Having seen the devastation up close for many years, Mr. Doss wanted to help alleviate as much of it as possible.  “Wouldn’t it be a good if we could help investors before they became victims,” he said.

Mr. Doss helped create the PIABA Foundation and has led the organization as its President to fulfill its mission of educating and protecting investors.  Mr. Doss and the PIABA Foundation then collaborated with the Alliance for Investor Education (AIE) in producing a National Investor Town Hall Meeting on October 29 in San Diego that SAC blogged about.  Mr. Doss also co-authored a book entitled “The Investors Guide to Protecting Your Financial Future,” and a short documentary entitled “Trust Me.”  The video uses the inability of government to prevent repeated financial collapses as a starting point for learning how investment fraudsters operate and what investors can do to protect themselves.  The video features the accounts of two actual investment fraud victims and commentary by several investor attorneys.

The Town Hall, book and video were a great success from all accounts.  The promotional video marketing the event received 75,000 views on social media.  Said SAC, “We’ve heard of AIE before.  It may become a force in the field of investor education, if this Town Hall concept catches interest.”  That is the Plan!

Given in the sustained low interest rate environment, many income-oriented investors have been steered by their investment advisors into oil and gas investments and other alternative or non-conventional investments.  However, non-traded investments like oil and gas limited partnerships are among the most speculative, high-risk investments available.  The category of oil and gas investments is one of the “Top Investor Threats” identified by the North American Securities Administrators Association (“NASAA”), which is the organization of state securities regulators.  They are often sold to investors by brokers and brokerage firms because of the high sales commissions paid to such brokers.

Please call us if you have questions about your oil and gas investments or other investments.  We offer a free initial consultation.  If based on that consultation we feel that further review is needed, we will analyze your situation and provide a recommendation on whether and how to proceed at no charge to you.  Cases are typically handled on a contingent fee basis – i.e., the attorney’s fee is a percentage of any amount we recover on your behalf.

A portfolio’s asset allocation – the percentage of stocks, bonds and cash – is responsible for over 90% of a portfolio’s performance, according to modern portfolio theory. A portfolio composed of 100% stocks is inappropriate for most investors.  The Vanguard S&P 500 Stock Index Fund has lost about 10% year-to-date as of February 12.  The Vanguard Balanced Index Fund has lost about 6% year-to-date.  The former is invested 100% in the 500 largest cap stocks.  The latter is a mix of 60% S&P500 stocks and 40% bonds.

We have many years of experience in representing investors in securities arbitrations against brokers who have breached such duties.  If you have any questions about your investments, we would be happy to evaluate your situation and make a recommendation at no charge to you.

Judith Shaw, the NASAA President and Maine Securities Administrator, said, “Working together we can and will close the holes in our safety net of support and protection for vulnerable adult investors.”

The model entitled “An Act to Protect Vulnerable Adults from Financial Exploitation” has four key objectives:

1. Require qualified employees of broker-dealers and investment advisors who reasonably believe that someone has been exploited to promptly notify Adult Protective Services (APS) and their state securities regulator, as well as a third party designated by the vulnerable adult as long as the party is not suspected of be participation in the exploitation.
2. Allow delay of disbursements from an account of a vulnerable adult if financial exploitation is suspected.
3. Allow qualified employees—any agent, investment adviser representative or person who serves in a supervisory, compliance, or legal capacity for a broker-dealer or investment advisor—to provide relevant records regarding suspected or attempted financial exploitation to relevant authorities.
4. Provide immunity from administrative or civil liability for broker-dealers and investment advisors for taking actions permitted under the act.

This act applies to individuals 60 and older as well as people protected under APS.

Fraudsters are able to gain footholds in their senior victims by preying on the elderly’s vulnerabilities such as isolation, loneliness, trusting natures, relative wealth, and in some instances declining mental capabilities. They also use mirroring techniques in order to develop a false bond with their victims and also aid in extracting personal information from their victims. According to Consumer Report the amount of money swindlers have captured is roughly $30 billion annually. Unfortunately only 1 in 44 cases of elderly financial abuse are actually reported. According to the former head of the Manhattan district attorney’s Elder Abuse Unit and current general counsel for EverSafe (a fraud-monitoring service for seniors), “Victims are often deeply ashamed…They worry that if they’re viewed as vulnerable, they’ll lose their independence.” One study that was conducted by the Chicago Health and Aging Project showed that people who fell victim to financial exploitation were hospitalized at a greater rate than people who were not.

