Investor Alert: Former RBC Capital Markets, LLC Financial Advisor Paul Blum Barred by FINRA
Posted on Saturday, September 16th, 2017 at 1:47 pm
Erez Law continues to investigate claims against former RBC Capital Markets, LLC financial advisor Paul Blum (CRD# 735003) regarding recommending speculative and unsuitable investment strategies concentrated in high risk “junk” oil and gas bonds tied to the energy sector. Blum was registered with RBC 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.
Erez Law reported on Blum back in February 2017. The Miami, Florida-based firm filed a FINRA arbitration claim on behalf of two of Blum’s former clients. One Erez Law client alleges that he entrusted Blum and RBC to recommend investments for $1.4 million of irreplaceable retirement savings. The widower wanted to invest in safe investments that would generate income without losing their principal. Blum recorded his risk tolerance as moderate, as his was not interested in speculative or high risk investments or strategies. It is alleged that Blum recommended a reckless and unsuitable concentration in speculative energy sector bonds.
His former customer alleges that Blum recommended he invest more than 70% of his irreplaceable retirement savings in just a handful of highly correlated and high risk bonds, all of which were labeled as “junk” bonds at that time. A junk bond is a high-yield and high-risk security. Junk bonds have a speculative nature and a higher default risk and yield in relation to investment-grade bonds with a higher credit ranking. Junk bonds are risky investments that have a speculative appeal because of their high-yield nature.
Concentrating his portfolio in high risk energy sector bonds was grossly unsuitable for his investment goals, according to the claim. Blum’s reckless and unsuitable strategy exposed him to companies that were vulnerable to the same adverse market conditions and experiencing significant financial distress, and ultimately resulted in devastating losses. It is alleged that Blum failed to recommend an adequately diversified and suitable portfolio for his client. Blum misrepresented to his former client that the investment strategy he recommended was suitable for his documented risk aversion and desire to avoid losing his principal, and didn’t disclose to his client that he could lose all of his principal. Blum failed to recommend an adequately diversified and suitable portfolio for his client.
Blum represented that the companies whose bonds he recommended were fundamentally strong and financially sound. However in reality, the overwhelming majority of the energy sector bonds he recommended were of extremely low credit quality and considered by the major credit ratings agencies to be speculative investments, which are commonly referred to as “junk” bonds. Blum failed to disclose that the financial condition of the energy sector companies whose bonds the client owned were declining rapidly.
Blum’s reckless mismanagement and unsuitable recommendations caused the client devastating losses. Erez Law claims that RBC is vicariously liable for the acts and omissions of Blum.
The widower’s daughter suffered similar losses due to Blum’s reckless investment strategy. RBC and Blum’s actions caused the Erez Law clients damages of nearly $1 million. The case is currently pending.
It is alleged that Paul Blum recommended that his customer invests in the following junk bonds:
- RRI Energy
- Alpha Natural Resources
- Swift Energy Co.
- Linn Energy
- U.S. Steel Corp.
- Sandridge Energy
- Arch Coal Inc.
- Basic Energy Svcs.
Alpha Natural Resources, Swift Energy Co., and Arch Coal filed for bankruptcy. This is not a complete list of all junk bonds sold by RBC brokers, as the volatile energy sector experienced significant turmoil. These and other energy companies were negatively impacted when global crude oil prices fell below $40 per barrel at the end of 2015, the lowest level since early 2009, as supply was in excess of global demand.
In addition to the case above, Blum recently has been the subject of 22 additional customer complaints, dating from 1995-2016, according to his CRD report:
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 seeks
$300,000 in damages.
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 $75,000 in damages.
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 unsuitble (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 seeks $325,000 in damages.”
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 seeks damages in the amount of $1,200,000.
February 2016. “Client claims that he was unaware of his stated investment objective and risk tolerance and that his financial advisor never informed him of the risk of his portfolio. Time frame is approximately 5/2013 to 1/2016.” The claim was denied.
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.
December 2015. “Client complains that her financial advisor was negligent in recommending the purchase of bonds which have since defaulted. Time frame is Feb 2009 to Apr 2014.” The customer sought damages in the amount of $450,000 and the case was closed without action.
November 2015. “Customer claims that high yield bonds were purchased for his account without prior consultation. He requests that the firm buy back particular bonds he purchased between May 2013 and May 2014 at his original purchase price.” The customer sought $133,000, but the case was denied.
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.
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.
Brokerage firms typically have compliance rules that deal specifically with the sale of junk bonds. These rules typically state that brokers are only to sell junk bonds to customers that are specifically understand the inherent risks of high risk, high yield “junk” bonds and are interested in aggressive or speculative investments.
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 can help you recover losses you suffered as a result of unsuitable high yield energy investments. If you were a client of RBC Capital Markets, LLC financial advisor Paul Blum and have experienced investment losses or financial irregularities, please call us at 888-840-1571 or complete our contact form. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies.