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The rules governing registered investment advisors and their fiduciary obligation to retail investors is undergoing change in New Jersey. Roughly 2,100 broker-dealers and 205,000 licensed investment advisors are based in New Jersey. The new governor of New Jersey, Phil Murphy has an extensive background in the securities industry, working in finance at Goldman Sachs for over 20 years. He decided on the 10-year anniversary of the collapse of Lehman Brothers and the 2008 global financial meltdown to introduce a new fiduciary standard for registered investment advisors.

The rule would mirror the Department of Labor Fiduciary Duty Rule which was recently turned down in federal court. The 5th Circuit ruled that the Department of Labor exceeded its authority in enacting the fiduciary rule that would have made it mandatory for brokers to act in their client’s best interests when investing in retirement accounts. The Trump Administration has not decided to appeal the court ruling or enforce the fiduciary standard for brokers created during the Obama Administration.

Presently in New Jersey, as with most of the states in the union, there is no uniform standard for financial advisors and what many investors fail to realize is that not all financial professionals working in the securities industry have a fiduciary duty to act in their client’s best interest. Investment advisors who are registered with the Securities Exchange Commission have a fiduciary duty. This requires the investment advisor to put their clients interests above their own and disclose any potential conflicts of interests. This should include commissions and fees investment advisors are receiving on the products they recommend.

            The Securities Exchange Commission (“SEC”) recently filed a complaint for fraud in connection with risky securities sold by a Registered Investment Advisor. The SEC complaint states that Tamara Steele and her investment advisory, defrauded retail investors by recommending high risk technology stocks with massive commission markups that were not disclosed to the clients. According the to the SEC complaint, from December 2012 through to October 2016 Steele and her wholly owned investment advisory Steele Financial marketed over $13 million of securities issued by a private company and was acting as a broker for the company.

The SEC complaint states that the high-risk securities were connected to a private issuer who the investment advisor had a relationship with. The registered investment advisor was receiving high commissions on these private securities in the range of 8 to 18% – a material piece of information that was not disclosed to investors in violation of the duty of care and duty of loyalty and breach of the investment advisors’ fiduciary duty. The SEC complaint goes on to state that Steele and Steele Financial marketed and sold these high-risk securities to clients even though neither entity was registered as a broker.

The clients who were marketed this product were not accredited investors. Rather most of the investors were employees of a school system. Steele was marketing these risky private securities while working for a broker dealer known as Comprehensive Asset Management. Steele was fired after disclosing to the broker dealer that she had been marketing the private securities without the firms approval or knowledge – a practice known as selling away. As stated in our post on Selling/Trading away FINRA rules mandate that an investor advisor provide prior notice to the broker dealer and receive approval for all private securities marketed. Brokers are required to report in writing.

Stockbrokers in the market do not all owe a fiduciary duty to their clients. A fiduciary duty, as listed in the Investment Advisors Act of 1940 calls upon investment advisors to act with the highest standard of care. It’s difficult for investors to tell when their stock broker owes them a fiduciary duty and even what having a duty owed to them would translate to. Investing with a financial professional who can be trusted to offer sage investment advice while also placing clients interests above their own is what any investor would want. But generally, what most investors discover if they ever consider filing a lawsuit or securities arbitration claim against their stockbroker for a stock market fraud claim of any kind, is that many investment professionals do not technically owe a fiduciary duty to their clients. What the stock brokers title is, which would seem like a small consideration when deciding who to invest with and use for professional wealth management is of critical importance.

Different Stockbroker Titles

When investors start looking to place money into the markets they are generally confronted with a barrage of titles stock brokers carry. Broker, Stockbroker, Investment Advisor, registered representative, account executive, financial advisor, portfolio management specialist, and on and on. What is important to understand and what few investors know before plunging into the world of professional wealth management, is that whether a broker truly owes a fiduciary duty of placing a clients interests before their own depends on a number of factors. Stock brokers making recommendations for a certain stock or bond alone, is not generally enough for a stock broker to be considered a customers fiduciary.

