April 14, 2015

FINRA Bars Owner of Broker-Dealer, Seller of Illiquid Equipment-Leasing Funds for Misusing Investor Money

The Financial Industry Regulatory Authority has barred the owner of Commonwealth Capital Corp. from the securities industry. Kimberly Springsteen-Abbott is accused of misusing investor funds.

Commonwealth Capital Securities Corp., a wholesaling brokerage firm, packages and distributes illiquid equipment-leasing funds. Springsteen-Abbott is broker-dealer director and the president of the parent company.

According to FINRA, Abbott and her husband charged thousands of dollars of personal spending on the same credit card that they used for business expenses. She would then allocate the investors’ money to cover her own expenses, including an Alaskan cruise, holiday family meals, a trip to Disneyland, holiday décor for her home, clothing, grocery bills, pharmacy expenses, and car rentals. Springsteen-Abbott allegedly tried to hide her misconduct by lying to the self-regulatory organization, which was looking into the allegations, as well as to the FINRA hearing panel about what she did with the money.

The SRO said that her conduct violated the regulator’s rule 2010, which mandates that registered brokerage firms and their reps meet“ high standards of commercial honor and equitable principals of trade” when doing business.

A FINRA panel said that Springsteen-Abbott abused her authority when she improperly allocated the funds to two kinds of expenses that were not related to the business of the funds. FINRA said that she misused money that belonged to the funds’ investors and violated the restrictions in the investments’ offering documents. Her intentional misuse of investor money was to their “detriment.”

Springsteen-Abbott was ordered to pay disgorgement of $209,000 plus interest. She must also pay a $100,000 fine. FINRA’s probe encompasses the period from early 2009 to early 2012.

Springsteen-Abbott, however, disagrees with the panel’s ruling. Commonwealth Capital Corp. sent an email to InvestmentNews saying she believes the FINRA panel made a mistake and she plans to appeal.

In 2013, Springsteen-Abbott settled with the Securities and Exchange Commission for $1.5 million over allegations that a related fund group misled investors about compensation practices at the equipment leasing funds. According to the agency’s cease-and-desist order, Commonwealth Capital Securities Corp. made disclosures that were misleading about the expenses it charged to several equipment leasing funds that Commonwealth Funds’ sponsored. When settling, Springsteen-About and the Commonwealth Income & Growth Fund did not deny or admit to the findings.

Equipment Leasing Funds
These funds let investors pool capital to purchase equipment and become lessors. Investors that become part of equipment leasing fund programs gain the possibility to get predictable, frequently tax-deferred equipment during the equipment’s life or when it is re-leased or sold. Unfortunately, there are risks involved.

Some or all of distributions received could b juste a return of capital. Distribution rates are not necessarily a clear sign of profitable fund returns. Equipment leasing funds are blind pool offerings in which the fund has not identified a specific investment as of the prospectus's date. This means all of the possible risks cannot be determined. Poor economic conditions may hurt the fund, resulting in investor losses. Shares are illiquid.

Our securities fraud law firm is here to help investors get their money back. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.


Finra bars owner of B-D that sells equipment-leasing funds, Investment News, April 14, 2015

Read the SEC Order (PDF)


More Blog Posts:
Pacific West Faces SEC Fraud Charges Over Life Settlements, Stockbroker Fraud Blog, April 11, 2015

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors, Stockbroker Fraud Blog, March 30, 2015

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award, Institutional Investor Securities, April 6, 2015

April 11, 2015

Pacific West Faces SEC Fraud Charges Over Life Settlements

The Securities and Exchange Commission is charging Pacific West Capital Group Inc. with securities fraud and other violations. The regulator contends that the investment firm and its owner, Andrew B. Calhoun IV, misled clients about life settlements.

According to the SEC, Calhoun and Pacific West raised close to $100 million over the last decade from more than 3,200 investors that bought life settlements in 125 life insurance polices. For more than two years, the two of them allegedly used proceeds from the sales to pay the premiums on life settlements that had been previously sold, while concealing that the life insurance policyholders were living beyond their projected life expectancy. Calhoun and his company are accused of make their life settlements seem more successful than they actually were even as they spent the primary reserves to pay policy premiums.

