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Churning in an IRA

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oedipus
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Churning in an IRA  Reply with quote  

Hi, I'm new on here, a novice in the trading market and need advice.

My sister is a financial advisor with Janney Montgomery Scott.
I have been investing with her and her firm for almost 20 years (since I started working after college). I always followed her advice since I am not educated nor savvy with the whole financial market going-ons. I implicitly trusted her because she is the professional and basically she is family (or so I thought).

I had 2 IRAs with my sister (a Trad and a Roth). My Trad has more money since I had rolledover all my 401K from 3 previous companies I had worked for.

About 2 weeks ago, I was able to retrieve the actual transaction statements from both my IRA accounts for the last 4 years. Janney provides statements to display all the buying/selling trades on accts plus fees/commissions.

Here is the summary I discovered in the last 4 years:

I have been paying my sister between $2,100 to $3,000+ per year to manage both my IRAs. These fees are just the trades she made on both IRAs. I haven't factor in maintenance fees and other fees I still have yet to uncover.
The net total of both my IRA is in the low 100K so her fees are 2% to 3% per year.

The trades in my acct (esp my trad IRA) is rather excessive.
Every month there is a trade. Some more than others.
In 2010, 6 trades in the first 4 months (I ended my relationship with Janney in May 2010).
In 2009, there were 27 trades.
In 2008, 34 trades.
In 2007, 49 trades.
Commission charges are between $50 to $100+ per trade.
And the worst part, in many of the trades I saw, she bought high and sold low. Several trades did make some money, but not enough - the profit went directly to paying her fees/commission. My mouth dropped (of course she never disclosed this when she contacted me to sell).

I am astounded at the excessive activity. When I confronted my sister, her explanation is - I called you on every trade and you agreed to it (basically, she tapped onto my ignorance and took advantage). She also said, I am not alone, she does it on her own account and on others - giving the impression that this is "normal" activity in a retirement acct. Also she blame the decline of the market, the market, the market.

The question I have is, what is considered "normal" activity in a retirement account that has 100K or less?
Because I compared 2007 to 2010, I did not make any money. She did.
I'm still waiting to gather past statements prior to 2007 to see if she has been churning my account from day one.

I know I don't have a legal case against her since she covered her ass in contacting me for every trade. I admit I was very stupid into trusting my own sister, believing she had my best interest and I know I can't claim ignorance in any legal case.

I took the time to calculate all the principal I had given to my sister's firm since year one. The good news is, the total principal I had invested with her is almost the same amount I withdrew from her firm last year in May 2010. So I didn't lose any principal (but certainly didn't gain anything). I could have buried all my money in a mattress for the last 20 years and today, came out even. I guess I have to look at this as the bright side.

At 40yo, I have to start over my retirement plan.
Post Wed Jun 15, 2011 4:12 pm
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coaster
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You can't recover damages but you can do a great deal to see that no other investors get harmed. I'm sorry, but your sister needs to face the music. There are certain steps you can take to see that she gets either disciplined or perhaps if this activity is as egregious with her other clients, she will lose her licensing and registration to broker securities.

Here's an article: http://www.ehow.com/how_5707499_file-stock-broker-complaint.html

You need to go directly to step four; I'm guessing this conduct is sanctioned by her manager, so there's no point beginning with the local branch. The proper department to contact is formally known as the Compliance Department and you need to contact the Compliance Officer. Don't allow them to get you to agree to arbitration. Tell them you are already in the process of filing a formal complaint.

You file your complaint at www.sec.gov

And this organization is very helpful,check this out before you do the above:

www.finra.org

Good luck.
Post Thu Jun 16, 2011 6:19 am
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Deaner
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Wow, I re-read this an saw that you are basically even after 20 years. I thought it was only 4 years and thought well maybe it's possible you could be over the last 4 years.

So it looks like you were paying 2-5k a year in just trading fees. Amazing.

But yeah I'd do what Coaster said.
Post Thu Jun 16, 2011 7:40 pm
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oedipus
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Thanks ... I am in contact with a securites lawyer and he needs me to retrieve a few documents. He will review my portfolio but he did warn me that I may not be able to recover any monetary loss due to the fact that my sister did called me at every trade. And the statue of limitations is 3 years.

So in the last 3 years:
There is one trade I am so pissed off with her,
On 8/21/2008 - she bought me 50 shares of Las Vegas Sands @ $42.50 per share. Her fee/commission = $92.17. On 11/12/2008 - she sold all 50 shares @ $4.94 (fee/commission = $247.00). WTF??!!! Why would she do that???

Here's another one, this one is fishy:
On 8/25/09 - she bought me 100 shares of Green Mountain Coffee @ $60.50 per share (commission/fee=$112.31). On 4/21/10, she sold all 100 shares @ $80.81 (commission/fee = $112.31). The following day, 4/22/10, she bought all 100 shares back @ $85.86 (commission/fee = $112.31).
This one I have to investigate, I don't recall 2 phone calls back 2 back - to sell and buy back the same stock.

