After a long, checkered career, Clay Hoffman has been barred from the securities industry by the Financial Industry Regulatory Authority (FINRA). According to FINRA, Mr. Hoffman was first suspended and then barred from the securities industry for first failing to pay a fine he agreed to as part of a settlement, then for failing to cooperate with FINRA’s investigation into his alleged “unsuitable transactions, unauthorized transactions, excessive trading and fraud.”
Bernard Parker stole investor money to remodel his house, but now it looks like he will be living in a federal penitentiary. According to the Securities and Exchange Commission (SEC), he stole over $1 million from 22 investors through a Ponzi scheme while working at Edward Jones.
In retrospect, there are some obvious red flags that investors should have stayed away from Mr. Parker. Way back in 1992, Mr. Parker was forced to resign from his brokerage firm, North American Management, for the improper, unauthorized sale of unregistered securities. Tax liens were also filed against him in 2007 and again in 2012.
According to a recent SEC order, Edward Jones has been overcharging for municipal bonds, pocketing an extra $4.5 million as a result of its willful securities law violations.
To understand how Edward Jones reaped this improper windfall requires a basic understanding of municipal bonds and how they are sold. Municipal bonds are a category of bonds, which are securities that pay interest. Municipal bonds are issued by state and local governments, usually to finance public works projects. Because federal and state governments want to encourage this investment, they make the interest generated by these bonds tax free income. As a result, municipal bonds are an attractive option for many investors.
Municipalities hire a brokerage firm (or firms) called “underwriters” to facilitate municipal bond offerings. For a municipality, selling their bonds directly to thousands of retail investors is too complicated. Instead, they sell big blocks of bonds to underwriters, like Edward Jones, who then sell those bonds to individual investors. The municipality pays underwriters a fee for this service.
Apparently, Edward Jones was dissatisfied with the fees underwriters receive from bond issuers, because it found another (illegal) way to squeeze money out of these transactions.
Dalas Gundersen, a financial advisor formerly with Edward Jones, has been fined and terminated for making a detrimental recommendation to customers. After following Gundersen’s advice, customers invested about $1.26 million dollars in mutual funds, and lost over $50,000.
If you’re reading this article, there is a good chance you invested in or through an entity that is now in receivership, and you probably have a lot of questions! The purpose of this article is to give you a general overview of how receiverships work so you know what to expect. Every receivership is different, but every receivership goes through four overlapping stages: 1) stabilization; 2) investigation; 3) litigation; and 4) distribution.
These four stages all support the overarching goal of every receivership—the orderly winding down of a business in a manner that maximizes value for investors.
We will come back to these four stages in a minute, but first it is important to understand the background context that gives rise to a receivership.
Some investor claims are easy to see, such as when money is simply missing from an account or a financial advisor has been arrested for securities fraud. In other cases, a financial advisor has been negligent. The financial advisor did not commit fraud, but he did make mistakes that caused investment losses. These cases are more difficult for an investor to spot. Here are the three things we see in most of the investor claims we file against financial advisors for malpractice or negligence.
Financial advisors love to sell variable annuities. The reason is simple—commissions of up to 8%. If a financial advisor can sell you a $200,000 variable annuity, that means commissions of up to $16,000. Not bad for a day’s work!
Unfortunately, commissions are just about the only thing that is simple about variable annuities.
The one reason why variable annuities are almost always a bad idea is that they are too complicated for ordinary investors (and normal people in general) to understand. Seriously, have you ever tried to read a variable annuity policy? Here is just one example from an actual policy. Try to stay awake through this, because there is a lot more you urgently need to know about variable annuities:
If your financial advisor has caused investment losses, you may want to sue your financial advisor. For better or for worse, you may instead be forced out of court and into a FINRA arbitration. This post explains why securities litigation frequently ends up in FINRA arbitration, and what you can expect from the FINRA arbitration process.