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OptionSellers.com Fraud and/or Investment Loss Customer Complaint Disclosures

FINRA Fines Multiple Brokerage Firms For Short Term Trading In Unit Investment Trusts

The Financial Industry Regulatory Authority (FINRA) has completed its sweep of broker-dealers’ unlawful sales practices relating to unit investment trusts, and as a result, issued fines to several of them. Areas of concern to FINRA included suitability, supervision, and excessive trading in violation of FINRA Rules.

What is a Unit Investment Trust (UIT)

A Unit Investment Trust is a closed-end investment company typically issues redeemable securities (or “units”), like a mutual fund, which means that the UIT will buy back an investor’s “units,” at the investor’s request, at their approximate net asset value (NAV). A UIT typically will make a one-time “public offering” of only a specific, fixed number of units (like closed-end funds). Many UIT sponsors, however, will maintain a secondary market, which allows owners of UIT units to sell them back to the sponsors and allows other investors to buy UIT units from the sponsors.

A UIT will have a termination date that is established when the UIT is created, although it may be in the distant future. In the case of a UIT investing in bonds, for example, the termination date may be determined by the maturity date of the bond investments. When a UIT terminates, any remaining investment portfolio securities are sold and the proceeds are paid to the investors.

A UIT does not actively trade its investment portfolio. That is, a UIT buys a relatively fixed portfolio of securities (for example, five, ten, or twenty specific stocks or bonds), and holds them with little or no change for the life of the UIT. Because the investment portfolio of a UIT generally is fixed, investors know more or less what they are investing in for the duration of their investment. Investors will find the portfolio securities held by the UIT listed in its prospectus.

UITs have sales charges, fees and loads that are paid by investors when purchasing and/or selling shares. These fees and charges must be taken into account when transacting in UITs because they impact the return for investors. Over the last several years, UITs have become more popular. Unfortunately, with the increased popularity comes the potential for abuse. Brokers have more actively traded these long-term securities in order to generate commissions. This prompted FINRA to focus on UIT sales and, ultimately, sanction a number of brokerage firms for unlawful sales practices relative to UITs.

FINRA Sanctioned Multiple Brokerage Firms

Among the brokerage firms sanctioned include Wells Fargo Advisors, Raymond James, Stifel Nicolaus & Co., Merrill Lynch, Oppenheimer & Co. and Cambridge Investment Research. For a description of these sanctions, see below:

  • Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC have been censured, fined $550,000 and $100,000 respectively, and ordered to pay a combined restitution of approximately $2.5M to affected customers over allegations over suitability and proper supervision of short-term trades. The FINRA allegation states, “From July 2013 through June 2018, Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC (together, Wells Fargo) failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with 1 For more information about the firms, including prior regulatory events, visit BrokerCheck® at www.fmra.org/brokercheck. FINRA’ s suitability rule as it pertains to early rollovers of Unit Investment Trusts. Wells Fargo therefore violated NASD Rule 3010, FINRA Rule 3110, and FINRA Rule 2010.”
  • Merrill Lynch was fined $3.2M, censured, and ordered to pay restitution of more than $8M to affected customers, plus interest. The FINRA allegations state, “From January 2011 through December 2015, Merrill Lynch failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with FINRA’s suitability rule as it pertains to early rollovers of UTIs. Merrill Lynch therefore violated NASD Rule 3010 (for conduct before December 1, 2014), FINRA Rule 3110 (for conduct on or after December 1, 2014), and FINRA Rule 2010.”
  • Stifel, Nicolaus & Co. was censured, fined $1.75M, and ordered to pay restitution of $1.89M to affected customers. The FINRA allegations state, “From January 2012 through December 2016 (the “Relevant Period”), Stifel failed to establish and maintain a supervisory system, and failed to establish, maintain, and enforce written supervisory procedures (“WSPs”), that were reasonably designed to achieve compliance with FINRA’s suitability rule as it pertains to early rollovers of Unit Investment Trusts. Based on the foregoing, Stifel violated NASD Rule 3010 (for conduct before December 1, 2014) and FINRA Rule 3110 (for conduct on or after December 1, 2 2014) and FINRA Rule 2010. In addition, during the Relevant Period, Stifel sent approximately 600 switch letters to customers that contained inaccurate or missing information about the costs that they incurred as a result of early rollovers of Unit Investment Trusts, in violation of FINRA Rule 2010.”
  • Oppenheimer & Co. was censured, fined $800,000, and ordered to pay restitution of more than $3.8M plus interest to affected customers. The FINRA allegation states, “From January 2011 through December 2015 (the “Relevant Period”), Oppenheimer failed to establish and maintain a supervisory system, and failed to establish, maintain, and enforce written supervisory procedures (“WSPs”), that were reasonably designed to supervise the suitability of representatives’ recommendations as they pertain to early rollovers of Unit Investment Trusts. Based on the foregoing, Oppenheimer violated NASD Rule 3010 (for conduct before December 1, 2014), and FINRA Rule 3110 (for conduct on or after December 1, 2014), and FINRA Rule 2010.”
  • Cambridge Investment Research was censured and fined $150,000. The FINRA allegation states, “At various times between July 2013 and January 2017, Cambridge failed to establish and maintain a supervisory system that was reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable NASD and FINRA Rules, in three principal areas of the Firm’s business:
    • Between July 1, 2013 and December 31, 2014, the Firm failed to reasonably supervise short-term trading of UITs and mutual fund Class A Shares;
    • Between February 1, 2014 and September 21, 2014, the Firm failed to reasonably supervise compliance with NASD Rule 2440 (for conduct before May 9, 2014) and FINRA Rule 2121 (Fair Prices and Commissions), which resulted in the Firm charging excess commissions on approximately 30 transactions; and,
    • Between February 1, 2016 and January 31, 2017, the Firm failed to reasonably ensure that customers received available mutual fund breakpoint discounts. Through this conduct, the Firm violated NASD Rule 3010 (for conduct before December 1, 2014), and FINRA Rules 3110 and 2010.”

