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CFTC Studies High Frequency Trading

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The Commodity Futures Trading Commission (CFTC) will hold a meeting of its Technology Advisory Committee on Thursday, March 29, 2012, in Washington, DC.

The meeting will focus on three significant issues facing the futures and swaps industries as the Commission continues to finalize rules under the Dodd-Frank Act:

(1) automated and high frequency trading (HFT): exchange oversight and definitions;
(2) final recommendations from the Subcommittee on Data Standardization; and
(3) credit limit checks: market structure and technology issues.

This meeting serves as the inaugural meeting of the new Subcommittee on Automated and High Frequency Trading, which will focus on developing recommendations regarding the definition of high frequency trading (“HFT”) in the context of the larger universe of automated trading.

Read the full press release here, including details on how to participate. Audio of the meeting will be available via listen-only conference call. Additionally, a video recording of the meeting will be published through a link on the CFTC’s website.

FINRA Fines Citigroup Unit for Excessive Markups

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The Financial Industry Regulatory Authority (FINRA) announced this week that it fined Citi International Financial Services LLC, a subsidiary of Citigroup, Inc., $600,000 and ordered more than $648,000 in restitution and interest to more than 3,600 customers for charging excessive markups and markdowns on corporate and agency bond transactions, and for related supervisory violations.

According to a FINRA release:

Thomas Gira, Executive Vice President, FINRA Market Regulation, said, “FINRA is committed to ensuring that customers who purchase and sell securities, including corporate and agency bonds, receive fair prices. The markups and markdowns charged by Citi International were outside of appropriate standards for fair pricing in debt transactions, and FINRA will continue to identify and address transactions that violate fair pricing standards, regardless of whether a markup or markdown is above or below 5 percent.”

FINRA found that from July 2007 through September 2010, Citi International charged excessive corporate and agency bond markups and markdowns. The markups and markdowns ranged from 2.73 percent to over 10 percent, and were excessive given market conditions, the cost of executing the transactions and the value of the services rendered to the customers, among other factors. In addition, from April 2009 through June 2009, Citi International failed to use reasonable diligence to buy or sell corporate bonds so that the resulting price to its customers was as favorable as possible under prevailing market conditions.

During the relevant period, Citi International’s supervisory system regarding fixed income transactions contained significant deficiencies regarding, among other things, the review of markups and markdowns below 5 percent and utilization of a pricing grid for markups and markdowns that was based on the par value of the bonds, instead of the actual value of the bonds. Citi International was also ordered to revise its written supervisory procedures regarding supervisory review of markups and markdowns, and best execution in fixed income transactions with its customers.

In concluding this settlement, Citi International neither admitted nor denied the charges.

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know invested in corporate or agency bond transactions sold by the Citi International Financial Services unit of Citigroup, Inc. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Facebook Pre-IPO Share Sales Draw SEC Scrutiny

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Managers of private investment funds established solely to acquire the shares of Facebook and other Silicon Valley firms were charged by the Securities and Exchange Commission with misleading investors and pocketing undisclosed fees and commissions. The SEC alleges that the fund managers collectively raised more than $70 million from investors.

Separately, the SEC charged SharesPost, an online service that matches buyers and sellers of pre-IPO stock, with engaging in securities transactions without registering as a broker-dealer.

The charges stem from the SEC’s yearlong investigation of the fast-growing business of trading pre-IPO shares on the secondary market.

“While we applaud innovation in the capital markets, new platforms and products must obey the rules and ensure the basic fairness and disclosure that are the hallmarks of sound financial regulation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

“Fund managers must fully disclose their compensation and material conflicts of interest.  Investors deserve better than the kind of undisclosed self-dealing present in these cases,” said Robert Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has been the victim of securities fraud. Mr. Kahn is an experienced securities fraud and litigation attorney. He is also a FINRA arbitrator in securities disputes among individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.

Brokerage Account Statements: Investor Alert

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The Financial Industry Regulatory Authority (FINRA) has issued an Investor Alert called “It Pays to Understand Your Brokerage Account Statements and Trade Confirmations.”

Investors are advised to carefully review their brokerage account statements every month, not just to confirm the balance but to also look for errors or signs of unauthorized trading or overcharges. 

Signs of Brokerage Account Fraud

FINRA warns investors to be aware of statements that appear unprofessional or altered in any way, since this may be a red flag for fraud. In some cases, according to FINRA, fraudsters simply cut and paste the logo of a legitimate firm onto their own bogus statement.