With life settlements, an investor purchases a life insurance policy share with the understanding that he/she will get part of the death benefit later. The investor is the one responsible for the premium payments and keeps the policy until the insured’s passing. Upon the insured’s death the investor is entitled to the policy’s death benefit.

The insured’s life expectancy plays a factor on the rate of return. The sooner the original policyholder passes away, the more to the investor’s benefit. If the insured lives longer than expected, the investor has to keep paying premiums, which decreases eventual earnings.

The Commission believes that Pacific West and Calhoun failed to give investors their right to fair disclosure about the risks involved with life settlements, purposely concealing and minimizing them instead. Among the risks that they failed to disclose was that investors’ premium payments would go up if the insured parties lived longer than anticipated. They told investors the policies would mature in four to seven years and to expect returns of up to 150%. The firm claimed that it never drew on premium reserves or made a premium call.

The SEC is charging Calhoun and Pacific West with violating federal securities laws related to securities registration, antifraud, and brokerage firm registration. The case also names as defendants PWCG Trust, which serviced and held the insurance policies, five pacific sales agents, and two of the agents’ companies, BAK West and Century Point. They are charged with securities registration violations and broker-dealer registration violations. The Commission wants permanent injunctions against the defendants and is seeking to impose a penalty and recover the alleged ill-gotten gains plus interest.

The Government Accountability Office has warned consumers about investing in life settlements because of a lack of clear oversight in many states. The North American Securities Administrators Association has said that life settlements are prone to different kinds of fraud, including Ponzi scams, bogus life expectancy assessments, false promises of big money with low risks, and inadequate premium reserves which end up costing investors.

At Shepherd Smith Edward and Kantas, LTD LLP, our life settlement fraud lawyers work with investors to recoup their losses. Contact our securities law firm today.

Read the SEC Complaint (PDF)


More Blog Posts:
NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations, Stockbroker Fraud Blog, December 28, 2014

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award, Institutional Investor Securities Blog, April 6, 2015

Financier Lynn Tilton Sues the SEC After She is Charged with Securities Fraud, Institutional Investor Securities Blog, March 31, 2015

April 8, 2015

SEC Sues Ex-New York Giants Cornerback Over Alleged Ponzi Scam

The U.S. Securities and Exchange Commission is suing a former New York Giants player for allegedly helping to run a Ponzi scam. According to the regulator, Will Allen and his business partner Susan Daub raised over $31 million from investors, promising them profits from loans made to professional athletes. Allen and Daub managed Capital Financial, which was compromised of several companies.

The SEC said that the alleged financial scam took place from 7/12 through 2/15 and involved over 40 people investors, who were told they could make up to 18% in interest. The Commission contends that Allen and Daub misled investors about the circumstances, terms, and the existence of certain loans.

For example, according to the complaint, last year, at least two dozen investors handed over approximately $4 million that was supposedly going to go toward a $5.6 million loan for an NHL player. They were given a copy of a promissory note and loan agreement that was supposed to have been signed by both Allen and the player. The player was to make monthly payments.

However, says the regulator, the loan was a sham and the player never signed the agreement or promissory noted nor did he ever receive a $5.65 million loan. That said, earlier this year, Capital Financial submitted proof of claim, after the NHL player filed for bankruptcy, listing the company as one of its creditors. The amount was for $3.429,750, along with a $3.4 million promissory note that the player signed, as well as a loan agreement. Still, that figure is a far cry from the $5.6 million loan that investors told they were getting involved in.

Also, some $7 million of client funds was allegedly used to fill a payment shortfall to other investors, while other of their funds is said to have gone toward personal spending at nightclubs and casinos. A federal court has since frozen the assets related to the alleged Ponzi scam and the Commission wants to impose penalties.

If you were the victim of a Ponzi scam and sustained substantial losses, contact our securities fraud law firm today.

