Stock Broker Fraud Blog

In the U.S. District Court for the Southern District of New York on April 10, ex-Assent LLC registered broker Samuel Childs pled guilty to a conspiracy charge to commit securities fraud, wire fraud, and commercial bribery for agreeing to receive $100,000 in exchange for concealing insider trading activities from Assent senior executives. In court, Childs, 35, announced that he was 100% guilty.

This case is part of a broader criminal probe involving 13 people that have pled guilty to a massive insider trading scheme involving data they acquired from Wall Street brokerage companies. Defendants included ex-employees from Morgan Stanley, UBS AG, Bear Stearns Co, and Bank of America Corp.

The Justice Department says that one of the defendants, former UBS Securities executive Mitchel Guttenburg, had sold nonpublic data prepared by UBS stock analysts to another defendant, trader David Tavdy.

Tavdy and David Glass, also a defendant, then used an Assent account to execute trades and earn illegal profits. Data regarding UBS analysts’ upgrades and downgrades were used for hundreds of transactions that netted over $17.5 million.

Childs found out about their illegal activities and agreed to receive $100,000 in exchange for not reporting them. He had received just $30,000 before his arrest.

Childs’s sentencing will take place in July. As part of his plea agreement, he will likely face up to two years in prison and be ordered to give up the $30,000.

If you believe that you have been the victim of securities fraud, contact the stockbroker fraud law firm of Shepherd Smith and Edwards for your free consultation to discuss your investor fraud case.

Related Web Resources:

Broker pleads guilty in U.S. trading case, Washington Post, April 10, 2008

A 13th Plea in Insider Case, Wall Street Journal, April 10, 2008

Related Web Resources:

Trading on Tips About UBS Research Analyst Upgrades and Downgrades and About Morgan Stanley Client Merger Deals Netted Defendants More than $8 million, New York.FBI.gov, March 1, 2007

Assent LLC

Two Brazilian nationals have been indicted on money laundering and other charges related to an alleged $50 million international penny stock scam that took money from many international investors.

The two defendants, Marcos Macchione and Rodrigo Molina, face charges of money laundering, conspiracy, and participating in illegal financial transactions. The two men reside in Florida and are being charged in connection with their involvement with the US part of the securities scam. A Florida jury handed out the indictment in the U.S. District Court for the Southern District of Florida.

Doron Mukamal, the alleged leader of the telemarketing securities scam, was also arrested. He lives in Brazil, as do his 17 partners, employees, associates, and money launderers that were also arrested.

Asian and European investors were the primary victims of the scam. Mukamal and his team offered them the opportunity to buy nearly worthless stocks in U.S. micro-cap companies for much more than the penny stocks’ actual value.

The investors were told to pay an advance fee to cover escrow costs, taxes, and other services. This fee is not normally required for transactions that are legal.

Once the advance fee was received, the bogus broker-dealer would disappear. When investors contacted these fictitious brokers to find out what happened to their money, they were notified that warrants (that did not actually exist) or the rights to buy more shares held by the victims had been found. The bogus brokers would then try to persuade their targets to shell out even more money.

Mukamal and his team constructed Web sites that made it appear as if they were legitimate securities brokers. They also made up names of fictitious broker dealers, stole the identities of real U.S. brokers, fabricated false government entities that could confirm their broker-dealer’s legitimacy, and used U.S. phone numbers so that investors would think that the broker-dealers were located in the United States.

Our stockbroker fraud lawyers at Shepherd Smith and Edwards have helped thousands of investors recover their financial losses. Contact Shepherd Smith and Edwards to schedule your free consultation.

Related Web Resources:

U.S., Brazilian Law Enforcement Dismantle $50 Million Securities Fraud Organization, PRNewswire.com, March 20, 2008

What Is Penny Stock Fraud?

The Financial Industry Regulatory Authority is charging stockbroker John Mullins with misappropriating nearly $400,000 from an elderly widow and her charitable foundation. Esther Weil, a 97-year-old widow, died earlier this month. She was living in a nursing home. Mullins was her stockbroker for over 20 years.

Mullins allegedly tried to conceal his status with his elderly client’s charitable foundation. John and his wife Kathleen were the trustees of Weil’s nonprofit foundation—a relationship that is prohibited by Morgan Stanley’s firm policies. Morgan Stanley employed the Mullins from 2002-2006. The company fired them after it was discovered that they were violating company policies.

John is accused of allegedly misappropriating funds from his employer for improper expenses, making misstatements on his firm’s yearly compliance questionnaires and Form U4, and accepting an unauthorized $100,000 loan from a client.

Mullins’ wife Kathleen also accepted a loan from the elderly woman and made misstatements on Form U4 and compliance questionnaires. The couple has been charged with failure to adhere to high standards of commercial honor and just and equitable principles of trade.

According to New Jersey Regulators, John Mullins converted $375,000 of Weil’s assets for his personal use when she became seriously ill in 2006. He also allegedly withdrew $14,000 from her Morgan Stanley account.