Some ways recommended by Consumer Report to avoid falling victim to financial schemes is to sign up for robocall interception services such as Nomorobo, opt out of commercial mail solicitations, have someone trustworthy help you pay your bills, vet all contractors, check financial adviser’s credentials, arrange for limited account oversight, set up an emergency plan and entrust someone to be your power of attorney, visit an elder law attorney. As a loved one visit your elderly often, help set up a limited account, and in extreme circumstances file for guardianship or conservatorship.

The NASAA report also shows that in 2014 the state securities regulators conducted 4,853 investigations and took 2,042 enforcement actions. Through such actions approximately $405 million dollars in restitution was returned to victims, $174 million in fines against defendants, and prison sentences totaling 1,629 years were given.

Unfortunately unlicensed individuals and firms are the most common among state securities enforcement with a reported 746 enforcement actions. It has also been found that 230 enforcement actions were taken against licensed broker-dealers, 190 actions against investment advisor representatives, 156 against brokerage firms, and 146 against investment adviser firms.

As of 2014, state action withdrew 2,857 securities licenses and denied, revoked, suspended, or conditioned an additional 728 licenses.

According to the article, the top ten U.S. municipal bond funds in terms of Peurto Rican bond exposure are as follows:

1. Franklin Double Tax-Free Income A (FPRTX) 41.15%
2. Oppenheimer Rochester MD Municipal A (ORMDX) 36.76%
3. Oppenheimer Rochester VA Municipal A (ORVAX) 34.89%
4. Oppenheimer Rochester Fund Municipals A (RMUNX) 23.22%
5. Oppenheimer Rochester Ltd Term NY Munis A (LTNYX) 21.14%
6. Oppenheimer Rochester Ltd Term Muni A (OPITX) 20.16%
7. Oppenheimer Rochester AZ Municipal A (ORAZX) 20.03%
8. Oppenheimer Rochester Michigan Muni A (ORMIX) 19.98%
9. Oppenheimer Rochester NC Municipal A (OPNCX) 18.91%
10. Oppenheimer Rochester NJ Municipal A (ONJAX) 18.51%.

Investors in tax-favored municipal bond funds are typically looking for a relatively safe source of income. However, Puerto Rican bonds are extremely speculative, high-risk investments, and municipal bond funds that hold a significant percentage of Puerto Rican bonds may be far more risky than investors were led to believe. Investors in Maryland, Virginia, New York, Arizona, Michigan, North Carolina, New Jersey, and presumably many other states may be surprised to learn that their supposedly home state-oriented municipal bond fund contains a significant percentage of high-risk Puerto Rican bonds.

It appears that these top ten muni bond funds have lost approximately 9% to 24% of their value since 2013. Such losses may be significant for investors looking for tax-favored income with conservative risk.

If you believe your bond fund may have lost value due to exposure to Puerto Rican bonds, we will analyze your portfolio and discuss your options at no cost to you.

“Putting customer interests first: A central failing FINRA has observed is firms not putting customers’ interests first. The harm caused by this failure may be compounded when it involves vulnerable investors (e.g., senior investors) or a major liquidity or wealth event in an investor’s life (e.g., an inheritance or Individual Retirement Account rollover). Poor advice and investments in these situations can have especially devastating and lasting consequences for the investor. Irrespective of whether a firm must meet a suitability or fiduciary standard, FINRA believes that firms best serve their customers – and reduce their regulatory risk – by putting customers’ interests first. This requires the firm to align its interests with those of its customers.”