SEC Accuses Ex-Giants Cornerback Allen of Running Ponzi Scheme
, Bloomberg, April 7, 2015

Did Ex-NFLer Will Allen's Alleged Ponzi Scheme Prey On Jack Johnson?, DeadSpin, April 7, 2015


More Blog Posts:
LPL Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator, Stockbroker Fraud Blog, April 7, 2015

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors, Stockbroker Fraud Blog, March 30, 2015

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award, Institutional Investor Securities, April 6, 2015

April 7, 2015

LPL Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator

The New Hampshire Bureau of Securities Regulation wants LPL Financial (LPLA) to pay clients $2.4 million in buybacks and restitution for 48 sales of nontraded real estate investment trusts that were purportedly unsuitable for elderly investors. The regulator, which says the firm did not properly supervise its agents, is also fining LPL $1 million plus $200,000 in investigative expenses.

The securities case springs from transactions involving an 81-year-old state resident that purchased a nontraded REIT from the firm in 2008. The investor, whose liquid net worth was $2.5 million and invested $253,000 in the financial instrument, would go on to lose a significant amount of money. A probe ensued.

The state regulator contends that the 48 REIT sales, totaling $2.4 million lead to concentration that went beyond LPL guidelines and that the firm sold hundreds of nontraded REITs to clients in New Hampshire on the basis of “clearly erroneous “client financial data, while frequently violating its own policies. LPL has reportedly admitted that 10 of the 48 transactions deemed unlawful by the state were unsuitable according to its own guidelines. The Securities Bureau wants to take away the firm’s license to sell securities in New Hampshire.

Meantime, a former LPL Financial broker has been permanently barred from the securities industry by the Financial Industry Regulatory Authority. Raymond Daniel Schmidt, previously affiliated with LPL Financial Holdings Inc. in Southern California, violated industry rules when he borrowed funds from seven clients between ’09 and ’12. He settled with the self-regulatory organization without denying or admitting to FINRA’s findings.

Schmidt borrowed close to $2.3 million to build the Pakalana Sanctuary, a vacation rental property on Hawaii’s big island. He admitted his involvement in the retreat center/vacation center in a public regulatory filing in 2013. However, said FINRA, Schmidt actually purchased the property in 2009, opening it for business as its owner and operator three years later.

Brokers are not allowed to borrow money from clients. They also can’t take part in business activities outside the firm without telling the company and typically require the latter’s approval.

FINRA says that Schmidt failed to tell LPL about the property or the loans from customers even when he filled out yearly questionnaires required by the firm. Even when he eventually told the firm about the real estate, he denied that he owned interest in the property.

Earlier this year, Schmidt told the regulator's enforcement unit that he wouldn’t give over documents or cooperate with its probe. He is currently the subject of an elder abuse and negligence case related to the Hawaiian real estate investment that the plaintiff made.

Contact our REIT losses lawyers to explore your legal options.

NH regulators seek $3.6m judgment against LPL Financial over risky real estate, Union Leader, April 7, 2015

Watchdog bars ex-LPL broker who tapped client funds for Hawaii retreat, Reuters, March 26, 2015

New Hampshire Bureau of Securities Regulation


More Blog Posts:
Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

CNL Lifestyle Properties REIT Dips in Value, May Sell Ski Resorts, Institutional Investor Securities Blog, March 16, 2015

Broker and Adviser News: Morgan Stanley Sues Ameriprise Broker, Former UBS Broker Alleges Investor Risk Levels Were Mischaracterized, and Ex-Bank of America Merrill Lynch Trainees Seek Overtime, Institutional Investor Securities Blog, March 5, 2015

April 6, 2015

Two Firms Charged in Texas With Running Fraudulent Commodity Pool Must Pay Over $7.5M

A district court in Texas is ordering a permanent injunction against RFF GP, LLC, KGW Capital Management, LLC, and Kevin White. The order is related to a 2013 Commodity Futures Trading Commission complaint charging them with fraud and misappropriation related to the running of a commodity pool.

The regulator says that defendants bilked participants when they got them to invest in the hedge fund and the commodity pool, named Revelation Forex Fund, LP. The fund was supposed to trade in off-exchange foreign currency. According to the CFTC, however, the defendants fraudulently solicited about $7.4 million from over 20 participants, misappropriating some $1.7 million from their money to cover personal spending and other matters. They allegedly fabricated the fund’s performance and lied about White’s experience in investing.

