Wednesday, July 20, 2016

$361,629 Ledesma v Popular Securities PR Bond and Fund Award

In July 2016, a FINRA panel in San Juan, PR ordered Popular Securities to pay the Claimant at least $361,629 including compensatory damages, attorneys’ fees, expert witness fees and costs. The award is available here. The subject investments included Puerto Rico closed end bond funds co-managed by UBS and Popular and individual Puerto Rico municipal bonds. Craig McCann testified on liability and damages.

Wednesday, July 13, 2016

Another Bad Broker Falsifying his BrokerCheck

By Craig McCann, PhD, CFA, Mike Yan, PhD, CFA, FRM and Chuan Qin, PhD

Recently we posted about two brokers who had not disclosed that customer complaints had been adjudicated to arbitration awards in favor of the clients but rather continued to report them as pending up to 15 months after the arbitration award was rendered (Bad Brokers Falsify Their BrokerCheck Records and No One Notices) and showed that FINRA corrected these two brokers’ BrokerCheck records (Bad Brokers’ Incorrect Records Got Partially Corrected Last Week). Last week we identified a few more problematic brokers (Things Go From Bad to Worse for BrokerCheck)

We will distribute a much larger report shortly but in the meantime consider another example of a bad broker who failed to report an arbitration filing against him.

Barris Dincer (CRD# 5637472)

Mr. Dincer was a named Respondent in FINRA Case No.: 13-03605 along with two former supervisors, Francine Lanaia (CRD# 1415689) and Joseph Amato (CRD# 2751635). Case No.: 13-03605 was filed by Adam Weinstein of Gana LLP

Ms. Lanaia’s May 31, 2016 BrokerCheck lists Case No.: 13-03605 as pending.


Mr. Amato’s May 31, 2016 BrokerCheck also lists Case No.: 13-03605 as pending.

Mr. Dincer’s May 31, 2016 BrokerCheck can be downloaded by clicking here. While he had already been terminated twice by prior employers he had no reported customer complaints.


Mr. Dincer’s July 12, 2016 BrokerCheck can be downloaded by clicking here. He now reports a customer complaint – a newly filed June 2016 arbitration.


The Takeaway

Mr. Dincer was able to service existing customer accounts and solicit new customers for two and a half years and counting without disclosing this arbitration filing, a filing his supervisors also named as Respondents did disclose. During this period, Mr. Dincer apparently has been able to inflict further harm on at least one other investor.

We understand that FINRA has been alerted to Mr. Dincer’s omission but Case No. 13-03605 is still not on his BrokerCheck report today.

The Solution

As we suggested in Things Go From Bad to Worse for BrokerCheck, fixing some of what is wrong with BrokerCheck is easy.

Arbitration claims, including Case No. 13-03605, are filed with FINRA. It would be easy for FINRA to force brokers like Mr. Dincer to file accurate U-4s by simply auditing a sample of submitted Statements of Claim and punishing those brokers and brokerage firms who don’t accurately maintain their BrokerCheck records with substantial fines and/or suspensions.

FINRA wouldn’t have to review 100% of Statements of Claim; thorough review of 10% or 20% of filings - focused on the high risk firms - with swift corrective action after 30 days if a registered person does not update their U-4 should be sufficient to improve compliance and thereby protect investors from brokers like Mr. Dincer.

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Thursday, July 7, 2016

Things Go From Bad to Worse for BrokerCheck

By Craig McCann, PhD, CFA, Mike Yan, PhD, CFA, FRM and Chuan Qin, PhD

Last week we posted about two brokers who had not disclosed that customer complaints had been adjudicated to arbitration awards in favor of the clients but rather continued to report them as pending up to 15 months after the arbitration award was rendered. See Bad Brokers Falsify Their BrokerCheck Records and No One Notices. Two days ago we showed that FINRA corrected these two brokers’ BrokerCheck records in Bad Brokers’ Incorrect Records Got Partially Corrected Last Week. We’ll let you know when FINRA disciplines these two bad brokers and their employers.

The problem we have identified is vastly larger than just two or three brokers. Hundreds, and perhaps thousands, of active brokers provide falsified BrokerCheck reports to their clients because, like Ms. Shivaee and Mr. Gonzalez, they list arbitrations they’ve lost as pending or don’t list customer complaints at all when FINRA’s awards database includes arbitrations they’ve been involved in and where motions for expungement were not granted.

