Florida Securities Fraud Lawyer Blog
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Many people work their entire lives to accumulate a nest egg of savings for retirement.   Others find financial success mid-career.  Either way, accumulating money can be surprising in one respect:  wealth often leads to stress.

Why?  Because it can be extremely stressful to realize that the fruits of your entire life’s work can be wrapped up in one Merrill Lynch, Morgan Stanley, or Citigroup account statement.   Retirees know how long it took to accumulate their 401K accounts.  Business people know how hard they had to work (or how lucky they had to be) to make their money.

In short, the money is irreplaceable.  During the financial crisis 2008, many investors lost huge portions of their life savings as a result of negligent or foolish recommendations by their brokers.  Smart people should ask themselves the following questions:

How safe is my money?

Who is this guy or gal making recommendations to me?

Is he or she any good?

What to do:

First, check out your broker.   It is not enough that your broker is friendly or a “good guy.”  All brokers are friendly.  They are salespeople and make their living by being friendly.  That does not mean they know what they are doing.

FINRA maintains a public database available on the web at www.brokercheck.com, which  allows investors to look up the disciplinary record of their brokers.  Find out if your broker has ever been sued for negligence or mismanagement in the past.

Second, communicate your objectives.   If you want safety, make sure you tell the broker you want safety.  Make sure you see the words “safety” or “conservative” in writing in the brokerage firm records.

Many times, the investor will tell the broker he wants conservative investments.   The broker will turn around and write “aggressive” in the internal brokerage firm records, because the broker knows he or she will receive less supervision over an “aggressive” account than a “conservative” one.  If you want safety, make sure you tell that to the brokerage firm and make sure the brokerage firm records it in their records.

Third, make an effort to understand your investments.   Many people, even wealthy people, have very little investment experience or acumen.  Investments may not be your “thing.”  But given that you have so much of your life’s work sitting in one or two single account statements, make the effort.  If you don’t understand how the investment works, don’t agree to buy it.

Next, question losses.   Pay attention to your account statements. If your account starts to lose money, ask the broker why this happened.  Get an explanation that you understand.  If you are uncomfortable with the losses, make sure the broker knows and understands you cannot tolerate large fluctuations in the account.

Finally, talk to a securities lawyer.  If you sustained large losses and believe you have been mistreated, speak to a knowledgeable securities lawyer.  Most securities lawyers work on a contingency fee. This means the lawyer does not get paid unless he or she wins.  For that reason, lawyers are incentivized to find cases of wrongdoing and give an accurate assessment of the case.   Securities lawyers don’t want to invest time and energy into a marginal case.  If a skilled securities lawyer believes you have a case, you probably do.

Feel free to contact our firm for a confidential and free evaluation of your case.  We have assisted investors in recovering millions of dollars from Wall Street brokerage firms.

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pic The recent release of the movie-version of the best-selling book, The Big Short, reminds us of the risky bets that some investors take when they anticipate the stock market, a particular industry, or a certain stock will decline in value.  In addition to the movie being wildly entertaining, it does an excellent of job explaining abstract securities concepts that lay people can understand.  The movie does this through various celebrity cameos, like the snapshot above of model Margot Robbie, where the celebrity gives a brief lesson with examples on an otherwise complex securities concept.  Hence, the movie gives us the perfect backdrop to explain the difficult concept of short selling.

Short selling is the sale of a security that is not owned by the seller or is borrowed in the short term from a third party.  The motivation behind short selling is the investor is betting that the security’s price will decline in value and will be repurchased later at a lower price for a profit.  Because the risk of loss by short selling is substantial, it is considered a high-risk investment strategy and is typically appropriate for only highly experienced investors.

The Big Short was a great example of short selling on a grand level, where several groups of investors were not just betting on a certain stock declining.  They were betting on an entire industry – the housing industry – crashing.