The Securities and Exchange Commission also filed its Texas securities case against White and the firms, along with a few other entities. The SEC said that White promoted a sophisticated forex trading strategy that was low risk but would lead to huge earnings. He also touted the Revelation Forex as a $1 billion hedge fund that managed to bring in returns of over 393% returns while earning an over 36% compound yearly return rate. White marketed himself as having 25 years of experience working in Wall Street when he had worked just six years as a licensed securities professional in Texas before the NYSE barred him.

Earlier this year, White was sentenced to eight years for mail fraud after pleading guilty to the charge in connection with his commodity trading fraud scam. He started his sentence this week.

Our Texas securities fraud lawyers are here to help investors recoup their losses. Unfortunately, there are those in the securities industry who continue to get away with wrongdoing and it is investors who suffer. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Read the Consent Order (PDF)

Federal Court Orders Texas-based RFF GP, LLC, KGW Capital Management, LLC, and Kevin G. White to Pay over $7.5 Million for Operating a Fraudulent Commodity Pool, CFTC, April 6, 2015


More Blog Posts:
Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations, Stockbroker Fraud Blog, March 6, 2015

Barclays Must Pay Former Trader $9M, Ex-Raymond James Broker Gets Back $650K Award, Institutional Investor Securities Blog, April 6, 2015

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors, Stockbroker Fraud Blog, March 30, 2015

March 31, 2015

Investor Fraud News: NFL Free Agent Sues Bank of America For $20M, FINRA Arbitration Panel Awards $1.3M to Investor in Case Involving Ex-Stifel Broker, and Tony Thompson and His Brokerage Firm are Barred from Industry

Former Colts Football Player Sues Bank of America for $20M
Dwight Freeney, formerly with the Indianapolis Colts and currently an NFL free agent, is suing Bank of America (BAC) for securities fraud. He and his Roof Group LLC say they were bilked of over $20 million.

In his securities fraud case, Freeney contends that the bank’s wealth management division is to blame for taking part, aiding, and abetting in the scam that cost him money. He noted that Bank of America went after him in 2010 to become one of its high net worth and affluent clients.

Aside from losing money, Freeney said that he was forced to close his restaurant venture. He wants compensation and punitive damages.

However, the bank disagrees with the claims, noting that the people accountable for fraud—an ex-bank adviser and a business associate—already were arrested for wiring $2.2M from the pro football player’s account. A spokesperson noted that the ex-employee committed the fraud after she was no longer with Merrill Lynch and Freeney had retained her services personally.

Ex-Daughter-in-Law of Ex-Stifel Broker Gets $1.3M FINRA Arbitration Award
A Financial Industry Regulatory Authority Panel has awarded Tracy Noble Gilbert $1.3M in damages for the way that her former father-in-law, ex-Stifel Nicolaus & Co. (SF) broker Lanis Dale Noble handled her finances. Gilbert claims that while still with Stifel, Noble engaged in churning and breach of fiduciary duty related to the use of margin in her account, ManuLife and SunLife variable annuities, and a Friedman Billings Ramsey real estate investment trust (REIT). Stifel denied the allegations.

The three-person panel awarded Gilbert $1.29 million in compensatory damages and $250,000 in legal fees. However, it denied her request for punitive damages.

Tony Thompson, TNP Securities Barred by FINRA
Tony Thompson and his brokerage firm TNP Securities have been barred from the industry. FINRA said that Thompson and his broker-dealer misled investors about tenant-in-common deals. Because of this, contends the self-regulatory organization, every investor that bought Guaranteed Notes LLC notes after January 1, 2009 was misled and at the very least unjustly experienced loss of the principal on their investment.

Thompson raised some $50 million through private placement securities sales from 2008 into 2012. Thompson purportedly was responsible for marketing P Notes, 12% Notes, and PPP Notes. However, material misrepresentations and omissions were made to investors during the sales.

Thompson has said that the misrepresentations and omissions were because he depended in good faith on the advice and information that others gave him.

FINRA panel initially sought to have Thompson pay restitution. However, it didn't find sufficient basis that investor losses in the private placements were because of the misstatements and omissions that he made. He will, however, have to pay $6 million for administrative proceedings.

