September 30, 2011

Prospective Securities Class Action Lawsuit Accuses David Lerner Associates Inc. Accused of Recycling Investor Capital and Using a Credit Line to Meet Dividend Payout

According to Investment News, the amended complaint of a prospective securities class action case is claiming that the nontraded REITs sold by David Lerner Associates Inc. used investor distributions and borrowed from a credit line to fulfill the targeted dividend payout. The broker-dealer is accused by the Financial Industry Regulatory Authority of giving out performance figures for its APPLE REITs while implying that investments in the future would likely render similar result. FINRA is suing financial firm for securities fraud and marketing unsuitable products to investors. The investors filed their securities fraud complaints soon after. They are now waiting for their class action status to be approved.

Per the amended complaint, David Lerner brokers told clients that Apple REITs were low risk investments that would shield their savings from any stock market turbulence. Also, not only was the amount of distribution that investors were paid not equal the income earned from the Apple REITs, which had mostly invested in Hilton and Marriott hotels that offered extended stays, but also, clients were allegedly promised consistent yearly returns of 7-8%.

Although David Lerner had represented that cash flow would be the basis for distributions, offering documents said that distributions from other sources could only occur on occasion and in “certain circumstances.” The complaint accuses the broker-dealer and other defendants of issuing distributions without taking profitability into account while obtaining properties at prices that could not be justified considering the distributions that were being paid.

David Lerner Associates denies the plaintiffs’ allegations. The broker-dealer and its brokers earned $341.5 million in commissions and Apple REITs sales. They also earned a 2.5% marketing expense.

Investors had filed two class actions against David Lerner this summer. They had purchased $5.7 billion in Apple REIT offerings from the financial firm’s brokers. Plaintiffs are accusing the broker-dealer of targeting inexperienced and elderly investors, leaving out key information about how the trusts were run, misrepresenting the REITs value, and failing to reveal the risks involved.


Nontraded REITs
Nontraded real-estate investment trusts gather cash from investors to purchase property. They pay the rental income as a regular dividend. Last year alone, they took in approximately $8.3 billion in investments.

Earlier this month, FINRA put out a warning to investors that they carefully consider the risks involved in investing in nontraded REITs. The SRO cautioned that some risks are not immediately obvious and may not properly explained by financial firms.

The Apple REITs were sold and written by David Lerner, which has opened and sold over 120,000 accounts involving these.

Read the Complaint (PDF)

Lerner resorted to tricks to plump up Apple distributions: Suit, Investment News, October 14, 2011

Apple REIT investors could trade bad for worse, MarketWatch, July 21, 2011

Finra Sues David Lerner Firm, The Wall Street Journal, June 1, 2011

Shepherd Smith Edwards & Kantas LTD LLP Investigates Claims Concerning David Lerner Associates' Sale of Apple REITs, Globnewswire, August 3, 2011


More Blog Posts:

David Lerner & Associates Ignored Suitability of REITs When Recommending to Investors, Claims FINRA, Stockbroker Fraud Blog, June 8, 2011

Ameriprise Must Pay $17 Million for REIT Fraud, Stockbroker Fraud Blog, July 12, 2009

W.P. Carey & Co Settles SEC Charges Over Payments of Undisclosed REIT Compensation, Stockbroker Fraud Blog, March 25, 2008

Continue reading "Prospective Securities Class Action Lawsuit Accuses David Lerner Associates Inc. Accused of Recycling Investor Capital and Using a Credit Line to Meet Dividend Payout" »

September 29, 2011

New Jersey Investment Adviser Who Pleaded Guilty to $11.5M Financial Fraud Gets 168-Month Prison Sentence

Sandra Venetis, a New Jersey investment adviser has been sentenced to 168 months behind bars. Venetis had entered guilty pleas to che charges of securities fraud and transacting in criminal property. She also must pay $11,579,781 in restitution to the investors she defrauded.

The government had accused Venetis, who owns Systematic Financial Associates Inc., of soliciting her financial firm’s clients so that they would put their money in an “alternative investment program” that she ran separate from her registered investment advisory business. This was between 1997 and 2010. To get these clients to invest, she falsely told them the money was being used to pay for loans for doctors’ quarterly pension funds. There were even occasions when Venetis would tell these clients to liquidate their positions in securities so they could take part in her alternate program. 114 clients sent her about $16.7M.

None of the investors’ money went to any doctors—although she did make up fictitious physicians and forged real doctors’ names on promissory notes to make it look as if she was using her clients’ money in the manner promised. Venetis has admitted that not only did she not run a legitimate alternative investment program, but also that she created Systematic Financial Services Inc. so that she could run her financial scam. She acknowledges that she used some of the investor money to help cover her advisory’s operation costs.

It was last year that Venetis and three of her firms, Systematic Financial Services, LLC, Systematic Financial Services, Inc., and Systematic Financial Associates, Inc., settled SEC charges over the multimillion-dollar financial fraud. The Commission said that Venetis and her companies violated sections of the Securities Act of 1933, Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the Investment Advisers Act of 1940. Relief defendants included Venetis LLC, which Venetis also owned and operated, her brother Kevin Persley, and her daughter Jennifer Venetis.

The Commission accused Venetis of telling investors that the Federal Deposit Insurance Corporation had guaranteed promissory notes that would make about 6-11% tax-free interest annually. Although investors believed their investments were paying for loans to doctors the money paid for Venetis’s business debts and personal spending, including travel abroad, property taxes, home mortgages, gambling, and money for relatives.

Venetis and the companies settled the charges and all agreed to the relief sought by the SEC, including enjoinment from future securities law violation, payment of disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and appointment of an independent monitor.