In the real world, there are additional hazards of short selling of which investors should be aware.  For example, many investors own “proprietary” mutual funds in their brokerage accounts.  Proprietary funds are ones where you own, for example, a Morgan Stanley owned and managed mutual fund in your Morgan Stanley account.

A hazard for investors with proprietary funds is that sometimes the brokerage firm does not fully disclose to its fund investors when the brokerage firm is selling short on a particular stock in the firm’s other accounts.  In other words, the firm may betting against the stock increasing in value in its own accounts, but doing the opposite in its proprietary mutual funds that the investor owns.

In one recent example, FINRA sanctioned Morgan Stanley $2 million for violating the SEC’s short-selling rule, which requires brokerage firms to give an accurate tally on its short positions in a particular stock. See FINRA News Release.  Per the news release, Morgan Stanley violated this rule over a 7 year period.

The bottom line is that short selling is an investment strategy only to be considered by experienced investors.  Nonetheless, it is a concept that investors should understand in general, especially when it comes to proprietary funds where a firm may be selling short in one place and buying long in another.

If you know a financial advisor or brokerage firm that is recommending overly aggressive investment strategies, such as short selling, or making their own investments inconsistent with their proprietary funds’ strategies, contact McCabe Rabin, P.A. for a free consultation at 877-915-4040.

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The Financial Industry Regulatory Authority (FINRA) recently released its annual list of regulation and examination priorities for 2016.  As usual, there are many recurring themes from previous years’ lists, with a few new items thrown in for good measure. Here are some of the things FINRA will be focusing on this year when it examines its member firms:

Brokerage Firm Culture

Are control functions valued within the firm?

Do the firm and its control persons tolerate policy breaches?

Is the firm proactive in identifying risks?

Are the supervisors effective role models of the firm’s policies and procedures?

Supervisory Systems

Is the firm’s compensation plan for its broker structured to mitigate conflicts of interest?

Are the firm’s research analysts inappropriately involved in the firm’s investment banking activities?

Is the firm taking steps to minimize the inappropriate disclosure of information within and outside the firm?

Does the firm appropriately supervise, control, and validate its traders’ pricing of proprietary illiquid assets?


Has the firm developed and implemented adequate cybersecurity measures to protect the confidentiality and integrity of customer information?

What is the firm’s incident response protocol?

Have staff received sufficient training in data loss management?

Are there shortcomings in the firm’s management of its technology systems?

Is the firm’s technology sufficient to accurately run any automated surveillance systems?


Is the firm performing sufficient due diligence and monitoring of the providers of its outsourced operational services?

Is the firm improperly outsourcing functions that are required to be performed by registered persons?

Suspicious Activity Monitoring

Is the firm accurately monitoring and reporting suspicious activity detected by the firm’s automated AML (anti-money laundering) surveillance systems to regulators?

Is the firm monitoring both money movements and trading activity?

Does the firm have procedures in place to identify suspicious trading activity in microcap stocks?


Are the firm’s recommendations suitable for its customers, especially the recommendations of complex, speculative, and alternative products?

Do the firms’ brokers adequately understand the products they are recommending, especially higher-risk offerings such as high-yield and speculative bonds, alternative mutual funds, structured products, synthetic exchange traded funds (ETFs), non-traded REITs, and securities backed lines of credit?

Seniors and Vulnerable Investors

Does the firm have adequate processes in place to safeguard its senior and vulnerable customers from exploitation and abuse by their brokers?

Is the firm monitoring the accounts of senior investors for red flags that may indicate possible financial abuse, such as overly aggressive investments, or unusual movement of assets outside of the account?

These are only some of the areas of concern FINRA identified in its letter.  FINRA’s Regulatory and Examination Priorities Letter may be read in its entirety here.