The Big Picture

Before getting to today’s fascinating examples, consider the big picture. We spent weeks earlier this year extracting data on 1.2 million brokers from FINRA’s BrokerCheck website as part of an effort to determine the extent of broker misconduct and to suggest ways reduce the harm suffered by investors at the hands of bad brokers. See How Widespread and Predictable is Stock Broker Misconduct? The BrokerCheck data is not confidential. In fact, it is supposed to all be made publicly available but FINRA will only let you or us look at it one broker at a time. If you try to look at a lot of it, FINRA will block you from accessing its BrokerCheck website. If FINRA made this data truly publicly available academics and public policy researchers would much more quickly be able to do the research that we and Egan Matvos and Seru (See The Market for Financial Adviser Misconduct) have done.

The examples of bad brokers falsifying their BrokerCheck records that we released last week, again today, and will on a larger scale next week are all developed by combining FINRA’s hidden BrokerCheck data with FINRA’s arbitration awards database. Consider that for a moment. We accessed FINRA’s BrokerCheck database and Awards database with far more difficulty than necessary for FINRA to access these databases. Yet, we can find hundreds of brokers who have obviously been falsifying their BrokerCheck records to deceive clients and potential clients by not disclosing customer complaints and settlements and awards. These bad brokers should all be disciplined with fines and/or suspensions.

Three Brokers, One Award

Greg L. Lapine v Select Portfolio Management, Inc., Paul Edward Bozymowski, Mark Edward Goldsmith, Securities Equity Group, and Carin Ruth Amaradio, Case No: 10-02365 was heard by a three person FINRA panel in Detroit, Michigan in September 2011 – 5 years ago. The Award is available here.

The Panel dismissed the claims against Mr. Bozymowski and found Mr. Goldsmith and Ms. Amaradio jointly and severally liable, ordering them to pay the Claimant $133,333.33. The Respondents had all filed motions for expungement which the Panel explicitly denied on page 4 of 5 of the award.

The correct treatment of this 5-year old award on Mr. Bozymowski, Mr. Goldsmith and Ms. Amaradio’s BrokerCheck records seems clear: It should appear as a dismissed claim on Mr. Bozymowski’s BrokerCheck, and as a $133,333.33 adverse ruling on Mr. Goldsmith’s and Ms. Amaradio’s BrokerChecks. Let’s see what they did.

Paul Edward Bozymowski (CRD# 824747)

Clicking on Mr. Bozymowski’s CRD number above will take you to FINRA’s BrokerCheck website and his current BrokerCheck record. FINRA will likely correct it as they corrected Ms. Shivaee and Mr. Gonzalez’s BrokerCheck records after we wrote about them last week. So, instead you should look at his BrokerCheck record as of today, July 7, 2016 by clicking here.

There are no customer complaints listed on Mr. Bozymowski’s BrokerCheck just a financial disclosure about a satisfied lien. The 2010 customer complaint resulting in the award above should be listed on Mr. Bozymowski’s BrokerCheck since his motion for expungement was not granted.
Mark Edward Goldsmith (CRD# 1740865)

Next consider Mr. Goldsmith. Again, clicking on Mr. Goldsmith’s CRD number above will take you to FINRA’s BrokerCheck website and his current BrokerCheck record. So, instead you should look at his BrokerCheck record as of today, July 7, 2016 by clicking here.
There is one customer complaint listed on Mr. Goldsmith’s BrokerCheck but it is from 2000, 10 years earlier than the Lapine claim. The claim and adverse award in Lapine is not on Mr. Goldsmith’s CRD even though he was ordered to pay the Claimant $133,333.33 and his request for expungement was denied.
Carin Ruth Amaradio (CRD# 712800)

[You can probably guess where this is going.]

Unlike Mr. Bozymowski who had a financial disclosure and Mr. Goldsmith who had an aged customer complaint disclosed, Ms. Amaradio has a pristine BrokerCheck report despite being found jointly and severally liable for $133,333.33 in the 2011 FINRA arbitration and having had her request for expungement denied. Her BrokerCheck report as of July 7, 2016 can be accessed here.
This page from Ms. Amaradio’s BrokerCheck report introduces an interesting wrinkle. Her employer, Securities Equity Group, is also Mr. Goldsmith’s employer and Mr. Bozymowski had previously been registered with Securities Equity Group.

Securities Equity Group (CRD# 47215)

Ms. Amaradio is the CEO/CCO-President of and owns 75% or more of Securities Equity Group. Mr. Goldmsith is the FINOP-V.P.-Treasurer and owns less than 5% of Securities Equity Group.
The 5th Respondent in the Lapine claim along with the three individuals and Securities Equity Group, Select Portfolio Management, Inc. is under common control (that is controlled by Ms. Amaradio) with Securities Equity Group.

The Lapine claim was against Select Equity Group, against three registered representatives including two of the executives at Select Equity Group, and against a controlled entity.

