Posts tagged ‘unsuitable investments’

Ongoing Investigation into Sala-Multi Series Fund and Foresee Strategies Insurance Fund

The White Law Group continues to investigate potential FINRA arbitration claims against the broker-dealers that may have improperly sold Sala-Multi Series Fund and Foresee Strategies Insurance Funds.

The hedge funds, Foresee Strategies Insurance Fund, were issued by Sun Life Financial as variable annuity subaccounts to Sala-Multi Series Fund and than sold to investor by various broker-dealers such as SagePoint Financial Inc, Geneos Wealth Management Inc, Lincoln Financial Network, National Planning Corp, and FSC Securities Corp.

Foresee Strategies Insurance Fund suffered devastating losses and was shut down in 2010. According to Investment News, “FINRA is investigating half a dozen independent broker-dealers that sold variable annuities with subaccounts invested in hedge funds that resulted in $18 million in client losses during the credit crisis.”

In addition, Sun Life Financial, according to their own web site is in the processes of selling their U.S. annuity business to Delaware Life holdings.  Sun Life Financial president, Dean A. Connor stated that “This transaction represents a transformational change for Sun Life. It significantly advances our strategy of reducing Sun Life’s risk profile and earnings volatility, focuses our U.S. operations on our areas of greatest strength and opportunity, and crystallizes future earnings and capital releases that will further support our growth and shareholder value creation. “

Upon information and belief many investors were unaware of risks or mislead by the broker-dealer that sold them the annuity investment. However, investors may be able to recovery their losses through FINRA arbitration against their broker-dealer or financial advisor.

Arbitration claims against broker- dealers often involve unsuitability, misrepresentation, and omission of facts. Broker-dealers and financial advisors have a fiduciary duty to make investment recommendations that are suitable for potential clients based on such factors as age, risk tolerance, and financial need.

Broker-dealers and financial advisors are legally obligated do disclose all the risks of the investment, and perform a reasonable investigation of the investment prior to making recommendations.

If you invested in the Sala-Multi Series Fund or Foresee Strategies Insurance Funds Financial would like to speak to a securities attorney about your litigation options, please call our Chicago office at 312-238-9650.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.

FINRA Outlines Investments They are Watching Closely in 2012

The Financial Industry Regulatory Authority (FINRA) outlined a list of investment products that they will be watching closely in 2012 because they feel that “concerns relative to business conduct and suitability issues are heightened.” This list of investment products comes from FINRA’s January letter outlining the “2012 annual regulatory and examination priorities.”

The White Law Group is all too familiar with many of the investment products on the list this year. Our securities law firm is dedicated to securities fraud litigation and helping investors who have suffered investment losses as a result of the inappropriate recommendations or actions of their financial professional or brokerage firm. We have spoken with and represented investors who have struggled with investments in mortgage backed securities, non-traded REITs, municipal securities, ETF’s, variable annuities, structured products, private placements, promissory notes, and life settlements. All of these products are commented on in FINRA’s letter and are on their radar for 2012. FINRA’s comments on all the products in the letter can be found below:

Residential Mortgage-Backed Securities and Commercial Mortgage-Backed Securities: Due to the embedded pre-payment option associated with mortgage-backed products, these securities carry significant re-investment risk, which can strongly affect the yield investors realize. Also, with collateralized mortgage obligations (CMOs), some tranches, such as interest-only strips or inverse floaters, carry much higher levels of risk than other tranches. Finally, the opaque nature of underlying collateral and the lack of a robust secondary market for some mortgage-backed securities should be considered when evaluating suitability.

Non-Traded REITs: Although non-traded REITs may offer diversification benefits as a part of a balanced portfolio, they do have certain underlying risk characteristics that can make them unsuitable for certain investors. As an unlisted product without an active secondary market, these products offer little price transparency to investors and little liquidity. The related financial information for these products may often be unclear to the investor, which makes the true associated risks and value difficult to ascertain. With many products, there are questions about valuation and concerns that in some cases distributions to investors are paid with borrowed money, over a lengthy period of time, with newly raised capital, or by a return of principal rather than a return on investment. The source of the distribution may not be transparent.

