brokerage account hack

Has Your Brokerage Account Been Hacked?

Jan 11, 2021

The use of social media platforms such as Facebook, YouTube, Twitter, and Reddit by investors is now commonplace. The Securities and Exchange Commission has warned that the use of such media platforms and apps comes with a larger risk of fraudulent conduct. Recently, investor’s account numbers and passwords have been reported up for sale on the dark web.   CNBC has reported that “for just a few dollars, criminals are selling credentials for customers of E*Trade, Charles Schwab, TD Ameritrade, Robinhood Financial, and others.” This demand has only increased during the pandemic. Perhaps one reason that Robinhood and other trading platform users are victims of account hacking is because of their customers’ use of social media to tout their investment success. When investors publicly announce their investment success on a platform such as Reddit or Twitter, that investor draws attention from the hackers which may act like “online bait” to the hackers. Hackers use this information to get access to an individual’s brokerage accounts, sell the securities, and transfer out the proceeds to their own fictitious accounts. Users of the Robinhood platform reportedly complained that hackers liquidated their investments and withdrew balances to payment apps. Customers complained that they had no way to contact a customer service representative via phone when they saw their accounts being depleted. Robinhood Accounts are Vulnerable to Hacking In October 2020, Bloomberg reported that access to more than 10,000 email login credentials allegedly tied to Robinhood customer accounts was available for sale on the dark web.  It has also been reported that the number of Robinhood-related emails for sale on the dark web outnumbers those for other brokerage firms by about 5-to-1 due in part to a belief that these accounts are easier to access. An internal probe by Robinhood found that 2,000 of its customer’s accounts had been hacked. While  Robinhood has acknowledged instances of hackers accessing its customer’s accounts,  it noted that these hacks did not stem from a breach of its systems. To increase customer confidence in the security of their online platforms, some firms like Fidelity and E*Trade have offered fraud protection for the unauthorized use of customer’s brokerage accounts. Firms such as Robinhood have also beefed up their authentication systems sometimes asking for two-factor authentication to ensure the customer is the one accessing their account. Beware of  Phishing Scams Designed to Get Access to Your  Private Information In most cases, the hack happens outside of the brokerage firm and directly targets the individual investor. Potential hackers can find a wide variety of information to access someone’s brokerage account on the dark web using specific malware or software to access it. Another common way is by “phishing.” According to a FINRA Investor Alert,     phishing scams typically involve emails that falsely claim to be from brokerage firms, banks, credit card companies, Internet auction sites, electronic payment services, or some other service that you use. In other instances, the emails purport to be from government agencies. To appear genuine, these emails may use: a) The names of real people. b) Legitimate looking email addresses, such as support@[name of your financial institution].com. […]

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robinhood trading

Robinhood Trading Can Cost You More than You Think

Dec 28, 2020

Last week the Securities and Exchange Commission (“SEC”) announced charges against Robinhood Financial LLC (“Robinhood”) with respect to the prices paid and received by its customers on trades made through its platform. Robinhood was charged with making repeated misstatements failing to disclose its receipt of payments from trading firms for routing customer orders to it as well as for its failure to comply with its mandated duty to seek the best execution for its customer’s orders. In connection with settling these charges, Robinhood agreed to pay $65 million dollars. This sanction was in addition to FINRA’s action regarding similar conduct.  The SEC’s order states that Robinhood misleads customers by failing to reveal its largest revenue source when describing how it made money. This revenue stream, called “payments for order flow,” came from outside trading firms and was paid in exchange for Robinhood’s sending customer orders to them. Despite Robinhood’s representations to customers that trading was “commission-free,” this was not completely transparent. In fact, according to the SEC’s order,  because of its unusually high payment for order flow rates as compared to other firms, Robinhood’s customers’ orders were executed at inferior prices.  The SEC charged that these inferior trade prices collectively cost Robinhood customers $34.1 million even after taking into account customer savings from not paying commissions.   Broker-Dealers are Required to Execute Customer Trades at the Best Price  Brokerage firms are required to get the “best execution” of orders for their customers. Best Execution—requires firms to use reasonable diligence to ascertain the best market for the subject security and buy or sell in that market so that the resultant price to the customer is as favorable as possible under prevailing market conditions.  The SEC found that in March 2019 Robinhood was aware that its execution prices were worse than its competitors. An internal analysis done by Robinhood concluded that “[n]o matter how we cut the data, our % orders receiving price improvement lags behind that of other retail brokerages by a wide margin.” Robinhood knew that the amount of price improvement obtained for Robinhood customers was far lower than at competing broker-dealers, measured on a per order, per share, and per dollar traded basis.  That analysis revealed that for most orders of more than 100 shares, Robinhood customers would be better off trading at competitors because the additional price improvement that such orders would receive would likely exceed the approximately $5 per-order commission costs at those other firms. The internal analysis further found that the larger the order, the more significant the price improvement losses were for Robinhood customers. For example, in customer orders over 500 shares, the average Robinhood customer order lost over $15 in price improvement compared to Robinhood’s competitors, with that comparative loss rising to more than $23 per order for orders over 2,000 shares. Senior management at Robinhood was aware of this, according to the SEC. Accordingly, the Director of the SEC’s Enforcement Division stated  that “Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm.” Noting that online trading platforms are creating alternative ways for customers to invest, the […]