FINRA Bars and Fines Rep, Broker-Dealer $39.6M, ThinkAdvisor, April 2, 2015

Ex-Colt Dwight Freeney sues for $20 million in fraud case, IndyStar, March 31, 2015

Finra arbitration panel awards investor $1.3 million from ex-Stifel broker, Investment News, April 1, 2015


More Blog Posts:
Oppenheimer Must Pay $2.5 Million Fine, $1.25 Million in Restitution for Not Supervising Ex-Broker, Stockbroker Fraud Blog, March 29, 2015

Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges, Stockbroker Fraud Blog, March 27, 2015

March 30, 2015

SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors

The Securities Industry and Financial Markets Association claims that the White House is employing a methodology that is flawed to make the claim that investors are losing around $17 billion in retirement funds yearly because of trading practices that are abusive. SIFMA is against imposing tougher rules against brokers, including a draft rule expected to be released by the U.S. Department of Labor mandating that those who offer retirement plan advice meet a fiduciary standard and place their clients’ best interests before their own. Right now, brokers must only satisfy a suitability standard of care with the requirement that they make appropriate recommendations even if they aren’t necessarily the best.

President Obama wants the Labor Department to go ahead with the rule proposal. In February, the White House put out a report finding that some brokers use excessive trading and costly investments to enhance their commission, as well as take part in other practices that end up costing investors big time.

SIFMA, however, in its new report, claims that the White House is disregarding how similar rule changes such as the one the DOL is expected to propose, impacted investors in the United Kingdom where approximately 310,000 lost their brokers during the first quarter of 2014 alone because their accounts were too small for the representative to handle. Another 60,000 investors were rejected by brokers for their low balances. However, while the U.K.’s rule prohibits brokers from getting paid commissions from mutual funds, the DOL doesn’t plan to institute such a ban.

The SIFMA report, by NERA Economic Consulting, claims that the White House doesn’t appreciate the intangible benefits clients get from brokers or the fact that mutual fund fees have gone down over the past 15 years. Also, the report notes that aggregate number used by the White House factors in the whole $600 billion annuities market for individual retirement account annuities without anyone explaining why all of that is included. SIFMA chief executive and president Kenneth Bentsen Jr. said that the White House was employing data that was “nonconclusive” to arrive at conclusions that were “questionable.”

Earlier this month, Securities and Exchange Commission (SEC) chairwoman Mary Jo White gave testimony in front of the House Financial Services Committee. She said that the regulator is moving forward with its fiduciary standards drafts that would mandate for tougher disclosure requirements.

When Republican lawmakers said that she should do a better job of coordinating with the DOL when it comes to crafting financial adviser regulations, she noted that the SEC and the Labor Department are distinct agencies, each responsible for its own rules. Republicans and the business community, however are worried that having two different rules from the respective agencies would lead to market confusion while low-income Americans will find that the financial advisory industry is no longer accessible to them.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm.

SIFMA claims White House figures on DOL rule flawed, InvestmentNews, March 16, 2015

Republicans grill SEC chief over financial adviser regs, The Hill, March 24, 2015

SIFMA


More Blog Posts:
U.S. Department of Labor’s Fiduciary Rule for Retirement Advisers Hits Another Snag, Stockbroker Fraud Blog, February 6, 2015

U.S. Department of Labor’s Fiduciary Rule for Retirement Advisers Hits Another Snag, Stockbroker Fraud Blog, February 6, 2015

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information, Institutional Investor Securities Blog, January 12, 2015

March 29, 2015

Oppenheimer Must Pay $2.5 Million Fine, $1.25 Million in Restitution for Not Supervising Ex-Broker

The Financial Industry Regulatory Authority is fining Oppenheimer & Co (OPY) $2.5M for not supervising Mark Hotton. The ex-broker stole from customers and excessively traded in their accounts. Oppenheimer must also pay $1.25 million in restitution.

To date, the brokerage firm has paid over $6 million to settle customer securities arbitration claims involving Hotton. This latest restitution will go to another 22 customers who did not file claims.

According to the self-regulatory organization, Oppenheimer did not properly investigate Hotton before hiring him, despite the fact that FINRA’s own records linked him to several customer complaints and criminal charges. After discovering that Hotton’s business partners sued him for bilking them out of millions of dollars, still the firm did not heighten supervision over him.

