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On March 25, 2014 the Financial Industry Regulatory Authority ("FINRA"), through a Wells Notice, made a preliminary determination to recommend that disciplinary action be brought against Steven Stahler for potential violations of NASD Rule 2110, NASD Rule 2310 and FINRA Rule 2010.

NASD Rule 2110 entitled "Standards of Commercial Honor and Principles of Trade" states that "A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade."

NASD Rule 2310 entitled "Recommendations to Customers (Suitability)" states that a broker and a brokerage firm must have a reasonable grounds to believe that a customer recommendation to purchase, sell or exchange a security (including a private placement investment) is suitable for the customer.

FINRA Rule 2010 entitled "Standards of Commercial Honor and Principles of Trade" is perhaps the shortest rule in the FINRA rule book yet its effects and power are wide reaching. The rule states "[a] member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade."

In addition to the current FINRA investigation, there have been five customer disputes filed against Steven Stahler and three complaints against him where no further action was taken. Steven Stahler also has a judgment lien against him filed by the Iowa Department of Revenue.

If you had dealings with Steven Stahler and believe that you were not given proper investment advice, contact Thomas F. Burke, P.C., 53 W. Jackson Blvd, Suite 1441, Chicago, IL 60604, Telephone Number 312/362-1300, email address

Posted in: Investments

The Wall Street Journal reported that there are more than 51,500 stockbrokers that have failed, at least once, an exam to obtain a license to sell securities. Additionally, those brokers that failed the exam have worse disciplinary records than other brokers. This information is not disclosed on the Financial Industry Regulatory Authority ("FINRA") BrokerCheck website that is accessible to the public.

Each broker must pass a Series 7 exam given by FINRA and a Series 63 state broker examination. In analyzing the results from the state test, the Wall Street Journal found that, on average, the more times a broker failed a test correlated to the higher the number of problems associated with that broker, including criminal charges and firing. Those who failed the test more than twice were 77% more likely to report a felony or financial related misdemeanor and 55% more likely to be fired than brokers that passed the tests on their first try. About 14% of brokers failed the test at least once. A broker that failed the test at least three times was about two-thirds more likely to have three or more red flags on their record.

A broker trainee can take the Series 7 and the Series 63 exam an unlimited number of times, although an applicant must wait six months after failing the test to retake it. Both exams are multiple choice with a passing grade of 72%. Some firms limit the number of times a trainee can take the test.

Thomas F. Burke and Terrance Buehler collectively have more than sixty years of experience helping investors who have suffered losses as a result of misconduct by securities issuers and securities brokers. If you feel that you have received unsuitable trade recommendations, please contact Mr. Burke at 312/362-1300 or by email at

Posted in: Investments

I have attached an article by Jonathan Weil that everyone should find interesting.

'Wolf of Wall Street' Offspring Never Quite Die

Normally it wouldn't be news that a small-fry stock hustler like Christopher F. Veale got busted for allegedly churning an octogenarian customer's account. But here's why it is now: He used to work at Stratton Oakmont Inc., the boiler room depicted in the movie "The Wolf of Wall Street." So when the state of Massachusetts went after him, the story made headlines.

Fellow members of the Stratton Oakmont diaspora are now on notice: For the foreseeable future -- or at least until the film stops playing in theaters -- anytime an alumnus gets pinched, it will be a matter of public interest. Coincidentally, the case against Veale also points to a gaping hole in the securities industry's reporting system that makes it easier for brokers with checkered histories to avoid prying eyes.

Veale, who declined to comment when contacted by a Bloomberg News reporter, worked at Stratton Oakmont from 1995 to 1996, the year that the Lake Success, New York-based firm was shut down by regulators. He has worked at 17 different firms since then, including John Thomas Financial Inc., a bucket shop that went bust last year amid fraud claims by regulators.

Massachusetts authorities this week filed a complaint seeking to bar Veale and his former employer, Brookville Capital Partners of Uniondale, New York, from the securities business in that state, along with a second broker. Massachusetts also is seeking restitution. The complaint says the investor, an 81-year-old Rhode Islander, put about $870,000 into the account and was charged about $320,000 in commissions and hidden markups.