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exchange-traded products

Have You Lost Money In a Volatility-Linked Investment?

Nov 23, 2020

When the market is volatile, some brokers may recommend investments in exchange-traded products (“ETPs”) designed to protect the investor against losses. Such investments, called “volatility linked investments,” can be risky. The Financial Industry Regulatory Authority (“FINRA”) has warned that investors could risk major losses if they trade volatility-linked ETPs without fully understanding them. Some may believe, for example, that the products could be used as a long-term hedge on equity positions in the event of a market downturn. In fact, FINRA has stated,  most volatility-linked ETPs are generally short-term trading products that can degrade significantly over time and are not designed to be used as a long-term buy-and-hold investment. On November 13, 2020, the Securities and Exchange Commission (“SEC”) announced settlements with three investment advisory firms and two dually registered firms for unsuitable sales of complex volatility-linked exchange-traded products to retail investors.  The settling firms were American Portfolios Financial Services/American Portfolios Advisors Inc., Benjamin F. Edwards & Company Inc., Royal Alliance Associates Inc., Securities America Advisors Inc., and Summit Financial Group Inc.  As part of that settlement, more than $3 million will be returned to harmed retail investors. The SEC’s actions each involved sales of volatility-linked exchange-traded products designed for the short term, but which were sold to clients as long-term holdings.  Offering documents for the exchange-traded products showed that the short-term nature of these investments made investors in them more likely to experience a decline in value when held over a longer period, the SEC said. The sales dates vary by firm, and collectively occurred between January 2016 and April 2020.  The SEC stated in its announcement of the settlements that “Contrary to warnings in offering documents, and without understanding the products, representatives of the firms recommended their customers and clients buy and hold the products for longer periods, including in some circumstances for months and years.” Further, the SEC focused on the firms’ supervision of such sales noting that “[i]t is important for firms to put the appropriate protections in place to ensure complex products are properly evaluated and understood by their representatives. Failing to do so puts investors at risk.”  The SEC issued individual cease and desist orders against the five firms. The SEC alleged that American Portfolio Financial Services Inc and affiliate American Portfolios Advisors Inc. failed to reasonably supervise certain brokerage representatives who recommended their customers buy and hold iPath S&P 500 VIX Short–Term Futures ETN, a volatility-linked product (“VXX”). The SEC’s order against Summit Financial Group Inc. also alleged improper supervision relating to the recommendation to buy and hold iPath S&P 500 VIX Short–Term Futures ETN. The order against Benjamin Edwards finds that the firm failed to reasonably supervise certain brokerage and advisory representatives who recommended their clients buy and hold iPath S&P 500 VIX Short–Term Futures ETN and ProShares VIX Short-Term Futures ETF, which traded under the ticker symbol VIXY (“VIXY”).  The SEC’s order against Securities America Advisors finds that the firm’s representatives either bought or recommended the unsuitable purchase and holding of VelocityShares Daily Inverse VIX Short Term ETNs linked to the S&P 500 VIX Short-Term Futures Index (“XIV”) and ProShares VIX […]

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Why Robinhood Makes Trading “Free”