This central failing is related to, and sometimes caused by, the other four recurring problem areas that FINRA identified: firm culture; supervision, risk management and controls; product and service offerings; and conflicts of interest. “Many of the problems we have observed in the financial services industry have their roots in firm culture” – i.e., a poor culture in which top management tolerates or even encourages improper sales practices and lax supervision. Fee and compensation structures that incentivize brokers to push certain products continue to lie at the heart of many conflicts of interest, according to FINRA. For example, high-commission, complex investment products with misleading “teaser rates” are often sold to investors by brokers who do not fully understand the risks of the product, and, therefore, do not disclose those risks to the investor.

The financial services industry, by and large, has not addressed these problems to the satisfaction of its own self-regulatory organization (FINRA). FINRA has proposed a rule to help it detect sales practice violations by brokers, called the Comprehensive Automated Risk Data System (CARDS). Under CARDS, firms would be required to periodically submit to FINRA data relating to securities and account transactions, holdings, and account profile information, excluding personal identifying information. The financial services industry is so upset about CARDS that it is going to war with FINRA over the proposed rule. See New York Times article entitled “In Push for Change, Finra Is Opposed by the Wall St. Firms It Regulates.”

Its argument is that CARDS would expose customers’ personal identifying information to security breaches via reverse engineering, even though CARDS would not collect such personal identifying information. Fred H. Cate, a senior fellow at the Center for Applied Cybersecurity Research at Indiana University in Bloomington, was quoted as saying that, while there were some valid concerns about data security, “it felt to me like an industry that doesn’t want to comply with the rules, sort of dragging out every argument it could think of, as opposed to focusing on what practical steps could be included to be sure information is secure.”

The message for the public is clear – the financial services industry does not want to be forced to put investors’ interests ahead of its own, and does not want FINRA to be an effective regulator.

The CEA memo advocates that brokers and financial advisers be governed by a fiduciary duty, which requires them to act in the investor’s best interest, and to place investors’ interests ahead of their own. It states in part: “Consumer protections for investment advice in the retail and small-plan markets are inadequate…,” and only the placement of a fiduciary duty upon brokers and financial advisers offers “meaningful protections” to investors.

The brokerage industry has long objected to and lobbied against the imposition of a fiduciary duty standard of care as being too high and burdensome a duty. For four years, industry representatives have argued that having to act as a fiduciary would be too costly and would eliminate lower cost options for investors. “Any signal that the DOL [Department of Labor’s fiduciary duty] proposal is moving forward would cause us concern,” a brokerage industry lobbyist was quoted as saying.

The InvestmentNews article reports that the CEA memo and debate come in the midst of a “massive shift” away from defined benefit plans (e.g., pension plans) to defined contribution plans (i.e., 401(k) plans). The net effect of this is to shift the risks that retirement plans will not produce sufficient returns to fund a retirement away from professional money managers onto the back of workers who have no experience in the management of retirement plans.

As the CEA memo points out, many workers have been the victims of broker/adviser misconduct that arises out of an inherent conflict of interest. “Academic research has clearly established that conflicts of interest affect financial advisers’ behavior and that advisers often act opportunistically to the detriment of their clients,” the memo was quoted as saying.

For example, a broker who receives payment for the sale of a mutual fund or other investment has an interest in recommending it, even if it is not in the client’s best interest because there are other more suitable investments. Under the current “suitability standard” that the brokerage industry wants to keep, it would be okay for a broker to recommend a less suitable investment that the broker had a financial interest in recommending as long as it was not unsuitable based on the client’s investment profile.

The CEA memo was reportedly circulated to senior White House officials, and it is expected that President Obama will support the proposed fiduciary duty standard for brokers.

According to the SEC, Elm perpetrated a Ponzi scheme – in effect recycling new investor money to earlier investors, and using investor funds the funds for personal expenses, such as a $1.75 million home, luxury automobiles, and jewelry. In this way, Elm allegedly stole at least $17 million from unsuspecting investors. This kind of misconduct violates the anti-fraud provisions of federal securities laws and SEC rules.

The investors sent their investment funds to Elm by wire transfer or by mailing a check. Elm deposited the funds in various bank account that he controlled. In this way, Elm had custody and control over the investors’ funds, and was able to misappropriate the funds.

