Video: How can investors review the background of a stockbroker or investment adviser?

How can investors review the background of a stockbroker or investment adviser?

Also available at KansasCityLaw.tv and The Kueser Law Firm’s website.
In this video, Jason M. Kueser discusses how investors can research the background of stockbrokers, financial advisors, and Registered Investment Advisers (RIAs). Background information related to stockbrokers and financial advisors can be obtained using FINRA’s BrokerCheck tool. Background and other information related to Registered Investment Advisers (RIAs) can be found on the Investment Adviser Public Disclosure website. In addition to these sites, there are various third-party sites/services that provide information related to stockbrokers, financial advisors, and investment advisers.

This video is provided for informational purposes only and nothing contained herein is or should be constituted as legal advice. If you have questions related to any legal topic, you should consult with an attorney and should not rely solely upon information provided via the internet.
The choice of an attorney is an important one and should not be based solely upon advertisements such as this website. Past results afford no guarantee of future results. Every case is different and must be judged on its own merits. *Any information submitted via this website may not be secure and/or confidential. Merely contacting this firm does not establish an attorney-client relationship.

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Obama Administration Continues Push for Regulatory Reform

“A nation that forgets its past is doomed to repeat it.” — Winston Churchill

On Wednesday, September 23, 2009, several major media outlets published articles discussing the Obama administration’s continued efforts to enact enhanced regulatory reform over the financial markets.

Given what has occurred over the past two years, enhanced regulation is absolutely necessary. As Paul Krugman noted in a New York Times Op-Ed article: “In the grim period that followed Lehman [Brothers'] failure, it seemed inconceivable that bankers would, just a few months later, be going right back to the practices that brought the world’s financial system to the edge of collapse.” However, that is exactly what is happening. While the rest of America continues to struggle with job losses, foreclosures, and the effect that the downturn had on their investment portfolios, Wall Street is again promoting the very investments that caused the problem — and business appears to be good.

For example, in a recent article on Bloomberg.com, Abigail Moses and Shannon D. Harrington stated that “A year after the bankruptcy of Lehman Brothers Holdings Inc., credit-default swaps have lost their stigma for disaster and are contributing to the growing confidence in the credit markets.” Have we already forgotten Lehman Brothers and AIG and the problems that CDS created? It appears that we have. In a recent article, Greg Burns of the Chicago Tribune noted that credit default swap reform has “fizzled.”

The only reason that all this appears to have been forgotten is due to the recent “recovery” in the stock market. As Treasury Secretary Timothy Geithner stated yesterday in his remarks before Congress:

Make no mistake, the flaws in our financial system and regulatory framework that allowed this crisis to occur, and in many ways helped cause it, are still in place . . . . We may disagree over details over how to best fix those flaws, but that cannot mean we do not act.

It seems to me that the Treasury Secretary is someone we should be listening to, and not Wall Street or others with a similar agenda. Let us not forget our past.

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SEC joins FINRA In Cautioning Investors About Risks of Leveraged ETFs

Earlier this week, the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) issued a joint warning cautioning investors on the dangers in investing in leveraged ETFs and inverse ETFs. The two regulators issued the warning because they “believe individual investors may be confused about the performance objectives of leveraged and inverse exchange-traded funds (ETFs).”

The warning also notes that leveraged ETFs are designed to achieve their investment performance objectives on a daily basis, rather than a long-term basis as with typical exchange-traded and mutual funds. In fact, the performance of these funds can vary significantly from their stated objectives over long-term periods. The joint warning contains a detailed description of leveraged and ETFs, as well as examples of how the funds generally operate. The SEC also included a link to a NYSE “Informed Investor” Bulletin entitled “What You Should Know About Exchanged Traded Funds.”

While this warning is welcome, it unfortunately has come after many investors have sustained significant losses in these risky and unsuitable investments. As previously discussed in this blawg, FINRA has already declared that leveraged ETFs are typically unsuitable for retail investors. The most popular of these investments are managed by Rydex, Direxion, and ProShares. If your stockbroker or financial advisor has sold you any leveraged ETFs, or purchased any leveraged ETFs in your accounts, and you have lost money on these investments, you may be entitled to recover these losses. The Kueser Law Firm represents investors who were sold leveraged and inverse ETFs. If you are concerned that your investments have been mismanaged, contact us to learn more about your rights.