Nov 9, 2020

Have you ever wondered how online trading platforms make money if your trading is supposedly “free?” Despite not charging customers to trade, Robinhood made $180 million from its customer’s trades in the second quarter of 2020 — about double that from the prior quarter, according to a recent Securities and Exchange Commission regulatory filing.  What Is Payment For Order Flow? Like the other online brokerage firms such as Schwab, E-Trade, and TD Ameritrade, Robinhood makes its money on what is called “payment for order flow” instead of traditional commissions. That way, it can advertise to its potential customers the advantage of “free” trading.  This business model relies on payment for order flow which is essentially a back-end payment paid to Robinhood by a third party that executes the trade. According to the SEC, payment for order flow is when a market maker (a firm that buys and sells securities on a regular and continuous basis at a publicly quoted price) agrees to pay your brokerage firm for routing your order to them. Payment for order flow is one of the ways your brokerage firm can make money from executing your trade.    With an online firm such as Robinhood that executes millions of trades, this payment for order flow is quite a profitable business model. According to its own public filings, Robinhood made 271 million dollars from this type of payment in the first half of 2020. Robinhood did not always properly disclose this fact to its customers. In fact,  according to the regulators, although more than half of Robinhood’s profits came from payment for order flow in 2018, until October 2018, the section of Robinhood’s website called “How We Make Money” disclosed only that it profits from margin trading services and interest earned on customers’ deposits. It failed to mention that it also makes money from selling customers’ orders for stock and options trades to high-speed trading firms, known as payment for order flow. As reported by the Wall Street Journal, Robinhood is facing a civil fraud investigation over this earlier failure to fully disclose its practice of selling client orders to high-speed trading firms.  Robinhood has Made Millions on Its Client’s Frequent Trading  The majority of Robinhood’s recent profits are from the trading of options which are generally held for a shorter term, and traded more frequently, than stocks. How do options trading help Robinhood and other online firms make more money? This is because payments for options orders are significantly higher. Some have criticized Robinhood for encouraging inexperienced investors to trade options, and research has shown that options trading is generally detrimental to individual investors. Robinhood reported that during the pandemic, it saw deposits into its accounts that were equal to or multiples of the stimulus checks from the Trump administration’s $2.2 trillion CARES Act and that young traders see market downturns as “buying opportunities.” Robinhood seems to have perfected a business model where it reaps more money than its online competitors in payment for orders. As reported in a study of SEC filings done by Piper Sandler (below), Robinhood made the most money per 100 shares in […]

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securities arbitration claim

Vetting Cases And Drafting a Securities Arbitration Claim: The Keyboard Is Mightier Than The Market

Oct 26, 2020

I. Introduction There is no magic to drafting a securities arbitration claim. Indeed, crafting an effective statement of claim is an art, and there are as many ways to tell the story as there are storytellers. As an attorney representing investors who suffered losses in their brokerage accounts, it is your task to persuade whoever is in charge of the purse strings to compensate your aggrieved clients. That could be the in-house lawyer of the brokerage firm, the business people at the branch office where the misconduct occurred, your opposing counsel, a panel of one to three arbitrators, a mediator, and sometimes even an insurer. In order to position your clients for the most beneficial outcome, whether you are aiming for a pre-filing resolution or preparing to take your case through a final hearing, you must begin with a well-articulated and convincing statement of claim. Knowing both your client and your client’s case from the onset as well as anticipating any defenses that may be raised will greatly increase your odds of recovery at any stage. While there is no one-size-fits-all template for drafting a securities arbitration claim, seasoned lawyers know that certain steps are taken, and pitfalls avoided, can maximize your chances of successful results. II. Case Evaluation and Intake The most important task a Claimant’s attorney can do is to vet the viable claim and choose the right cases to file. Knowing what cases to reject is just as important as knowing what cases to file. Not every client who loses money in the stock market has a claim against their broker or brokerage firm. Key considerations are: knowing the pertinent facts about the client; the prospective Respondents; the investments sold; and, the strategy pursued before accepting the representation. Accepting clients before adequately evaluating the claims can have serious repercussions. You are not doing your clients a service if you bring a case that has no merit. Nor are you burnishing your reputation with defense counsel when you bring a frivolous claim. It also affects your bottom line, since most investor counsels are retained on a contingency fee basis. How can you engage in adequate evaluation at this stage? A. The Client Interview: Know your Client Just as FINRA Rule 2090 requires the broker and firm to know their customers (“KYC”), you, as his or her counsel, should know your client.1 And, you should know them better. Nothing is more humbling than first learning from your opposing counsel about your client’s notorious career as a professional poker player or about the mezzanine financing capital she raised for a start-up she formed with her private equity pals. The best starting point is a thorough interview with your client in which you ask the questions that the broker should have asked. Give your client the FINRA Rule 21112 (suitability) and FINRA Rule 2090 (KYC) examination by asking their: age, marital status, education, employment experience, prior investment experience, risk tolerance, investment horizon, tax bracket, number of dependents, where the money originally came from and the like. This interview should be followed-up by a review of your client’s relevant tax returns, monthly […]

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Principal Protected Note

Are you Stuck in a Principal Protected Note?

