Securities Industry Commentator by Bill Singer Esq

FINRA Says It Had No Part In Deciding Schwab Customer Arbitration -- Seriously? (BrokeAndBroker.com Blog)

SEC Charges Four in Connection with Fraudulent Oil and Gas Offering (SEC Release)

Mont Vernon Attorney Convicted of Engaging in Multimillion Dollar Fraud Scheme (DOJ Release)

Federal Court Says Raymond James' "Shotgun" Defense Misfires

Kimberly Nguyen, Plaintiff, v. Raymond James & Associates, Inc., Defendant (Order, MDFL)

Nolo, Nolle, and the Missing Balancing Test Win Reversal and Remand for John Doe Seeking to Seal His Felony Charges

Doe v. The State (Opinion, Court of Appeals of Georgia)

[B]etween February 2016 and March 2017, Burroughs lured investors with false promises of inflated investment returns while concealing his extensive disciplinary history of violating state securities laws. The SEC alleges that Burroughs installed Holstine - who lacked prior oil and gas operations experience - as Petrobridge's public face after a prospective investor posted information on a consumer fraud website about Burroughs's disciplinary history. As alleged, Burroughs and Holstine then revised corporate records relating to Petrobridge's ownership and operation to remove references to Burroughs's involvement. The SEC contends, however, that Burroughs continued to control Petrobridge's day-to-day operations. In this capacity, Burroughs prepared offering materials that allegedly misrepresented material aspects of the investment, such as overstating the acreage that Petrobridge had under lease and falsely promising investment returns as high as 59% that failed to account for operating expenses. Finally, the complaint alleges that Burroughs and Holstine recruited Griffin and Williams to sell the offerings, primarily through nationwide cold calling campaigns.

[F]oistner used fraudulent means to apply for over $8 million in loans from five different financial institutions, laundered money, and made material misrepresentations during bankruptcy proceedings between 2015 and 2018.  Foistner, at the time of the scheme, was a licensed attorney in Massachusetts.  He did not have any paying clients and earned no income through his law firm.  In order to obtain millions of dollars in loans from multiple financial institutions, Foistner provided banks with misleading documents that suggested that he was operating a lucrative law firm.  For example, he claimed that he was a "seasoned attorney" with international clients and that his firm earned over a million dollars in annual income.  In fact, all the firm's purported income was based upon bogus, unpaid invoices the firm submitted to entities that the defendant controlled, including bankrupt entities.  The defendant also made other false statements to obtain bank loans, including lying about whether he was involved as a party to any lawsuits and denying that he had an interest in other companies.  He also falsely represented that he had a salary by mischaracterizing loan proceeds as a salary.  In one of the bank fraud schemes, the defendant submitted false information to obtain a loan by claiming falsely that his wife was earning over $200,000 per year as a paralegal.  Each of the loans made to Foistner were backed by either the Department of the Veterans Affairs or the Small Business Administration.

The evidence further showed that Foistner committed several crimes during Chapter 7 bankruptcy court proceedings in 2017 and 2018.  He made false representations by falsely denying that he held or controlled property owned by others when he actually controlled funds that were held in the name of a business.  He also made false statements under oath by lying about what happened to the proceeds of one of the fraudulent loans and lying about not knowing the location of a piece of real estate that had been purchased in part with funds he borrowed and had subsequently funneled into bank accounts not in his name.

This matter comes before the Court upon Defendant Raymond James & Associates, Inc.'s Motion to Dismiss the Second Amended Complaint and Incorporated Memorandum of Law [Doc. 122], Plaintiff's Opposition [Doc. 131], and Defendant's Notice of Supplemental Authority [Doc. 134]. Defendant argues that the complaint is pleaded in shotgun form, fails to state claims for breach of fiduciary duty and negligence, and that the claims are barred by the independent tort doctrine and precluded from being asserted as class action claims by the Securities Litigation Uniform Standards Act. The Court, having considered the motion and being fully advised in the premises, will DENY Defendant Raymond James & Associates, Inc.'s Motion to Dismiss the Second Amended Complaint and Incorporated Memorandum of Law. 

Plaintiff, Kimberly Nguyen, has been a client of Defendant Raymond James & Associates, Inc. since June 2015. [Doc. 117 ¶ 25]. Raymond James operates as a registered broker-dealer with the Financial Industry Regulatory Authority (FINRA) and as a registered investment advisor firm with the United States Securities and Exchange Commission (SEC). Id. ¶ 26. It engages in most aspects of securities distribution and investment banking, and operates as a wealth management firm, offering portfolio management, financial planning, and advisory services. Id. It offered commission-based accounts for which it charged clients a modest fee per trade and feebased accounts which attracted an annual fee based on a percentage of the assets in the client's account. Id. ¶¶ 2, 4. 

Plaintiff and the putative class members' assets were originally placed in commission-based accounts by Raymond James. Id. ¶¶ 2, 27. Plaintiff's investment strategy was to buy and hold, and she paid modest commissions for the few trades that were executed. Id. ¶ 29. In January 2016, Raymond James' registered representative, without conducting any suitability analysis, advised Plaintiff to transfer her assets, including shares in various mutual funds, into a fee-based account. Id. ¶¶ 30, 27. This was done even though the registered representative knew Plaintiff's investment  3 strategy, and at no time was Plaintiff advised that the fee-based account was not suitable for her. Id. ¶ 30. Raymond James' policies and practices were designed to strongly encourage its registered representatives to solicit and recommend that clients transfer to fee-based accounts, and transitioning smaller clients to Freedom Accounts was profitable for registered representatives. Id. ¶¶ 59, 60, 65-67, 71-74. 