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Online Investment | West Palm Beach False Claims Act

An exchange-traded note, frequently referred to as an ETN, is an unsecured debt obligation of an issuer, typically a financial institution.  Unlike a traditional corporate bond that pays a stated rate of interest, the return on an ETN is based upon the performance of a specified index or benchmark such as a broad-based securities index, or an index tied to anything from commodities to foreign currencies to emerging markets or other things.  ETNs trade on a securities exchange and promise to pay an amount based on the performance of the underlying index or benchmark on the ETNs’ maturity date, minus any investor fees.  ETNs are sometimes confused with exchange-traded funds (ETFs).  ETFs and ETNs are both traded on a securities exchange, but unlike ETFs, ETNs do not buy or hold assets.  Because ETNs do not own an underlying portfolio of assets, holders of ETNs are subject to the creditworthiness of the issuer.

ETNs may be bought and sold at market prices.  The prospectus for the ETN should disclose how the value of the ETN is determined on any particular trading day and how the value of the index the note tracks is calculated.  At the end of each trading day, the issuer will publish the amount an issuer would be obligated to pay the investor (published value). Market values, however, may vary from the published values for several reasons.  The most typical cause of price variance is when the issuer suspends the issuance of new ETNs.  If the ETN is trading at a significant premium to its published value, you may wish to consider a similar product that is not trading at a premium.

Things to consider and discuss with a financial professional before investing in any ETN:

Complexity – ETNs are complex products.  Make sure you understand who the issuer is (including its credit rating and financial condition); what index or benchmark the note tracks; if the note is callable, and if so, when; the fees and costs associated with the purchase and redemption; the potential tax implications of the investment; and whether the note is leveraged or offers inverse exposure to the underlying index.

Price Volatility – ETNs can lose money.  ETNs can trade at premiums or discounts to their market value.

Leveraged or Inverse ETNs – ETNs that are leveraged promise to pay a multiple of the performance of the index it tracks. An ETN that is said to have 2x leverage, for example, will pay twice the performance of its underlying index. An inverse ETN pays the inverse, or opposite, of the underlying index. Many leveraged and inverse ETNs are designed to achieve their stated performance objectives on a daily basis.  As such, they are generally meant to be used as short-term investments, rather than buy-and-hold investments.

Credit risk – ETNs are unsecured debt obligations of the issuer.  If the issuer defaults on the note, you may lose some or all of your investment.

Market risk – The value of the ETN will change as the value of the index it tracks changes.

Liquidity risk – a ready market doesn’t always exist for ETNs.  If you need to liquidate your investment, you may not been able to sell your ETN immediately and/or you may not be able to sell your investment at a price that you consider reasonable.

As with any investment, before you invest, you should learn as much as possible about the potential investment and consider how the product fits with your risk tolerance and overall investment objectives.

Learn more about ETNs at the SEC’s website and FINRA’s website.

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Bitcoin | West Palm Beach False Claims Act

Bitcoin is a digital, electronic currency invented in 2008 by someone using the alias Satoshi Nakamoto.  The true identity of the inventor remains a mystery today.

Unlike other world currencies, bitcoins are not issued by central banks or governments; instead, they are “mined” by users.  Mining involves solving puzzles to add transactions to the “block chain,” a form of public ledger, to verify legitimate transactions.  When a person completes a puzzle, he or she gets rewarded with both transaction fees, as well as new bitcoins.  Based on the mathematics behind Bitcoin, only 21 million can ever be mined.  Bitcoins can also be purchased, just as one would purchase Euros using U.S. dollars.

People hold bitcoins in digital wallets, which can be spent online at merchants who accept bitcoins.  Internet retailers such as Expedia, Overstock.com, and Dell now accept bitcoins from customers as a form of payment.  Rand Paul’s presidential campaign even accepts donations in bitcoins.

As an unregulated currency, the value of bitcoins has fluctuated dramatically over time.  According to currency exchange site xe.com, one bitcoin was worth roughly $1,000.00 in January 2014, but only about $200.00 in January 2015.  Just this week, in fact, the value has ranged between about $410 to $470 per bitcoin.  Because of these wide swings in value, bitcoin investing may be seen as a quick way to make money.  Such investments are extremely risky, however, and one should only invest money in bitcoins if one is willing to bear the risk of suffering substantial losses.