Oct 19, 2020

With interest rates dramatically falling in the fixed income market like municipal bonds and CDs, brokers have been offering sexy alternative investments to their customers. Often, clients come to us with these types of alternative fixed income products asking what exactly they invested in. The investment bankers at large brokerage firms are very savvy and adept at creating new types of investments and their brokers then go out and sell them to their customers. Although investments such as a principal protected note seem simple, often these tend to be quite complex.  What is A Principal Protected Note? According to the  Securities and Exchange Commission (“SEC”), a  “structured note with principal protection”  refers to any structured product that combines a bond with a derivative component—and that offers a full or partial return of principal at maturity. Structured products, in general, do not represent ownership of any portfolio of assets but rather are promises to pay made by the product issuers. Structured notes with principal protection typically reflect the combination of a zero-coupon bond, which pays no interest until the bond matures, with an option or other derivative product whose payoff is linked to an underlying asset, index, or benchmark. The underlying asset, index, or benchmark can vary widely from commonly cited market benchmarks to foreign equity indices, currencies, commodities, spreads between interest rates, or “hybrid” baskets of various asset types Generally, such investments contain inherent risks that the customers do not understand and which were not adequately explained by the broker or financial advisor. Despite their Name, Principal Protected Notes are Risky While on the surface principal-protected structured notes appear pretty vanilla, they are rather complex instruments.  These investments are enticing to the fixed income investor because they offer the possibility of earning much higher interest than traditional CDs or money market accounts. However, with those possible returns, there is also a risk.  Some Common Risks of Structured Notes : 1. Credit risk. The credit risk is the risk of the entity that is backing the investment. The notes are not guaranteed by the government. They are backed by the credit of the investment bank or “issuer” of the note. Buyers bear the risk that the issuing investment bank might go under and not meet its payment obligation. In this case, the derivatives underlying the note can perform perfectly, but the note can still be worthless. This is what happened when Lehman Brothers collapsed and its principal-protected notes were no longer protected. As explained by the SEC, any guarantee that your principal will be protected—whether in whole or in part—is only as good as the financial strength of the company that makes that promise.  2. Liquidity Risk. Liquidity is the ability to readily sell your investment in the market. Principal Protected  Notes have long maturity dates, meaning the date you will get you invested funds back. Maturity dates can be ten years or longer, which means you will not have access to your funds during that time. They are not like a  CD where you can get out with paying a penalty of earned interest. The only way to get your […]

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401k Fraud

401k Fraud: What do I need to know?

Oct 5, 2020

You have spent years building up your retirement account in the hope that one day you will be able to live out your golden years doing the things you want to do with the people you want to do it with. So, what happens when those plans are dashed by an unscrupulous or negligent stockbroker or financial advisor? You may have the right to recover your investment losses through FINRA arbitration. FINRA arbitration is a mechanism through which an investor or account holder can seek to recover losses against a brokerage firm or financial advisor whose negligence, intentional misconduct, or fraud has resulted in investment losses. Because of the nature of a 401k or other retirement account such as a 403(b) (owned by many teachers), special rules and procedures apply to those accounts. Most broker-dealers have policies in place designed to ensure that such accounts are properly managed and supervised. When those rules are violated and an investor suffers losses, the results can be devastating. So, what can you do to ensure that you are not a victim of broker fraud or mismanagement in connection with your retirement account? The first thing you should do when setting up a 401k account, whether individually or through your employer, is to check out the proposed advisor. It is important to check out your financial advisor BEFORE you invest. The Securities and Exchange Commission (“SEC”) does not regulate or oversee retirement plans, such as pensions plans or 401(k) plans. That falls under the jurisdiction of the Department of Labor (“DOL”). The DOL suggests several things you should do before you select an adviser so that you have a clear understanding of the adviser’s responsibilities to you and how he or she may be conflicted by the fees he or she receives when giving you advice.  Is there a Conflict of Interest? An important fact that many investors should research early on is whether the adviser is acting as a “fiduciary,”–  which means that the adviser is working solely in your best interest, and is not conflicted by compensation arrangements that may encourage that broker to steer you into investments that generate more profits for that broker. The DOL suggests that you ask the following questions, to help you protect yourself and your assets: Do you consider yourself a fiduciary? 1. If not, why not? 2. Are you willing to act as a fiduciary with a duty to act solely on my behalf? 3. Are you willing to disclose to me any conflicts of interest that may interfere with your acting solely on my behalf? 4. Are you willing to put this commitment in writing? How are you compensated? 1. Do you earn fees or commissions based on the number of products that I buy or the size of my investment? 2. Will you earn a higher fee or other types of compensation if I invest in certain products you recommend or will you receive fees for services related to specific investment products? 3. Will you provide a list of the fees and commissions you receive either directly from me or from other sources […]