We are Here to Help Recover Your Investment Losses in Unit Investment Trusts

If you purchased UTIs and are concerned about investment loss, it’s important to speak with an experienced attorney dedicated to protecting investors and their rights.

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.

INVESTIGATION: OptionSellers.com And INTL FC Stone Lawsuit And Recovery Options

The Wolper Law Firm has been contacted by clients of OptionSellers.com, who experienced catastrophic investment losses during the week of November 12, 2018, and is preparing to file lawsuits. To this end, the Wolper Law Firm is currently investigating claims against Tampa, Florida based OptionSellers.com and its principals and traders, James Cordier, Rosemary Veasey, Matthew Donovan, Michael Gross, and Alicia Zedella. The Wolper Law Firm is also investigating potential claims against INTL FC Stone, which executed OptionSellers.com’s trades and also served as the custodian of client assets.

OptionSellers.com is a registered commodity trading advisor, offering clients individually managed portfolios. Clients of OptionSellers.com were required to open accounts at INTL FC Stone and provide OptionSellers.com with trading authority to transact on a discretionary basis. OptionSellers.com represents to its customers that “our goal is to take an aggressive vehicle and manage it conservatively.” Contrary to these representations, OptionSellers.com traded uncovered (i.e., naked) options on various commodities, including crude oil, natural gas, coffee, soybeans, gold and silver. These options trades were not properly hedged in order to provide adequate downside protection.

On November 15, 2015, OptionSellers.com notified its clients of a “catastrophic loss event,” which caused many clients to experience a complete loss of principal. In addition, INTL FC Stone has issued margin calls to many of OptionSellers.com’s customers, requiring them to deposit additional collateral in the accounts. Thus, not only did clients lose their principal investment in a matter of days, but are now required to come out-of-pocket significant sums of money to address the negative equity in their INTL FC Stone accounts.

OptionSellers.com has ceased trading and its website has “gone dark.”

The market event that caused the aforementioned losses was a “short squeeze” in natural gas and crude oil, whereby market participants “covered” short positions, exponentially driving up the price of natural gas and crude oil. OptionSellers.com was fully exposed with a large short call position in natural gas and did not take appropriate steps to close those positions. OptionSellers.com failed to properly hedge client assets and, instead, subjected their portfolios to a complete loss. Importantly, short calls are among the riskiest options strategies because it theoretically exposes a client to limitless risk.

In addition to claims against OptionSellers.com, there may be potential claims against INTL FC Stone based on, among other things, failure to follow applicable margin and maintenance requirements and allowing customers to utilize margin in IRA accounts, which is generally prohibited. Moreover, INTL FC Stone may have stepped beyond the traditional role of a prime broker and/or clearing agent when facilitating this speculative uncovered options strategy.

The Wolper Law Firm is interested in speaking with clients of OptionSellers.com as part of its investigation. We can be reached at 800.931.8452 or by email at mwolper@wolperlawfirm.com. The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters.

Attorney Matthew Wolper

Attorney Matthew WolperMatt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks. [Attorney Bio]