The Takeaways

This award and three brokers illustrates a few of the problems we have discovered with BrokerCheck.

The arbitration panel ordered Ms. Amaradio and Mr. Goldsmith to pay a substantial amount to the Claimant and denied Respondents’ motions for expungement. Yet five years later this claim and award is not on Ms. Amaradio’s, Mr. Goldsmith’s or Mr. Bozymowski’s BrokerCheck. Clients and potential clients relying on the BrokerCheck reports FINRA provided for these three brokers over the past 6 years have been misled.1

As owners and executives of Select Equity Group, Ms. Amaradio and Mr. Goldsmith, control what gets reported to FINRA, separate and apart from their disclosure obligations as registered representatives.

Each individual in this example reflects a different abusive fact pattern we see in the BrokerCheck data.
  • Mr. Bozymowski has no customer complaints on his BrokerCheck but should have at least one that was dismissed.
  • Ms. Amaradio has no complaints on her BrokerCheck but should have at least one customer complaint adversely resolved.
  • Mr. Goldsmith has one aged customer complaint that was settled on his BrokerCheck but should have at least one customer complaint adversely resolved.
We identified this example and at least 75 more with our hobbled access to FINRA’s two databases which we will write about early next week. With FINRA’s unfettered access and our programming skills we’re confident FINRA could find hundreds, maybe thousands, of brokers who have not reported customer complaints, settlements and awards. These brokers all should be swiftly fined and/or suspended.

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1 The claim was filed in 2010 and so should have appeared on these brokers’ BrokerCheck reports in 2010. It seems unlikely that the claim was ever on the brokers’ BrokerCheck reports, since without an arbitration award granting expungement and a court order affirming it, FINRA would not have removed the claim after it was on the brokers’ BrokerCheck.

Tuesday, July 5, 2016

Bad Brokers’ Incorrect Records Got Partially Corrected Last Week

By Craig McCann, PhD, CFA, Mike Yan, PhD, CFA, FRM and Chuan Qin, PhD

We wrote that FINRA’s BrokerCheck allowed brokers to report cases adversely resolved as “pending” last week, in Bad Brokers Falsify Their BrokerCheck Records and No One Notices.

We provided two examples. The first included a large award in FINRA’s awards database that had not been correctly reported as adversely resolved on the broker’s BrokerCheck but had been correctly reported on her employer’s BrokerCheck. Our second example, was of two adversely resolved filings against another broker. We showed that the difference in the false reporting versus the correct reporting significantly changes the probability of future investor harm using FINRA’s model applied to all the BrokerCheck data.

FINRA largely fixed these two brokers’ BrokerCheck records last week after we posted about the errors.

           Jon Gregory Sanchez (CRD #2418439)

As we showed last week Mr. Sanchez’s BrokerCheck record, current as of June 29, 2016 (available here), listed two “pending” customer complaints.


Mr. Sanchez’s BrokerCheck record, current as of July 5, 2016 (available here) changes these two customer complaints to FINAL with an html link to the award.

Last week:


This week:



This is, of course, a big improvement but investors who looked at Mr. Sanchez’s BrokerCheck report over the past 10 months were misled into believing arbitration panels had not ruled against him. As we can see in the images below, the updates were provided by FINRA, not Mr. Sanchez or his employer.

 

           Fera Shivaee

Our other example was a Centaurus broker, Fera Shivaee (CRD #2271590). Ms. Shivaee’s BrokerCheck record, current as of June 29, 2016 available here listed only two customer complaints, both listed as “pending”. Ms. Shivaee’s Case 13-02924 was arbitrated 13 months ago and resulted in a $915,249 customer award available here. FINRA has updated Ms. Shivaee’s BrokerCheck record.

Ms. Shivaee’s June 29, 2016 BrokerCheck also changed after our post last week. Ms. Shivaee's BrokerCheck as of July 5, 2016 is available here.



The Smith v Centaurus case was resolved in favor of the Claimant in May 2015 but maintained on Ms. Shivaee’s BrokerCheck as pending for 15 more months. FINRA last week updated her BrokerCheck to show the disposition date of May 26, 2015. Investors including her clients and potential clients were misled for 14 months by Ms. Shivaee’s materially false BrokerCheck records.



There remains a discrepancy between how Ms. Shivaee’s BrokerCheck and how Centaurus’ BrokerCheck reports the resolution of the same case. Centaurus correctly reports the total relief awarded as $915,249 while Ms. Shivaee’s reports $487,336, both hyper-linked to the same award.



It appears that FINRA attempted to quickly fix the two brokers’ BrokerCheck reports we identified but there may still be some systematic fixes required to harmonize the awards database with brokers’ and brokerage firms’ BrokerCheck reports.