Category: FINRA Arbitration

Identifying Risk Factors that Make Investors Susceptible to Fraud

The Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called Avoiding Investment Scams which described risk factors that make investors susceptible to investment fraud and provides tips to avoid being scammed.

FINRA has identified the 5 following risk factors for investors falling prey to fraudsters:

  1. Owning high-risk investments.
    2. Relying on friends, family, co-workers for advice.
    3. Being open to new investment information.
    4. Failing to check the background of an investment or investment professional.
    5. Inability to spot persuasion tactics used by fraudsters.

FINRA urges investors to ask questions about investments and investment professionals by doing the following:

  1. Perform a Background Search on the Investment Professional: Ask if the investment professional is licensed to sell you the investment and confirm which regulator issued their license. Additionally, ask if and when their license has ever been revoked or suspended. A legitimate securities salesperson must be properly licensed, and his or her firm must be registered with FINRA, the SEC or a state securities regulator—depending on the type of business the firm conducts. An insurance agent must be licensed by the state insurance commissioner where he or she does business. To verify the investment professional’s response use FINRA BrockerCheck, contact National Association of Insurance Commissioners or contact North American Securities Administrators Association.
  2. Check Out Investments: Ask whether the investment is registered and, if so, with which regulator. Usually companies register their securities before they can sell shares to the public. You can find out whether a product is registered with the SEC by using the EDGAR database. Additionally, you can also use FINRA’s ScamMeter to determine whether an investment might be a scam.

If you and have suffered investment losses, please contact the Hanley Law to explore your legal options. The Hanley Law is dedicated to helping investors who have been victims of securities fraud. If you have lost money as a result of securities fraud, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a free initial consultation.

FINRA Issues New Investor Alert, Should You Exchange Your Variable Annuity

The Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called Should You Exchange Your Variable Annuity. The article explains what a variable annuity is, reasons investors should or should not make a section 1035 exchange, what investors should look out for and what regulators do to protect investors.

An annuity is a contract between an investor and an insurance company. The investor buys the annuity and the company promises to make periodic payments to the investor. There are three types of annuities, fixed, variable and equity-indexed. Fixed annuities are guaranteed a payout, variable annuities payouts depend on the investments chosen and equity-indexed annuities payouts vary, but typically not as much as a variable annuity.

Variable annuities are securities registered with the Securities and Exchange Commission (SEC) and their sales are regulated by the SEC and FINRA. These annuities may impose numerous fees when you invest in them, including surrender charges, mortality and expense risk charges, administrative fees, underlying fund expenses and charges for special features.

An investor might choose to make a Section 1035 Exchange because of new developments in annuity features, including an increase in investment options, less expensive variable annuity contracts, and enhancement of death and living benefits.

However, Section 1035 Exchanges are not always a good idea for investors. FINRA listed the following reasons why investors should not take part in the exchanges:

1) The credits offered are usually offset by the insurance company adding other charges.

2) Contract provisions, such as surrender charges, expire with an existing contract. New charges could be imposed with a new contract or may increase the period of time for which the surrender charge applies.

3) There could be higher charges, like annual fees for the contract.

4) The costly features might not benefit the investor.

5) The broker usually gets paid a higher commission for a variable annuity, compared to the sale of a stock, bond or mutual fund.

Prior to making a Section 1035 Exchange an investor should learn all the facts to determine if the exchange will benefit them. An investor should only exchange their investment when it benefits the investor, not just the financial advisor.

Financial Advisors and Insurance Agents must provide all information to the investor. The advisor or agent should offer the exchange only if it is determined that it could benefit the investor after conducting a review of the investor’s personal and financial situation and needs, tolerance for risk and financial ability to pay for the contract. This suitability obligation is based on FINRA Rules.

Several states and brokerage firms require forms to reflect customer acknowledgement of a replacement transaction. Such forms should provide a comparison of features and costs of an existing contract to the proposed contract and detail what is needed to make the exchange.

FINRA and the SEC have conducted special sales practice examinations that focus on the sales of variable contracts, annuities and life insurance products. The results indicated that some advisors and agents recommended unsuitable products for their customers and the firms did not properly supervise their employees to prevent the unsuitable recommendations.

Furthermore, FINRA points out that unsuitable sales of variable contracts are routinely investigated. Therefore, it is important for the investor to do research and protect their assets.

If you and have suffered investment losses, please contact the Hanley Law to explore your legal options. The Hanley Law is dedicated to helping investors who have been victims of securities fraud. If you have lost money as a result of securities fraud, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a free initial consultation.

FINRA- Before You Invest, Working With Your Investment Professional

The Financial Industry Regulatory Authority (FINRA) issued an article titled Working With Your Investment Professional which provides tips to promote a productive relationship between customers and financial advisors.

