SEC Finding Spotlight: April 2018
There are numerous, complex types of securities and investment strategies. For even experienced investors, it can be daunting to understand the markets or to know whether you should question the advice that your broker provides. As a result, many of us trust our brokers to make appropriate decisions for our financial future even if we are not fully knowledgeable about their investment decisions and strategies. While most investors take their fiduciary role seriously, some use it as a chance to defraud their clients for their own financial gain. At the Law Office of Steve A. Buchwalter, our Los Angeles securities fraud attorney proudly helps investors throughout Southern California hold their brokers responsible for abusing their trust and causing them losses.Recent Settlement Action Demonstrates Intentional Broker Fraud and Brokerage Firm Liability
In a recent SEC enforcement action, investment firm Berthel, Fisher & Company was fined $225,000, ordered to disgorge $299,000 in excess commissions, and made to pay restitution to customers of $117,315, plus interest, resulting from ex-broker Jeffrey Dragon’s mismanagement of investor funds. In the findings, the firm was deemed liable for the broker’s unsuitable investments involving short-term trading patterns. The findings indicated that these short-term trading patterns were inconsistent with the design of the securities that were involved. They required the investors to pay substantial fees for each sale, which were primarily returned to the firm and the broker in the form of dealer concessions.
Berthel, Fisher allowed this conduct to happen and also received profits from it. The firm was deemed to have an inadequate system for supervising the management and trading patterns of unit investment trusts (“UIT”). The only supervisory review of this type of security involved a manual review of daily trade blotters, which failed to indicate how long the UIT positions were held prior to liquidation and failed to show the source of the funds used to purchase new UITs. Instead, the firm should have had a supervisory system that was reasonably designed to prevent short-term and excessive trades of the UIT interests.
The finding also indicated that Berthel, Fisher lacked an appropriate supervisory system to ensure that all brokers were complying with FINRA and NASD rules regarding UITs and to ensure that clients received discounts for sales charges when appropriate. Instead of having an appropriate system, the firm relied on registered representatives and its clearing firm to monitor whether UIT and mutual fund acquisitions warranted sales-charge discounts. The firm did not conduct any independent review to ensure that discounts were applied appropriately. Overall, the findings determined that the firm failed to identify 2,700 UIT purchases that did not receive an appropriate sales-charge discount. This resulted in customers paying over $600,000 in excessive sales charges.Legal Action Available to Investors
If a broker or brokerage firm failed to use the appropriate level of care and candor when managing your financial accounts, an attorney can help you bring a legal action against them to recover the financial losses that you incurred as a result of this breach of trust. Brokers and brokerage firms have a fiduciary duty to use candor and due care when managing each client’s account. This involves disclosing any risks associated with an investment, refraining from making decisions based on the firm’s potential gains, and keeping investors informed about multiple aspects of each trade. When it comes to liability, a brokerage firm is liable for the negligent or intentionally fraudulent acts of its broker employees. This means that you can also hold a brokerage firm liable for losses that result from your broker’s mismanagement or deceit.
If you are successful in showing that the broker or brokerage firm failed to act with the appropriate level of care and candor, you are entitled to receive the financial difference between the amount that your accounts would have totaled without the negligence and the actual value of your accounts following the broker’s misconduct. A seasoned securities fraud lawyer can help you ensure that you receive the full amount of compensation that you deserve.Retain a Securities Lawyer in the Los Angeles Area
If you have been involved in a similar situation to the situation discussed in this case, we are ready to help you assert your right to compensation. Attorney Steve A. Buchwalter has prior experience as a licensed stockbroker and a commodity trading adviser. This means that our legal team has useful insights into the securities world and can assist you in asserting your right to compensation when a broker fails to treat you appropriately. We serve investors in Los Angeles, Pasadena, Newport Beach, Santa Barbara, and other areas of Los Angeles, Orange, and Ventura Counties. Call us at 1-818-501-8987 or contact us online to set up your free consultation.