Like the old saying goes, "No one can screw you over like family".

Again, I wanted to ask .... what is considered "normal" trade activity in a retirement account? How frequent? What is consider excessive?

I just read former congressman Anthony Weiner
only made 8 stock transactions on his portfolio last year. His activity was certainly less risky than mine.[/url]
Post Fri Jun 17, 2011 3:30 am
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coaster
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There's no such thing as "normal" activity. It varies with the individual's goals, risk tolerance, and other things. You have to show that this activity was done without ensuring that it was suitable for you.........and that's a key word: what suitability evaluation was done? None, I'll bet. Your lawyer will fill you in on that. Forget the individual trades that piss you off. Concentrate on the overall activity and whether it was suitable for you, and whether it was done in the your best interests --- appropriate ficuciary responsibility ... reasonable and customary are probably the key words. Checking with you to get your approval for every trade isn't reasonable and customary if the ficuciary isn't ensuring that you understand what action is being taken on your behalf.

I hope also you also pursue not just your sister, but her principals at her branch as well. Like as not this was done not just with their tacit approval, but likely with their encouragement. Conduct like this in a branch office doesn't go unnoticed if it's just one broker guilty of it. Likely it's in the whole atmosphere there. It may go easier on her if it can be show than her principals were active in encouraging and promoting such activity. It's suppose to be their responsibility to see that this doesn't happen, so they need to be brought in the spotlight as well.

No, you can't recover your losses; brokerage clients sign an arbitration agreement. Your main motivation has to be justice. But there's some possibility of recovering your legal fees, and perhaps even the broker's commissions. But the market losses, no....they're gone.
Post Fri Jun 17, 2011 7:01 am
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oedipus
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I've spoken with a Securites Lawyer and basically he tells me I have a Suitability Claim (and not a Churning case. You were Right Coaster!). The bad news is, the cost to recover my loss will be smaller than what I will be paying in attorney fees. The fact that my sister "called" me for every trade and that I did not lose any principal (except for investment time) is not significant for this lawyer to take my case.

My best bet is to file a complaint with Janney claiming unsuitable management of my retirement account and the 2 unauthorized trades (ie. Green Mountain Coffee).

I have the name, number and email to the branch manager (and I've already spoken to his secretary to obtain documentations I could not retrieve from online).

I've never done this before.

Should I skip the branch manager and go straight to their legal dept (even though I will not be suing my sister nor will I want to go to arbitration).

Even though I won't be asking for money, I would be content to have a complaint filed on my sister's FINRA public record. Currently she has a clean record (don't know how. I think she only targets the ignorant and naive - namely me).

How should I proceed?
How should the letter be written out? (As you can tell, I am definitely a novice at this).

Also, is there some stockbroker rating/review site where I can put my sister's full name and the branch she works at and tell my story (to warn other potential investors)? Something that Google would pick up if a potential investor wants to find out about my sister as a financial advisor.

Any help/suggestions will be appreciated.
Post Tue Jun 28, 2011 4:43 am
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coaster
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You need to go above your sister's immediate superior, as we talked about above. I don't know their organization, whether that would be branch, district, or regional. But going to her supervisor, who is no doubt a big part of the problem, is a waste of time. Filing with FINRA, and also I believe the SEC filing is separate, though I'm not up to speed; the process has changed since I was a Registered Rep.

I think much of your guidance will be found on the FINRA site, along with how your letter and complaints should be structured.

Good luck with JUSTICE!! And keep us posted .... Smile
Post Tue Jun 28, 2011 6:51 am
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oedipus
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I've sent a complaint letter to my sister's boss and copied FINRA.
This was 3 weeks ago.

Since this is a complaint (and not a lawsuit), what is the timeframe, if any, to hear a response from the firm???

My plan is to send the same complaint (modified to include that my sister had "defacto control" over my retirement account) to the SEC via their website.
Post Mon Aug 15, 2011 3:05 pm
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coaster
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This article on the SEC website says 30 days, but I don't know if that's a regulatory requirement or not. Was there a "respond by" clause in the letter sent to the broker and was it sent certified mail?

http://www.sec.gov/investor/pubs/howoiea.htm

Thanks for the update.......

~Tim~
Post Mon Aug 15, 2011 4:11 pm
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kate032
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I don't have any helpful information to share, but just wanted to say that I'm really sorry to hear how your sister treated you. Not only do you have the complete mismanagement of funds to deal with but also the emotional ties of a close family member.

It seems that Janney Montgomery Scott is having other problems as well these days:

http://www.sec.gov/news/press/2011/2011-144.htm
Post Tue Aug 16, 2011 2:55 am
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oedipus
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@ coaster - no, there was no 'respond by' clause. Due to my failure to discover my sister's unscrupulous actions in my retirement portfolio early, this is a complaint rather than a lawsuit/legal action. I pulled my money out of Janney in May 2010, I discovered the excessive trading this past June 2011 - which means I did not 'act promptly'.
My goal is to have my complaint be on my sister's public record FINRA Brokercheck.