Continue Reading "The Wolf of Wall Street" »

Posted in: Investments

On Friday, January 17, 2014, the Wall Street Journal reported that a University of Virginia law professor's analysis revealed that the Justice Department hadn't charged employees at nearly two thirds of nearly 400 companies that have settled criminal investigations or been convicted of crimes in recent years.

The Justice Department did not contest the figures but defended its role in fighting white collar crimes. It countered that it has criminally prosecuted thousands of defendants for financial fraud and related crimes in the last five years and that it has a high burden of proving executives intended to commit fraud. According to the Justice Department, federal prosecutors have charged more than 10,000 people with white collar crimes since September of 2011.

Even given the figures cited by the Justice Department, many of its highest profile investigations, including those where hiding transactions with sanctioned countries and illegal drug marketing, haven't resulted in prosecuting employees.

Between 2001 and 2012, no individual was charged in 65% of cases in which the Justice Department reached deferred-prosecution agreements or non-prosecution agreements, which allow firms to avoid criminal convictions. During the same time period, no employees were charged in 75% of 125 cases in which public companies were charged and convicted or reached plea agreements.

HSBC Holdings PLC reached a $1.92 billion settlement deferring prosecution for allegedly failing to combat money laundering, allowing drug proceeds into the United States and overlooking links to terrorist financing. Senator Charles Grassley (R. Iowa) wrote a letter to Attorney General Eric Holder alleging that "HSBC has quite literally purchased a get-out-of -jail-free card for its employees."

Traditional prosecutions of companies resulting in pleas or convictions have remained relatively stable since 2001. Whether the Justice Department decides to prosecute more individuals for white collar crime remains to be seen.

Continue Reading "Justice Department Weak on Charging Individuals for White Collar Crime" »

Posted in: Investments

The Wall Street Journal reported that many stock market strategists are expecting the stock market to cool significantly in 2014. They see returns in the mid-to-high single digit percentages for the S&P 500 Index in 2014 because of the economy. The January 15th US Government funding deadline, February 7th Debt Ceiling deadline and the Fed transition/QE tapering dialogue are sources of near term risk. No one knows what the consequences of Obamacare will have on the markets. Additionally, the Fed might start to tighten its easy-money policy, which they believe is a key reason why the markets have performed so well this year. These forecasts could be adjusted upward if interest rates remain low or if there are changes to the economy.

Stock strategists traditionally have been cheerleaders when forecasting year ahead outlooks. Since 2000, stocks have returned an average annual gain of 3.3%, well below the 10% predicted by strategists. Furthermore, they missed all four years when the stock market declined. However, stocks outpaced analysts forecasts in seven of those years.

In 2013, stocks have risen faster than earnings. Both the Dow Jones Industrial Average and the S&P 500 set record highs in November. They have returned 29% so far this year. Conversely, gold has fallen more than 25% since January 1, 2013.

Hedge Fund Manager Carl Icahn is quoted as saying that he is "very cautious" on U.S. stocks, which could easily have a big drop" from their new record highs. Warren Buffett says the U.S. stock market is valued "in a zone of reasonableness." Oppenheimer expects the market to continue its bullish behavior into next year, with the S&P 500 index finishing the year 2014 at the pinpoint figure of 2014. The number actually represents the midpoint of two proprietary models that were used to predict the market. UBS year end prediction for 2014 has an S&P 500 Price Target of 1,950, which would represent a gain of 10.1% from the current price of 1,771.

Some other strategists' forecasts 2014 S&P 500 forecasts:

  • Morgan Stanley: 1,840 (12 months from September)
  • Deutsche Bank: 1,850
  • Citi: 1,900
  • Credit Suisse: 1,900
  • Goldman Sachs: 1,900
  • RBC: 1,950

According to Bloomberg, the median 2014 forecast is 1,900.