With the advent of new technology being employed at almost all broker dealers, the potential for a financial advisor to engage in excessive or unauthorized trading or “churning” has been substantially reduced. Churning is simply excessive trading in a brokerage account in order for the broker or financial management team managing the investment account to generate greater commissions.

In brokerage customer accounts, or trading accounts in which the broker is paid only when trades are generated, churning or excessive fees has always been a concern. If a broker is only compensated when selling or purchasing securities, the potential for the broker to engage in fraud is compelling. The logic of a brokerage account, as opposed to a fee based account, is that the model is suitable for investors who have a set asset allocation with very little trading activity. As opposed to a monthly or yearly fee for managing assets, known as a fee-based account or wrap account, customers who have set investments in stocks or bonds will save money because there is very little trading activity.

Now with the advent of a very basic trading systems algorithm, broker dealers should be able to immediately register when churning occurs by cross checking the total customer’s assets under management against the trading activity in the account. If the trading activity in comparison to a customer’s assets reaches a certain threshold, known as the turnover ratio, the broker dealer should have alerts in place to identify the client, the broker or financial advisor, and inform the broker’s branch manager. The branch manager should then conduct a review of the trading activity as well as the client’s investment profile. If the trading abuse is occurring in an investment account belonging to a senior citizen, new FINRA Rule 4512 has mandated brokerage firms to create a trusted contact person. This trusted contact person should be notified in order to respond to any possible stockbroker fraud being committed in the investment account. FINRA Rule 2165 permits brokerage firms that have a reasonable basis to believe that stock broker fraud has occurred, to place a temporary hold on the “disbursement of funds.” These rules and cross checks should make it very difficult to engage in churning. But still, it occurs more frequently than most other forms of stock broker fraud.

The Securities Exchange Commission on Tuesday filed charges against companies and “individuals” for selling Woodbridge Securities. As discussed in our previous post, in December 2017, Woodbridge filed for bankruptcy and, immediately thereafter, received an SEC complaint listing the company as a massive Ponzi scheme. Woodbridge sold securities billed as “First Position Commercial Mortgage Loans” or (“FPCM’s”). The Woodbridge FPCM Fund functioned as a private loan owned and held by Woodbridge. Investors owned a first position lien on a pool of mortgage loans. The way the security was touted to investors was that the product offered excellent safety. In the event that any one of the mortgages defaulted, investors were informed that they would simply pick up the collateral or underlying property that went into default. This safety, coupled with a short-term interest rate above 6%, made the product incredibly appealing to returned investors looking for safety and income. Investors were promised monthly payments and a return of their principal invested in a 12-24 month span. Woodbridge marketing material provided to brokers to present to clients provided “Property Examples” such as a water bottling plant in New York or a single family home in California. Roughly 8,400 individual investors purchased Woodbridge securities.

In reality, Woodbridge was operating a massive Ponzi scheme with funds from new investors going to pay the promised high interest rates from earlier Woodbridge purchasers. As stated by the SEC, the funds were risky, illiquid private offerings.

Investor funds also went to funding the lavish lifestyle of Woodbridge CEO Robert Shapiro. Woodbridge also spent massive sums on commissions to brokers looking to unload their products. Brokers selling Woodbridge were offered compelling commissions on the FPCM and Promissory Notes sold to investors.

Assault charges are a serious matter that often are the result of the most trivial encounters. A friendly debate at a local bar between a New York Rangers and New Jersey Devils fan gone awry or a shouting match at a wedding afterparty that went too far. You may have been the victim, the target of an obnoxious individual, and had no choice but to use force to defend yourself. All of these scenarios can lead to assault charges under the New Jersey Criminal Code.

If charged with N.J.S.A. 2C:12-1A Simple Assault, the penalties under the New Jersey Criminal Code can be severe. Along with fines of up to $1,000 and jail time of up to 6 months, the most serious consequence under N.J.S.A. 2C:12-1A is a guilty plea that will result in a criminal record. Having a Simple Assault charge on your criminal record has a very negative effect on future employment and educational opportunities and will affect you for the rest of your life.

