SEC Charges Cetera Advisors with Fraud for Overpriced Mutual-Fund-Shares Sales

Investor Alerts Attorney Jared Levy September 18, 2019

The Business Trial Group (BTG) is investigating claims against Cetera Advisors (Cetera) for selling overpriced mutual-fund shares.

The Securities and Exchange Commission has charged Cetera with directing its investment advisors to recommend investments in overpriced mutual funds, earning the firm millions of dollars in unnecessary fees. According to the SEC, identical investment alternatives were available at lower prices.

Cetera allegedly earned nearly $11 million in undisclosed fees from the mutual funds and a clearing firm. Cetera also allegedly failed to disclose its sales conflict to customers. The SEC alleges that the sales – which occurred between 2012 through the end of 2016 – were illegal, fraudulent, and violated fiduciary duties.

Cetera allegedly earned about $5 million more than if it had sold lower-cost share classes. Cetera also allegedly received over $2 million from a clearing broker for investing in certain funds, and an additional $1.7 million in revenue-sharing fees from mutual-fund companies. Cetera also allegedly directed its clearing broker to mark up certain “service” fees by up to 300 percent, resulting in an additional $2 million of overcharges.

Cetera Advisors is a registered investment advisor. With more than 1,000 advisors, Cetera Advisors is the second largest affiliate of Cetera Financial Group. According to the SEC, Cetera Financial’s internal committee recommended to rebate some of the overcharges to customers, but Cetera waited over two years to begin the rebates.

BTG Protects Investors Rights

Please contact one of our experienced securities attorneys if you feel you have been a victim of over-charges by Cetera. Attorneys Jared Levy (561-812-1541) and Aiman Farooq (954-327-3041) will be happy to discuss your potential claims regarding any overcharges by Cetera or any investment losses you suffered with a brokerage firm or registered investment advisor.

The Business Trial Group at Morgan & Morgan helps investors recover their financial losses on a contingency fee basis. You will never be charged hourly fees or expensive retainers. We are only paid if we successfully recover money for you. Backed by the size and skill of 500 lawyers and 50 offices throughout the country, the Business Trial Group is part of the largest contingency law firm in the nation. We regularly battle against brokerage firms, investment advisory firms, and banks, and have helped investors recover tens of millions of dollars of investment losses.

Is Your Investment Adviser and Broker-Dealer Working In Your Best Interest?

General Emily Zulz June 21, 2019

Investors work with a financial adviser or stockbroker to manage their investments and to meet their own and their families’ financial goals.

Today, there are more than 2,700 broker-dealers registered with the Securities Exchange Commission (SEC). These broker-dealers provide services to retail investors, with nearly $4 trillion in total assets and almost 139 million customer accounts.

Additionally, there are more than 8,000 SEC-registered investment advisers that provide services to retail investors, with more than $41 trillion in assets under management and more than 40 million client accounts.

These investors feel their finances are in good hands, relying on broker-dealers and investment advisers for investment advice that they expect to be given in the investors’ best interest.

This isn’t always the case, though.

The Business Trial Group breaks down a recent regulatory development that aims to require broker-dealers to now put their clients’ interests first, but in reality may fall short of changing much.

FINANCIAL ADVISERS AND BROKERS

There is a distinction to be made between financial advisers and broker-dealers.

A broker, which is defined broadly by the SEC as “any person engaged in the business of effecting transactions in securities for the account of others,” is typically paid on a commission basis based on fees generated from the products they recommended.

Registered investment advisers, or financial advisers, typically use a fee-based structure, such as a percentage of assets under management that is charged on an annual basis.

Financial advisors are bound to a fiduciary standard under the Investment Advisers Act of 1940 that requires them to put their client’s interest ahead of their own. This standard is regulated by the SEC or state securities regulators.

Meanwhile, broker-dealers — until very recently — only had to fulfill a suitability obligation under the Securities Exchange Act of 1934 that required only that brokers must reasonably believe that any recommendations made are suitable for clients, in terms of their financial needs, objectives, and unique circumstances. There was no specific obligation under the Exchange Act that broker-dealers make recommendations that were in clients’ best interest.

A new rule under the Exchange Act called “Regulation Best Interest” aims to hold these brokers accountable to put customers’ interests first. However, this new rule’s effectiveness may be in question.

WHAT IS THE SEC’S ‘REG BI’ STANDARD?

On June 5, the SEC passed a new rule under the Exchange Act called “Regulation Best Interest” (or “Reg BI”).

The goal of Reg BI was to give investors similar care from brokers and advisers, where brokers would be subject to Reg BI and investment advisers would still be fiduciaries.

Under Reg BI, the broker-dealer standard of conduct is purportedly enhanced beyond existing suitability obligations. The rule establishes a new standard of conduct for broker-dealers when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.

This standard of conduct requires brokers to act in the best interest of their customers at the time a recommendation is made without placing the financial or other interest of the broker-dealer ahead of the interest of the customer. This includes recommendations of account types and rollovers or transfers of assets and also covers implicit hold recommendations resulting from agreed-upon account monitoring.