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beware of foreign currency trading fraud

Beware of Foreign Currency Trading Fraud

Aug 31, 2020

Last week, the Commodity Futures Trading Commission (“CFTC”) announced charges against individuals in a  foreign currency Ponzi scheme targeting African immigrants. The alleged perpetrators Dennis Jali, Arley Ray Johnson, and John Frimpong were charged with participating in a 28 million Ponzi scheme by fraudulently soliciting funds from investors for the “1st Million Pool” through and on behalf of 1st Million LLC, Smart Partners LLC, and Access to Assets LLC. The CFTC complaint alleges that the defendants fraudulently solicited participants to trade in foreign currency (Forex) and digital assets such as bitcoin through pooled trading accounts controlled by Jali.   According to the CFTC, the defendants allegedly targeted members of church communities by portraying the 1st Million Pool as a means to obtain financial freedom and support charitable religious causes. As alleged, from 2017 to 2020, over 1000 participants contributed at least $28 million to the 1st Million Pool, often through entering “secure contracts” that falsely promised investors’ funds would be held in trust or escrow, used to trade Forex and bitcoin, and then returned in their entirety at the end of the pool participation term. The complaint alleges that the defendants misappropriated at least $7 million of 1st Million Pool funds and used it to pay for expensive cars, personal travel, and living and business expenses. The SEC also brought charges against Jali, Frimpong, and Johnson, who both directly and through their companies 1st Million LLC and The Smart Partners LLC, are alleged to have falsely told investors that their funds would be used by a team of skilled and licensed traders for Forex and cryptocurrency trading, promising risk-free returns of between 6% and 42%. The SEC’s complaint alleges that the defendants often targeted vulnerable African immigrants and exploited their common ancestry and religious affiliations. The SEC charges that Jali used investor funds to pay for, among other things, two luxury cars, private jet charters, airfare and hotels, extravagant retail purchases (including purchases at Gucci, Tory Burch, and Burberry), and a down payment for a house in Atlanta. Jali’s personal expenses were totally unrelated to cryptocurrency and Forex trading, and were contrary to the explicit statements to investors. Beware of Foreign Currency Trading Frauds Foreign currency trading fraud or Forex related scams are not new. In fact, the CFTC warns investors to be cautious when it comes to forex trading  as follows: The advertisements seem too good to pass up. They tout high returns coupled with low risks from investments in foreign currency (forex) contracts. Sometimes they even offer lucrative employment opportunities in forex trading. Do these deals sound too good to be true? Unfortunately, they are, and investors need to be on guard against these scams. They may look like a new sophisticated form of investment opportunity, but in reality, they are the same old trap—financial fraud in fancy garb. Forex trading can be legitimate for governments and large institutional investors concerned about fluctuations in international exchange rates, and it can even be appropriate for some individual investors. But the average investor should be wary when it comes to forex offers. The CFTC and the North American Securities Administrators Association […]