Municipal Securities: On the whole, municipal securities may offer significant benefits to many investors and can be an important component of a diversified portfolio. With some municipal securities, however, the lack of timely disclosures and complete financials often inhibit individual retail investors from making informed investment decisions, and may preclude associated persons from having a reasonable basis to recommend such a security. Member firms are reminded of their obligation to make suitable recommendations to their clients with respect to trading in the secondary markets. This includes obtaining sufficient information about the issuer to provide a reasonable basis that the recommendation is suitable. Separate and independent of the suitability obligation, member firms are also required, under MSRB Rule G-17, to disclose to their customers, at or prior to a sale of securities to a customer, all material facts about the transaction known by the dealer as well as all material facts about the security that are reasonably accessible to the market. Firms should ensure that representatives have access to this municipal issuer information (through MSRB’s Electronic Municipal Market Access (EMMA) system and/or other sources) to meet these requirements. Firms are also obligated to trade with their customers at prices that are fair and reasonable (including any markup or markdown).

Complex Exchange-Traded Products: Certain exchange-traded products that employ sophisticated strategies or access more exotic markets can expose investors to unexpected results or unforeseen risks. For example, exchange-traded funds (ETFs) that employ optimization strategies using synthetic derivatives can expose individual investors to the risk of significant tracking errors. In other words, the performance of the ETF may differ from that of the underlying benchmark during times of stress or volatility in unanticipated ways. These risks can be exacerbated when the ETFs employ significant leverage.

Variable Annuities: Although variable annuity products can offer valuable benefits to investors seeking predictable annuity streams, tax deferral for investment gains and flexible investment choices, they do have certain risk characteristics that can make them unsuitable for some investors. These products often have long holding periods and significant surrender fees, making them unsuitable for investors who have a need for liquidity. High fees and expenses may result in reduced performance in the underlying holdings, and high commissions make the product a target for switching. FINRA Rule 2330 imposes enhanced responsibilities on member firms with respect to variable annuities. Among other things, the rule requires that the firm or associated person have a reasonable basis to believe that a customer would benefit from certain features of a deferred variable annuity, such as tax-deferred growth, annuitization, or a death or living benefit, and that the particular recommended deferred variable annuity as a whole, the underlying subaccounts to which funds are allocated, and any rider or similar policy enhancements accompanying it are suitable for the customer. The rule, moreover, requires that the firm or associated person have a reasonable basis to believe that the customer has been informed, in general terms, of various features of deferred variable annuities. Firms are also required to implement surveillance procedures to detect any registered persons who are effecting deferred variable annuity exchanges at a rate that could indicate non-compliance with securities laws and rules, and to have procedures for taking corrective action if such activity is detected. The rule has a training component as well.

Structured Products: These products may be marketed to retail customers based on attractive headline yields or the promise of some level of principal protection. However, they can be complex, and have cash flow characteristics and risk-adjusted rates of return that are uncertain or hard to estimate. These products generally lack any active secondary market, which means investors must be willing to assume considerable liquidity risk in addition to market risk and the credit risk associated with the issuer of the product. These features can make the products unsuitable for some retail investors. For example, reverse convertibles are debt obligations that are typically tied to the performance of a security or basket of securities. These securities, which may offer a high rate of return, have complex pay-out structures often tied to a “knock-in” level, and involve elements of options trading. In addition, reverse convertibles not only expose investors to the financial risks associated with the debt obligation, but also to those risks associated with the underlying basket of securities.

Securities Offered Through Private Placements: Certain issuers seek to raise capital by offering unregistered securities in private placements. Many firms also offer securities in private placements to accredited investors under SEC’s Regulation D. Firms conducting private placements under Regulation D or any other applicable exemption from registration must conduct a reasonable investigation of the issuer, based upon the facts and circumstances, with careful attention to any “red flags,” to comply with the anti-fraud provisions and other FINRA rules, such as suitability. Proposed FINRA Rule 5123 (Private Placements of Securities) would help ensure that member firms and associated persons that sell applicable private placements provide relevant disclosures to each investor, and would also require that the private placement memorandum, term sheet or other disclosure document be filed with FINRA to help inform FINRA’s regulatory programs. In addition, firms are reminded that the definition of accredited investor has changed.

