Is Your Broker Sending You Texts or Emails from a Personal Account?

July 10, 2022 | Bryan Forman

Stockbrokers and investment advisors are trusted financial professionals. However, as they say, there is a bad apple in every barrel. And if you’ve been watching the news over recent months, the finance industry certainly has its share of bad apples when it comes to investment and securities fraud. But how can you tell if your broker is one of them? What may be some warning signs?

Brokers who engage in fraud or other types of illegal activity with client accounts need to shelter their communications with clients from the firm. One warning sign that a broker may be engaging in investment fraud is that the broker communicates with you through their personal email account about your investments or other potential investments, and not through an email account that is supervised by their employer

In most instances, brokers are required to use their email associated with the firm. Similarly, many firms prohibit brokers from texting with their clients, as it can be more difficult for a firm to police those private text communications. Communications with customers are also frequently reviewed by FINRA and other regulators. Thus, for brokers interested in selling products to clients outside of the firm’s offerings (selling away) or, even worse, trying to commit fraud against a client, using a work email only risks the broker’s misconduct is discovered by their firm.

Ex-Broker for UBS Alleged to Have Bilked Investors for Over $17 Million

May 18, 2022 | Bryan Forman

Stockbrokers and financial advisors occupy a place of trust. And, in most cases, a client’s trust in their financial advisor is well-placed. However, perhaps more often than most people realize, stockbrokers and financial advisors engage in illegal conduct specifically intended to enrich themselves at their clients’ expense.

This is exactly what is alleged to have occurred at UBS Wealth Management USA. According to a recent report, one of the firm’s former brokers in Waco, Texas, stole more than $17 million from customers over a period of more than 25 years. Evidently, the broker was able to “fraudulently convince” more than 20 clients to invest in a “sham” investment that he and a friend from college created. To induce clients to make this investment—which was not included among UBS’s offered products—the broker promised them between 4% and 8% interest, which would compound quarterly. And to keep the fraud going, he and his partner would send out fake account statements purporting to show that the accounts were increasing in value, as promised.

However, in September 2021, the fraudulent investment scheme started to unravel. At this point, The broker left UBS and began working for another investment firm. There are allegations that he continued to push the same fraudulent investment at his new firm.

Should I Stay, Or Should I Go Now?

March 15, 2020 | Bryan Forman

As I sit here on a Sunday afternoon, listening to some tunes and wondering what will be the ripple effect of these strange times, particularly for the retail investor who has enjoyed an 11 year run of a bull market, I for some reason thought of The Clash’s “Should I Stay, Or Should I Go Now?”. It’s worth a listen…

Who would’a thought that the title and lyrics from the English punk rock band “The Clash” from 1981 might aptly describe the retail investor’s conundrum given the Coronavirus meltdown in the equity markets? As a retail investor with a sizeable amount of your life’s savings in the market, “should you stay or should you go…?”

For Many That Invested Heavily on Margin, Their Chickens Have Come Home to Roost.

March 12, 2020 | Bryan Forman

How Margin Risk Can Devastate a Brokerage Account.

WAAAAY BACK in January of 2018, I blogged about how trading on margin, even in a prolonged bull market, can have devastating results if (when) the markets dramatically decline. See, “Investing On Margin—Will Your Chickens Come Home to Roost?” I was concerned for those investors for which margin investing might be unsuitable, as the outcome can be devastating. Certainly, there are generations of new investors with a great deal of investment dollars that only began investing real money during this bull market; meaning they have never faced a down market and the margin calls that come with. This may be a rude awakening.

With the recent Coronavirus Correction (headed toward recession), it is likely that many investors that were investing using margin have suffered significant losses, AND had to sell other securities in order to cover margin calls. In my January 2018 post, I noted that at the end of November 2017, FINRA reported there was more than $627 Billion in margin debit balances in retail customer accounts, compared to $553 Billion at the beginning of 2017, more than a 13% increase in borrowing to invest in stocks (Note: A margin debit balance represents the amount of money the investor owes the brokerage firm). Two years later, at the height of the bull market, FINRA reported there was $561 Billion in margin debit balances in retail customer accounts, a ~10% decline from the same statistic from two years before. Overall, 2019 showed somewhat lower levels of margin than 2018 and 2017, so based on this alone, it would appear that borrowing to invest leveled out at the “end” of the recent bull market. However, if one were to look at the margin debit levels in 2010-2012/13, margin balances have doubled! Clearly, investors wanted to leverage their accounts by purchasing securities using margin debt. But, as the analogy for this post goes, your chickens may come home to roost amid this market correction!

Financial Exploitation of Elders–What You Need To Know.