N.J. IA Sentenced to 168 Months After Pleading Guilty in $11.5M Fraud, BNA Securities Law Daily, September 12, 2011

SEC CHARGES NEW JERSEY INVESTMENT ADVISER IN MULTI-MILLION DOLLAR OFFERING FRAUD, SEC, September 2, 2010


More Blog Posts:
FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisors, Stockbroker Fraud Blog, September 13, 2011

Investors Working with Incompetent Registered Investment Advisers Have Few Protections, Reports Bloomberg, Stockbroker Fraud Blog, August 11, 2011

Harvest Managers, Benchmark Asset Managers, and Investment Advisor to Pay $11.6 Million to Settle SEC Charges Over Allegedly Mishandled Client Funds, Stockbroker Fraud Blog, July 23, 2011

SEC Extends Temporary Rule Allowing Principal Trades by Investment Advisers Registered as Broker-Dealers, Institutional Investment Fraud Blog, January 13, 2011


Continue reading "New Jersey Investment Adviser Who Pleaded Guilty to $11.5M Financial Fraud Gets 168-Month Prison Sentence" »

September 28, 2011

EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam

In separate securities lawsuits, the Securities and Exchange Commission and the Commodity Futures Trading Commission are both suing EagleEye Asset Management LLC, which a Massachusetts asset management firm, and Jeffrey A. Liskov, its principal.

The CFTC is accusing the two defendants of defrauding at least one US-based client while trading forex on a margined or leveraged basis for her. Per the CFTC’s lawsuit, the client decided to grant permission to EagleEye and Liskov to trade part of her retirement money because Liskov allegedly advised her that this type of trading was appropriate for her conservative investment objects.

However, Liskov allegedly did not warn her of the risks involved or tell her that he did not have a successful track record with forex trading. While the trading did generate short-term profits for the woman, she lost most of the money that she invested. The CFTC contends that instead of revealing the trading losses, Liskov allegedly forged the client’s name and set up a new account opening documents and on more than $3 million in secret wire transfers from her mutual fund account to her forex account so that trading wouldn’t have to stop. The woman client lost more than $3.24 million, while Liskov and EagleEye made about $235,000 in performance incentive fees.

Per the SEC, between 4/08 and 8/10, Liskov made misrepresentations to clients to persuade them to move funds they’d placed in securities investments into forex trading. The SEC contends that these investments were not appropriate for elderly clients that had conservative investment objectives and that this caused them to sustain significant financial losses totaling almost $4 million. EagleEye and Liskov allegedly earned performed fees of over $300K, plus management fees. The Commission believes that having clients make short-term investment gains and then earning performance fees before these gains were lost was the defendants’ plan.

Liskov allegedly did not even help some investors understand the nature of forex trading. With other clients, he deemphasized the degree of investment risk involved. The SEC also says that Liskov made false statements with claims that he had achieved success with forex trades when, in fact, the opposite was the case.

Meantime, Massachusetts Secretary of the Commonwealth William Francis Galvin (D) has also filed administrative charges against the investment advisor firm and Liskov. Galvin is accusing them of violating Massachusetts’s Uniform Securities Act.

Our securities fraud law firm has helped thousand of investors recoup their losses caused by broker misconduct and investment adviser fraud. Working with a stockbroker fraud law firm is the best way to help you get back your lost investment.

Read the SEC's Complaint (PDF)

CFTC Charges Massachusetts Man Jeffrey Liskov and His Company, EagleEye Asset Management, LLC, with Committing a $3 Million Forex Fraud, CFTC, September 8, 2011

State files complaint against local investment advisor, WickedLocal, September 13, 2011

Mass. Adviser Sued by Regulators Over Alleged Forex Trading Scheme, BNA Securities Law Daily, September 9, 2011


More Blog Posts:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011

Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc., Stockbroker Fraud Blog, May 6, 2011

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011

Continue reading "EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam" »

September 24, 2011

Measure Banning Insider Trading Gains Support of Congress Members

According to Bloomberg Businessweek, both Republicans and Democrats appear to be getting behind a House measure that forbids insider trading by lawmakers. The legislation would consider any trading on legislation done by lawmakers or their staffers as securities fraud. Also, trades over $1,000 would have to be reported within three months.

The measure mandates that regulators draft rules preventing intelligence firms and individuals from selling nonpublic data that they receive from federal employees. Individuals and firms taking part in political intelligence would have to register just the way federal lobbyists do.

US Senator Kirsten Gillibrand (D-NY)'s bipartisan legislation would revise the definition of insider trading to include information obtained from congressional work. Her bill also calls for new reporting requirements for transactions.

The issue of lawmakers engaging in insider trading grew after 60 Minutes reported that Congressional members purchased companies’ stock during debates on laws that could affect the businesses. The report said that the investments under scrutiny weren’t illegal. Following the airing of the CBS News program, however, the measure, which is called the STOCK (Stop Trading on Congressional Knowledge) Act and was first introduced in 2006, saw its number of co-sponsors rise to 171 House members.

Meantime, the Securities and Exchange Commissioning is cautioning against this type of insider trading ban for lawmakers over concern that this prohibition might narrow certain existing laws. SEC Enforcement Director Robert Khuzami cautioned that any revisions should be “carefully calibrated” so that insider trading prosecutions that don’t involve Congressional members are not negatively impacted. Currently, the SEC uses general anti-fraud provisions to pursue those engaged in insider trading. These laws have never been applied to prosecuting lawmakers.

Rather than a congressional insider trading ban, Khuzami suggested the establishment of an explicit fiduciary obligation among Congress members to keep information obtained while on the job confidential and off limits for purposes of personal gain. General duty would then be used to pursue those that engage in insider trading.

House and Senate panels are expected to vote on an insider-trading ban, possibly as early as next year. The House Financial Services Committee and the Senate Homeland Security and Governmental Affairs Committee will vote on the STOCK Act this year.