Unregistered Securities Acquired in Secondary Markets: As many high-profile companies have elected to remain private, secondary trading markets have emerged for their securities. However, despite their profile, many of these companies are difficult to value, as the issuers may not make financial statements publicly available. Acquiring interests in such securities through a pooled investment or single security “fund” introduces another layer of costs to the investor as well as risk associated with the fund manager.

Church Bonds: The credit quality of the underlying issuer and its true financial condition are often not transparent. Investors may be unaware of the substantial credit and market risk they are assuming with such investments. The source and nature of the underlying revenue streams of the issuer that are required to service the instruments are often less than clear. Further, as sales are frequently made on an affinity basis, these securities can be vehicles for fraud.

Promissory Notes: When investing in promissory notes, investors could assume substantial credit and market risk exposures that may not be transparent to them. Such notes may potentially be written by registered persons or by entities associated with registered persons, with or without their employing broker-dealer’s knowledge. Similarly, registered persons may offer and sell promissory notes issued by persons and entities not associated with a broker-dealer, again without their employing broker-dealer’s knowledge. At worst, such instruments are principally a vehicle to defraud clients who may believe that a broker-dealer is knowledgeable about the product and is recommending it as a suitable investment.

Life Settlements: Sales of existing life insurance policies to third parties—referred to as life settlements—have raised regulatory concerns, as these products generally have very high commissions. In 2009, FINRA published Regulatory Notice 09-42 about member firms’ responsibilities in marketing variable life settlements, as these are securities under FINRA jurisdiction. Recent decisions issued by the Delaware Supreme Court highlight the risk that insurers may challenge the validity of a contract based on a lack of insurable interest.

The full text of FINRA’s letter including the investment products they are watching for 2012 can be found at http://www.finra.org/web/groups/industry/@ip/@reg/@guide/documents/industry/p125492.pdf. The foregoing information, which is publicly available on FINRA’s website, is being provided by The White Law Group.

If you have suffered losses or believe you have been the victim of securities fraud due to your investment in mortgage backed securities, non-traded REITs, municipal securities, ETF’s, variable annuities, structured products, private placements, promissory notes, and/or life settlements The White Law Group may be able to assist you in pursuing recovery through the FINRA dispute resolution process. If you would like to speak to a securities attorney please call our Chicago office at 312-238-9650.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.

Study Shows Many Financial Professionals Misrepresenting Their Expertise

According to a recent study, it appears that many financial professionals “tend to overstate their qualifications and services.” The investmentnews.com recently reported on the study done by Cerulli Associates Inc. in which they studied the responses of upwards of 1,500 “financial intermediaries.” A Cerulli analyst, Mr. Scott Smith, was quoted in the article as saying, “Most advisers don’t want to say that they don’t offer some kind of service, so they are more likely to overstate their capabilities.”

The reason for this “pattern of misrepresentation” has to do with differences in designations for financial professionals. Mr. Smith told the investmentnews.com that “We found that 59% of respondents were calling themselves full-scale financial planners, when it fact many of them were actually investment planners.”  The study found that only 30% of those financial professionals fit Cerulli’s definition of a “financial planner.”

The article notes that financial planners generally “…[work] with clients to build comprehensive plans that include insurance and estate planning.” Alternatively, investment planners “focus on asset management, retirement and college savings plans but tend to offer more-modular-style plans.” Only 22% of industry respondents called themselves investment planners while according to Cerulli and Mr. Smith “56% of respondents are actually investment planners.”