There are, however, key differences between Regulation Best Interest and the Advisers Act’s fiduciary standard that reflect the distinction between the services and relationships typically offered under the two business models.

For example, an investment adviser’s fiduciary duty generally includes a duty to provide ongoing advice and monitoring, while Regulation Best Interest does not impose such duty. Instead, it only requires that a broker-dealer act in the retail customer’s best interest at the time a recommendation is made.

WHAT DOES IT REALLY MEAN?

The new rule may be more form than substance.

First of all, the rule does not create a fiduciary standard of care across the board among financial advisors and broker-dealers.

The new rule includes many elements that are similar to the Department of Labor’s now-vacated Fiduciary Rule, including the enhancements to the broker-dealers’ standards of conduct. However, it does not create a uniform standard across brokers and advisers.

Rather than requiring a standard of care for anyone engaging in investment advice, broker-dealers can continue to adhere to only the “best interest” standard.

It’s also unclear if broker behavior will change much from the current suitability standard.

The new rule requires brokers to disclose and mitigate conflicts, but it is not entirely clear how mitigation will work. The rule also lacks enforcement and teeth to hold brokers to this new “best interest” standard.

For instance, Reg BI prohibits specific product sales competitions, because sales competitions with award trips, bonuses and other rewards tend to prioritize growth over customer care. However, the rule does not clearly prohibit an overall competition and bonus system for selling a certain type of product.

As a result, all a firm would have to do is restructure its sales competition program and continue the status quo.

WHAT HAPPENS NEXT?

Registered broker-dealers must begin complying with Regulation Best Interest by June 30, 2020. At that time, broker-dealers and investment advisers registered with the SEC will be required to prepare, deliver to retail investors, and file a relationship summary.

However, it’s yet to be known how exactly Reg BI will be enforced.

In addition, the DOL is unlikely to do anything more in the fiduciary arena anytime soon.

Members of the DOL have said that the Labor Department will align with the finalization of Reg BI to avoid the confusion different regulations can create.

If the DOL adopts a rule for brokers adhering to the SEC’s “best interest” rule, this could allow brokers to advise on 401(k)s, IRAs and other retirement accounts without taking on additional liability or a higher standard of care.

CONTINGENCY-FEE INVESTMENT LOSS ATTORNEYS

If you suffered investment losses due to possible adviser misconduct or securities regulations violations, the Business Trial Group’s securities litigation attorneys represent clients on a contingency-fee basis nationwide.

The Business Trial Group attorneys have helped investors recover millions of dollars in losses sustained by securities fraud.

With its contingency-fee model, the firm can provide clients the benefits of a large firm without the burden of hourly fees. This levels the playing field between investors and the powerful securities firms and ensures a fair trial or arbitration process.

Legal Pot Market Attracts Fraudulent Marijuana Investment Schemes

Investor Alerts Business Trial Group May 16, 2019

The spread of legal marijuana has led to an explosion of investments into cannabis companies. But before you get swept up in the “green gold rush,” you should understand the risks involved.

Investor alerts from the SEC, FINRA, and the NASAA, as well as brokerages such as TD Ameritrade, caution about cannabis stock-related investment fraud, market manipulation, high-risk, and volatility. It’s not just scam artists, however, who are taking advantage of investors. As the hype around “the next big thing” increases, stock brokers and financial advisers are also engaging in unscrupulous behavior.

The Business Trial Group’s attorneys have recovered millions of dollars for the victims of securities fraud, often succeeding in FINRA arbitration where other firms fail. Since we handle all investment loss cases on a contingency-fee basis, there are no upfront fees or costs, so you do not risk compounding your losses when you hire us to represent you.

Cannabis Industry Worth $10.4 Billion in 2018

The Business Trial Group has previously warned about deceptive marijuana-related investments. Since that time, marijuana legalization has expanded, and with it, investor-related issues.

Last year, recreational marijuana became legal in California, making it the largest legal U.S. marketplace. The legal marijuana industry was valued at $10.4 billion in 2018. Across North America, investors poured $10 million into cannabis—twice the amount invested in the previous three years combined. This momentum is expected to continue into 2019 and beyond. By 2025, the global legal marijuana market is estimated to be worth nearly $150 billion.

Even conservative states such as Utah and Oklahoma have embraced medical marijuana legalization. Abroad, Canada became the second country in the world to legalize recreational marijuana in 2018, joining Uruguay. Mexico is also on track to legalize marijuana, as are Luxembourg and South Africa. In the United States, the federal ban on pot remains a hurdle to commercialization, but already, corporate giants such as Coca-Cola are eyeing market entry.

Big Rewards, Big Risks

Growing investor enthusiasm over legal pot has been met by regulatory calls to pump the brakes.

On September 5, 2018, the SEC issued an Investor Alert over marijuana investments and fraud, warning investors to look out for:

Unlicensed, unregistered sellers
Offers of high or guaranteed returns with low risks
Unsolicited offers
Trading suspensions
Company name changes
Phony press releases

The SEC has taken recent enforcement action against several cannabis companies. It urges investors to perform due diligence and to understand the risks involved with investing in marijuana-related companies.