Bitcoin operations are also fertile ground for fraud.  For instance, just this month, the SEC charged two Bitcoin “mining companies” (GAW Miners and ZenMiner) with running a Ponzi scheme.  The scheme involved selling shares in a digital mining contract, which promised returns through mined bitcoins.  According to the SEC, however, the companies did not have enough computing power to mine the bitcoins needed to fulfill the contracts.

While virtual currencies like bitcoin may be the future of finance and investing, until such currencies are regulated in some fashion, prudent investors should probably stay away.


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Brokerage Firms | West Palm Beach False Claims Act

The Financial Industry Regulatory Authority, also known as “FINRA,” provides a public database that investors can use to research their brokers’ professional background and disciplinary history.  Investors can learn important information such as:

  • Whether the broker has been sued by other investors;
  • If so, how much the broker paid to settle those suits;
  • Whether the broker has been arrested;
  • Whether the broker has been fired by previous firms;
  • How many times it took the broker to pass various licensing exams.

The database is publicly available here or investors can request a copy of a BrokerCheck report by calling (800) 289-9999. It’s not perfect, but it can be an important tool for investors in choosing who will manage their money.

This tool is vastly under-utilized and under-publicized in our view.  As lawyers who represent investors, we frequently find clients who are shocked and dismayed to learn that there longtime trusted broker has been sued multiple times in the past for exactly the same conduct that has been committed against them.   These investors are equally shocked to learn that this information was available to them on the internet.

Shouldn’t the brokerage firms be required to tell investors about BrokerCheck, so that investors can make an informed decision before selecting a broker?  We think so.

Now the SEC agrees.  In December 2015, the SEC approved a rule amendment that will require all brokerage firms to include a hyperlink to BrokerCheck in a “readily apparent” location on the firm’s main website page.  The change will come by way of an amendment to FINRA Rule 2210 dealing with communications with the public. You can see FINRA’s Regulatory Notice 15-50 and the complete text of the amended rule by clicking here.

We believe the new rule could have gone further.  In particular, many brokers advertise themselves by way of their own individual webpages.  We believe the rule would have done more to protect investors had it required hyperlinks to the specific BrokerCheck reports for those individual brokers on all such individual promotional pages.

Nonetheless, the new rule is a positive step in the right direction.   The new rule becomes effective June 16, 2016.

Our law firm advises all investors to check out their broker at BrokerCheck or by calling (800) 289-9999.

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FL Investments | West Palm Beach False Claims Act

Actually, they’re both. Variable annuities are long-term investment products with insurance features.  Variable annuities differ from traditional insurance products in important ways.  First and foremost, variable annuities are securities registered with the Securities and Exchange Commission and the sale of variable annuities is regulated by the Financial Industry Regulatory Authority (FINRA).

An annuity is a contract in which an insurance company agrees to make periodic payments to an annuitant for the rest of their life starting immediately (immediate annuity) or at a later date (deferred annuity).  In addition, most variable annuities offer a death benefit that is payable to a named beneficiary if the annuitant dies before the insurance company starts making the periodic payments.

With a variable annuity, the owner selects the specific investments the annuity will hold, typically mutual funds, but stocks and bonds are other possible options.  Because the annuity contains securities which may go up or down in value, the value of the annuity itself will change over time. It is possible to lose money in a variable annuity.

Variable annuities are sometimes compared to mutual funds, but they differ in several ways.  Variable annuities offer tax-deferred treatment of earnings, a death benefit, and payout options that can provide an income stream for life.  Variable annuities, however, generally have much higher expenses than a typical mutual fund, have substantial charges for early withdrawal (usually if you surrender the annuity within 6-8 years from purchase of the annuity), and charges for other features or “riders” such as an enhanced death benefit.