Mr. Smith reportedly told the investmentnews.com that he believed that the “discrepancy could be attributed to that fact a lot of advisers view themselves as being more comprehensive than they actually are, simply because they believe they have the potential to be more comprehensive.” Cerulli’s study does not seem to indicate any willful fraud on the part of the financial professionals, but it does seem to indicate a need for investors, and others seeking financial advice, to ask plenty of questions and do significant research when deciding which financial professional to choose.

The full text of the investmentnews.com article can be found here: http://www.investmentnews.com/article/20120119/FREE/120119908

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

If you have suffered investment losses, are concerned that you may be the victim of investment fraud, and would like to speak to a securities attorney about your potential investment loss recovery options please call our Chicago office at  312-238-9650.

For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.

Potential Recovery of Kale Edgar Evans Investment Losses

Have you suffered investments losses or fear you have been the victim of securities fraud due to your investment with Kale Edgar Evans while he was registered with a Financial Industry Regulatory Authority (FINRA) member firm? If so, The White Law Group may be able to assist you recover your damages through the FINRA dispute resolution process.

According to the sandiegoreader.com, FINRA has taken action against Mr. Kale Edgar Evans and he has been “banned…from association with FINRA members and [has been ordered] to pay a fine.” The sandiegoreader.com reports that FINRA alleges that Mr. Evans “recommended unsuitable investments, including some made on margin, then engaged in excessive trading (churning).” Kale Edgar Evans’ alleged victim “was a teenager supporting three siblings” and he is accused of “[inducing] the youth to transfer $400,000 of her late father’s life insurance money to an account at Evans’s brokerage, with the promise that the money would be placed in a savings account with no risk.” However, after transfer of the funds, it is alleged that he dodged his firm’s oversight and “‘unethically’ transferred $128,000 from a bank account he shared with the customer to his personal accounts and to pay creditors.”

According to the Financial Industry Regulatory Authority (FINRA) CRD for Kale Edgar Evans, he was registered with FINRA member firm First Allied Securities, Inc. from 12/2007 until 01/2010. Before his employment with First Allied Securities, his CRD states that he registered with two other member firms, TD Waterhouse Investor Services, Inc. and Jack White & Company, Inc. In some cases brokerage firms may be liable for investment losses due to negligently supervising the fraudulent or inappropriate actions of their employees.

If you believe that you have suffered investment losses due to your relationship with Mr. Kale Edgar Evans and would like to speak to a securities attorney about your potential ability to recover investment losses through FINRA securities arbitration please call our Chicago office at 312-238-9650.

The White Law Group, LLC is a securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.

Former RBC Financial Advisor Henry Cole Sentenced for Fraud

According to an article in the Financial Post, Henry Cole, a former financial advisor for RBC, the investment banking arm of the Royal Bank of Canada, has been sentenced to two and a half years in prison on fraud charges in Ontario, Canada. Cole has reportedly “admitted to using deception and forged signatures to persuade RBC clients to transfer more than $2-million into what he described as a “pooled fund” of real estate properties.” In addition to heading to prison, Mr. Cole has been banned from the securities industry and agreed to a fine of $5 million from the Investment Industry Regulatory Organization of Canada (IIROC).

Regulatory filings reportedly indicate that there were multiple investors impacted by Henry Cole’s fraud and “the total amount of funds “misappropriated” was $5-million.” He began working for RBC in 2005 and was hired in spite of some previous issues with securities regulators. RBC reportedly became aware of Cole’s fraud in 2010 due to a customer complaint. An RBC spokesperson was quoted as saying that “We deeply regret the hiring of Mr. Cole and the impact of his conduct on some RBC clients.” RBC has also “repaid several members of a family and other investors who were caught up in the fraud perpetrated by Mr. Cole.”

Customers concerned about investment damages that they suffered as a result of working with Mr. Henry Cole while he was employed by RBC may still be able to recover their investment losses through securities arbitration. The White Law Group is dedicated to assisting investors attempt to recover investment losses through securities arbitration claims against the financial professionals and brokerage firms who recommended the investments to them. To speak to a securities attorney about investments you made with Henry Cole while he was employed RBC please call our Chicago office at 312-238-9650.

The White Law Group, LLC is a securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.