The statute which defines Simple Assault provides that: A person commits a Simple Assault if he attempts to cause or purposely, knowingly or recklessly causes bodily injury to another. Bodily injury is defined as physical pain, illness or any impairment of the physical condition.

If you or someone you know has been locked up and charged with a criminal offense under the New Jersey Criminal Code, we can assist them at their bail hearing, help them get removed from jail, and prepare them for their court appearances.  

There have been massive reforms in New Jersey to rules governing bail and pretrial release. If you have been charged with a criminal offense in New Jersey, the determination of bail is a critical step in your case.

In New Jersey, prior to January 1, 2017, the bail process was usually set at a dollar amount coinciding with the severity of the crime or denied by a judge. The amended New Jersey bail reform bill “the New Jersey Bail Reform and Speed Trial Act” has replaced the dollar amount or monetary release system (asking for the defendant to post a set amount of money) and replaced with a non-monetary risk assessment.

New Jersey Police departments claim they can see and smell everything. Using skills usually reserved for a Marvel superhero, law enforcement routinely claims they can see drugs through a closed container, smell marijuana through a brick house miles away, or detect the odor of marijuana from a vaporizer pen used solely for cigarettes.

 If you have been the victim of a superman cop stop, whereby plain smell or plain view was the basis for the search and subsequent seizure of contraband on your person, seasoned criminal defense attorneys can help.

 One of the most used exceptions to the warrant requirement is the plain view exception. In New Jersey, the plain view exception to warrant requirement rule can be applied to four different sensory perceptions including view, smell, sound, and touch. The plain view doctrine is used in cases involving guns and drugs routinely, but there are requirements that need to be fulfilled for the exception to be deemed reasonable.

Last Friday, February 10, for the first time under President Trump, an individual covered by the Deferred Action for Childhood Arrivals program (“DACA”) was taken into custody. Daniel Ramirez Medina, a 23-year-old with no criminal record who was brought to the United States from Mexico when he was seven years old, filed a challenge to his detention in Seattle the Monday following his arrest, arguing that the government violated his constitutional rights because he had work authorization under the DACA program.

Immigration Customs Enforcement (“ICE”)  spokeswoman Rose Richeson issued an official ICE statement claiming that Daniel Ramirez was a “self-admitted gang member,” alleging that “ICE officers took Mr. Ramirez into custody based on his admitted gang affiliation and risk to public safety.”

In response, Mark Rosenbaum, one of Daniel Ramirez’s attorneys, strongly refuted the allegation, saying in a statement: “Mr. Ramirez unequivocally denies being in a gang. While in custody, he was repeatedly pressured by ICE agents to falsely admit affiliation.”

Shoplifting under N.J.S.A. 2C:20-11 of the New Jersey Criminal code is one of the most common crimes committed in the state of New Jersey, and can often times be accused over mistake of fact or misunderstanding between vendor and customer. Specifically, there have been a large number of cases in recent years stemming from the popular women’s cosmetics store Sephora. The high number of cases stemming from this vendor revolve around its policies concerning free samples, which are not followed strictly by their sales employees, but can be enforced stingily by their anti-theft team.

Title 2c of the New Jersey Criminal code outlines shoplifting in its entirety as one of six offenses; however, we will be looking at the statute as it deals with purpose or intent. Specifically did you mean to take something and not pay for it? What that your intent? N.J.S.A 2C:20-11b(2), outlines the types of cases accused shoplifters generally encounter at Sephora. This section of the statute outlines that it is considered shoplifting,

“(2) For any person purposely to conceal upon his person or otherwise any merchandise offered for sale by any store or other retail mercantile establishment with the intention of depriving the merchant of the processes, use or benefit of such merchandise or converting the same to the use of such person without paying to the merchant the value thereof.”