Variable annuities may be appropriate for investors with long-range goals.  The large variety of different features and riders offered for any particular annuity can be confusing.  It can be difficult to understand exactly what you are buying.

Before you turn over your hard earned money, you should:

  • Check out your broker on FINRA’s Broker Check database.
  • Discuss your investment objectives, risk tolerance, and how the variable annuity would fit into your overall investment portfolio with your broker.
  • Review the prospectus and ask questions about anything you don’t understand.
  • Make sure you understand all of the charges such as, surrender charges, costs of riders and enhanced benefits, and investment option expenses. These charges will reduce the value of your annuity because they are paid from the amount you invest.
  • Ask about your broker’s compensation for the investment. Brokers may receive a higher commission for selling variable annuities than other products so they may be incentivized to recommend something that may not be appropriate for your particular financial goals.
  • Review the SEC’s Investor Bulletin on Variable Annuities.



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Online Investment | West Palm Beach False Claims Act

In our technologically driven society, there is less and less that can’t be done through a mobile application or website.  Society is becoming accustomed to instant 24/7 access to everything from streaming movies to shopping to playing games to banking and everything in between. So the rising popularity of automated investment tools like online financial calculators and investment management programs comes as no surprise.

Many online financial calculators do little more than provide an objective answer to a mathematical question such as the future value of an amount of money invested now at a specific interest rate, or the final costs of different mortgage options.  These types of online tools provide the user with immediate access to the exact same answer the user would get from a live person performing the calculation.

Some online investment programs, however, go far beyond providing objective numerical information. Online investment management programs, often referred to as robo-advisors, seek to provide investment management services that were once only available from human financial advisors.  It is true that robo-advisors offer some benefits to investors over traditional live advisors such as lower cost, ease of use, and broad access, but it is important to understand the risks and limitations before using them.

What exactly is a robo-advisor? A robo-advisor is an automated investment management service that selects investments based upon a specific asset allocation algorithm.  Robo-advisors utilize demographic and financial information provided by the investor, such as age, employment status, liquid assets, and stated investment objectives, to create a portfolio of investments.  Typically, robo-advisors invest in a selection of stock and bond exchange traded funds (ETFs).   Once the portfolio is selected, the program monitors investment performance and will periodical re-balance the portfolio, things traditionally done by a live financial advisor.

What you should consider before using a robo-advisor?  Robo-advisors are only as accurate as the information provided by the investor.  The questions that the robo-advisor’s tool asks, and how they are worded, may influence the investor’s responses.  If the investor misinterprets a question, the resulting answer may not be an accurate reflection of the investor’s financial situation or goal, resulting in a skewed portfolio recommendation. In addition, a questionnaire may not ask enough questions to accurately assess an investor’s particular circumstance, such as a need to access cash from the account in a year to pay for a child’s wedding, or an unusual tax situation.

As with any investment product or service, investors should do their homework before they invest their hard earned money with anyone.  Information about specific investment advisory firms, including robo-advisors, may be found on the Security and Exchange Commission website.  Information about stockbrokers and brokerage firms may be found on FINRA’s Broker Check site.


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West Palm Beach False Claims Act | IRS Phone Fraud

FINRA recently released an Investor Alert, entitled Tools of the Fraud Trade: Phones and Emotions, warning seniors and other investors about a new IRS impersonation scam.

The basic scam involves a very aggressive and authoritative caller who tells the victim that he or she owes back taxes and proceeds to demand immediate payment of taxes by credit card or other electronic payment.  These demands may be accompanied by threats of prosecution if the victim doesn’t pay.  The fraudster may use a fake badge number, may use personal information about the victim found on the internet, and may have a fake caller ID number intended to link the call to the IRS in some way.  These lies are intended to build up the fraudster’s credibility, in order to get the victim to let his or her guard down.