Our stockbroker fraud attorneys work victims of insider trading. We have successfully helped thousands of investors throughout the country in recouping their money. We also have represented investors located abroad that have claims against investment firms based in the US.

Congressional Insider-Trading Ban Gains Bipartisan Support, Bloomberg Businessweek, December 7, 2011

SEC warns on congressional insider trading ban, Reuters, December 6, 2011


More Blog Posts:
Fiduciary Standard in Securities Industry Doesn't Need New Definition, Stockbroker Fraud Blog, November 26, 2010

Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading, Stockbroker Fraud Blog, November 12, 2011

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011

**This post has been backdated for publication

Continue reading "Measure Banning Insider Trading Gains Support of Congress Members" »

September 23, 2011

UBS Trader Charged with Fraud Related to $2B Trading Loss

Kweku Adoboli, a UBS trader, has been charged with false accounting and fraud allegedly resulting in about $2 billion in losses. Adoboli, 31, was arrested in London.

The alleged financial misconduct is said to have taken place between 10/8 and 12/09 and 1/10 and 9/11 while Adoboli, who works out of UBS’s office in London, was a senior trader with UBS Global Synthetic Equities. FSA, which is Britain’s financial watchdog, and FINMA, which is Switzerland’s, have instigated an investigation into the loss. UBS will pay for the probe, which will be conducted by an independent third party.

UBS is also investigating this trading loss but says that no client positions have been impacted. The financial firm has said that most of the risk exposure went undetected because bogus hedging positions were placed in the bank’s systems.

Adoboli’s arrest for "suspicion of fraud by abuse of position” is bringing up questions about UBS’s risk management systems, which are supposed to prevent unauthorized trading. It was just in 2008 that UBS wrote down $50 billion in securities trades, leading to losses of 34.4 billion francs. That was the year that the Swiss Central Bank had to rescue UBS, which then closed down significant parts of its trading division and revised its risk-management systems.

News of Adoboli’s alleged fraud and the $2B loss has caused shares in UBS to drop, while the expense of insuring its 5-year bonds against default for a year became expanded by 15 basis points to 225 basis points. According to Reuters, analysts are saying that that this latest loss is the “final nail in the coffin” for UBS, which has had to deal with plunging markets, strict new regulation, and a Swiss franc that has gotten stronger.

Moody’s and Standard Poor’s now say that UBS’s credit rating is on negative watch. Meantime, Fitch says it has the financial firm’s viability rating on negative watch and that this latest incident only lends to the argument that UBS needs to downsize its investment banking unit.

The $2B loss and Adoboli’s arrest is unfortunate for UBS, which had just started to regain client confidence this year. This huge loss has pretty much cost the financial firm its first year of saving that was supposed to come from a cost-cutting plan involving the elimination of 3,500 jobs. UBS Chief Executive Oswald Gruebel and Chairman Carten Kengeter, who is the head of UBS’s investment bank division, are also now under fire. Gruebel has dismissed calls to step down.

UBS Raises Tally on Losses, Wall Street Journal, September 19, 2011

UBS trader charged with $2 billion fraud, Reuters, September 16, 2011


More Blog Posts:
Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors, Stockbroker Fraud Blog, July 13, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond, Institutional Investors Securities Blog, May 16, 2011

Continue reading "UBS Trader Charged with Fraud Related to $2B Trading Loss" »

September 22, 2011

Financial Scammers Are Now Using YouTube, Facebook, LinkedIn, Twitter, and Other Websites to Target Investors, Warns Texas Securities Commissioner

Texas Securities Commissioner Benette L. Zivley wants investors to be aware that fraudsters are now using the Internet as a vehicle for their investment schemes. Online social networking Websites, such as Facebook, Twitter, YouTube, and Linked in, are among the sites being used to find potential victims, gain access to their personal information, and build relationships of “trust.” Scammers have even been known to purposely “mimicking” a target’s interests to try and get someone to invest. Considering that about 750 million users (who on average are linked to about 80 groups, community pages, and events) are logging 700 billion minutes a month on Facebook alone, this shouldn’t come as a surprise.

Affinity fraud scams are among the easier investment schemes to perpetuate online. This type of financial scam usually targets professional organizations, community service groups, religious communities, and other social networks. Whereas in the real world, a fraudster would have to work to establish actual connections with its target communities, now he/she can easily become part of these groups by pretending to share similar interests, religions, careers, or hobbies.

Online media channels, such as YouTube have now also become video forums through which to market financial scams. Remember, anyone can record an impressive sales pitch or edit professional looking footage to make themselves appear legitimate.

The State Securities Board warns that not only are financial scammers using the Internet to target investors, but also, they are going online to recruit their sales teams so that they can swiftly sell millions of dollars worth of inappropriate/bogus investments to their victims.

The Federal Bureau of Investigation offers a number of tips for how to avoid investment fraud schemes on the Internet:
• Don’t let a sophisticated Web site impress you. These days, sites with bells and whistles are not the difficult to get up and running.
• Do your due diligence before investing, including checking to see that the company involved is legitimate.
• Be careful about responding to investment opportunities made through unsolicited e-sources.
• Exercise caution when investing with companies and individuals located outside the US.
• Make sure you learn about the different terms and conditions involved with your investment.

You may want to limit how much personal information you make available/accessible on your social networking sites to people that you don’t know well.

A few warning signs that someone may be targeting you with an investment scheme:
• The promise of no risk and high returns
• Offshore operations
• Payments having to be made through an e-currency site
• Testimonials from “satisfied” clients

You can always contact the State Securities Board and request a free background check on a financial firm, investment professional, or the investment being offered. IT is also a good idea to always ask for written information (such as a prospectus) about an investment opportunity, as well inquire about the risks involved.