Investors should be wary of sending money anywhere other than to an account set up for them at a well-known, trustworthy financial institution. Normal operating procedure is for investment advisors to manage a client’s money held in an account at a reputable firm, which would have actual custody of the funds and safeguards in place to prevent the kind of theft alleged by the SEC.

Despite this oil-depletion story line, however, the sudden and sharp decline in oil prices was not really unexpected. According to Gregory Zuckerman, author of The Frackers, the U.S. experienced the largest crude oil production increase in history in 2012, and, in 2013, the U.S. increased daily output from 5 million barrels per day to 7.5 million – on a track to outproduce Saudi Arabia by 2020. As for natural gas, production increases have led to price declines of 75% since 2008. Better technologies like horizontal drilling and hydraulic fracking – a process for accessing oil and gas trapped in dense rock – have allowed these production increases and price declines to occur.

Oil and gas investment offerings have become more common in these days of low interest rates, as investors have been unable to generate enough income from bond interest and stock dividend payments. Also, state securities regulators have long warned that high oil prices have allowed promoters to generate interest in investments in energy-related business ventures.

Sellers of investments are legally required to be accurate and completely truthful in marketing investments, disclosing all important risks, and are prohibited from recommending investments that are unsuitable for the investor. But sellers do not always do that. Investors who lost money in energy-related investments that were either unsuitably risky for them, or whose sellers misrepresented or failed to disclose important risks, have valid legal claims to recover those losses.

Issuers of private placement investments often employ unregistered brokers and financial advisers to sell them to individual (or retail) investors. The sellers of private placements typically receive outsized commissions, and thus do very well indeed. On the other hand, many investors who could ill afford it have lost a substantial portion of their life savings by investing in private placements.

The SEC recently published an Investor Alert identifying 10 red flags that an unregistered offering (private placement) may be fraudulent. The red flags include such things as promises of high returns with little or no risk; involvement of unregistered sales people; high-pressure sales tactics; amateurish, sloppy or no documentation; absence of the “usual suspects” involved in “legitimate” private placements (lawyers, accountants, etc.); the old “mail drop as corporate address” trick; cold call solicitations; and phony backgrounds of managers or promoters.

While it is true, as the SEC indicates, that some private placements may be used by legitimate businesses to raise capital, it is also true that private placements may be fraudulent investment schemes. Even if a private placement is legitimate, it is always improper for an investment adviser or broker to recommend that an individual investor invest a substantial percentage of his or her liquid net worth in such investments due to the risk of losing everything you invest.

The laws requiring registration of securities offerings are designed to protect investors, though that protection may be illusory. Generally, unregistered securities can only be sold to so-called “accredited investors.” For an individual to be considered an accredited investor, he or she must either have annual income of over $200,000 for the prior two years (or $300,000 jointly with a spouse), or have a total net worth of over $1 million above the value of the primary residence and any loans secured by it.

Now, it is still true that $1 million is a lot of money, but it is not nearly as much as it used to be back when these “accredited investor” rules were written. The “accredited investor” requirement is supposed to protect investors but, arguably, the income/net worth cut-off is too low. It is based on a false premise that anyone with $200,000 or $300,000 annual income or a net worth of $1 million is wealthy and, therefore, able to bear the loss of his or her entire investment, even if that investment is all or a substantial portion of that person’s net worth.

The bottom line is that private placements (even if they are not outright frauds) are almost always unsuitably risky and illiquid for individual investors. They should not be recommended to most individual investors by brokers or investment advisers, and would not be recommended were it not for the high sales commissions. If such an investment is presented to you, the best response is to “just say no.” If the opportunity was so great, venture capitalist investors would invest and the issuer would not need to be raising money from people like you and me. More appropriate, liquid, and less risky investment alternatives that do not pay the seller high fees or commissions are usually available.

If you are stuck in one of these investments, you may be able to get your money back by undoing the sale (a legal remedy called rescission). We would be glad to discuss your options with you, so feel free to give us a call.