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expungement claim

FINRA Charging Brokers More for Expungement Claims

Aug 24, 2020

Starting September 14, 2020, brokers wishing to expunge information from their records will have to pay higher minimum fees to have their claims heard before the Financial Industry Regulatory Authority (“FINRA”). The SEC has recently approved FINRA’s request to amended its Arbitration Procedures for Customer and Industry Disputes to apply minimum fees in connection with requests for expungement of customer dispute information, whether the request is made as part of the customer arbitration or the broker files an expungement request in a separate arbitration (“straight-in request”). The amendments also apply a minimum process fee and member surcharge to straight-in requests, as well as a minimum hearing session fee to expungement-only hearings.  A Broker’s Record of Customer Complaints is Publically Available on BrokerCheck® Customer complaints and arbitration claims are reported through the Central Registration Depository (CRD®) system which is the national licensing and registration system used by the U.S. securities industry. The information in the CRD system is generally submitted by registered securities firms, brokers, and regulatory authorities in response to questions on the uniform registration forms including the U4 and U5 forms. Among other things, these forms collect administrative, regulatory, criminal history, and disciplinary information about associated persons, including customer complaints, arbitration claims, and court filings made by customers. Certain CRD information is publically available through a system called BrokerCheck®. BrokerCheck can be used by investors to make informed choices about the brokers and broker-dealer firms with which they may conduct business.  Brokers Can Seek to Get CRD Information Expunged Through FINRA  There are situations where brokers can have certain false information removed from their CRD system through a FINRA arbitration process. In order to balance the benefits of disclosing information about customer disputes to regulators and investors with the goal of protecting brokers from the publication of false allegations against them, a process for expungement was established. This process, under FINRA Rule 2080, allows for the expungement of claims where the allegations made about the broker are factually impossible or clearly erroneous.  There are two ways through the FINRA process that a broker can seek expungement of customer dispute information: 1) the broker or his or her firm (called a “requesting party”) may seek expungement through the FINRA arbitration process by making the request during a customer arbitration; or 2)  the broker may request expungement by filing a “straight-in request,” which is a separate arbitration claim filed by the broker against a former or current member firm or the customer.  FINRA Raised its Filing Fee Mostly in Response to Straight In Requests FINRA implemented this new process because it became concerned about practices to avoid fees applicable to expungement requests, particularly straight-in requests. This was because brokers who were filing straight-in requests often added a small monetary claim (usually, one dollar) to the expungement request to reduce the fees assessed against the broker and qualify for an arbitration heard by a single arbitrator. Typically, an expungement request would be considered non-monetary in nature since it is generally just a request to remove a customer complaint. Non-monetary claims had a higher filing fee than claims for damages, so this one […]

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teacher investment losses

Are You a Teacher With Investment Losses?

Aug 17, 2020

As recently stated by the Securities and Exchange Commission (“SEC”) in reaching a  $40 million settlement, “Too often educators are targeted with misconduct related to their investments. Our nation’s educators, and our Main Street investors more generally, are entitled to full and accurate information about the incentives and conflicts affecting their financial advisors.” In a scheme targeting teachers, the SEC recently charged VALIC Financial Advisors Inc. (VFA) in two actions for failing to disclose to Florida teachers and other practices that generated millions of dollars in fees and other financial benefits for VFA. VFA settled claims for failing to disclose payments to a for-profit entity owned by Florida K-12 teachers’ unions to exclusively promote its services to teachers. In a related action, VFA settled claims for failing to disclose conflicts of interest by receiving millions of dollars of financial benefits from advisory client mutual fund investments that were generally more expensive for the teachers than other mutual funds. VFA  settled all of the charges for approximately $40 million. In the settlement, VFA agreed to cap advisory fees for all Florida K-12 teachers participating in its advisory product in Florida’s 403(b) and 457(b) retirement programs, resulting in huge savings for thousands of Florida teachers. According to the SEC’s orders, VFA and its affiliate earned more than $30 million on the products it sold to Florida K-12 teachers.   VFA Did Not Disclose Payments Made in Exchange for Teacher Referrals In the first of the two orders, VFA is charged with undisclosed referral payments. VFA acted as a financial services vendor in almost every Florida school district. According to the SEC,  for 13 years VFA’s parent company, The Variable Annuity Life Insurance Company (VALIC), made payments to a company owned by the Florida teachers’ unions so that the entity would exclusively endorse VFA as its preferred financial services partner, excluding all competitors. In addition, VALIC supplied three full-time employees to  the entity owned by the teachers’ unions to act as “member benefit coordinators.” These so-called coordinators deceptively presented themselves as employees of the entity owned by the teachers union. The coordinators promoted VALIC and VFA to Florida K-12 teachers at benefits fairs and financial planning seminars and referred teachers to VFA for their investment recommendations.  The order charges that the member benefit coordinators increased VFA’s access to K-12 teachers in Florida and that VFA did not disclose that the teacher’s union-owned entity was paid to make VFA its preferred financial services provider. VFA Did Not Disclose Millions of Dollars It Received for Investing Teachers in Certain Funds The SEC separately charged VFA for failing to disclose its receipt of millions of dollars of financial benefits from client investments in mutual funds. According to the SEC, VFA’s wrap agreements stated that the advisory fee the client paid included the costs to execute securities trades. The order states that VFA chose new mutual fund investments for clients that were part it’s clearing broker’s no-transaction-fee program (NTF Program), and thus would not incur any transaction fee which VFA would be responsible for paying. The NTF Program mutual funds were generally more expensive than other mutual funds […]

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