FINRA also said that Oppenheimer disregarded “red flags” in wire transfer requests and correspondence that indicated he was wiring money from customer accounts to entities that he controlled or belonged to him. Because of this, says the SRO, Hotton was able to move over $2.9 million of customer funds. (FINRA said that the firm did not properly supervise his trading of customer accounts even though its surveillance analysts noticed that he was trading at levels that appeared excessive.)

The regulator said that Oppenheimer made over 300 required filings to the SRO in an untimely fashion, with many submitted over 230 days late. Because of this, said FINRA, the public did not become aware of the serious claims made against some of the firm’s registered representatives, including Hotton, until later. By settling with the SRO, Oppenehimer is consenting to an entry of FINRA’s findings. It has not, however, admitted to or denied the charges.

Meantime, last year, Hotton was sentenced to 34 months in prison last year. Among his victims were the producers of the Broadway play “Rebeccca the Musical.” He also bilked a real estate firm in Connecticut.

The Letter of Acceptance, Waiver, and Consent
(PDF)

FINRA Sanctions Oppenheimer & Co. $3.75 Million for Supervisory Failures, FINRA, March 26, 2015


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SEC Commissioners Oppose Regulator’s Leniency Toward Oppenheimer, Despite Violations, Institutional Investor Securities Blog, February 12, 2015

March 28, 2015

Puerto Rico’s Debt Gets Downgraded to "B" by Fitch Ratings

Credit rating agency Fitch Ratings (“Fitch”) has downgraded the general obligation and related debt of Puerto Rico to “B”, rating it even further into junk territory and three notches under investment grade, because of worries about the U.S. territory’s ability to go through with planned financing. As a result of the downgrade of the general obligation debt, the Puerto Rico Aqueduct and Sewer Authority senior lien revenue bonds were also downgraded.

The ratings reduction is related to a new law in the Commonwealth. The law is supposed to help overhaul public debt by letting certain government agencies with a reported $19.4 billion in outstanding bonds restructure their debt. Fitch is worried that because of the way the restructuring is delineated in the law, this could result in debt payment suspensions while “precluding timely payments” of principal plus interest until proceedings are finalized.

Fitch also reduced the rating of Puerto Rico’s sales tax entity COFINA, pension funding bonds, and the Public Building Authority government facilities’ revenue bonds. The credit rating agency pointed to mixed economic signs, such as accelerated year-over-year declines in the labor force and yearly drops in the monthly economic activity index of the Government Development Bank, as the reason for the new downgrades. Recently, Standard & Poor’s also reduced the general obligation debt of Puerto Rico to junk bond status— a BB, which is right below investment grade.

This week, Prepa (the Puerto Rico Electric Power Authority) is slated to talk with creditors to get certain loans extended—either that or it may have to pay back $696 million of borrowed funds to support its business. According to Reuters, bondholders have offered the beleaguered utility company another $2 billion in financing for restructuring. Moody’s Investors Service (MCO), another credit rating agency, expects Prepa to default on a $400 million payment to bondholders in July. The authority, now junk-rated too, missed its deadline earlier this month when it was supposed to give lenders its restructuring plan.

Over the last few years, investors in Puerto Rico municipal bonds have had to contend with major losses in light of the Commonwealth’s financial problems. The island is over $70 billion in debt. Many investors found themselves in trouble after they were persuaded by UBS (UBS), Banco Santander (BNC), and Banco Popular to invest in the Puerto Rican muni bonds or closed-end funds tied to Puerto Rican debt.

Our Puerto Rico muni bond fraud lawyers have been working with investors in the U.S. and in the Commonwealth to recoup their losses. If you have suffered losses due to Puerto Rico bonds or bond funds, please contact our office at Shepherd Smith Edwards and Kantas, LTD LLP for a free, no obligation consultation to see if we can help recover any of your losses.


