Erez Law recently filed a $400,000 FINRA arbitration against RBC Capital Markets, LLC. The former RBC Capital Markets, LLC customer, an 81-year-old widow, alleges that Paul Blum (CRD# 735003), who was a registered representative of RBC Capital Markets, LLC, overconcentrated her investment portfolio in high risk energy sector and Puerto Rico bonds. The Erez Law client informed Blum that she was an elderly, risk averse and unsophisticated investor interested in investing in fixed income investments that would generate a modest yield while preserving her retirement savings.
Blum recommended the Florida resident recklessly over-concentrate her portfolio in unsuitable and speculative junk bonds that were issued by highly leveraged and financially troubled companies in the volatile energy sector. Blum concentrated 65% of the Erez Law’s client’s portfolio in high risk junk bonds, and the remaining 35% of her portfolio in the energy sector mostly in lower tier junk bonds, which was also unsuitable and further heightened the client’s risk and resulted in devastating losses. This strategy exposed the client to server sector concentration risk of the bonds’ issuers, and to companies that were vulnerable to the same adverse market conditions and experiencing significant financial distress. There was no reasonable basis for dangerously concentrating the client’s portfolio in high risk and unsuitable energy sector bonds or for concentrating the customer’s savings in junk bonds. Blum failed to recommend an adequately diversified and suitable portfolio for the Erez Law client.
Over the past few years, oil prices have significantly declined. A supply glut in 2014 and 2015 led to some of the lowest prices the market has seen in recent years. In turn, securities values also dropped. The volatile energy sector experienced significant turmoil, and many energy companies were negatively impacted when global crude oil prices fell below $40 per barrel at the end of 2015. This was the lowest level since early 2009, as supply was in excess of global demand. Oil and gas companies experienced a spike in bankruptcies, which have left many investors reeling. It is alleged that Blum recommended the Erez Law client invest in the following energy sector investments, among others:
- Alpha Natural Resources (filed for bankruptcy in April 2015)
- Swift Energy Co. (filed for bankruptcy in December 2015)
- Peabody Energy (filed for bankruptcy in April 2016)
- Sandridge Energy (filed for bankruptcy in May 2016)
- Basic Energy Services (filed for bankruptcy in May 2016)
Additionally, Erez Law alleges that Blum recommended high risk and unsuitable Puerto Rico bonds. It is alleged that Blum recommended the elderly client invest in high risk and unsuitable Puerto Rico Sales Tax Financing Corp. (COFINA) bonds. Puerto Rico suffers from long-term financial and economic deficiencies that rendered its credit increasingly more speculative. The deterioration of Puerto Rico’s financial condition culminated in its debt being downgraded to junk status or speculative (below investment grade). For the past several years, Puerto Rico has been struggling with compounding debt and economic decline. As a result, the value of Puerto Rico’s municipal tax-free bonds has considerably fallen. Since September 2013, when the steep decline in Puerto Rico bond values began, investors holding these bonds have suffered massive losses. In May 2017, Puerto Rico filed for bankruptcy protection from creditors in what is being described as the largest municipal bankruptcy filing in history.
Blum was registered with RBC Capital Markets, LLC in West Palm Beach, Florida from 2009 to 2015, when he was fired for “lack of confidence.”
In August 2017, Blum was barred by FINRA after he consented to the sanction and to the entry of findings that he refused to appear for on-the-record testimony during the course of an investigation in connection with customer complaints and arbitration claims alleging, among other things, unsuitable trading.
Blum has been the subject of 20 customer complaints, dating from 1995-2017, according to his CRD report:
- October 2017. “Clients allege unsuitable recommendations of Puerto Rico bonds, in period 2010 to present.” The customer is seeking $400,000 in damages.
- June 2017. “Client alleges unsuitable recommendations leading to an overconcentration of energy bonds and Puerto Rico municipal bonds. Estimated period is 2009 to 2015.” The customer is seeking $250,000 in damages and the case is currently pending.
- August 2016. “Claimants alleges that the representative was involved as an intermediary or conduit in alleged unsuitable recommendations of energy sector corporate bond investments, in an unknown time period.” The customer seeks $525,000 in damages.
