Years of Overlooked Red Flags Catch Up to Stockbroker

Finra, the securities regulator that’s funded by Wall Street, got some attention last week when it said it was getting tougher on bad stockbrokers. The regulator said fines were going up and sanctions for fraud and the sale of unsuitable products were getting more onerous.

But Finra already had sanction guidelines that might have come to play in the case of Jerry A. Cicolani, Jr., a former broker who worked at Merrill Lynch and at Cleveland’s PrimeSolutions Securities Inc. Somehow, though, despite having been target of 69 customer complaints over the past 13 years, Cicolani wasn’t barred from the business until last September.

By that time, criminal authorities already were moving in with an investigation into his role in a Ponzi scheme. On May 1, he pleaded guilty to two criminal counts, including the sale of unregistered securities. He persuaded many of his former clients from Merrill and PrimeSolutions to invest in that scheme. I wrote about Cicolani in my story yesterday for The New York Times. You can read it here.

Why Only Big Bankers Can Flout the Rules and Get Away With It

Did you hear the one about the stock promoter, the lawyer, three figurehead CEOs and seven auditing firm partners?

No, it isn’t a “walks into a bar” joke. It’s a case brought by the Securities and Exchange Commission last month against the players in a sham stock offering. The agency went after all the people involved in what it called ”a massive scheme to create public shell companies through false registration statements.”

No big deal, right? The SEC is supposed to be going after bad guys, making them pay fines and lose privileges. But it tends to do a lot better in cases against no-name boiler room types like the ones in the January case than it does with players at powerful banks.

In my column for TheStreet this week, I discussed the contrast in enforcement results between cases against small players and cases against Wall Street’s elite.

In December, for example, the Financial Industry Regulatory Authority, or Finra, brought cases against ten household name firms for flouting the rules that govern research analysts when their firms are pitching for initial public offering business. In its complaints against the firms, Finra described the actions of specific people who broke specific rules. But we never learned their names. Indeed they weren’t charged at all.  You can read my column here.

Unfazed by Finra Charges, Seniors Still Swoon for David Lerner Pitch

Elderly investors are looking for yield. And elderly investors are suckers for a free meal. Put the two together and you’ve got a recipe for packing the grand ballroom of a Marriott hotel with 300 sixty- and seventy-somethings who are prime targets for a brokerage firm looking to peddle illiquid investments.

David Lerner Associates, a Syosset, N.Y.-based brokerage firm whose founder was barred from the securities business for a year in 2012, is still out there wooing seniors to break bread at a local hotel and hear the pitch for its investments.

I went to one of those dinners at a Marriott hotel in Trumbull, Conn. in June, and wrote about it in my column tonight for TheStreet Foundation. Prominent in the pitch that night was the firm’s non-traded real-estate investment trust, a highly illiquid investment that I sure wouldn’t want my elderly mom to buy.

What’s stunning is that investors trip over themselves to attend Lerner events despite the firm’s history. From my story:

Finra said in a complaint on May 27, 2011 that Lerner and his firm targeted many “unsophisticated and elderly” clients to sell illiquid non-traded real-estate investment trusts that were concentrated in the hotel industry. The firm used misleading marketing techniques to sell the REITs, Finra said. In the months after the complaint, Finra said Lerner sent letters to 50,000 customers in an attempt to “counter negative press.” And even those letters had “exaggerated, false or misleading statements,” according to an amended Finra complaint on Dec. 13, 2011. The $14 million in fines and restitution against the firm was Finra’s largest monetary sanction of 2012, said Michelle Ong, a Finra spokeswoman.

You can read the story here.