The two major categories of violations that concern FINRA are unsuitable recommendations and misrepresentation of the material facts about recommended investments. In general, the suitability rule requires selling firms to have (and be able to demonstrate) a reasonable basis for believing that a recommended investment is both (1) suitable for at least some investors based upon the nature of the investment and its potential risks and rewards, and (2) that the investment is suitable for the particular customer to whom it is being recommended based on that customer’s investment profile (e.g., age, investment experience, time horizon, liquidity needs, and risk tolerance).

FINRA has long been, and remains, concerned about sales practices related to a group of investments that share the characteristics of being illiquid, not transparent and hard to understand, and that are extraordinarily costly in that they pay outsized commissions to the agents that sell them to investors. In this regard, FINRA’s list includes the following categories of investments: Complex Structured Products, Private Real Estate Investment Trusts (also known as non-traded REITs), Frontier Funds and a group of interest rate-sensitive securities like Mortgage-Backed Securities, Long Duration Bond Funds, Long Duration Bond ETFs, and so on.

These products are typically sold to income-oriented investors, who are often retired people trying to live on a fixed income that consists of social security payments and investment income. Such investors typically have high liquidity needs and low risk tolerance. The low interest rate environment has sharply reduced their income. While these income-oriented investments promise more income, they are largely illiquid, higher-risk investments. For example, a number of non-traded REITs reduced or eliminated distributions in the wake of the real estate market crash, but they cannot be sold like a stock – i.e., they are illiquid, and investors were left holding a non-producing asset that was worth far less than what they paid for it.

FINRA is concerned that the selling brokers neither fully understand nor explain the risks and problems associated with these investments.

According to its letter, FINRA is also concerned about the disproportionate effect that chronic bad brokers, which it calls “recidivist brokers,” have on investors. However, if FINRA truly wanted to protect investors from recidivist brokers, it would take action to prevent brokers from expunging or whitewashing their customer complaint histories from the records it makes available to investors (and urges them to check out before investing) known as BrokerCheck. PIABA (the Public Investors Arbitration Bar Association), under the leadership of its President, Jason Doss, has launched a campaign aimed at improving disclosures of brokers’ histories to potential investors by placing more appropriate restrictions on brokers’ ability to expunge their records posted on FINRA’s BrokerCheck. We will keep you posted on those efforts. FINRA’s priorities letter can be viewed here.

Canellos worked as an assistant attorney to Ms. White while she was the U.S. Attorney for the Southern District of New York in the 1990s to early 2000s. Then he worked for six years as a litigation partner at Milbank, Tweed, Hadley & McCloy LLP. In 2009 he headed the SEC’s New York Regional Office from 2009 to 2012. Canellos has been serving as the SEC’s acting director of enforcement since January 2013.

Ceresney is joining the SEC after his tenure at Debevoise & Plimpton LLP. Ceresney was a partner when White headed the litigation department at Debevoise & Plimpton LLP.

The appointment of the enforcement co-directors is among the White’s first moves as head of the SEC.

First, the Board authorized FINRA to file with the SEC proposed amendments to FINRA Rule 12403 which would simplify securities arbitration panel selection rules. The proposed rule would allow all parties to see lists of 10 chair-qualified public arbitrators, 10 public arbitrators, and 10 non-public arbitrators. Furthermore, the proposed rule would permit four strikes on each of arbitrator list. Also, a party could select an all-public arbitration panel by striking all of the arbitrators on the non-public list or instead, if the parties leave on the non-public list one or more of the same non-public arbitrators, the parties could have a majority public panel.

Secondly, the Board authorized FINRA to file with the SEC proposed amendments to the Discovery Guide. The proposed amendments would provide general guidance on e-discovery issues and product cases, and clarify existing provisions relating to affirmations. The proposed amendments would cause the Discovery Guide to:
“1. Include guidelines for arbitrators to consider when deciding disputes relating to the form of e-discovery;
2. Add guidance on product cases to explain, among other matters, that these cases are different from other customer cases and that the Document Production Lists may not provide all of the documents parties usually request in a product case; and 3. Clarify that a party may request an affirmation when an opposing party makes a partial production.”