Similarly, FINRA warns about the ability of “hot” stocks to burn an investor’s portfolio. And the North American Securities Administrators Association (NASAA) cautions that investor enthusiasm for “the next big thing”—including cryptocurrencies and marijuana stocks—can make them susceptible to “pump and dump” scams.

TD Ameritrade, whose stock trading app is popular among traders looking to cash in on cannabis, has advised investors to steer clear of the industry altogether.

“The marijuana and cannabis industry—sometimes referred to as the Wild West of investing—is littered with high-flyers, potentially over-valued companies, and even scams,” the brokerage firm said in a video posted to its YouTube account. “As marijuana moves from the black market to the stock market, the potential opportunity is easy to see. This excitement, coupled with a hazy regulatory outlook, means extreme volatility and high-risk for investors.”

Should You Trust Your Broker?

Financial adviser misconduct is widespread and costs investors hundreds of millions of dollars per year. Advisers and brokers owe their clients duties and must obey securities regulations. There may be added temptation to abandon these rules when it comes to profiting from the burgeoning marijuana industry.

For example, if an adviser recommends that you invest in a risky marijuana stock that is not appropriate for your risk profile, this could be considered an unsuitable investment. Brokers must also completely and correctly present you with material information—including risks—associated with a cannabis stock. Failure to do so could be considered investment misrepresentation.

When a broker sells securities not offered by the brokerage firm, this is known as selling away. Although selling away can be legal, products that have not been subjected to a firm’s due diligence process are more likely to be high-risk or fraudulent. When a broker sells away and the client loses money on the investment, the brokerage firm can ultimately be held responsible for failure to supervise.

Contingency-Fee Investment Fraud Attorneys

If you suffered significant financial losses from investing in marijuana stocks, the Business Trial Group may be able to help. We represent victims of investment scams and broker misconduct on a contingency-fee basis, so you pay no upfront fees, and no fees at all unless we recover your losses.

Discuss your case with an attorney during a no-cost, no-obligation case review.

Did 1st Global Capital Defraud Investors?

Investor Alerts Richard Bierig October 9, 2018

The Business Trial Group is investigating claims regarding possible improper investment practices and fraudulent activity on the part of 1st Global Capital, LLC, entities associated with company, and the company’s owner, Carl Ruderman. The Securities and Exchange Commission has alleged that 3,400 investors nationwide may have lost a combined $287 million when the company declared bankruptcy in July 2018.

Entities associated with 1st Global that may have engaged in fraudulent activity include:

1st West Capital, LLC
KNR Consulting Group, Inc
American Alternative Investments, LLC
Carl Ruderman and The Ruderman Family Trust

1st Global and its associated entities allegedly “used a network of barred brokers, registered and unregistered investment advisers, and other sales agents” to raise money for the company through the sale of unregistered and fraudulent promissory notes, according to a recently unsealed complaint filed by the SEC.

The Business Trial Group wants to help investors defrauded by 1st Global Capital or one of its associated entities get their money back. Contact us today for a free case evaluation to learn more.

Investors were told their money would be used exclusively to make short-term cash advances called Merchant Cash Advances (“MCAs”) to small and medium sized businesses that could not obtain financing through a bank loan. The company supposedly promised investors a high-return, low-risk investment, and many of those who invested used their retirement savings, according to the SEC complaint.

The reality was much different.

1st Global allegedly used a significant amount of investor money for purposes other than issuing MCAs, including operating expenses and purchasing long term credit card debt, the SEC complaint says.

Furthermore, Ruderman and his company are said to have misappropriated at least $35 million of investor funds, including $28 million for the Ruderman family trust, other companies not associated with 1st Global owned by Ruderman’s relatives and acquaintances, and Ruderman himself.

Additionally, the company is accused of sending false account statements to investors that misrepresented their portfolio balances, rates of return, and the funds 1st Global had on hand to issue MCAs. The company also claimed that an independent auditor had audited the company’s statements, but that never happened, according to the SEC complaint.

In October 2017, 1st Global experienced a $23 million shortage of funds for MCAs, largely due to the misappropriation of investor funds outlined above. This shortage only increased, and by the end of June 2018, 1st Global was missing nearly $50 million of investor funds.

Just one month later, 1st Global and one of its associated entities, 1st West Capital, LLC, filed for Chapter 11 bankruptcy protection, placing investors at risk of losing significant funds.

Today, Ruderman no longer controls 1st Global, but he was the company’s chairman and CEO the entire time it was in operation. He continues to control or have access to entities that received misappropriated investor funds from 1st Global, according to the SEC.

Don’t Spend More Money Trying To Get Your Investment Back

If you’ve been defrauded by 1st Global or one of its associated entities, the Business Trial Group would like to try and help you get your investment back.

We believe you shouldn’t have to spend money on an attorney with no guarantees they’ll get your investment back. That’s why we work on a contingency fee basis, meaning you pay nothing unless we recover your investment losses.

We have a history of helping victims of securities fraud, and have recovered tens of millions of dollars on behalf of defrauded investors. Contact us today for a free, no-obligation case evaluation to find out more about how we may be able to help.