Erez Law recently filed a FINRA arbitration against Wells Fargo and brokers Fernando Panizzutti (CRD# 4950691) and Ghilerme Sahadi (CRD# 6473850).
Panizzutti has been a registered representative of Wells Fargo Clearing Services, LLC in Miami, Florida since 2005. Sahadi has been a registered representative of Wells Fargo Clearing Services, LLC in Miami, Florida since 2016.
The Erez Law client alleges the following in the newly filed FINRA claim:
The Erez Law client was a young, inexperienced investor who was primarily interested in generating a modest and stable return from his investments without subjecting his capital to undue risk. The client also discussed his interest in taking a loan from Wells Fargo in order to fund real estate investments and other businesses.
Panizzutti represented to the client that he could invest the funds in high-quality companies and achieve an annual return which would cover the interest charges on a loan secured by the securities in the client’s account as well as generate excess income to meet some of the client’s additional expenses. Based on Panizzuttis’ representations, the client agreed to open an account with Panizzutti and Wells Fargo.
Regrettably, the client trusted Panizzutti and Sahadi and they grossly abused his trust and confidence. It is alleged that Panizzutti and Sahadi recommended a reckless and unsuitable strategy of over-concentrating the client’s portfolio in high risk preferred stock which served as collateral for a credit line account. In fact, 80% of the client’s investments were in preferred stocks, which are considered hybrid securities. They are senior to common stock but do not have voting rights. Preferred securities are subordinated to the company’s debt. These qualities have led to preferred securities being considered the worst of two worlds, in that preferred securities lack the protections of bonds and do not have the rights and ability to participate in the company’s growth as common stock. One of the primary risks of preferred securities is market volatility and illiquidity. Meaning that in times of market volatility and illiquidity, preferred securities may experience extreme volatility. Non-rated preferred securities are preferred stock that have not received a credit rating from one of the rating agencies.
Erez Law alleges that Panizzutti and Sahadi failed to recommend an adequately diversified portfolio. Instead, they recommended a recklessly concentrated strategy and failed to follow the most basic investment principals of asset allocation and diversification.
In addition, Panizzutti and Sahadi recommended additional high risk and unsuitable securities including non-investment grade or junk bonds issued by SM Energy.
The claim alleges that Panizzutti and Sahadi engaged in rampant unauthorized trading. Panizzutti and Sahadi failed to obtain the client’s required authorization before each transaction.
The claim also alleges that Panizzutti and Sahadi also failed to make the required risk disclosures to the client, so as to provide the customer with the ability to make informed decisions about their investments. In fact, Panizzutti and Sahadi assured the client that his account was performing well and that he had no reason to be concerned about his accounts.
In mid-March 2020, Wells Fargo liquidated all of the client’s preferred stock and junk bonds at extremely distressed prices causing him staggering losses. The list below reflects some but not all of the losses caused by the unsuitable over-concentrated and leveraged strategy:
- Brookfield Properties
- Chimera Investments
- Colony Capital
- Energy Transfer Partners
- Triton International
- SM Energy
The proceeds from the liquidation of the securities were used to pay down the credit line loan. However, given the amount of leverage and the distressed prices at which Wells Fargo liquidated the securities in the client’s account, there were inadequate funds to pay off the credit line and the credit line has an outstanding debit
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.
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