@ Kate - thanks for your support. I learned that Greed is an insidious, deceptive disease. It overshadows all integrity, honesty and family.
There is alot more to my saga than just my retirement account that I have not shared. But in the end, my sister and I are completely estranged (I literally despise her). I've already told the rest of the family (including cousins). That is my punishment for her.

Thanks for the information about Janney.
I posted it on my Facebook page.
Post Tue Aug 16, 2011 4:31 am
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eastmn
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I've always read that the statute of limitations
begins when the crime is discovered.
Post Tue Aug 16, 2011 6:09 am
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coaster
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While your sister and her principal need to suffer the consequences of their actions for the sake of justice and so no one else is harmed, I do hope you're keeping a spot open in your heart for her should she learn from the experience, reform, and ask your forgiveness.

When you file with the SEC, I suggest sticking with the suitability and fiduciary issues. I don't think the "defacto control" will fly since you say she got your OK for every trade. And don't even both dealing with her boss. He/she is part of the problem. The Compliance Officer is the person who's responsible for seeing to it that brokers adhere to regulations and ethics.

~Tim~
Post Tue Aug 16, 2011 6:22 am
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eastmn
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Off the wall here, but could the wayward sister also have a case for employer abuse *(workers comp suit)? Might be a way to get some added satisfaction, $ince $he $hould have been properly and ethically $upervi$ed Wink.

Thanks for sharing your story here.
I've got a friend who needs to see this.


Last edited by eastmn on Tue Aug 16, 2011 12:46 pm; edited 5 times in total
Post Tue Aug 16, 2011 10:10 am
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oedipus
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According to my friend's husband who is in the industry, he says the SEC is cracking down on defacto control. He told me to stress this on my complaint.
He told me of a recent case where a broker contacted and convinced a retiree to buy/sell-buy/sell, knowing fully well that the retiree trusted and followed every advice she gave. The broker was following the law by contacting the retiree on every trade. In the end, the broker swindle the life savings out of the retiree.

Unscrupulous brokers (like my sister) will manipulate unknowledgable investors (like me), takes the time to know the client's behavior, know their naivety/weaknesses, and then abuse their complete trust by taking advantage. My sister fully knew I will not say no to any trade recommendations she made.
I bet she began with something small & insignificant, to test out the waters. When she got away with it, gradually increase in amount and scope. After 18 years, I now KNOW my sister did this to me to the very end - to the point where her last trade (with the Green Mountain Coffee) in my retirement account was completely and blatantly unauthorized. She got too greedy and took advantage.

I tried to look up that case my friend's husband mentioned but cannot find it. However, I found this one:

http://www.mitchell-attorneys.com/legal-articles/authorities-on-securities-account-churning/

De facto Control – This is indirect demonstration of control. In the Mihara case and Hecht v. Harris Upham & Co. N.D. Cal. 1968 – “The requisite degree of control is met when the client routinely follows the recommendations of the broker.” This is de facto control by the broker. Therefore, control can be implied when a stockbroker possesses overwhelming influence over an unsophisticated customer. The touchstone is whether or not the customer has sufficient intelligence and understanding to evaluate the broker’s recommendations and to reject one when he thinks it unsuitable. An interesting method of determining control through trading patterns can be observed by examining confirmation slips and monthly statements for disclosure as to whether a number of transactions were “unsolicited” by the stockbroker, meaning, that the customer ordered many of the transactions without ever having had the securities called to his or her attention by the stockbroker. There are ten principal characteristics of a customer on which the courts have traditionally relied in reaching a decision as to whether or not control can be inferred. The important characteristics are: Sophistication, formal education and occupation, prior or contemporaneous securities investment experience, the customer’s reading habits, the wealth of a customer or the size of the account and most importantly, the element of the psychological dominance of the broker over the customer, which is really a conclusion based on the above factors. The SEC has thus noted the customer’s inability to understand the difference between how a margin account or options work, or the effect of the ex-dividend date on the price of a security. A finding that the customer had difficulty in understanding the investment advice given to him, even when the broker tried to explain it, is particularly relevant. These inadequacies tend to make the customer dependent on his broker. The mere fact that the customer approves the trades and receives confirmations does not prove ratification of churning activity. In Hecht v. Harris Upham, it states, “The Court concluded that while confirmation slips were sufficient to inform plaintiff of the specific transactions made, they were not sufficient to put her on notice that the trading of her account was excessive.” The fact that a customer received confirmations and monthly statements will not defeat establishment of control over the account where such documents are beyond the comprehension of the customer or the broker reassures the customer after receiving complaints.


Last edited by oedipus on Tue Aug 16, 2011 5:40 pm; edited 1 time in total
Post Tue Aug 16, 2011 12:14 pm
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