Continue Reading "2014 Stock Market Forecasts" »

Posted in: Investments

USA Today reported that JPMorgan Chase, Barclays, Credit Suisse and 10 other international banks have been sued by a federal credit union regulator on charges they manipulated a financial benchmark used to set rates on trillions of dollars in loans.

The National Credit Union Administration ("NCUA") lawsuits charge that the banks conspired to rig the daily London Interbank Offered Rate ("LIBOR") that's used to set the rates on mortgages, car loans, student loans, credit cards and complex financial derivatives contracts.

LIBOR is set by 16 international member banks and, by some estimates, places rates on a staggering $360 trillion of financial products across the globe. LIBOR rates are calculated for ten currencies and fifteen borrowing periods ranging from overnight to one year and are published daily. Financial institutions, mortgage lenders and credit card agencies set their own rates relative to it. At least $350 trillion in derivatives and other financial products are tied to the LIBOR

By keeping the rate artificially low from at least January 2005 through December 2010, the alleged manipulation resulted in improperly low interest income for five failed corporate credit unions now being liquidated by the regulator according to the 72-page complaint filed Monday in Kansas federal court. Corporate credit unions provide services such as check clearing, electronic payments and investments to retail credit unions, which serve individual consumers.

Simultaneously, the alleged rate-rigging provided a secret and improper boost to the banks' own financial trading positions, "allowing them to earn significant undeserved profits," the complaint charged.

Because the banks' LIBOR quotes were an indicator of their financial health, the alleged manipulation also enabled them "to portray themselves to the marketplace as financially healthier and more liquid than they actually were," the lawsuit charged.

Continue Reading "Banks Sued For LIBOR Rate Fraud" »

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The Federal Reserve's QE Infinity program may be finite rather than "infinite" after all. QE Infinity has been the tongue-in-cheek term given the Fed's Quantitative Easing program, which has expanded into their purchasing $85 billion per month in mortgage-backed securities and Treasuries. But the winds of change may be blowing. Investors have been abuzz as the Wall Street Journal recently reported that officials at the central bank are considering an exit strategy from the massive stimulus measures that have been driving the U.S. economy for nearly the last five years.


A senior interest rate strategist at Columbia Management said "Faced with conflicting information on the economy, Fed officials have decided to see the glass as half full." They are thinking about making an exit rather than continuing to boost the economy with their automatic, huge monthly outlay. Instead, it may begin to "increase or reduce the pace" of those purchases in response to economic activity.

The news that the Fed may begin to tighten its monetary policies resulted in U.S. Treasuries reaching a two-month high for the ten-year yields, simultaneously reducing their price. Meanwhile, the Dow Jones closed down nearly 27 points yesterday after late trading caused it to fall below the 15,100 mark.

Most agree that the central bank's policies have been responsible for increasing the stock market over the last few years.

In the wake of the news, investors will be watching these highlights more closely:

Continue Reading "Investors Watch as Federal Reserve's Mood May Be Changing" »

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When it comes to selling stock, companies must be aware of their obligations to their investors. Among the most important of these obligations is the necessity of properly representing to investors the financial and legal status of the company and how that might affect the company's stocks.

One company that recently failed to do this is YPF Sociedad Anonima. In November, 2010, YPF filed a Form F-3 Registration Statement for their offering with the SEC. In March, 2011, the Prospectus with respect to the offering went into effect and more than 26.2 million shares of YPF American Depositary Shares were sold to the public at a rate of $41 per share. This put the total value of the offering at more than $1 billion.

However, there are certain important facts about YPF which the company failed to disclose or misrepresented in its Registration Statement. These facts include, among others:

  1. that the YPF faced a risk of nationalization by the Argentinean government;
  2. that the company's risk of nationalization had increased due to its failure to adequately produce oil and gas within Argentina as well as its failure to reinvest a certain portion of its profits back into the company;
  3. that the company was in breach of its concession contracts with various Argentinean provinces; and
  4. that nationalization by the Argentinean government would likely have a drastic, adverse effect on shareholders and the company's market value.

Had this information been made available to investors, a number of them would not have purchased the stock. These are the allegations laid forth in a complaint filed in a class action lawsuit against YPF. Anyone who purchased YPF's American Depositary Shares is eligible to participate in the class action.