Under the bill, the user fees would be set by the SEC based on the cost and frequency of inspections, an advisor’s size, advisor’s AUM, types of clients, and risk characteristics.

Ms. Waters said, “This legislation answers a funding gap which has been largely responsible for the infrequency of investment advisor exams, and represents the simplest and most direct method for achieving the desired result: improved quality and quantity of these exams and another step toward restoration of public confidence in the markets.”

The bill faces an uphill climb in Congress though. It will be difficult for Ms. Waters, who introduced the bill with Rep. John Delaney, D-Md., to generate Republican support in the House.

The report details that there are more than 50 senior designations used to claim specialized knowledge in helping older Americans with retirement planning and its impossible for seniors to determine which ones are legitimate.

Furthermore, the CFPB believes, with all the above designations being overseen by different state and federal regulators, it is difficult for a senior seeking to file a complaint to know whom to file it with.

Hubert “Skip” Humphrey, assistant director of the Office for Older Americans, said in a CFPB blog post that, “when it comes to these specialty titles, they are anything but transparent…in fact, we found that many consumers don’t understand basic differences between brokers, investment advisors, insurance agents, and financial planners, let alone the 50-plus senior designations that many of those financial advisors add to their titles.”

Yahoo! Sports reports that many of Success Trade Securities Inc.’s clients were prominent NFL and NBA players and those investors were led by Jade Private Wealth Management to invest with Success Trade Securities. This will undoubtedly make Jade Private Wealth Management a prime target for investors seeking to recover their losses.

We recommend that all investors who were directed by Jade Private Wealth Management to invest with Success Trade Securities should document all conversations that you had with Jade and preserve all written communications.

In the complaint, FINRA alleged that players were typically introduced to Success Trade by representatives of Jade Management, including prominent Jade adviser Jinesh “Hodge” Brahmbhatt. In turn, Success Trade is alleged to have made at least $1.25 million in payments to Jade Management since March 2009. Furthermore, Success Trade funded Jade Management’s business from approximately March 2009 through March 2010.

Brahmbhatt is currently registered in the financial advisors program established by the NFL Player’s Association. Brahmbhatt spoke to Yahoo! Sports Wednesday night and said he still does not know whether Success Trade was operating a Ponzi scheme with investor money.

According to multiple sources that spoke to Yahoo! Sports, several professional athletes have either been contacted or been urged to contact investigators from the U.S. Department of Justice, the FBI and the SEC.

The Doss Firm, LLC represents investors nationwide who have lost money as a result of investment fraud or due to faulty investment advice. If you believe that you may be a victim of investment fraud and would like to speak with us, please call our firm for a free consultation.

Ms. Walter believes that, even with the proposed budget increase, the SEC still would lack the resources to boost investment adviser oversight substantially. Ms. Walter said that “there are simply not enough examiners to go around.” She furthermore stated that “the transfer of about 2,240 midsize advisors (with AUM of less than $100 million) from SEC to the states has not given the SEC more capacity to oversee advisors who have remained with the agency.”

The SEC has taken on about 1,400 newly registered private fund advisors, who now make up about 37% of SEC-registered advisors. The complexity of their funds has boosted the AUM of registered advisors to $49.6 trillion.

Success Trade is a deep-discount firm, based in Washington, which offers stock and options trades for $2.95 to investors who pay a $65 monthly platform fee.

FINRA claims that proceeds from the promissory note sales were used to make personal unsecured loans to Mr. Ahmed, as well as to pay off past investors and fund the firm’s operations. Furthermore, FINRA alleges that Success Trade is in “dire financial condition and unable to repay principal…and relies primarily on sales of the notes to keep the firm afloat.”

In a cease-and-desist order signed on April 11, 2013, Success Trade agreed to stop selling the notes and use assets only for normal business purposes.

The Doss Firm, LLC represents investors nationwide who have lost money as a result of investment fraud or due to faulty investment advice. If you believe that you may be a victim of investment fraud and would like to speak with us, please call our firm for a free consultation.