John also allegedly used Esther’s debit card to buy a $3,700 50-inch plasma television, bought $11,000 in Four Seasons Hotel and Resort Gift Certificates, and spent $4,000 to pay for a London vacation. He also may have charged the charitable foundation thousands of dollars for personal expenses.

The New Jersey Securities Bureau has charged the couple them with alleged misconduct. They are barred from working in New Jersey’s securities industry.

Shepherd Smith and Edwards has helped many stockbroker fraud victims throughout the U.S. recover their losses caused by the misconduct of brokers or advisers. One of our stockbroker fraud lawyers can speak with you today.

Related Web Resources:

Read the FINRA complaint, FINRA (PDF)

Margate couple sanctioned by state, Press of Atlantic City.com, February 15, 2008

Investors' Watchdog

Leslie Weiner, a former broker for Liberty Financial Trading Corp. (LFTC) and Liberty Real Assets Investment Corp. (LRAIC), has agreed to pay $170,000 in penalty and restitution to settle charges made by the Commodity Futures Trading Commission (CFTC) that he defrauded investor clients.

The CFTC says that LRAIC, LFTC, and Weiner engaged in fraudulent soliciting practices to persuade investors to open accounts. The CFTC has accused Weiner of “false and misleading solicitations.” The CFTC had filed its complaint in the U.S. District Court for the Southern District of Florida on September 21, 2004.

The consent order, issued on January 8, found that Weiner, when working for LFTC and then later LRAIC, made sales solicitations that misrepresented the risks involved in trading commodity options and did not disclose customer accounts’ actual performance records or the fact that both companies had poor track records when it came to trading commodity options.

As part of the settlement, Weiner also agreed to a permanent ban preventing him from taking part in any activities involving commodities, including soliciting funds, trading on any registered entities, and guiding or controlling any commodity interest accounts-related trades.

By settling the CFTC charges, Weiner is not admitting to or denying the allegations.

Please contact the stockbroker fraud law firm of Shepherd Smith and Edwards if you are an investor who lost money because a stockbroker or brokerage firm engaged in misconduct or fraud. Your first consultation is free.

Related Web Resources:

Former Employee of Pompano Beach Commodity Firm, Leslie Weiner, Settles Charges that He Defrauded Commodity Options Customers, CFTC.gov, January 9, 2008

Read the Order (PDF)

US Commodity Futures Trading Commission

The U.S. District Court for the Southern District of Florida has found K.W. Brown & Company, K.W. Brown Investments, 21st Century Advisors, the companies' owner Kenneth Brown, his spouse Wendy Brown, and representative Michael Cimilluca liable for their involvement in a cherry-picking scam that earned them $4.5 million and cost investors $9 million. The three of them were also found liable for violating federal securities laws.

According to the Florida Court, from September 2002 up until at least June 2006, Brown and his friends took part in a fraudulent cherry-picking scheme that helped him and his friends earn millions of dollars in illegal gains while clients lost money as a result.

Industry regulators had warned Brown that he needed to put in place procedures and policies that would prevent this type of illegal activity, yet the oversights persisted. A Securities and Exchange examination staff had discovered a number of violations in June 2003, including undisclosed conflicts of interest and breaches of fiduciary duty.

In 2005, the SEC filed a complaint against Brown and his three companies. The SEC says that Cimilluca, who day-traded in a proprietary account run by Brown Investments, pocketed 50% of the profits from the account as his compensation.

The SEC says that because Cimilluca was only paid 1% of commissions that he earned from executive trades, he was be more likely to move the more profitable trades to the Brown Trading Account while ignoring customer accounts. Because of this, investors lost profits valued at millions of dollars.

The defendants must now also pay $983,586 in pre-judgment interest on the $4.5 that the scheme earned them and $74,779 on the $296,147 in profits that had been diverted by Cimilluca, who is a registered representative for one of Brown’s firms.

Collectively, the three companies owned by Brown must pay a civil penalty of $4.5 million. Ken Brown and Cimilluca were also ordered to pay third-tier civil penalties of $250,000. Wendy Brown has been ordered to pay $100,000.

Losing money because of the misconduct of a broker or a broker-dealer can be a huge financial blow to an investor. The best chance you have of recovering your losses is retaining the services of an experienced stockbroker fraud law firm. Shepherd Smith and Edwards has helped thousands of people in the United States, as well as internationally, recover their investment losses. Contact Shepherd Smith and Edwards today and one of our stockbroker fraud lawyers would be happy to discuss your situation during your free consultation.

Related Web Resources:

Wins Case against Three in $4.5M Fraud, CCH Wall Street, January 14, 2008

SEC v. K.W. Brown and Company, et al., Civil Action No. 05-CV-80367-JOHNSON (S.D. Fla.), SEC.gov, January 8, 2008

Prosecutors charged former Smart Online Inc. CEO Dennis Nouri, his brother Reza, and brokers Ruben Serrano and Alain Lustig on charges of conspiracy to commit fraud and securities fraud. The four men allegedly took part in a scam, in which they sold stocks to investors to drive up Smart Online shares.

US Attorney Michael Garcia is also accusing Dennis and Reza, also Smart Online employee, of bribing the brokers to sell the stock aggressively so that the stock’s price would go up. The brothers were also charged with commercial bribery and wire fraud.