Fitch Cuts Puerto Rico’s Rating Deeper Into Junk, Wall Street Journal, March 26, 2015

Puerto Rico's PREPA bonds mixed after $2 bln financing offer, Reuters, March 30, 2015


More Blog Posts:
Standard and Poor’s Reduces Puerto Rico Obligation Debt to Junk Status, Stockbroker Fraud Blog, February 6, 2014

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15 ,2013

Doral Bank in Puerto Rico Fails, Stockbroker Fraud Blog, March 5, 2015

March 27, 2015

Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges

F-Squared Investments Inc. has laid off 40 workers—that’s one-fourth of its staff—as it continues to deal with the ongoing asset losses in the wake of the securities fraud charges filed against it by the U.S. Securities and Exchange Commission last year. During a routine examination, the regulator discovered that the asset management company allegedly had deceived investors by claiming its performance history was based on a real trading record going as far back as 2001 when F-Squared had just back-tested its algorithm. F-Squared is the biggest marketer of index products using ETFs (exchange-traded funds).

The SEC accused the firm of falsely promoting its AlphaSector investment strategy and its supposed excellent track record as based on its investment performance for real clients instead of the backtesting. Due to a calculation error, the results were inflated by 350%.

F-Squared settled the SEC charges for $35 million and the firm’s new CEO, Laura P. Dagan, said that F-squared has been putting more effort into compliance and its main product line. However, in the last several months, investors have withdrawn billions of dollars from F-squared strategies while several brokerage firms refuse to let advisers put more funds into the strategies.

Meantime, Howard B. Present, F-Squared’s ex-chief executive, is still dealing with civil charges filed by the Commission. Both the SEC and Present will battle it out in Boston federal court soon. His lawyers have made court filing statements arguing that their client behaved in “good faith” while at the helm of F-Squared and any alleged misrepresentations or statements that were purportedly misleading or false, as well omissions, were not done on purpose. The regulator wants to clawback millions of dollars of Present’s earnings.

Our ETF fraud lawyers are here to help investors recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.


Ex-F-Squared CEO's conduct 'did not cause loss or harm to anyone': lawyers
, Investment News, March 24, 2015

Read the SEC Order (PDF)


More Blog Posts:
Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses, Stockbroker Fraud Blog, January 21, 2015

Exchange-Traded Fund Strategist F-Squared to Pay $35M to Settle Charges that It Misled Investors, Stockbroker Fraud Blog, December 24, 2014

SEC to Reject BlackRock Inc. Proposal for Nontransparent Exchange-Traded Fund, Institutional Investor Securities Blog, October 23, 2014

March 24, 2015

Ponzi Scams: Madoff Victims to Get $93M, Fraud Lawsuits Name Insurance Brokerage Head in $10M Scheme

Investors who were bilked in Bernard Madoff’s Ponzi scam will be getting back another $93 million. Madoff Trustee Irving Picard said that Defender Limited and related entities have consented to give back that amount, which they received from investing with the Ponzi mastermind. As part of the agreement, the $93 million will be withheld from the over $422 million that Defender is waiting to get back for its own losses in the scam.

To date, Picard has gotten back over $10.6 million of investors' $17.3 billion in principal. This is the latest deal reached between the trustee and a so-called feeder fund. These funds pooled investor money and then sent the cash Madoff’s way. Bogus returns were issued to the funds, which gave the money to their individual investors.

Picard contended that the parties behind the Defender fund were aware, or if not then they should have been, that Madoff’s company was a fraud. The $93 million is representative of all the money that Defender withdrew from its fund from its formation in 2007 until the end of 2008 when Madoff liquidation proceedings began. As part of the agreement, parties involved with Defender will cooperate with Picard to get back the $550 million. Picard has also reached deals with feeder funds Premo Fund, Herald Fund SPC, and Senator Fund SPC.

In other Ponzi scam news, A number of securities fraud lawsuits have been submitted accusing Loren Holzhueter of racketeering and fraud related to his alleged running of a $10 million Ponzi scam. The 69-year-old was the head of ISC Inc., an insurance brokerage and investment business. Many of his investors were retired and had limited financial resources.

In November, IRS investigators went to Holzhueter’s offices and confiscated records because they suspect him of running the Ponzi scheme. Earlier this year, the U.S. Securities and Exchange Commission sued Holzhueter, his assets were frozen, and a monitor was appointed to take charge of his business.

The SEC claims that Holzhueter lied to investors, who had been allowing him to handle millions of dollars over the last several years. They claim he said that investor funds would be placed in a special investment account and they could take their money out whenever they wanted. Others were purportedly told that their money went into mutual funds, Individual Retirement Accounts, or other investments. Instead, claims the agency, these investments were not executed and investors' money were mixed in with other ISC revenue.