An example of a recent investment fraud scam that took place through the Internet involves a woman who solicited investments through the classifieds on Craig’s list. She also used these investors’ credit histories to apply for credit cards and loans. Another financial scammer, a man, used the online dating site Match.com to meet a woman and convince her that if she gave him $10,000, within a year he would be able to grow that into $1 million.

Our Texas securities fraud law firm is dedicated to helping clients recover their losses brought about by investment fraud scams.

SECURITIES COMMISSIONER WARNS OF DANGERS IN SOCIAL MEDIA, ONLINE MARKETING, Texas State Securities Board, September 22, 2011

Internet danger: Scammers use social network sites to find victims, Chester on Tribune, September 21, 2011

Federal Bureau of Investigation


More Blog Posts:
Man Allegedly Involved in Texas Securities Fraud Scam that Bilked Over 7,000 Deaf Investors of $3.45M is Charged by the SEC, Stockbroker Fraud Blog, September 12, 2011
Ex-Wextrust Capital COO Pleads Guilty to Role in $255M Affinity Fraud Scam, Stockbroker Fraud Blog, February 27, 2011

Texas Minister Pleads Guilty to Involvement in $7.2M “White Hat Guys” Securities Fraud that Bilked Thousands of Petro America Corporation Investors in the US and Canada, Stockbroker Fraud Blog, February 27, 2011


September 19, 2011

Morgan Stanley Smith Barney Employee Fined and Suspended by FINRA Over Unauthorized Signatures

The Financial Industry Regulatory Authority has imposed a 60-day suspension on Carmela L. Knieriem, a former Morgan Stanley Smith Barney female employee over allegations that while employed by the financial firm, she signed other employees’ signatures without obtaining the required approvals and authorizations. FINRA is also fining Knierem $5,000. While she has submitted a Letter of Acceptance, Waiver and Consent to settle the charges, Knierem is not denying or admitting to the findings.

According to Forbes.com, Between November 2009 and October 14, 2010, Knieriem was associated with the financial firm’s Rancho Bernardo Branch, where she was tasked with providing branch managers, financial advisers, and other employees with administrative support. Part of her job was to prepare specific internal administrative forms related to the processing and documenting of verbal requests, known as “Verbal Forms,” that were made by customers.

FINRA says that when Knieriem made the unauthorized signatures when preparing these Verbal Forms she violated FINRA Rule 2010 10 times. The SRO contends that in six instances, at the request of the financial advisor EP, she prepared an instruction form documenting a client’s verbal request for journal funds between the client’s accounts, the transfer of money from a client’s account, the release of account statements to a third party, and the issuance of a $75,397.22 check from the customer’s account. Knieriem also is said to have followed a financial advisor GT’s request to prepare an instruction form for a client’s verbal request that a stop payment be placed on one of his checks. She also followed the request of a financial adviser CL, who asked her to prepare an instruction form to issue a $95.62 for a client. Also, FINRA says that branch manager RL asked her to prepare an instruction form to journal funds between accounts.

Morgan Stanley also conducted its own investigation into the matter. Knieriem has since voluntarily left the financial firm.

Shepherd Smith Edwards & Kantas LTD LLP founder and stockbroker fraud lawyer Bill Shepherd said: “The only surprise here would be if she kept her job or if any other firm would hire her. Every licensed securities person knows this is a very serious violation. Brokers at large firms manage tens of millions, and often hundreds of millions, of dollars. Those who violate the rules in this manner do not belong in that position. Moreover “uttering a forgery” is not just a rule violation, it is a crime even if there was no financial harm. The only legal defense would be if the person whose name was signed specifically gave her permission and was authorized to do so.”

Shepherd Smith Edwards and Kantas
Our stockbroker fraud law firm is dedicated to helping investors that have lost money as a result of broker misconduct. We are committed to recovering clients’ financial losses.

Morgan Stanley Smith Barney Female Employee Suspended and Fined for Unauthorized Signatures, Forbes, September 23, 2011

FINRA


More Blog Posts:
Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar, Stockbroker Fraud Blog, July 20, 2011

Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Theflyonthewall.com Inc. in Appeals Court, Stockbroker Fraud Blog, June 20, 2011

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investors Securities Blog, August 29, 2011

September 17, 2011

Broker-Dealer Pacific West Securities Closes Shop

Broker-dealer Pacific West Securities is going out of business next year. The independent broker-dealer, which has about 290 affiliated advisers and reps, decided to close its doors because staying in operation is costing too much and margins are too thin.

The broker-dealer made $46 million in commission and fees in 2010 and its gross revenue for this year is expected to be $54 million. Pacific West has struck a deal with Cetera Financial Group over the transfer of many of its representatives and advisers to the latter’s subsidiary, Multi-Financial Securities Corp. The Financial Industry Regulatory Authority, however, must still approve this arrangement.

Unfortunately, dozens of independent brokers that are thinly capitalized have had to close shop or be put up for sale in the last few years. Many took huge hits in the wake of securities fraud lawsuits related to the sale of Provident Royalties LLC preferred stock, Medical Capital Holdings Inc. notes, and DBSI Inc. real estate deals. Although Pacific West didn’t sell any of these financial instruments, it has had to contend with Securities arbitration claims, including losses of nearly $1 million in FINRA arbitration awards over the last 24 months.

Investment News reported not too long ago that at least 2,500 reps have been displaced because of broker-dealers that shut down their operations. It became clear trouble was starting to brew in the industry in 2010, when Jesup & Lamont Securities Corp. and GunnAllen Financial Inc., which both have hundreds of reps, shut their doors after violating SEC rules dealing with capital. By the end of last year, there were 142 less broker-dealers than in 2009.