FINRA has identified the following 10 tips for customers:

  1. Review the background of any investment professionals you work with or are considering working with. This can be done by using FINRA’s BrokerCheck.
    2. Be clear in your investment goals and risk tolerance with your financial advisor.
    3. Prior to investing, research the product.
    4. Discuss fees with your financial advisor. Fees include commissions, costs associated with the sale of an investment, or management charges.
    5. Review and retain you monthly account statements, confirmations and other correspondence.
    6. Contact your financial advisor immediately if you have questions or concerns about an investment. Additionally, contact the firm’s compliance department if you are unhappy with you financial advisor’s response.
    7. Be wary of exaggerated claims about an investment.
    8. Be wary of financial advisors who pressure you to invest quickly or do not provide you sufficient information about the investment.
    9. Never send money to a firm or financial advisor that you are hearing from for the first time.
    10. Contact the firm’s compliance department in writing if you suspect improper business conduct. Additionally, retain a copy of your complaint and in responses the firm sends.

If you and have suffered investment losses, please contact the Hanley Law to explore your legal options. The Hanley Law is dedicated to helping investors who have been victims of securities fraud. If you have lost money as a result of securities fraud, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a free initial consultation.

FINRA Issues Article Titled Before You Invest, Suitability: What Investors Need to Know

The Financial Industry Regulatory Authority (FINRA) issued an article titled Suitability: What Investors Need to Know which provides investors with a guide to understanding their investment profile.

FINRA’s suitability rule (FINRA Rule 2111) is based on the requirement that brokerage firms and their brokers, financial advisers or financial consultants deal fairly with their customers. In compliance with FINRA’s suitability rule (FINRA Rule 2111) brokerage firms and their associated persons “must have a reasonable basis to believe” that a transaction or investment strategy involving securities is suitable for the customer prior to making such a recommendation. The firm’s reasonable belief must be based on information obtained through the brokerage firm’s obligation to recommend securities or transactions that are suitable for the investor based on the investor’s:

  • age
    • other investments
    • annual income
    • liquid net worth
    • tax status
    • investment objectives
    • investment experience
    • expected time to reach financial goal
    • liquidity needs
    • risk tolerance

To help ensure that investors receive suitable investment advice, firms and their associated persons are required to diligently learn about a customer’s investment profile before recommending a transaction or investment strategy. Therefore, the suitability rule places an obligation on the brokerage firm and the firm’s associated person(s) to seek information from the customer prior to recommending a security or transaction.

If you and have suffered investment losses, please contact the Hanley Law to explore your legal options. The Hanley Law is dedicated to helping investors who have been victims of unsuitable investment recommendations. If you have lost money as a result of securities fraud, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a free initial consultation.

FINRA Issues Article on Common Investor Problems

The Financial Industry Regulatory Authority (FINRA) issued a new article called Common Investor Problems and How to Avoid Them. The article discusses the four most reported investment problems and provides steps investors can take to avoid them.

Listed below are summaries of the common problems, how to detect them, and how to avoid them.

  1. Misrepresentation: This is when the advisor makes untrue statements or omits information in regards to the investment. The problem is usually detected when the investor reviews prospectuses, account statements, confirmations and other documents or suffers a decline in their investment account. In order to avoid this problem, investors should understand the products they are investing in, ask the advisor to send them information on the investment and keep notes of their conversations with their advisor.
    2. Cold-Calling: This is when investors receive unwanted phone calls from advisors and the advisors use high-pressure sales tactics to solicit the investor to purchasing a product. Usually a cold-call consists of an advisor calling frequently, pressuring the investor to move quickly, asking the investor to sell a well-known security for an obscure product and/or using a three-call system to entice a buy. Investors can avoid cold-calls by asking the cold-call firm to add them to their “do-not-call” list, being wary of sales pitches, conducting a FINRA BrokerCheck on the advisor and firm and/or visiting the firm prior to sending money for the investment.
    3. Unsuitability: A suitability problem occurs when an advisor purchases an investment that is inconsistent with the investor’s objectives and investing profile. The problem can be detected by the investor reviewing their account and researching the investment or another professional pointing out the suitability issue. To avoid a suitability problem, an investor should read and understand all account documents, understand the investment, provide the firm with accurate data regarding income and risk tolerance and keep records of conversations with the advisor.
    4. Unauthorized Trading: This problem occurs when an advisor makes a purchase in an investor’s account without the investor’s knowledge or authorization. The problem is usually detected when the investor reviews his or her confirmations and statements and discovers an unknown product. To avoid unauthorized trading investors should review and retain all documents received from their brokerage firm, document all conversations with advisors and always repeat clear instructions to their advisor.

FINRA also suggests that investors should research investments prior to purchase and act quickly if you believe you have been wronged.