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SEC permanently changes rules related to “naked” short selling

In a much anticipated move, the Securities and Exchange Commission (SEC) made permanent a rule that it hopes will curb abusive “naked” short selling practices in the securities markets.

Short selling is the practice of selling a security that a person does not own. In essence, the person (the “short seller”) “borrows” the security from their broker (or another third party) and sells it to a buyer. This strategy is implemented where the short seller anticipates that the value of the security will drop. As the value of the security goes down, the short seller makes money. Conversely, if the value of the security increases, the short seller loses money. At some point in the future, the short seller will purchase an amount of shares equal to the amount borrowed. This is referred to as “covering” the short position. Often the short seller has to pay a fee to borrow the securities and has to pay interest on the value of the securities until the short position is covered.

The new rule (Rule 204T) requires broker-dealers to promptly purchase or borrow securities to deliver on a short sale. In addition, the SEC is working with self-regulatory organizations to make public information related to short sale volume. Lastly, the SEC is planning to hold a public roundtable on September 30 to discuss securities lending, pre-borrowing, and possible additional short sale disclosures. According to the SEC’s press release, “the roundtable will consider, among other topics, the potential impact of a program requiring short sellers to pre-borrow their securities, possibly on a pilot basis, and adding a short sale indicator to the tapes to which transactions are reported for exchange-listed securities.”

Another day, more advisers alleged of fraud

On June 11, 2009, the Securities and Exchange Commission filed two fraud actions against different financial/investment advisers.

Morgan European Holdings ApS, et al.

On June 11, the SEC obtained an emergency court order and asset freeze to shut down a fraudulent prime bank scheme. The action was filed in the United States District Court for the Middle District of Flordia against Morgan European Holdings ApS, a/k/a Money Talks, Inc. ApS, John Morgan, Marian Morgan, Bowman Marketing Group, Inc., Stephen E. Bowman, and Thomas D. Woodcock, Jr.

According to the Litigation Release, the SEC has alleged that the Defendants solicited investments in fictitious prime bank trading programs. As noted in the Release,

the Complaint alleges that, during 2006 and 2007, the defendants raised millions of dollars from investors to participate in a fictitious investment program involving the trading of financial instruments among top financial institutions. The defendants told investors that their principal was guaranteed or never placed at risk. However, according to the Complaint, the defendants used investor funds for various undisclosed purposes, including Bowman’s gambling expenses, mortgage payments by the Morgans, and Ponzi payments to some investors. The SEC claims that John Morgan, Marian Morgan, and Stephen Bowman have continued to lull investors into remaining complacent by promising the imminent payment of their principal and returns. None of the relevant offerings was registered with the Commission, nor were any of the defendants registered as a broker-dealer or associated with a registered broker-dealer.

The SEC claims that the Defendants’ actions violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In addition the individual defendants were charged with violation of Section 15(a) of the 1934 Act. A hearing on the preliminary injunction is scheduled for June 25.

Aura Financial Services, Inc.

The SEC also charged an Alabama Broker-Dealer, Aura Financial Services, Inc., with engaging in fraudulent sales practices and high pressure sales tactics to convince customers to open an account and invest money with the firm. The SEC alleges that the firm and six of its representatives unfairly enriched themselves by more than $1 million in commissions and fees. At the same time, the customers’ accounts were largely depleted “through trading losses and excessive transaction costs.”

More information about this matter can be found by reading the SEC’s Litigation Release.

Where to Turn for Financial Advice?

It seems that each day there is another story about allegations that an investment adviser has stolen money from their clients. Yesterday, the SEC filed a complaint alleging that a New York investment adviser had bilked his clients, many of whom were terminally ill or mentally impaired, out of $6 million.

Where do you turn? The New York Times published an interesting article on June 5, 2009, discussing this issue. The Financial Industry Regulatory Authority has a publicly available repository of information related to securities professionals (BrokerCheck) and the SEC maintains the IAPD, which is a database containing information related to investment advisers. While these are valuable sources in checking the background of investment professionals, they are often inadequate. The New York Times also published an article about financial planners in their “need to know” series that is worth reading.

Unfortunately, investors do not learn that their adviser has taken advantage of them until after they have suffered devastating financial losses. The Kueser Law Firm represents investors that have been the victims of securities fraud, investment fraud, as well as other forms of stockbroker and financial adviser misconduct. In addition, the firm represents consumers that have been defrauded. If you would like to contact the firm for a free consultation, please call 816.374.5865 or visit our website, www.jmkesquire.com, for more information.