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In 2012, FINRA reported 1,541 disciplinary actions, which was a slight increase of 3.6% from the 1,488 cases the regulator initiated in 2011. Last year marked the fourth straight year of growth in the number of disciplinary actions. This continuous rise may indicate FINRA’s persistence to crack down on industry misconduct.

Fines in 2012 issued by FINRA totaled $78.2 million from the $68 million levied in 2011. Suitability violations were the top cause, followed by due diligence, research, advertising and ETF violations. The rise in suitability cases was mostly driven by the $7.5 million in fines assessed in four exchange-traded fund (ETF) cases, as well as “supersized” fines of $1 million or more in cases involving complex products like reverse convertible notes and unit investment trusts.

Due diligence fines totaled around $12.8 million with approximately 62 cases. Although the research report and research analysis cases dropped from 15 cases in 2011 to 13 in 2012, the total fines jumped from $1.5 million to $12.4 million. Next, advertising was the fourth-biggest fine generator in 2012 totaling $10.4 million with 50 reported cases. Lastly, ETF cases jumped from four to nine in 2012, which was an 125% increase and at a total of $123,000 in fines.

A recent Letter of Acceptance, Waiver and Consent (“AWC”) illustrates why reps don’t want to make guarantees against customer losses, even “guarantees” that loosely are defined.

In 1999, the rep entered the securities industry. From January 2004 through October 2012 the rep was registered with EKN Financial Services, Inc. (“EKN”). The AWC alleges that between September 2010 until October 2010 the rep offered to customers a signed statement on firm letterhead, which essentially guaranteed (but did not explicitly guarantee) the immediate return of the original amount of the investment and represented that the investment would be maintained in cash, securities, or hard assets.

Notably, this was not your typical guarantee, but, arguably instead, a misrepresentation / omission that FINRA construed as being a “guarantee.” FINRA thus found that the rep violated Rule 2010 and 2150(b), which prohibit stockbrokers from guaranteeing customers against losses and from sharing the profits in customers’ accounts. As a result, FINRA imposed upon the rep a $5,000 fine due upon re-association with a member firm and a 10 business-day suspension from association with any FINRA member firm in any capacity.

Eccleston Law Offices is currently filing claims on behalf of former Merrill Lynch, Pierce, Fenner & Smith, Incorporated financial advisors who forfeited deferred compensation benefits under the Merrill Lynch Financial Advisor Capital Accumulation Award Plan or other deferred compensation plans as a result of their resignation from the firm.  Time is of the essence.  Please contact us at 312-332-0000.

The Chicago-based investment firm Advanced Equities is shutting down broker-dealer operations. Sources say on November 9th, Advanced Equities brokers were told that November 12th would be their last day. However, it is still unclear what will become of the parent company that holds the broker-dealer, or of several Advanced Equities offerings that are currently in process.

Last September, Advanced Equities was charged with misleading prospective investors on a pair of private placements for private fuel cell maker Bloom Energy. Investors were told that the company had more than $2 billion in order backlogs (it only had $42 million) and that it had a $1 billion order from a national grocery store chain (it was only $2 million). Advanced Equities settled the charges, among other things, by agreeing to pay a $1 million penalty.

Eccleston Law Offices counsels, represents and defends financial advisers and whistleblowers nationwide in regulatory, compliance, disciplinary and employment matters in arbitration and litigation, and before regulatory bodies such as the SEC, FINRA and state securities regulators. We frequently defend forgivable loan collection actions, prosecute Form U-5 defamation actions, counsel advisers as to how to transition successfully from firm to firm and negotiate the best possible agreements with their new firm, and provide succession planning, buy-sell agreements and other exit strategies and strategic consulting, practice transitions, mergers, acquisitions and divestitures.

On September 27, 2012 the SEC issued a staff report intended to help broker-dealers safeguard confidential information from misuse like inside trading.  Specifically, this report should help broker-dealers assess the effectiveness of their controls over sensitive information.  To assess this information, the report lists types of conflicts of interest that may arise between a broker-dealer’s obligations to clients.  The report also describes various methods that broker-dealers use to identify and effectively manage such conflicts.

The types of issues identified in the report may be helpful to firms as they review their conflict of interest risk management programs.  In particular, in any review of information barriers control programs, broker-dealers should be alert to changes in business practices and available compliance tools.

Eccleston Law Offices counsels, represents and defends financial advisers nationwide in regulatory, compliance, disciplinary and employment matters in arbitration and litigation, and before regulatory bodies such as the SEC, FINRA and state securities regulators. We frequently defend forgivable loan collection actions, prosecute Form U-5 defamation actions, counsel advisers as to how to transition successfully from firm to firm and negotiate the best possible agreements with their new firm, and provide succession planning, buy-sell agreements and other exit strategies and strategic consulting, practice transitions, mergers, acquisitions and divestitures.

