The Law Planet Blog

The Financial Industry Regulatory Authority (FINRA) has permanently barred Michael J. DiMare, of Ponte Vedra Beach, Fla., from the securities industry for “misappropriating over $1.9 million in client funds.” In its news release on the settlement, FINRA stated that Dimare, formerly a registered representative, hid his financial scheme by making false statements and submitting falsified account statements to his customers.

DiMare worked for John Hancock Mutual Life Insurance Company (John Hancock) as a sales manager between 2001 and 2006, and as a registered representative/insurance agent with ING Financial Partners, Inc. (ING) from late 2006 to mid 2008. According to FINRA, DiMare persuaded his clients from at least 2001 to 2008 to invest in fictitious CDs and bonds, including what he described to be “tax free” corporate bonds.

FINRA’s investigation revealed that between 2001 and 2008, DiMare instructed some 14 of his clients to write checks payable to John Hancock – even after he no longer worked there – which he deposited directly into his bank account for eventual personal use. DiMare concealed his scheme by submitting false account statements to his clients who thought they were making legitimate financial investments.

In response to the situation, James S. Shorris, Executive Vice President and Executive Director of Enforcement for FINRA, made this statement:

"FINRA will continue to bar individuals who engage in deceit and theft with no regard for the high standards of ethical conduct that govern the industry. By deceiving customers into believing they were making legitimate investments when, in reality, he was simply enriching himself, DiMare epitomized the darkest side of the securities industry."

DiMare never admitted guilt nor denied FINRA’s charges, but the now barred schemer did consent to the entry of the agency’s findings in the settlement. John Hancock and ING reimbursed the customers defrauded by DiMare’s scheme.

Florida Broker Barred for Selling Phony Financial Products, Taking More Than $1.9 Million From Clients – FINRA’s News Release

Tips from FINRA to help Investors Avoid Financial Fraud

The Financial Industry Regulatory Authority (FINRA) expelled Dallas-based broker-dealer, Management, LLC, for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, LLC, in a massive Ponzi scheme.

The recent action is the first produced by a FINRA initiative involving active examinations and investigations of broker-dealers involved in retail sales of private placement interests, as well as broker-dealers affiliated with private placement issuers. FINRA is looking at firms' compliance with suitability, supervision and advertising rules, as well as potential instances of fraud. The initiative was undertaken in response to an increase in investor complaints involving private placements and Securities and Exchange Commission actions halting sales of certain private placement offerings.

According to FINRA, Provident Asset Management misrepresented to investors that the funds raised through the offerings would be used to purchase interests in the oil and gas business. In reality, investors' funds were used by an affiliated issuer and commingled to make dividend and principal payments to other investors. To make matters worse, the firm acted as the agent in an oil and gas private placement offering but failed to establish an escrow account for investors' funds during the contingency period of the offering.

FINRA found that Provident Asset Management marketed and sold preferred stock and limited partnership interests in a series of 23 private placements offered by Provident Royalties, LLC. from September 2006 through January 2009. Provident Asset Management's only business line was acting as the wholesaling broker-dealer for the Provident Royalties' offerings, which were sold to customers through more than 50 retail broker-dealers nationwide, raising over $480 million through approximately 7,700 individual investments made by thousands of investors.

FINRA is continuing a broader investigation into broker-dealers that sold the Provident and other troubled private placement offerings.

The Financial Industry Regulatory Authority (FINRA) released a 16-page letter announcing that it is issuing its 2010 annual examination priorities, on March 1st. The letter includes information on both new and existing areas of importance to FINRA’s yearly examination program. The letter discusses priority topics from FINRA’s Market Regulation and Member Regulation Departments, and the organization’s Enforcement Department.

The financial decline of 2009 exposed investment frauds “perpetrated by registered and unregistered parties”. As a result, the agency plans to heighten its focus, and to execute regulatory programs that are both rigorous and thorough. The idea is to provide investors with the best possible protection from investment fraud.

Some of the organization’s new developments include:

• The establishment of the Office of Fraud Detection and Market Intelligence in order to provide such services as a heightened review of serious fraud allegations;

• An expansion of BrokerCheck and other disclosure expansions to make it easier for investors to find information about brokers;

• A rule consolidation process designed to create a new consolidated rulebook; and

• The eFOCUS Filing Platform that will allow firms to submit certain reports to FINRA electronically.

FINRA encourages investment providers and investors to use the information in the letter to “gain valuable insights into key FINRA examination and regulatory topics.”

Click on the following link to read the 2010 FINRA Annual Examination Letter.

I am pleased to announce that yesterday our Investment Fraud Seminar in West Palm Beach was a huge success. It was held in the beautiful Phillips Point Club. The beautiful intracoastal was a great backdrop for this well attended Seminar.

The 4 hour seminar, Investing in a Post Madoff Environment: Financial Fraud: How it's accomplished, how to detect it, and how to recover from it was attended by over 100 people from South Florida. The attendees included, CPAs, Attorneys, Bankers, Financial Representatives and a host of other professionals. The Seminar was sponsored by the Financial Services Divsion of LaBovick & LaBovick, P.A.

Speakers at the Seminar included:

William Nortman, Esq., Akerman Senterfitt

Richard A. White, Turris Consulting, LLC

Moderator: Jeffrey S. Grubman, Esq, Jeffrey S. Grubman, P.A.

Topics coverd at the Seminar included areas such as: Investment fraud, Ponzi schemes, FINRA, Churning, Florida Investor Protection Act, Churning, and much more.

We look forward to sharing more information on our next educational seminar on investment and financial fraud.

If you would like to have a transcript of the seminar or more information on investment fraud, let us know.

Our vendor partner for this program, the Daily Business Review, will be publishing a printed version of the transcript in 3 - 4 weeks in their paper as a supplement.

Stay tuned...

LaBovick & LaBovick, PA filed a FINRA arbitration against Ameriprise Financial Services, (NYSE: AMP), formerly known as American Express Financial Advisors (AEFA) for stockbroker misconduct and negligence. The claim alleges that Deborah Amilowski, Financial Advisor for Ameriprise Financial Services, failed to properly advise a Senior investor on risks associated with unsuitable products for a person of that age, at the time of the initial investment and negligence in properly identifying the beneficiary resulting in additional loss to the trust.

The FINRA Statement of Claim, filed on August 13, 2009, stated that Ms. Amilowski, recommended a RiverSource variable annuity as an initial investment to a 77 year old investor at the time of purchase, thus ineligible for a guaranteed death benefit. This investment was too risky for someone of this age.

Click on the following link to learn more on the FINRA Arbitration claim against Ameriprise Financial.

As part of FINRA’s ongoing effort to consolidate and reconcile the former NASD and NYSE manuals, changes are in the works. FINRA recently filed a proposed rule change that is going to make changes to FINRA suitability rules, as we have known them, noticeably different.

FINRA’s proposed rules governing Suitability and Know Your Customer Obligations will expand the obligations of registered representatives when recommending securities or investment strategies­ to customers. This is interesting because it looks like FINRA is moving towards codifying a fiduciary standard, or at least a modified fiduciary standard.

In the past, a fiduciary duty in a non-discretionary account related to only the execution of trades and custody of assets. Now, if an investment strategy encompasses assets away from the firm, that strategy falls within the proposed rule. For instance, the recommendation to retain stocks in an account at another brokerage firm may be considered recommending an investment strategy as may the recommendation to hold, and not sell, a particular stock.

This represents a significant change in the relationship a broker has with his/her client and will broaden the areas of responsibility when making suitability determinations.