Now ISC’s investors want their money back. According to the securities cases, they now believe that the regular financial reports given to them by Holzhueter were bogus and that the defendants—Holzhueter’s wife is one of them—misappropriated their funds for their personal use. The SEC said that Holzhueter and his family may have collected over $500,000 from accounts that contained investor money and used some $400,000 for a company that belonged to him. More than 122 investors may be entitled to financial recovery.

Last week, the SEC requested that the district court judge prevent ISC from paying its lawyers because of concerns that the company may not be capable of making any significant lump sum payments. The Commission does not believe that Holzhueter’s lawyers should get preferential treatment when so many others, including creditors and bilked investors, remain unable to get their money back.

Madoff Trustee Strikes $93 Million Deal with Feeder Fund, The Wall Street Journal, March 24, 2015

Judge freezes assets of man SEC accuses of running Ponzi scheme, Milwaukee Wisconsin Journal Sentinel, JSonline.com, January 28, 2015

The Madoff Recovery Initiative, Madoff Trustee


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March 23, 2015

SEC Rejects Broker’s Efforts to Start RIA While Behind Bars

The U.S. Securities and Exchange Commission has barred David Scott Cacchione from the securities industry once again. Cacchione was banned in 2009 for helping to mastermind a $100 million financial scam. This time, his bar is for attempting to start a registered investment adviser firm while in jail for the previous crime.

Cacchione, who was released from prison in June, had been sentenced to five years in jail and three years supervised release for pleading guilty to securities fraud. The charge involved pledging clients’ securities without their knowledge to obtain over $45 million in personal loans for a friend. Among those whose money he used was an elderly widow and a children’s charity.

According to the SFGate, in 2007 and 2008 Cacchione, while managing director of Merriman, Curhan, Ford & Co. in San Francisco, gave client brokerage statements to William Del Biaggio III, who doctored them to make it appears as if the securities belonged to him. He did this to secure or renew some $100 million in loans. He used the funds to pay off debt and purchase an ownership stake in the Nashville Predators hockey team.

The Federal Bureau of Investigation said that some $47 million was lost. Cacchione was ordered to pay almost $50 million in restitution. The SEC, however, said that as of August 2014, he had paid just $502. (Del Biaggio, who was sentenced to eight years behind bars, after also pleading guilty to securities fraud, was ordered to pay $67.5 million in restitution.)

In April, while still in prison, Cacchione registered Montara Capital Management, of which he was chief compliance officer, a managing member, and owner of over 50% of the firm. After his release, he submitted an application with the U.S. Securities and Exchange Commission seeking approval of Montara, which he said was an RIA in California.

In September, the SEC filed an administrative proceeding to determine if sanctions against Cacchione were warranted for the application. Earlier this year, the regulator issued an order barring him again. This month, California’s department of securities regulation also barred Cacchione from registering as an investment adviser in the state.

The 2009 securities fraud and this latest incident are not Cacchione’s only run-ins with regulators. According to the Financial Industry Regulatory Authority’s broker check database, he was allowed to resign from Smith Barney Shearson in 1994 because the firm was “unhappy” with trading practices in some of his principal accounts. In 2003, he agreed to a 30-day suspension and a $35,000 fine—without denying or admitting culpability—to resolve claims alleging that he sold unregistered securities to customers without providing the proper disclosures while at First Security Van Kasper.

Our investment adviser fraud law firm is here to help investors recoup their losses.


SEC shuts down ex-broker's attempt to start RIA from jail
, InvestmentNews, March 19, 2015

The SEC's Administrative Proceeding, SEC.gov (PDF)

Securities felon who tried to start investment firm barred, SFGate, March 18, 2015


More Blog Posts:
Over $44M Lost in Alleged Investment Adviser Scam Involving Total Wealth Management, Stockbroker Fraud Blog, March 19, 2015

Brookeville Capital Partners Ordered by FINRA to Pay $1.5M for Private Placement Fraud, Stockbroker Fraud Blog, March 12, 2015

Bank of New York Mellon Corp. Settles Currency Fraud Lawsuits Involving Pension Funds for $714M, Institutional Investor Securities Blog, March 19, 2015