Recently I read a very interesting Investment News article written by Jodie Papike, a recruiter based in New York.  She discussed how financial advisors are increasingly making the move to independence, but are often faced with a number of important decisions, one of them being whether to join an existing OSJ group to provide supervision and additional support. There are many benefits of joining an OSJ including high-reaching and high-service capabilities, a better financial deal, lead generation and coaching programs. Affiliation with an OSJ group can provide the familiarity of a smaller firm while providing the strength and dependability of a larger broker dealer.  This is important in areas such as increased transition services, operational efficiencies and quicker compliance reviews.  It gives financial advisors a great amount of guidance on how to succeed in today’s market.  Many financial advisors feel that an OSJ group represents a better deal financially. In addition, some OSJ offer a variety of programs not offered directly by broker-dealers such as referrals and access to attorneys, certified public accountants as well as coaching and conferences.

She points out that deciding to join an OSJ group requires advisors to research and evaluate all options based on their own business, finances and relationships.  Although OSJ groups provide these benefits, they come at a cost. Generally, using an OSJ incurs a 2 to 10 percent override for supervision and another 10 to 25 percent for additional benefits.  Many advisors feel that the fees are well worth the costs.  In addition, when choosing an OSJ group, it is important to find one that fits your business model and culture.  Last, it is important to note that affiliating with a group such as an OSJ usually involves taking precautions to make sure you will be protected if you decide to leave – one of our key practice areas in assisting advisers who transition.  Always remember to review your contract with the OSJ you choose.  OSJ’s are not for everyone, so making sure you do your homework and evaluate all possible options for you and your business is the best way to ensure success.

Eccleston Law Offices counsels, represents and defends financial advisers nationwide in regulatory, compliance, disciplinary and employment matters in arbitration and litigation, and before regulatory bodies such as the SEC, FINRA and state securities regulators. We frequently defend forgivable loan collection actions, prosecute Form U-5 defamation actions, counsel advisers as to how to transition successfully from firm to firm and negotiate the best possible agreements with their new firm, and provide succession planning, buy-sell agreements and other exit strategies and strategic consulting, practice transitions, mergers, acquisitions and divestitures.

Since the 2008 economic downturn, much as changed for advisors in the market.  Today, they are increasingly turning to a new strategy which supporters argue is more satisfying and profitable than selling out and moving on.  Advisors are now merging with another firm and continuing to work, but at a much slower pace. Before 2008, private-equity firms and aggregators were more interested in buying assets than keeping previous principals around on a part-time basis.  Since then, capital for acquisitions has been tighter, and buyers are more concerned about the risk that clients may leave once their advisor is no longer with the firm. With the new strategy, internal successions and mergers with continued owner involvement now demand a higher price than standard or all cash deals. Recently, Savant Capital LLC added $461 million in assets after the merger with The Monitor Group Inc.  In addition, The Monitor Group’s price is now 25 to 30 percent higher because all of the advisors are fully committed.  According to FB Transitions, all-cash acquisitions generally sell for about 4.6 times revenue, while internal deals receive the highest multiple, at up to about 6.25 times revenue.  The “sell-and-stay merger” strategy creates more value because it is better accepted by clients who are paying closer attention then they were before 2008.

Eccleston Law Offices counsels, represents and defends financial advisers nationwide in regulatory, compliance, disciplinary and employment matters in arbitration and litigation, and before regulatory bodies such as the SEC, FINRA and state securities regulators. We frequently defend forgivable loan collection actions, prosecute Form U-5 defamation actions, counsel advisers as to how to transition successfully from firm to firm and negotiate the best possible agreements with their new firm, and provide succession planning, buy-sell agreements and other exit strategies and strategic consulting, practice transitions, mergers, acquisitions and divestitures.

In September 2010, Lehman Brother filed a claim in FINRA seeking to recover the balance due on a promissory note from a former broker.  Specifically, Lehman Brother requested $158,709.88 in compensatory damages, $22.57 daily interest, costs, fees, and expenses.  The former broker counterclaimed for $1.5 million seeking a set-off or recoupment and citing Lehman Brother for enrichment and asserted affirmative defenses.  He also sought expungement of the matter.  Ultimately, the arbitration panel denied all parties’ claims.

Eccleston Law counsels, represents and defends financial advisers nationwide in regulatory, compliance, disciplinary and employment matters in arbitration and litigation, and before regulatory bodies such as the SEC, FINRA and state securities regulators. We frequently defend forgivable loan collection actions, prosecute Form U-5 defamation actions, counsel advisers as to how to transition successfully from firm to firm and negotiate the best possible agreements with their new firm, and provide succession planning, buy-sell agreements and other exit strategies and strategic consulting, practice transitions, mergers, acquisitions and divestitures.