- July 2016. “Clients allege financial consultant recommended unsuitable corporate energy bonds, in period 5/2013 to 9/2015.” The customer seeks damages of $200,000.
- June 2016. “Claimants alleges that the representative was involved as an intermediary or conduit in alleged unsuitable recommendations of energy sector corporate bond investments. Period at issue is unstated.” The customer seeks damages of $6 million.
- May 2016. “Client alleges claims that the client’s account was excessively traded and was concentrated in oil and gas bonds. Recent time frame is 2014 to 2016.” The customer sought $300,000 in damages, and the case was settled for $137,500.
- May 2016. “Claimant alleges that the representative was involved as an intermediary or conduit in unsuitable recommendations of energy sector corporate bond investments.” The customer sought $75,000 in damages, and the case was settled for $17,500.
- May 2016. “Claimant alleges that the representative was involved as an intermediary or conduit in unsuitable recommendations of energy sector corporate bond investments.” The customer seeks $2,250,000.
- May 2016. “On behalf of the client, an attorney alleges that investments were misrepresented and that three purchases which occurred in the client’s account were unsuitable and unauthorized. Time frame is 7/2015 to 9/2015.” The customer sought $45,000 in damages and was granted $29,000.
- March 2016. “Clients allege unsuitable (SP) and concentrated recommendations & unauthorized transactions in corporate energy bonds, in an approximate period of 2009 to late 2015.” The customer sought $445,600 in damages and was awarded $162,500.
- March 2016. “Claimant alleges that the representative was involved as an intermediary or conduit in unsuitable recommendations of energy sector corporate bond investments.” The customer sought $325,000 in damages, and the case was settled for $65,000.
- March 2016. “On behalf of client, POA verbally complains that the client suffered losses due to unsuitable investments and excessive activity. Time frame is 1/2014 to 1/2016.” The customer sought $600,000 in damages and was granted $393,000.
- March 2016. “Client alleges investments in energy bonds were unsuitable and RBC failed to provide ongoing material information regarding the investments, in period 2010 to 2015.” The client sought damages in the amount of $1,200,000, and the case was settled for $220,000.
- January 2016. “Client alleges that her financial advisor told her that ‘B’ taxable bonds were the same as “A” tax free bonds. She is not happy with her investments and wants to know if the firm will do anything to help her.” The case was settled for $150,000.
- November 2015. “Client complains of losses experienced in bonds which she does not feel were appropriate for a moderate investor. Time frame is 3/05 to 1/15.” The customer sought $140,000 in damages and was awarded $64,000.
- October 2012. “Claimants allege excessive trading of clients’ trust accounts, in period 2006 to 2010.” The customer sought $333,000 and was awarded $110,000.
- November 1995. “Claimants alleged that I induced them to purchase plaid clothing bonds using unspecified untrue statements and omissions of adverse material information. Claimants allege damages in excess of $1,000,000.00 as a result of their purchase.” The customer sought damages of $468,000 and was granted that amount.
- October 1995. “Alleged misrepresentation concerning purchases of plaid clothing bonds.” The customer was granted $50,000 in damages.
- September 1995. “Customer alleged that her 1993 purchase of $52,000 of plaid clothing bonds was unsuitable.” The customer was awarded $25,000 in damages.
- September 1995. “Customer alleged misrepresentation concerning plaid clothing bonds.” The customer was granted $107,259.25 in damages.
Erez Law represents investors in the United States for claims against RBC Capital Markets, LLC Financial Advisor Paul Blum, who is alleged to recommended a speculative, unsuitable and concentrated investment strategy of high risk “junk” oil and gas bonds tied to the energy sector and Puerto Rico debt.
A broker must have reasonable grounds for each recommendation made to investors considering such factors as the customer’s other securities holdings, financial situation, and risk tolerance. In addition, before a firm offers a security to its customers, the firm must conduct due diligence, investigating the facts surrounding the security, to confirm that it is suitable for any customer of the firm. The suitability of an investment for a particular individual is at the center of the investment process and one of the key duties owed by a firm and its broker to the customer. A firm may be held liable for its failure to recommend suitable investments to its customers.
In addition, pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, RBC Capital Markets, LLC may be liable for investment or other losses suffered by Blum’s customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.