In February, QA3 Financial Corp. followed their lead. The broker-dealer, which worked with about 400 reps, couldn’t deal with securities lawsuits costs over the sale of allegedly fraudulent private placements.

The following month, Investors Capital Holdings Inc.’s owner Theodore E. “Ted” Charles submitted an SEC filing giving notice that he was going to sell his stake in the broker-dealer. More brokerage firms have since shuttered. FINRA says that if the broker-dealer you are working announces that it is going out of business, you should contact its offices right away to find out about next steps for you.

Our stockbroker fraud law firm represents clients that suffered losses because of broker misconduct and other formers of broker-fraud. Please contact our securities fraud lawyers and ask for your free consultation today.

B-D with 290 reps to shutter, Investment News, December 6, 2011

Broker-Dealer Pacific West to Close Its Doors, Adviser One, December 6, 2011

If a Brokerage Firm Closes Its Doors, FINRA


More Blog Posts:

Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC, Stockbroker Fraud Blog, July 28, 2011

Holding Brokers to Investment Adviser Accountability Standards is a Bad Idea, Say Some Wall Street Executives, Stockbroker Fraud Blog, July 16, 2011

Tribune Bondholders Can Sue Shareholders for Over $8.2B, Institutional Investor Securities Blog, April 30, 2011


Continue reading "Broker-Dealer Pacific West Securities Closes Shop" »

September 16, 2011

Five Broker-Dealers Fined by FINRA Over Allegedly Misrepresenting Commissions as Fees to Clients

The Financial Industry Regulatory Authority has issued fines against broker-dealers Pointe Capital, Inc., John Thomas Financial, First Midwest Securities, Inc., A&F Financial Securities, Inc., and Salomon Whitney LLC for allegedly mischaracterizing part of their commission charges to clients and calling them service handling fees, This caused the amount of total commissions that clients were charged to be understated. As a result, the fees for handling-related services ended up costing clients more.

FINRA says trade commissions and fee schedules should clearly reflect the actual commission charges, which shouldn’t be disguised.

Among the sanctions issued by FINRA:

• A $60,000 fine against Salomon Whitney LLC. FINRA accused the financial firm is accused of charging clients handling service fees of up to $69.95/trade plus commission. FINRA contends that Salomon Whitney did not tell its Connecticut clients that part of the transactional handling fee was a profit to the financial firm, the fee was not determined by the costs of handing a specific transaction, and certain clients were fined lower fees. FINRA believes the handling fee charged by Salmon Whitney was unreasonable. By agreeing to settle, the financial firm is not denying or admitting to the findings.

• First Midwest Securities, Inc. was fined $150,000. The financial firm is accused of charging clients up to $99.75/trade plus commission. FINRA says that this “handling fee” was in fact a commission and not reasonably connected to any direct handling services conducted by First Midwest Securities. The SRO notes that some customers even paid handling fees that were double of what other First Midwest Clients paid. FINRA also says that First Midwest Securities committed other violations, including having inadequately written supervisory procedures and “unfair and unreasonable” markdowns and markups. The financial firm has settled the securities case but is not admitting to or denying FINRA’s allegations.

• FINRA charged A&F Financial Securities, Inc. a $125,000 fine for charging clients an up to $65/trade handling fee, as well as commission. FINRA says that A & F acted inaccurately and improperly. FINRA also accused the financial firm of failing to comply with continuing education requirements, having inadequate supervisory system and procedures, and not properly assessing its training needs or developing and executing a written training plan. A & F also admitted to the findings without denying or admitting to them.

• FINRA fined John Thomas Financial A $275,000 fine for its up to $75/trade handling fee plus commissions. The SRO is also alleging other violations, including deficiencies related to complaint reporting, supervisory controls and certifications, and branch office supervision and recordkeeping. FINRA says the broker-dealer effected key changes to its business without obtaining its approval. John Thomas Financial agreed to settle but did not deny/admit to the findings.

• Pointe Capital, Inc. was fined $300,00 for charging an up to $95//trade handling fee plus commission. FINRA contends that seeing as the “handling” charge wasn’t reasonably linked to actual handling-related services/expenses, the clients were actually charged another commission. Pointe Capital has settled the case.

FINRA Fines Five Broker Dealers for Improper Handling Fees, FINRA, September 7, 2011


More Blog Posts:
FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisor, Stockbroker Fraud Blog, September 13, 2011

Financial Industry Regulatory Authority Alerts Investors About Gold Stock Scams, Stockbroker Fraud Blog, August 25, 2011

Wedbush Ordered By FINRA Panel To Pay $3.5M to Trader Over Withheld Compensation, Stockbroker Fraud Blog, July 16, 2011

Continue reading "Five Broker-Dealers Fined by FINRA Over Allegedly Misrepresenting Commissions as Fees to Clients" »

September 13, 2011

FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisors

Speaking before a House Financial Services Committee, Financial Industry Regulatory Authority Chief Executive Richard Ketchup said that the self-regulatory organization is ready to set up a new entity to oversee investment advisers and make sure they are in compliance with federal securities laws. Ketchum also said the SRO would hire experienced staff to do the job and that regulatory oversight to tailored to investment advisers would be put into place.

Currently, the Securities and Exchange Commission is the watchdog for investment advisers. Staffing issues, however, prevent the commission from doing a thorough and frequent job—checks are about once every 11 years. Last year, the SEC was only able to examine 9% of all registered investment advisers.

Yet there are many in the financial industry that have expressed a preference for this status quo, or, if change has to happen, they would like state regulators to do the job. Some have expressed worry that FINRA would uphold investment advisers to rules more that applicable to broke-dealers. Others are not sure that the SRO is up to the task. Many are still not happy with FINRA’s performance as a financial industry watchdog prior to financial crisis. (It is important to note that FINRA has taken some responsibility for not discovering the Bernard Madoff Ponzi scam earlier.)