Based on the advice of the registered representative, Plaintiff executed a Client Freedom Account Agreement. Id. After the Agreement was executed, Plaintiff chose a portfolio model. Id. at ¶ 31. Raymond James then liquidated the assets in her commission-based account, transferred the funds to her fee-based Freedom Account, and reinvested the funds. Id. Plaintiff did not base her decision to enroll in the Freedom Account program on the purchase or sale of a particular security. Id. As is the case with Plaintiff, Raymond James transferred the assets of members of the putative class without conducting any suitability analysis. Id. ¶ 33. After switching Plaintiff's and putative class members' assets to the Freedom Account, Raymond James maintained those assets in the fee-based accounts without monitoring the accounts to determine- via an account suitability analysis-whether it should transfer the assets back into a commission-based account in view of the limited trading activity. Id. ¶¶ 51, 56. It also did so without supervising its broker-dealers to ensure the required monitoring was being performed. Id. In failing to conduct account-type suitability analyses before transferring clients into fee-based accounts and having processes and procedures in place to do so, and in allowing the assets to remain in those accounts without proper monitoring, Raymond James was negligent and breached its fiduciary obligations to Plaintiff and putative class members, as well as duties under state law. Id. ¶ 35, 57, 58, 86. 

As a result of the switch in account types, Plaintiff and putative class members were charged far higher fees than the modest per-transaction commissions for commission-based accounts and Raymond James profited significantly at their expense. Id. ¶¶ 32, 34, 52-54, 77. Following its class-wide transfer of assets, Raymond James reported significant increases in the value of assets in fee-based accounts. Id. ¶¶ 78-84. Its stock doubled from $41 per share to more than $90 per share due to its growth in fee-based accounts over the relevant time period. Id. ¶ 83.

alleging that he is unable to obtain "gainful employment within the Banking and Investment industry" because of the felony charges on his record. In his motion, Doe explained that he was convicted of the misdemeanor offense of habitual violator, which is a lesser included offense of felony habitual violator, and that he, therefore, was entitled to have any record pertaining to the felony charge restricted by the Georgia Crime Information Center, and all agencies maintaining such information in Cherokee County, pursuant to OCGA § 35-3-37 (j) (1). He further requested that all the records of the case be sealed by the Clerk of the Superior Court of Cherokee County pursuant to OCGA § 35-3-37 (m).

[H]e is unable to obtain work as an independent financial advisor because he must disclose the offense to the Financial Industry Regulatory Authority and the Securities and Exchange Commission, that he has "lost out on dozens of jobs over the last ten years due to this record being publicly available," and that the charge is not connected to what he does for a living in that it is does not involve dishonesty, theft, or fraud; if the offense is restricted from his record under OCGA § 35-3-37 (j) (4), it will be removed from his "FIRNA" and SEC disclosure records. According to Doe, "[a]t first glance, it doesn't look like [he's] been convicted of a misdemeanor traffic violation, but rather, that [he is] a habitual or career criminal, which is not the case." During the hearing, the trial court acknowledged that it had not "had any dealings with the new statute yet"; asked Doe to email his "opening statement" and "argument," which the trial court would then forward to the State; and instructed the State to prepare a letter brief in response to the email. . . .

[D]oe was not entitled to restriction of his criminal history record under OCGA § 35-3- 37 (h) (2) (A) because the nolo contendere plea was not a dismissal, nolle prosse, or reduced violation of a local ordinance. The trial court further ruled that Doe was not entitled to relief pursuant to OCGA § 35-3-37 (j) (1) because his negotiated plea was to a lesser-included offense of the original felony charge, and that the Code section provides for relief only when the individual " 'was convicted of a misdemeanor offense that was not a lesser included offense of the felony charge.' " 

the trial court erred in ruling that a nolo contendere plea is not a conviction within the meaning of OCGA § 35-3-37 (j) (4) (A), and that he is, therefore, ineligible for record restriction. Doe further alleges that it is irrelevant under subsection (j) (4) (A) that his plea was reduced from a felony. 

As Doe explains in his reply brief, the newly-revised Code section had only been in effect for several weeks when he filed his form petition. Doe acknowledges that he "plainly does not qualify for relief pursuant to (j) (1)" and that he immediately notified the trial court at the start of the hearing on his petition that he qualified for relief under (j) (4) (A). The State did not object to proceeding under (j) (4) (A), but chose to argue that (j) (1) applies instead. The trial court even indicated during the hearing that it was not familiar with the amended statute but that it would consider the competing subsections and asked the parties to further brief the issue. As set out in footnote 1, supra, the State in its letter brief acknowledged that Doe was seeking relief under (j) (4) (A) rather than (j) (1), but elected to argue that the latter subsection applied to Doe's situation. Importantly, the State did not argue that the trial court should deny Doe's petition because he was requesting relief under a different subsection than the one listed in his petition. Because Doe properly amended his petition to seek relief pursuant to OCGA § 35-3-37 (j) (4) (A), and because the June 11, 2021 order impliedly allowed the amendment, we find no merit to the State's contention that the trial court's obligation in considering this matter was limited to the four corners of Doe's original petition.

request record restriction access to criminal history records where the defendant has been convicted of a misdemeanor provided that the defendant has completed the terms of his or her sentence and has not been convicted of any crime in any jurisdiction for at least four years prior to filing a petition. If the defendant satisfies these requirements, the trial court must then "weigh the benefits of a proposed judicial action against the harms." Doe v. State, 347 Ga. App. 246, 253 (4) (819 SE2d 58) (2018). 

• Securities Industry Commentator
• Bill Singer