINRA arbitration. That being said, when a dispute arose over repayment of a portion of Grady's EFL, BCI filed a FINRA Arbitration Statement of Claim against Grady. How did the lawsuit over the EFL wind up as a FINRA arbitration when the loan terms expressly prohibited such recourse? One answer may be that Grady represented himself. A more likely answer is that FINRA-the-regulator and FINRA-the-arbitration-forum sat on its fat ass on the sidelines. And so it goes. Day after day on Wall Street.

Former New York Life insurance agent Jonathan Williams pled guilty to wire fraud in the United States District Court for the District of Maryland  in connection with his role in defrauding clients out of over $2.8 million. Williams was sentenced to 57 months in prison plus three years of supervised release, and he was ordered to PAY $2.8 million in restitution. As set forth in part in the DOJ Release:

[W]illiams was only authorized to sell New York Life related products and provide financial planning through a New York Life affiliate.  New York Life did not sell certificates of deposit (CDs) nor was Williams authorized to sell CDs.  New York Life authorized the use of "doing business as" entities (DBAs) for marketing purposes only and approved Williams' use of Mid-Atlantic Financial and Williams Investment Group as DBAs.  Williams was not permitted to have premiums made payable to him or his DBAs.

Williams admitted that from 2009 to 2015, Williams deceived New York Life and its customers, and fraudulently obtained more than $2.8 million.  At Williams' direction, customers paid money to entities with bank accounts that Williams controlled, including Advanced Retirement Solutions, Jonathan Williams Financial Planning, and Mid-Atlantic Financial.  Williams used the victim funds to make cash withdrawals, to pay personal and business expenses, to pay employees, to take vacations, and other miscellaneous expenses.

For example, Williams misrepresented to one small business that he was creating a defined benefit plan for the company's employees by purchasing life insurance, long-term policies, and other investments.  In 2015, after more than five years, the business learned that Williams never created the defined benefit plan.  In addition to the money that he took from the business, Williams caused New York Life and the small business to incur substantial costs to recreate the benefit plan and avoid arduous tax consequences stemming from Williams' illegal conduct. 

Further, Williams admitted that he provided a fake certificate of deposit account statements to another victim, but never invested the client's money.  That victim lost more than $350,000.  A third victim, who had spent more than 30 years in the U.S. Navy, invested $100,000 with Williams, supposedly for Williams to establish investment accounts with Fidelity.  Williams lied to the victim in e-mails, claiming that the victim's money was invested with Fidelity.  In fact, an account was never created for the victim at Fidelity and Williams used the victim's money for his personal enrichment. 

In March 2015, Williams provided phony bank records to New York Life after officials questioned Williams about his financial transactions with New York Life customers.  Even after he lost his license to sell insurance in May 2015, Williams continued to mislead clients, telling one client in July 2016 that he was leaving New York Life to work for another company.  New York Life subsequently terminated Williams' employment and paid to settle with the victims of Williams' fraud who suffered financial losses stemming from his illegal conduct.

Massachusetts Woman Sentenced To 41 Months For Orchestrating Fraudulent Investment Scheme (DOJ Release)
Jessica M. Teixeira pled guilty in the United States District Court for the District of New Hampshire to wire fraud and money laundering, and she was sentenced to 41 months in prison, and she was ordered to pay $296,250 in restitution. As set forth in part in the DOJ Release:

[B]etween December 2015 and November 2017, Teixeira defrauded two New Hampshire investors by selling them a series of securities that she claimed were guaranteed to generate high rates of return.  Teixeira represented herself as a solicitor of high-yield investment funds with connections to investment groups raising funds associated with domestic and foreign real estate developments, who solicited financing through private investors rather than banks.  In fact, Teixeira's claims about being connected to high-level investment groups were false.  The investment contracts and notes she sold were worthless and they generated no returns.  Teixeira simply converted the invested funds to her own personal use and benefit, without returning any of the invested funds.  In total, the Teixeira obtained approximately $296,250 from the two investors.             , the SEC alleged that accounting firm partner Thomas W. Avent, Jr. had obtained highly confidential nonpublic information about three potential acquisitions of publicly- traded companies while performing tax due diligence work; and, thereafter, tipped his stock broker, who also tipped a former colleague and long-time friend. Without admitting or denying the allegations of the Complaint, Avent consented to being permanently enjoined from violating the antifraud provisions of Sections 10(b) and 14(e) of the Securities Exchange Act  and Rules 10b-5 and 14e-3 thereunder, and  he was ordered to pay $125,000 civil penalty. In a separate administrative proceeding, Avent consented to the entry of a permanent Bar from appearing or practicing before the SEC under Rule of Practice 102(e)(3).

As set forth in the "Summary" of the FINRA Regulatory Notice:

This Notice reminds members of the Securities and Exchange Commission's (SEC's) adoption of a best interest standard of conduct for broker-dealers and a relationship summary (Form CRS) delivery obligation, and provides an SEC email address where members may submit questions about the new requirements. As more fully described below, the SEC encourages firms to actively engage with SEC staff as early as possible as questions arise when planning for implementation. Firms may send their questions by email to FINRA also will assist members in their implementation of the best interest standard in various ways.