Right now, the SEC and Congress are assessing new regulatory policies for investment advisers and broker-dealers. The commission has put out a study regarding:

• Setting up user fees that would pay for the SEC’s adviser exam program
• Handing over oversight of persons that are registered as both investment adviser and broker to FINRA
• Establishing a law that would allow for an SRO for investment advisers

A bill has been drafted calling for a new SRO for advisers, but it doesn’t specify whether that self-regulatory group would be FINRA or the SEC. The sponsor of the bill, called the Investment Adviser Oversight Act of 2011, is House Financial Services Committee Chairman Spencer Bachus, R-Ala. Bachus.

Meantime, the Investment Adviser Association has said that it doesn’t want an SRO for investment advisers. Its executive director, David Tittsworth, has said that an SRO would add expensive bureaucracy and create a burden for advisory firms. Tittsworth believes that SEC is the best organization to do the job and that imposing user fees is a less expensive alternative.

FINRA currently examines about 4,500 broker-dealers. If it were to oversee advisers, that would be an additional over 11,000 firms. The Securities Industry and Financial Markets Association, the Financial Services Institute Inc., the Association for Advanced Life Underwriting, the Consumer Federation of America, and the National Association of Insurance are among those that support appointing FINRA as the investment adviser SRO.

Our stockbroker fraud law firm has helped thousands of victims of broker fraud and investment adviser fraud recoup their losses.

Financial Services Committee Debates Changes to Advisor, Broker Regulations, Financial Planning, September 13, 2011

FINRA makes pitch to oversee investment advisers, Reuters, September 13, 2011

Finra oversight of advisers gaining 'mo, Investment News, September 13, 2011


More Blog Posts:

FINRA Will Customize Oversight to Investment Adviser Industry if Chosen as Its SRO, Stockbroker Fraud Blog, April 8, 2011

Financial Services Institute Wants FINRA to Serve as SRO for RIAs, Stockbroker Fraud Blog, January 3, 2011

Former Texas Securities Regulator Says Self-Regulation of Securities Industry Does Not Work, Stockbroker Fraud Blog, July 6, 2011

September 12, 2011

Man Allegedly Involved in Texas Securities Fraud Scam that Bilked Over 7,000 Deaf Investors of $3.45M is Charged by the SEC

The Securities and Exchange Commission has charged Jody Dunn with fraud. Dunn is accused of soliciting $3.45 million from over 7,000 deaf investors in a Texas securities scam. He is also deaf. According to the SEC, he engaged in material misrepresentations, the fraudulent and unregistered offering and selling of securities, and the misappropriation of investor funds.

Per the commission, Dunn told investors he would place their money with Imperia Invest IBC, which guaranteed returns of 1.2% a day. He solicited investments for Imperia between August 2007 and July 2010.

While he did send the send the remaining funds to the Imperia-owned offshore accounts, he never confirmed that the financial firm was really investing the money—even though he allegedly knew that Imperia lost investor funds and wasn’t properly crediting clients’ accounts. Dunn also never paid investors the interest they were owed and he failed to tell them that his fee was more than 10% of the money he collected from them.

Last year, the SEC charged Imperio with involvement in a $7 million fraud scam and secured a court order freezing the internet-based firms assets. The SEC claims that Imperia defrauded approximately 14,000 investors, who were told that they could only obtain their money by paying a few hundred dollars for a Visa debit card. Apparently, however, the financial firm did not have ties Visa and it never paid any money back to its victims.

In the commission’s complaint against Dunn, it is accusing him of making a number of misrepresentations to investors including:

• Claiming he would help them get into Traded Endowment Policies (viatical settlements) by having them invest through Imperia even though none of their money was used to buy TEPs.

• Claiming he knew the people behind Imperia even though he had never met anyone affiliated with the financial firm.

• Not being able to give an accurate analysis of the way he calculated profits or fees.
.
TEPs or Viatical Settlements
With TEPs, the insurance policy owner sells the policy before it matures. These are sold at a discount but in an amount greater than the current cash surrender value. All beneficial obligations then go to the new owner. Investors of the Imperia-offered TEP investments had to put in at least $50 for an $80,000 loan from a foreign bank. The funds were then supposed to go toward buying a TEP. The SEC is accusing Dunn of violating sections of the Securities Act and sections of the Exchange Act and Rule 10b-5 thereunder.

SEC Charges Solicitor in Investment Scheme Targeting Deaf Community, SEC, September 9, 2011

Texan defrauded deaf investors out of $3.45M, Investment News, September 12, 2011

Read the SEC Complaint (PDF)

SEC Charges Internet Company With Defrauding the Deaf, New York Observer, October 7, 2010


More Blog Posts:

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds, Stockbroker Fraud Blog, September 6, 2011

Texas Minister Pleads Guilty to Involvement in $7.2M “White Hat Guys” Securities Fraud that Bilked Thousands of Petro America Corporation Investors in the US and Canada, Stockbroker Fraud Blog, June 21, 2011

Alleged $800 Affinity Fraud Scheme Prompts SEC to Sue GTF Enterprises and Its Money Manager, Stockbroker Fraud Blog, June 4, 2010

Continue reading "Man Allegedly Involved in Texas Securities Fraud Scam that Bilked Over 7,000 Deaf Investors of $3.45M is Charged by the SEC" »

September 9, 2011

Claimant Not Only $100K Loses Securities Arbitration Case Against Citigroup Global Markets But Gets Stuck with Financial Firm’s $50K in Legal Bills

Alphonse M. Lucchese, a CitiSmith Barney customer, has not only lost his $100,000 securities claim against the financial firm in Financial Industry Regulatory Authority arbitration, but he also now must pay for Citigroup’s $49,985 in attorney fees. The case is Alphonse M. Lucchese, Claimant, v. Citi Smith Barney, Citigroup Global Markets, Inc., Robert Joseph Malenfant, and Alfred George Weaver, Respondents.