These tactics work because people are understandably nervous about tax audits and owing back taxes.  If someone believes the IRS is calling, one may be more likely to drop his or her normal defenses in the heat of the moment and provide personal financial information.  Using these high pressure, emotion-based tactics has led to losses estimated at $23 million to taxpayers since October 2013.

The most important thing to know is that the IRS will always send a bill in the mail for past-due taxes, so if you haven’t received a letter in the mail, the call is more than likely a scam.  In addition, the IRS will never demand immediate payment over the phone, and the IRS will always grant you an opportunity to question or appeal the amount owed.  The IRS will also never ask for credit card or bank account numbers over the phone; you can always submit a check.

If you are a victim of this type of scheme, there are a few things you can do.  First, write down the number of the person calling you and any other details you get, such as the person’s name and badge number.  Then, call the Treasury Department’s Inspector General for Tax Administration at 800-336-4484 and either (a) confirm the authenticity of the call; or (b) report the incident.  You can also call FINRA’s Securities Helpline for Seniors at 844-574-3577, if the caller in any way references your investment accounts.

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West Palm Beach Arbitration Lawyers

If  you have a brokerage account with a major brokerage firm in the United States today, you have almost certainly agreed to resolve any dispute through mandatory arbitration.  This means you cannot take your case to a courthouse to be heard by a jury.  Instead, you must take your case to arbitration before the Financial Industry Regulatory Authority, also known as FINRA.   (By the way, the brokerage firm you are suing is also a member of FINRA.)

For decades, lawyers who represent investors in these arbitration proceedings have railed against the inherent unfairness of the proceedings.   Statistically, investors would be far better off taking their dispute to a regular court to be heard by a regular jury.

Wall Street counters that the arbitration system is fair.  This has led many to ask:  If the system is so fair, why must it be mandatory?  In other words, if the system is so great, why not let investors themselves decide whether or not to use it?

The answer, of course, is that investors would rarely, if ever, choose to use it.   Mandatory arbitration is a cost control mechanism put in place by Wall Street.  The brokerage firms know they will pay less money to investors in arbitration than they would pay before a jury.

A recent article in the New York Times titled “Arbitration Everywhere, Stacking the Deck of Justice,” makes the point.  The article,  Jessica Silver-Greenberg and Robert Gebeloff, Arbitration Everywhere, Stacking the Deck of Justice, N.Y. Times, October 31, 2015, reports that mandatory arbitration is now sweeping the nation and has become the darling, not only of Wall Street, but the rest of corporate America as well.

Among other highlights of the article:

  • Mandatory arbitration clauses are now buried within virtually every credit card, cell phone, cable, and Internet service application.
  • Even Ashley Madison, the controversial site for adulterers, required clients to agree to mandatory arbitration!
  • Even NFL cheerleaders agree to mandatory arbitration. When a group of them sued the Oakland Raiders they discovered their dispute would be resolved through mandatory arbitration, with Roger Goodell, the NFL Commissioner, deciding their case!
  • Mandatory arbitration clauses often bar class action lawsuits, which can be the only way to address large-scale corporate frauds committed against large numbers of individual consumers for relatively small amounts of money.
  • Some state judges have likened the class-action ban as a “get out of jail free card” for corporate America.
  • Most Americans remain completely unaware of seismic shift that has taken place regarding their rights. By burying mandatory arbitration clauses in contracts, Corporate America has essentially hijacked the Seventh Amendment right to a jury trial.
  • As one commentator noted: “Imagine the reaction if you took away people’s Second Amendment rights to own a gun.”  Where is the reaction to the loss of our Seventh Amendment right to jury trial?

Unfortunately, none of this is news to the securities arbitration lawyers who have been battling mandatory investor arbitration for years.  Statistically, about half of all investors who go to an arbitration hearing before FINRA get $0.  The other half get about 50% of what they ask for.

It’s a great system for Wall Street.  That’s why it’s mandatory.

Florida Arbitration Attorney