INVESTACORP INVESTOR ALERT - WATCH OUT FOR CHURNING AND UNSUITABLE INVESTMENTS!

Investacorp, Inc., a subsidiary of the Ladenburg Thalmann Financial Services, Inc., is an independent broker-dealer headquartered in Miami, Florida and reportedly has over 500 registered representatives across the United States operating in one or two person offices. Its branch offices are largely comprised of small producers earning commissions at higher pay out rates than the major full-service brokerage firms, a recipe for disaster when it comes to protecting investors from churning and unsuitable investments and unsuitable investment strategies!

Churning is a violation of Federal and state securities statutes, industry rules and regulations and a breach of fiduciary duty to investors under common law. Churning can occur if an Investacorp broker exercises control over the investment decisions in your account and purchases stocks or recommends that you purchase and sell stocks for his benefit, i.e., commissions not yours! These trades rarely, if ever, make the investor any money. In fact, the additional commissions raise the break-even point for the investor to the level where the stock must perform at an extremely high level in order for the investor to make any money.

In every broker-investor relationship, the broker must assess what the investor's goals are as well as his or her risk tolerance. This assessment is based on a number of key factors, including the investor's stated objectives, risk tolerance, financial condition and tax status. It is the broker's responsibility to only pursue investments suitable for that investor based on these factors. A stockbroker is obligated to only recommend suitable investments and investment strategies. If an Investacorp broker recommends unsuitable investments and unsuitable investment strategies, it can leave you vulnerable to unnecessary risk and losses.

Independent broker-dealers are notorious for their lax supervisory practices and procedures. The business model of these operations is to open many offices nationwide for steady growth of fixed monthly revenues without the costs attendant to a full-service branch office with on-site manager, compliance officer and operation personnel. The registered representatives of these independent broker-dealers generally operate as separately incorporated businesses. They are not employees of the broker-dealer and therefore not controlled in the same manner as full-service brokerage firm representatives. The registered representatives control their structure and costs to maximize profits and often leave the protection of investors' rights and interests as their lowest priority.

The typical supervisory organization of independent broker-dealer operations is to have other independent contractors operate Offices of Supervisory Jurisdiction (OSJs) to monitor the registered representatives from geographically remote offices and then report to the main franchisor's compliance office at national headquarters. The supervisors at the OSJs are not employees of the franchisor and often run their own brokerage, insurance and other businesses. They are not devoted full-time supervisors of the smaller branch offices. Consequently, OSJ managers cannot and do not supervise the day-to-day operations of the registered representatives of these independent broker-dealers.

There is no immediate review of new accounts opened, securities transactions, business records, cash or securities receipts and deliveries, correspondence and business activities unrelated to the securities brokerage operation at these independent brokerage firms. The lax supervision leaves investors who have transferred their accounts to the smaller independent broker-dealer vulnerable to excessive purchases and sales of securities and securities that have not been reviewed or authorized by anyone other than the sales representative earning a commission. Generally, no manager is onsite to detect the placement of inaccurate information about a client's investment objectives and financial condition to document the suitability of a particular investment recommendation. There is no daily review of sales literature and client correspondence to protect against misrepresentations and misleading statements being made to investors. In fact, there may be only one compliance audit visit per year at many of these offices. These independent brokerage business operations are worrisome to the North American Securities Administrators Association (NASAA), which has documented more instances of sales abuse and consequently investor losses at these firms.

Have you suffered losses in your Investacorp brokerage account? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against Investacorp stockbrokers who engaged in churning, recommended unsuitable investments and unsuitable investment strategies that caused investors losses.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

E. S. FINANCIAL SERVICES CENSURED AND FINED FOR MISREPRESENTING COMMERCIAL PAPER PROGRAM

E.S. Financial Services, a brokerage firm based in Miami, Florida, submitted a letter of acceptance, waiver, and consent in which the firm consented to the entry of Financial Industry Regulatory Authority (FINRA) findings that it served as a placement agent and solicited certain non U.S. persons to invest in a commercial paper program offered by an affiliate outside the United States. At various times, in connection with the firm's sales of the commercial paper, the firm provided a customized document to each of the customers or prospective customers, in which the firm included the program in the cash portion of the customer's portfolio alongside U.S. Treasuries and other commercial paper products; labeled the program within investment options described as conservative; and described the main objective of investing in this category as a way to reduce global risk as well as to generate income. The findings stated that the firm recommended investing in the program over U.S. Treasuries or other commercial paper if the customer wanted a higher return. Contrary to the description of the program, it was neither a cash category investment, nor was it a conservative, low-risk investment. The firm was censured and fined $200,000 by FINRA.
Commercial paper is an unsecured, short-term debt instrument issued by a corporation, usually for the financing of accounts receivable, inventories, and meeting short-term liabilities. Maturities are typically less than 270 days, and the debt is usually issued at a discount, reflecting prevailing market interest rates. Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will find buyers without having to offer a substantial discount or higher interest rate. Commercial paper does not need to be registered with the Securities and Exchange Commission (SEC) as long as it matures before nine months (270 days), making it a very cost-effective means of financing. The proceeds from this type of financing can only be used on current assets and are not allowed to be used on fixed assets, such as a new plant, without SEC approval.
FINRA stated that E.S. Financial Services' representations amounted to false, exaggerated, or unwarranted statements in the investment program's materials. The findings also stated that the firm posted an information memorandum on a password-protected website accessible to customer that did not adequately detail certain risks associated with investing in the program. In addition, FINRA stated that the firm failed to conduct adequate due diligence relating to its sales of the commercial paper program, and failed to adopt, maintain and enforce adequate written supervisory procedures (WSPs) pertaining to its sale of the investments until almost four years after it began selling the investments. FINRA also included that the firm failed to adopt, maintain and enforce written due diligence procedures tailored to its sale of the investments. Although all of the investments were repaid on a timely basis at maturity, the firm's failure to implement written due diligence procedures led it to fail to conduct a reasonable investigation concerning various matter regarding the investments
Have you suffered losses in your E.S. Financial Services brokerage account? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against Deutsche Bank Securities stockbrokers who may have engaged in misconduct and caused investors losses.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.