Lucchese had originally filed a securities fraud lawsuit in Middlesex Superior Court of Massachusetts. The case was later dismissed and sent to arbitration.

Lucchese claims Smith Barney stockbroker Weaver, who is a Respondent, recommended that he buy 4,000 shares of Lehman preferred. Despite his reservations—including concerns about the stock and how they compared with other companies’ shares—Lucchese “reluctantly agreed” and at $25/share spent $100,000.

The stock initially dropped 20%—a $20,000 drop in value. The Claimant says that Weaver told him to hold on to his stock. When the financial markets collapsed, Lucchese’s stocks’ worth then dropped by 63%. He says that when he told Weaver to sell the position even though it meant losing $63,000, the broker recommended that the Claimant still hold on to his shares and that Lehman was not going to fail… only it did. Lucchese’s shares then became worthless when Lehman filed for bankruptcy.

While Weaver acknowledged making a mistake by not selling Lucchese’s stock, the Respondent claims that the Claimant never ordered him to sell. Lucchese disputes this account.

The arbitrator, when ruling on the case, decided that there was lack of credible evidence supporting Lucchese’s claim. He also found that Weaver acted on “good faith” when he advised Lucchese not to sell prior to Lehman filing for bankruptcy and that the broker would have no way of knowing that this would happen.

Lucchese’s claims of securities fraud, including breach of fiduciary duty, breach of contract, negligence, failure to supervise, violations of federal and state securities laws, and other violations were denied in their entirety. In addition, the arbitrator determined that the Claimant should be responsible for Citigroup’s legal fees of $49,985, $3,150 in arbitration forum fees, and $400 for the explained decision.

Most securities cases must be resolved in arbitration and you want to make sure you are represented by experienced stockbroker fraud lawyers to increase your chances of recouping your losses. A securities claim is not the type of case you want to handle on your own.


Citi Smith Barney Customer Sues Over 2008 Failure to Sell Lehman Shares, Forbes, December 18, 2011


More Blog Posts:
Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011

Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors, Stockbroker Fraud Blog, August 16, 2011

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging SecuritiesFraud in $1B Derivatives Deal, October 20, 2011

**This post has been backdated for publication.

Continue reading "Claimant Not Only $100K Loses Securities Arbitration Case Against Citigroup Global Markets But Gets Stuck with Financial Firm’s $50K in Legal Bills " »

September 8, 2011

Elder Investors Suffering From Alzheimer’s Make Perfect Targets for Securities Fraud

According to MetLife Mature Market Institute, some 1 million seniors are victims of financial exploitation each year—that’s 1 out of every 5 elderly persons. Because the number of seniors in the 65 and over age group growing, the number of elder fraud victims is also expected to rise. Elderly persons suffering from Alzheimer’s are especially vulnerable to financial fraud.

Already, approximately 5.4 million people who have this mental disease. By 2050, that number is expected to hit 16 million. Alzheimer’s patients tend to experience memory loss, confusion, difficulty working with numbers or making plans, disorientation, problems with comprehension and processing, cognitive difficulties, forgetfulness, and loss of judgment---all symptoms that can make it easy for someone to take advantage of them. It doesn’t help that Alzheimer’s patients may have lost the ability to understand the risks that they are taking or how this may impact their financial future.

Financial advisors, caregivers, family, friends, and strangers are among those that have been known to commit elder financial fraud. Trusted professionals (financial professionals, lawyers, and fiduciary agents) are considered the largest perpetrator group. It is also important to note though that there are those financial advisers with no intention of taking advantage of an elderly investor that may not even realize that their client is suffering from Alzheimer’s and may not be able to make his/her decisions.

This, however, doesn’t mean that all financial advisers shouldn’t take the necessary precautions to make sure that a client is understands the types of investments he/she is making, this risks involved, and how this may impact his/her future. As a matter of fact, the Financial Industry Regulatory Authority and the Alzheimer’s Association have started working together to make sure that members of the financial industry know how deal investors who may be suffering from this disease.

More Key Findings from MMI and its study with the National Committee for the Prevention of Elder Abuse (NCPEA):

Elder financial fraud results in more than $2.6 billion in losses year.
• “Typical” elder fraud victims are usually between the ages of 70-99, female, Caucasian, cognitively impaired, frail, and/or isolated/lonely.
• In addition to financial losses, elder fraud victims are prone to health problems, loss of independence, credit issues, and depression.
• Retirement funds and life savings make elderly seniors ideal targets for financial scammers.

Earlier this year, Rep. Joe Baca, D-Calif. introduced the Preventing Affinity Scams for Seniors Act of 2011. Under the new bill, financial institutions would have to train employees, offer special services for older clients, and report signs of possible elder financial fraud.

Related Web Resources:
$2.6 Billion in Financial Abuse of the Elderly, Alzheimer's Weekly

Met Life Study (PDF)

Broken Trust: Elders, Family & Finances, MetLife

Preventing Affinity Scams for Seniors Act of 2011


More Blog Posts:
Wedbush Securities Ordered by FINRA to Pay $2.8M in Senior Financial Fraud Case Over Variable Annuities, Stockbroker Fraud Blog, August 31, 2011

SEC Charges Filed in $22M Ponzi Scam that Targeted Florida Teachers and Retirees, Stockbroker Fraud Blog, August 29, 2011

Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors, Stockbroker Fraud Blog, August 16, 2011

Continue reading "Elder Investors Suffering From Alzheimer’s Make Perfect Targets for Securities Fraud" »

September 7, 2011

“Investor’s Guide to Loss Recovery” Offers Key Information on How to Use Conflict Resolution to Get Your Assets Back

For many investors seeking to recover their lost assets from a Wall Street financial firm, the process can be daunting and confusing. This is why it is so important that you work with a stockbroker fraud law firm that can take you through process, knows how to successfully navigate the legal system, will protect your rights, and is committed to helping you recoup your losses. That said, any understanding you can acquire about the financial recovery process could only help your case, while also alleviating some of your concerns. The “Investor’s Guide to Loss Recovery” by Louis Straney is a reliable resource containing knowledgeable advice and guidance about the arbitration system, how it operates, and how to make it work in your favor.