If you and have suffered investment losses, please contact the Hanley Law to explore your legal options. The Hanley Law is dedicated to helping investors who have been victims of securities fraud. If you have lost money as a result of securities fraud, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a free initial consultation.

FINRA Issues Article Titled Prohibited Conduct

The Financial Industry Regulatory Authority (FINRA) issued a new article called Prohibited Conduct. The article lists 13 actions that are prohibited in the securities industry. These actions include the following:

  1. Recommending unsuitable investment products based on the investor’s profile, objectives and risk tolerance.
    2. Making purchases or sales without the knowledge of the investor, unless the advisor received discretionary authority.
    3. Moving an investor from one mutual fund to another when there is no legitimate purpose.
    4. Misrepresenting and/or failing to disclose information to the investors in regards to an investment.
    5. Removing funds or securities without the knowledge of the investor.
    6. Charging the investor excessive mark-ups, markdowns or commissions on their investments.
    7. Making price predictions, promising investors they will not lose funds or agreeing to share in any losses of the investor’s account.
    8. Securities transactions that violate FINRA’s rules, these are usually private transactions between the advisor and investor in which the firm has no knowledge.
    9. Placing an order for the firm’s account before entering a customer’s limit order when there is no legitimate purpose.
    10. Failure by a market maker to display an investor’s limit order in its published quotes when there is no legitimate purpose.
    11. Not using due diligence when executing an investor’s order, this includes executing at the best price.
    12. Purchasing or selling an investment while in possession of non-public information about an issuer.
    13. Using fraudulent methods to elicit a transaction or induce the purchase or sale of and investment.

If you and have suffered investment losses, please contact the Hanley Law to explore your legal options. The Hanley Law is dedicated to helping investors who have been victims of securities fraud. If you have lost money as a result of securities fraud, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a free initial consultation.

Hanley Law Investigating Claims Involving Fredrik Magnus Virgin and Merrill Lynch Pierce Fenner and Smith, Inc.

Hanley Law is currently investigating claims against Fredrik Magnus Virgin (CRD No. 2743410) and Merrill Lynch Pierce Fenner and Smith, Inc. (“Merrill Lynch”) (CRD No.: 7691). The Hanley Law recently filed a FINRA Arbitration claim on behalf of Claimants in which it was alleged that the broker, Fredrick Magnus Virgin, sold an elderly investor a single life Nationwide annuity. On the date of issuance, the investor was 77 years old and legally blind.

The Nationwide Annuity Application lists the investor’s nephew as the primary beneficiary. Furthermore, the application provides that the nephew is to receive 100% of the benefit, confirms that he is the annuitant’s nephew, and also confirms his social security number and birth date. Upon the investor’s passing, the nephew was denied any death benefit payment by Nationwide. Nationwide advised that the annuity contract had a single life payout option which guaranteed the payments for the lifetime of the annuitant only. In a single life payout option, all payments cease with the last payment due prior to the death of the annuitant. Claimants allege that the investor clearly intended to elect a beneficiary to his Nationwide annuity since he completed the beneficiary section on his annuity application and provided all necessary information to elect a beneficiary to his annuity.

The annuity contract at issued was entered into when the investor was 77 years old. The investor lost a significant portion of his originally invested principal, plus the loss of a reasonable return on his investment, because he did not live long enough for his monthly annuity payments to equal to the original purchase price of the annuity. In order for the investor to have broken even on his investment, he would have had to live to be over 85 years old. Claimants allege that there was no reasonable basis to recommend a single life payout annuity to a senior who was 77 years old at the time of purchase. Furthermore, it is alleged that the policy application clearly evidences that it was the investor’s intention to name a beneficiary to the annuity as all the necessary information to elect a beneficiary was provided on the annuity application.

Claimants have alleged that Respondent violated industry rules, including but not limited to FINRA’s customer suitability standard (Rule 2111) as well as FINRA rules 3110 and 2010. Thus, it is alleged that Merrill Lynch violated the duty of care and was negligent. Claimants further allege that Merrill Lynch breached the contract that was entered into and also breached the fiduciary duty that a securities firm and its employees/agents owe to their clients. Claimants alleged that Respondent’s misconduct constitutes common law fraud. Moreover, Claimants allege that the account at issue was handled negligently and Merrill Lynch was negligent in their supervision of Virgin. As such, Claimants allege that Merrill Lynch is liable for their conduct and the conduct of their employees by virtue of the doctrines of agency, respondeat superior, and vicarious liability.

If you were a client of Fredrik Magnus Virgin or Merrill Lynch Pierce Fenner and Smith, Inc. and have suffered investment losses, please contact the Hanley Law to explore your legal options. The Hanley Law is dedicated to helping investors who have been victims of securities fraud. If you have lost money as a result of securities fraud, you may be able to recover your financial losses. Contact us today toll free at (239) 649-0050 for a free initial consultation.