March 11, 2020 | Bryan Forman

Financial Exploitation of Elders – What You Need to Know

Due to age and the impairments that accompany it, our elderly population is, unfortunately, at a high risk of being taken advantage of financially. Elderly investors are vulnerable to financial exploitation and investment fraud due to a general desire to trust their financial professional, and the difficulty of keeping abreast of the ever-changing financial, retirement, annuity and insurance products marketed by Wall Street.

By the year 2030, all baby boomers will be over the age of 65. By 2035, the amount of people over 65 will be greater than those under the age of 18 for the first time in history. Naturally, a substantial amount of wealth and retirement savings will be found in this demographic. However, close to 20 percent of people over the age of 65 have some form of cognitive impairment. For those over 85, more than half have Alzheimer’s disease of some other form of dementia. The aging of our investor class presents inherent opportunities for the unscrupulous promoter of unsuitable investments, or those intent on defrauding others.

Jason Anderson–Unsuitable Trading In Beaumont Equals Suspension In Texas—No, Registration

January 30, 2018 | Bryan Forman

Today, the Texas State Securities Board (TSSB) announced in a Disciplinary Order the suspension of Jason Anderson, a broker from Beaumont, Texas formerly working in the last two years with each of LPL, Kovack Securities, IFS Securities, and since March of 2017, was seeking registration as an investment adviser with IFS Advisory, LLC (later withdrawn), and then went on to seek registration as an investment adviser with Financial Management Services of America, LLC. Last year, Mr. Anderson was “indefinitely” suspended by FINRA for failing to comply with an arbitration award, pay a settlement, and/or failing to tell FINRA about the status of that award. Mr. Anderson has been very busy—-why? Some of the answers may be found in Mr. Anderson’s BrokerCheck, which reveals a rather concerning string of customer complaints and other problems. So, is Mr. Anderson suspended? Yes as a FINRA broker, and yes in the State of Texas, just not for long.

Well, while Mr. Anderson was with LPL between 2007 and February 2016, and perhaps while at the subsequent firms, Mr. Anderson was recommending to many of his clients an active trading program pursuant to a technical analysis. The Texas State Securities Board called the trading program the “Equity Strategy.” Similarly, there have been a number of customer complaints, and even a lawsuit filed against Mr. Anderson for his practices with his customers.

Mr. Anderson’s, and hence LPL’s, Equity Strategy involved actively trading stocks based apparently on Mr. Anderson’s belief in his prescient technical analysis. The Texas State Securities Board stated that Mr. Anderson “did not consider the trading costs, which included commissions…or the impact that such costs would have on the rate of return the Equity Strategy would need to earn to generate a positive return for a client.” The TSSB noted that for one client, the costs were 30%, meaning that in order for the client to breakeven, the Equity Strategy would have to earn 30%–no small feat for an investor with a moderate risk tolerance! Not surprisingly, the TSSB concluded that Mr. Anderson did not have a reasonable basis to believe that the Equity Strategy was suitable for his clients because of his disregard of the trading costs (his own commissions), and thus such practice was deemed by the TSSB to be “inequitable practices in the sale of securities” and it suspended Mr. Anderson’s registration. Hmmm…

Can I Sue My Stockbroker?

June 12, 2017 | Bryan Forman

Can I Sue My Stockbroker?

Well, yes and no. The question is more appropriately “How do I sue my stockbroker?” or “Where can I sue my stockbroker?” As I will explain shortly, the common denominator to all of these answers is that investors can (and should) seek recovery when their stockbroker breaches a duty owed to them and they suffer losses.

The short, but correct answer is “No,” you are likely prohibited from suing your brokerage firm in Court, and can only bring a claim in FINRA arbitration (which may look like a “Yes” answer…). All broker-dealers (think Merrill Lynch, Edward Jones, LPL, Wells Fargo, and any company that employs a stockbroker) must be registered with the Financial Industry Regulatory Authority (FINRA), the Self-Regulatory Organization that is vested with the regulation of brokers and the enforcement of rules governing the brokerage industry. All firms and their brokers are supposed to comply with FINRA’s rules and procedures, and these rules set forth many of the duties owed by the firm and the broker to the customer. When one or more of these rules are violated, a customer can be harmed and lose money (account losses) or be prohibited from making money (missed profits). One of these rules requires the broker-dealer to submit to a customer’s demand for arbitration using FINRA’s Dispute Resolution Forum–so even if there was no agreement to arbitrate, the customer could mandate that the firm submit to arbitration, but it is generally perceived that investors would prefer to be in a local court, before a local judge, and a jury of their peers.