The book offers detailed coverage and practical information about:

• Key litigation resources and strategies
• How to file an effective claim, as well as the outcomes you can expect
• Scripts of initial lawyer interviews, mediation, and arbitration
• How to organize the massive amount of documents that will be exchanged between parties
• Interviews with securities attorneys, investors, and experts
• An explanation of how new regulatory reforms are impacting the financial recovery process, as well as the options that are available to victims of financial fraud
• Charts demonstrating the major areas of litigation
• Empirical evidence about the growing awareness of investment misconduct

With over 30 years of experience working on Wall Street as a senior manager and director, Straney is an expert guide. He launched his own securities litigation consulting practice in 2007. In addition to having consulted or testified in over 200 engagements, Straney is the author of "Securities Fraud: Detection, Prevention and Control" and other works. He also is a published contributor whose writing has appeared in a number of publications, including the New York Times and the Public Investor Arbitration Bar Association Law Journal.

Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Attorney William Shepherd has this to say about Straney: “I have worked with Lou Straney for many years on cases representing clients who have lost money because of securities fraud and other wronging by those who sold the securities. I have also appeared with him in speaking engagements regarding securities fraud. Although we only met about five years ago, each of us had worked for decades for large Wall Street securities firms. Lou and I have discussed for many hours the steady erosion of character and standards in that industry. In his book, Lou covers this and other subjects. As a non-lawyer, his comprehension of legal issues is surprising. But, as a non-youth, Lou’s incredible level of energy is what amazes me the most.”

Securities Fraud Research and Training

By the Book on Amazon.com


More Blog Posts:

SEC Charges Filed in $22M Ponzi Scam that Targeted Florida Teachers and Retirees, Stockbroker Fraud Blog, August 29, 2011

Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts, Stockbroker Fraud Blog, August 10, 2011

Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors, Stockbroker Fraud Blog, July 13, 2011

Continue reading "“Investor’s Guide to Loss Recovery” Offers Key Information on How to Use Conflict Resolution to Get Your Assets Back " »

September 6, 2011

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds

A FINRA panel in Houston has ordered Morgan Keegan & Company to pay the Claimants of a Texas securities fraud $555,400 in compensatory damages. The Claimants had accused the financial firm of misrepresentation, negligence, vicarious liability, failure to supervise and violating the Texas Securities Act, the Texas Deceptive Trade Practices Act, and NASD Rules.

The securities claim is related to the sale and recommendation of a number of Regions Morgan Keegan proprietary mutual funds that were allegedly touted as diversified, conservative, and low risk despite a supposed higher rate of return:

• Regions Morgan Keegan High Income Fund
• Regions Morgan Keegan Advantage Income Fund
• Regions Morgan Keegan Multi-Sector High Income Fund
• Regions Morgan Keegan Strategic Income Fund

The funds were actually high-risk mortgage-backed securities that were not appropriate for the Claimants.

After a 5-day hearing, the panel found Morgan Keegan liable in the Texas securities case and ordered the financial firm to pay damages to the WCR Family Limited Partnership, as well as a 4% per annum interest on the $550,400 for the period of July 29, 2011 until payment is made in full. The panel did dismiss all claims brought by the Wilhelmina R. Smith Estate.

Morgan Keegan Securities Fraud Cases
For the past couple of years, our Texas stockbroker fraud law firm has been diligently pursuing claims against Morgan Keegan related to their Regions Morgan Funds. The cases came following claims by investors that the financial firm defrauded them by misrepresenting the risk involved in the investments. Investors sustained many of the losses when the subprime mortgage market collapsed.

Over 400 securities claims have been filed over Morgan Keegan’s RMK funds. Already tens of millions of dollars have been awarded to claimants.

Other RMK funds named in the claims include the:

• RMK Select Intermediate Bond Fund
• RMK Select High Income Fund

Earlier this summer, Regions Financial Corp. agreed to pay $210 million to settle more securities allegations that it fraudulently marketed mutual funds with subprime mortgages while artificially raising the prices of the funds. FINRA, SEC, and regulators from Kentucky, Alabama, South Carolina, and Mississippi agreed to the settlement.

Examples of FINRA arbitration settlements that Morgan Keegan has been ordered to pay over the RMK Funds:

• $881,000 to several investors. The claimants said their actions were over SEC and FINRA violations, breach of fiduciary duty, negligence, failure to supervise, vicarious liability, negligence, and breach of contract.

• $2.5 million to investor Andrew Stein and his companies. Panel members held Morgan Keegan liable for negligence, failure to supervise, and the sale of unsuitable investments.

Related Web Resources:

Regions Settles S.E.C. Case Over Former Morgan Keegan Funds, NY Times, June 22, 2011

Regions settles fraud case, may sell Morgan Keegan, Reuters, June 22, 2011

Texas Securities Act

More Blog Posts:
Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000, Stockbroker Fraud Blog, April 24, 2011

Morgan Keegan Ordered by FINRA Panel to Pay Investor $2.5 Million for Bond Fund Losses, Stockbroker Fraud Blog, February 23, 2010



Continue reading "Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds" »