Other signs of fraud mentioned by FINRA include:

  • No specified end date or statement period on your statement.
  • End dates or statement periods that don’t follow a consistent pattern (such as the last day, last business day or last Friday of each month).
  • Account number that doesn’t match previous statements.
  • Wrong or outdated address, which could hamper delivery of account information.
  • Incorrect or outdated account ownership information.
  • The financial professional’s name is unfamiliar to you.
  • A phone number that is out of service or always busy or not answered.

Read more from FINRA’s guide, “It Pays to Understand Your Brokerage Account Statements and Trade Confirmations.”

Contact Fort Lauderdale securities attorney Howard N. Kahn, Esq., if you or someone you know has been the victim of fraud or unauthorized trading in regard to an investment or brokerage account. Mr. Kahn is an experienced securities attorney and FINRA arbitrator. You can him at 954-321-0176 or online.

SEC Proposes Identity Theft Rules

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The Securities and Exchange Commission yesterday proposed a rule designed to protect investors from identity theft. Broker-dealers, mutual funds, and other SEC-regulated entities are being asked to implement identity theft safety programs that will establish and detect appropriate “red flags.”

Risk factors that a financial institution or creditor would be required to consider as a red flag for covered accounts include:

(1) the types of covered accounts it offers or maintains;
(2) the methods it provides to open its covered accounts;
(3) the methods it provides to access its covered accounts; and
(4) its previous experiences with identity theft.

Risk factors are likely to vary across account types. For example, margin accounts will differ from advisory accounts, and red flags for business accounts will be different than consumer accounts.

The SEC proposal was issued jointly with the Commodity Futures Trading Commission (CFTC) under Section 1088 of the Dodd-Frank Act. The proposed rules are substantially similar to rules adopted in 2007 by the FTC.

Click on the link for a full copy of the SEC/CFTC identity theft proposal.

Contact Fort Lauderdale securities attorney Howard N. Kahn, Esq., if you or someone you know has been the victim of identity theft in regard to an investment or brokerage account. Mr. Kahn is an experienced securities attorney and FINRA arbitrator. Contact him at 954-321-0176 or online.

FINRA Warns Bond Investors on Price Fluctuation Risk

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Bonds with a low interest rate and high duration may experience significant price drops if interest rates rise, according to a new FINRA Investor Alert called Duration—What an Interest Rate Hike Could Do to Your Bond Portfolio.

FINRA issued the Alert to help investors understand the importance of duration risk. Although stated in years, duration is not simply a measure of time. The duration of a bond or a bond fund also signals how much the price of a bond investment is likely to fluctuate when interest rates move up or down.

As explained in FINRA’s Alert, a bond fund with a 10-year duration will decrease in value by 10 percent if interest rates rise 1 percent. In contrast, if a fund’s duration is two years, then a similar 1-percent rise in interest rates will result in only a 2-percent decline in the bond fund’s value.

To find your bond fund’s duration, investors should look on the fund’s fact sheet. Investors holding individual bonds should start by asking their investment professional or the bond’s issuer.

Investors should also keep in mind that just because a bond or bond fund’s duration is low, it does not mean the investment is risk-free. In addition to duration risks, bonds and bond funds are subject to inflation, call, default and other risk factors.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Merrill Lynch Fined by FINRA Over Retention Bonuses

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Merrill Lynch failed to arbitrate retention bonus disputes with employees, according to recent charges by the Financial Industry Regulatory Authority (FINRA) that resulted in a $1 million fine.

According to a January 25, 2012 release:

“Registered representatives who participated in the bonus program had to sign a promissory note that prevented them from arbitrating disagreements relating to the note, forcing the registered representatives to resolve disputes in New York state courts.

FINRA found that Merrill Lynch, after merging with Bank of America in January 2009, implemented a bonus program to retain certain high-producing registered representatives and purposely structured it to circumvent the requirement to institute arbitration proceedings with employees when it sought to collect unpaid amounts from any of the registered representatives who later left the firm. FINRA rules require that disputes between firms and associated persons be arbitrated if they arise out of the business activities of the firm or associated person.”

Over 5,000 Merrill Lynch registered reprentatives received retention bonuses as part of the Bank of America acquisition, according to the release.

