Florida Securities Fraud Lawyer Blog
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Brokerage account statements can be lengthy and complicated.  Having a basic idea of what you are looking at, however, can help you spot mistakes, unauthorized activity, and even fraud. Here are the key types of information generally found on monthly account statements and some potential red flags that warrant follow-up with your brokerage firm.

General Appearance

Account statements should look professional and not look altered in any way.  The brokerage firm’s information and logo should be uniform throughout the statement and should match all of the other documentation you have received from the company – trade confirmations, new account forms, and correspondence.

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The headlines are full of stories of identity theft and investment fraud.  There are steps you can take to keep from being an easy target.

  • Guard your Social Security number! Memorize the number and don’t carry your Social Security card unless you know you are going to need it (for example, it’s your first day at a new job and the employer will want to make a copy of it.)
  • Just Say No. Don’t give your Social Security number to everyone who asks. If you have private insurance, doctors, dentists, laboratories, and other healthcare providers generally do not need your Social Security number to process your claim – they should only need your insurance information. If the medical provider asks for it, ask why they want it and what happens if you don’t want to give it. Be prudent in deciding whether to give it to them. Similarly, public schools, summer camps, and frequent shopper cards often request Social Security numbers, but if the number isn’t required to enroll in those programs, you shouldn’t give it.  For more information, review the Social Security Administration’s pamphlet Identity Theft and Your Social Security Number.
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If you have a brokerage account, you have probably received a pitch from your broker for a securities-backed line of credit (SBLOC).  Contrary to the flashy marketing brochure you may have seen, SBLOCs aren’t the best things since sliced bread.  Know the facts before you consider one.

An SBLOC is a non-purpose revolving line of credit using the securities held in your brokerage account as collateral. “Non-purpose” means you do not have to use the proceeds for a specific purpose like you do with an auto loan or home mortgage.  Basically, you can borrow cash against the value of your investment portfolio to finance basically anything from travel and college expenses to home renovations and buying a car.  Pretty much the only thing you can’t do with an SBLOC is use the money to purchase or trade securities.  This “easy money,” however, doesn’t come without cost or risk.

Typically, an SBLOC agreement will allow you to borrow between 50-95% of the value of your investment portfolio depending on the value of your overall portfolio and the types of investments in the account (i.e. stocks, bonds, etc.)  The interest rates charged on an SBLOC usually follow the broker-call, prime or LIBOR rates plus some stated percentage. SBLOCs typically require you to make minimum payments every month, oftentimes the minimum payment is the calculated interest amount. Because the published interest rates fluctuate, the amount of interest you are charged daily may also fluctuate.

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We have received several inquiries recently about investments in master limited partnerships (MLPs).  It seems that, although the popularity of MLPs is growing, many investors still don’t understand exactly what an MLP is or the risks involved in investing in one.

An MLP is a kind of limited partnership that is publicly traded on an exchange. It is similar to any other limited partnership, in that, 1) the limited partners provide the capital to the entity in return for periodic distributions of income; and 2) it is run by a general partner who receives compensation in return for management services rendered.

What are some risks of MLPs?

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As many readers may know, “crowdfunding” is a modern innovation for raising money.  Typically using internet sites like Indiegogo, Kickstarter, or GoFundMe, a person can set up a website to raise money to develop a product or initiate some kind of project.  Projects funded through crowdfunding range the gamut from feature films to video games to new styles of clothing.  Virtually any project can be funded through crowdfunding.  In return, “investors” will get some small benefit, like early access to the feature film.

As of this week, new SEC regulations have been put in place to allow the sale of securities in small business through crowdfunding.  This securities crowdfunding will be overseen and regulated by FINRA.

According to FINRA, anyone can invest in crowdfunded securities, but the amount one can invest depends on an individual’s income and net worth.  For instance, if your annual income or your net worth is less than $100,000, then you can invest a maximum of $2,000, or 5% of either your income or net worth (whichever is greater).  If, however, your annual income and your net worth are both over $100,000, then you can invest up to 10% of your annual income or net worth (whichever is greater).  The total amount invested in crowdfunded securities can never exceed $100,000.

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Here’s something you probably don’t think about when you hire an investment advisor: who will I be able to sue if this person steals my money?

Maybe you should think about it.

If you’re dealing with a major brokerage firm like Merrill Lynch, Morgan Stanley, UBS or Charles Schwab, the answer is simple.   You can sue one of those giant companies and, if you win, the odds or pretty good the giant, multi-national corporation will have the money to pay you.  (They will also have the money to fight you tooth and nail before paying you a dime).

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According to the Financial Industry Regulatory Authority (FINRA), it has fined MetLife Securities, Inc. (MetLife) $20 million and ordered it to pay $5 million in restitution for misrepresenting and omitting material information in connection with variable annuity switches.

FINRA found that, during the period 2009 to 2014, MetLife misrepresented the costs and guarantees of its customers’ existing variable annuity contracts in a whopping 72 percent of the 35,500 replacement annuity contract samples reviewed by FINRA. According to FINRA, MetLife made the replacement annuities sound more beneficial for the customers even though the replacement annuities usually cost more than the customers’ existing annuities.  Annuity switches generated around $152 million in gross dealer commission for MetLife over a six-year period.

Some of the examples of misconduct cited by FINRA in its news release include:

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The SEC has issued an Investor Alert regarding fraudsters attempting to profit by exploiting the dangers associated with the Zika virus.  For those not following the news, Zika is a tropical disease transmitted by mosquitoes.  Outbreaks have been reported in South America, with cases popping up in the United States.  Zika infections in pregnant mothers have recently been linked to microcephaly in babies, i.e., babies born with heads much smaller than expected, leading to significant public health concerns.

According to the SEC, fraudsters are attempting to sell investments in companies supposedly developing treatments or other products for Zika.  Scams could include so-called “pump-and-dump” schemes, whereby fraudsters encourage investors to buy shares in a company or a fund by spreading rumors that the company is involved in developing a treatment or cure for Zika.  The rumors prompt investors to buy the shares, thus driving up the price.  The fraudsters then sell their shares while the price is high but before the truth is revealed.  Penny stocks are particularly susceptible to this kind of fraud.  As always, be wary before sinking a significant sum of money in penny stocks.

The SEC recommends that investors use common sense before putting money in a Zika-related investment.  Specifically, before making any investment – especially one tied to Zika – an investor should do the following:

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In our law firm, we frequently represent elderly clients in claims against brokerage firms and financial advisors.  These claims usually include allegations that the broker took advantage of the elderly client, or recommended improper investments that benefited the broker more than the client.

Why and how do the elderly become so vulnerable to stockbroker abuse?  Some of the answers may surprise you.

Isolation and Loneliness  We have seen, over and over, elderly clients who are isolated and lonely.  We practice in South Florida, a haven for elderly retirees.  Many times, our clients’ families and loved ones live thousands of miles away.  On a day-to-day basis, these clients have very few friends or social interactions.