Posted in: Investments

It seems particularly heinous when the victim of a stockbroker scam is a senior citizen. Recently, a stockbroker was sentenced to five years in prison for fraud and filing a false tax return after stealing more than $1 million from an elderly client and his heirs.

The stockbroker, Michael Montgomery, started as an investment advisor for the elderly man living in Lake Tacoma and later became the trustee of the man's living trust. He also gained power of attorney over his client. From 2003 through 2007, Montgomery misappropriated money from the elderly man's bank and investment accounts and sent $654,600 from the client's Charles Schwab account to another bank account, whereupon Montgomery took the money for his own personal spending.

Montgomery wrote a further $598,916 in checks to himself from his client's account from January 2004 to July 2006, supposedly as payment for services to his client. After the client died on July 18, 2006, Montgomery wrote an additional $243,745 in checks to himself from the client's estate for "estate services". However, he never told the client's surviving family members what any of these services were, nor did he report the income on his tax returns.

U.S. District Judge Robert J. Bryan thinks that Montgomery may have been committing fraud even before 2003. According to the judge, there is a "high probability" that Montgomery has been stealing from his victims since 2001.

In 2009, the Washington State Department of Financial Institutions revoked Montgomery's registration as a securities dealer for unethical conduct. According to the prosecutors, he has shown absolutely no remorse for his actions. He continues to pursue hobbies and has not attempted to begin earning back the money for his victims.

He appears to be "arrogant and shameless".

Continue Reading "Stockbroker Sentenced to Prison for Scamming Senior Citizens" »

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Exchange-traded funds, commonly called ETFs, are investment funds that trade like stocks on stock exchanges. Most ETFs track an index, such as a stock index or a bond index. Exchange-traded funds began trading in 1993, but in recent years they've been gaining in popularity against more mature mutual funds. The number of existing ETFs has increased dramatically so now investors can choose from hundreds of them.

Only authorized participants, large institutional investors, buy or sell shares of an ETF directly from the fund manager. Individuals can buy and sell ETFs through a broker or a brokerage account.

When shares of a traditional mutual fund are purchased, the net asset value serves much like a stock price -- it's the price at which shares are bought or sold from the fund company. At a traditional fund, the NAV is set at the end of each trading day. ETFs work differently. Since ETFs trade like a stock, you buy and sell shares on an exchange at a price determined by supply and demand. That's why an ETF's market price can differ from its net asset value (the value of all securities inside minus liabilities, divided by the total number of shares outstanding).

ETFs have all of the benefits of index funds with some additional benefits. The fees for ETFs are often, but not always, cheaper than index funds, and they may cost less in taxes than index funds.

Costs: Many good ETFs have very low fees, compared with traditional mutual funds. While some mutual funds require a $2,000 minimum investment, ETFs can be used as an alternative. To reduce the cost of an ETF, individuals can purchase them through an online brokerage that charges low commissions.

Taxes: ETFs are big winners at tax time. As with any index fund, the manager of the ETF doesn't need to constantly buy and sell stocks unless a component of the underlying index that the ETF is attempting to track has changed. (This can happen if companies have merged, gone out of business or if their stocks have moved dramatically). And given the special way ETFs are structured, they're often more tax-efficient than traditional index mutual funds. However, some ETFs are mimicking newer, less-static indexes that trade more often. These funds may trigger more capital gains costs. Trading in and out of ETF shares can generate taxable gains, just like stocks.
Diversification: Like index funds, ETFs provide an efficient way to invest in a specific part of the stock or bond market (ie: small-cap stocks, energy or emerging markets), or the entire Standard & Poor's 500.

Open Book: Again, since they track an index, you usually know exactly what's inside an ETF. With traditional mutual funds, holdings are usually revealed with a long delay and only periodically throughout the year (mutual funds that track a specific index are the exception here).

Continue Reading "Four Reasons Why Exchange Traded Funds Gain In Popularity Over Mutual Funds" »

Posted in: Investments