Contact Fort Lauderdale securities attorney Howard N. Kahn, Esq., if you or someone you know was a Merrill Lynch registered rep who received a retention bonus. Mr. Kahn serves as a  FINRA arbitrator.

Read the full FINRA-Merrill Lynch press release.

Investor Options in Resolving Securities-Related Disputes

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Investors have several dispute resolution options when facing security-related disputes. The Financial Industry Regulatory Authority (FINRA) recommends that investors consider the dispute resolution techniques outlined below.

First, the investor should contact their brokerage firm and report the discrepancy or dispute, in writing, to the appropriate department or manager.  Often, the brokerage firm will have authority or insight on how to rectify the problem quickly and easily.

Next, the investor may want to initiate arbitration against the broker or the brokerage firm.  Arbitration is an efficient and inexpensive method of resolving disputes between parties by neutral, qualified individuals who serve as decision makers after hearing all facts from all parties involved.  Arbitration awards are final, binding and subject to court review only in limited situations.  Thus, pursuing claims through arbitration usually precludes investors from pursuing the same claims through the courts.

An investor may file a Request for Mediation to FINRA, at any time.  Once FINRA receives the request, they will contact all parties to explain the mediation process and seek their agreement.  Mediation must be agreed upon by all parties.

Other resolution alternatives include filing a complaint with the SEC, the FINRA Investor Complaint Center, or with state securities regulators.  If there is evidence of illegal or unethical activity by a broker or brokerage firm, investors may file a tip with FINRA’s or SEC’s Office of the Whistleblower.

Finally, if an investor is seeking arbitration it is advised to choose an attorney.  If an investor cannot afford an attorney, some law schools provide legal representation through securities arbitration clinics.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

How to Recognize an Investment Scam

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Con artists peddling investment scams in Miami, Fort Lauderdale, Boca Raton or other South Florida locations work hard to build a personal relationship with their victims.

Watch this FINRA video to learn some of the techniques that con artists use to build trust with potential investors in order to get you to write a check.

There are many investment schemes that a criminal may employ to get you to part with your hard-earned money. Here are a few of the more common scams identified by FINRA, the Financial Industry Regulatory Authority.

  • The “Phantom Riches” Tactic—dangling the prospect of wealth, enticing you with something you want but can’t have. “These gas wells are guaranteed to produce $6,800 a month in income.”
  • The “Source Credibility” Tactic—trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”
  • The “Social Consensus” Tactic—leading you to believe that other savvy investors have already invested. “This is how ___ got his start. I know it’s a lot of money, but I’m investing, so is my mom and half her church—and it’s worth every dime.”
  • The “Reciprocity” Tactic—offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now—half off.”
  • The “Scarcity” Tactic—creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.

Westor Capital Group of NY Charged with Customer Fund Abuse

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Westor Capital Group, Inc. of Herkimer, NY and President Richard Hans Bach are to immediately stop the further misappropriation and misuse of customer funds and securities under the terms of a Temporary Cease-and-Desist Order (TCDO) filed by the Financial Industry Regulatory Authority (FINRA).

FINRA is seeking the TCDO to prevent further customer harm that would likely continue before a formal disciplinary proceeding against Westor and Bach could be completed.

In addition, FINRA issued a complaint against Westor and Bach, charging them with failing to allow customers to withdraw account balances and deliver securities, misusing customer securities, failing to maintain physical possession or control of securities, and for operating an unapproved self-clearing business.

In one instance, when a customer sought to withdraw $97,000 from his account, Westor refused. FINRA further charges that Westor, acting through Bach, misused 65,000 shares of customers’ fully paid common stock to effect and cover short sales by another customer, without the authority to do so. As a result, Westor and Bach failed to maintain physical possession or control of securities as required by the federal securities laws and rules.

Westor’s primary business is trading in microcap securities through its own accounts held at several different brokerage firms and has ineffective measures to track and reconcile its customers’ stock positions. This makes it possible for Westor and Bach to conceal the improper use of securities, the complaint alleges.

Under FINRA rules, the individuals and firms named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible sanctions include a fine, an order to pay restitution, censure, suspension or bar from the securities industry.

The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA, in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint.

Fort Lauderdale Securities Litigation and Arbitration Attorney

Contact Fort Lauderdale securities litigation and arbitration attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. He is an experienced securities litigation and arbitration attorney, and is available to assist individual investors, brokers, and brokerage firms involved in securities matters. You can reach him at 954-321-0176 or online.