The SEC complaint said that Dennis Nouri paid over $170,000 to the brokers, who sold over 267,000 shares to investors. The investors did not know about these payments. The complaint says that Dennis Nouri covered up the bribes by calling them “consulting fees.”

Prosecutors claim the defendants started their scheme in 2005 in an attempt to boost the company’s share price before it was listed on NASDAQ. Prosecutors say that in a recorded conversation, Nouri is overheard explaining how to lie to investigators so they won’t find out about the scam.

Smart Online announced CEO Nouri’s resignation in September. Lustig is a broker at Jesup & Lamont Securities Corp. Serrano worked for Maxim Group LLC.

The four men face from 5 to 20 years in prison for each count and fines.

If you are an investor who has scammed by a broker or any other member of the securities industry, you should speak with an experienced securities fraud attorney right away. Shepherd Smith and Edwards has helped thousands of investors recover their losses.

Related Web Resources:

Smart Online CEO, brokers indicted in fraud case, Reuters, November 8, 2007

SEC Charges Smart Online, Its President and CEO Dennis Michael Nouri, and Five Others in Connection With a Broker-Bribery Scheme, SEC.gov, September 12, 2007

The Florida Office of Financial Regulation and the Florida Department of Law Enforcement are investigating Michael O. Traynor and his son, Matthew O. Traynor, former brokers at InterSecurities, Inc. Complaints from at least a dozen investors allege that the Traynors defrauded clients out of approximately $8 million.

In addition to an affiliation with InterSecurities, Inc., the Traynors are reported to have been affiliated with or operated under the firm names of Mariner Financial Services, Western Reserve Life, Association of Professional College Advisors, Inc., College Advisors Group, Inc., LifeTime Advisors, Inc. and LifeTime Advisors Group, Inc. Michael Traynor was licensed in securities and insurance and represented himself as a financial planner and certified college planning specialist.

According to reports, many of the investors were first in contact with the Traynors through their church and were lured to invested funds into accounts entitled “Freedom Bond Account,” “7 Day Freedom Money Market,” as well as “CGU Broker Services” and “Allianz Broker Services”. Apparently, statements on these accounts were falsified to indicate assets, income and profits which did not exist.

Michael Traynor served not only as a registered representative of InterSecurities, Inc., but also as the branch manager of that firm until he was terminated. According to alleged victims, they were not contacted by InterSecurities regarding the reason for his termination.

Shepherd Smith and Edwards represents investors nationwide in claims against securities firms and brokers industry. We have represented investors in more than 1,000 securities cases, including concerning mortgage backed securities. To learn whether we might assist you with a claim contact us to arrange a free consultation with one of our attorneys.

Massachusetts securities regulators fined Oppenheimer & Company, Inc. a million dollars for failing to supervise its representatives and ordered the company to also pay $135,000 to the victim, the difference between the losses she sustained and the amount Oppenheimer earlier paid her.

Oppenheimer was charged with failing to supervise a broker as he allegedly engaged in acts including theft, fraud, churning and unauthorized trading in the account of an elderly couple. The firm consented to the order without admitting or denying the claims. The broker is currently under indictment for securities fraud.

After her husband died, personnel at the elderly woman's bank raised concerns over the activity which had occurred in the couple's brokerage account. The widow approached Oppenheimer and claims were ultimately filed in arbitration. Oppenheimer then responded by saying she “only has herself to blame for any losses or other injury she may have suffered.” The arbitration claims were later resolved with Oppenheimer paying less than was lost.

The Massachusetts Consent Order states that Oppenheimer failed to reasonably supervise the broker whose trading was excessive based on the couple’s age, objectives, risk tolerance, financial condition, financial sophistication and personal health. It adds that Oppenheimer’s branch manager repeatedly reviewed and approved the activity and that inadequate action was undertaken by the compliance department.

Further action will apparently also be taken against Oppenheimer for stating that it had provided the regulators with all relevant e-mails during the investigation, which the regulators claim is false.

Shepherd Smith and Edwards represents individuals and institutions with claims against investment firms. If you or your firm are the victim of misconduct by members of the securities industry, hiring an experienced law firm can increase your chances of recovery. Contact us to arrange a free consultation with one of our attorneys.

Related Web Resources:

Massachusetts Securities Division's Consent Order against Oppenheimer & Company, Inc.

In the U.S. District Court for the Eastern District of New York, a jury issued its verdict in the “squawk box” front running case. Seven people were acquitted of securities fraud, while Timothy O’Connell, a former Merrill Lynch & Co. stockbroker was found guilty of making false statements and of witness tampering. The judge, however, declared a mistrial for the one remaining conspiracy count to commit securities fraud against O’Connell. He faces up to 15 years in prison for the convictions, and prosecutors have announced that they will retry the conspiracy charge.

According to prosecutors, O’Connell, and the two other broker defendants, David Ghysels—a former Lehman Brothers broker—and Kenneth Mahaffy—a former Merrill Lynch & Co. brokers, purposely placed off-the-hook phones that were active next to internal speaker systems at their firms.

The purpose of doing this was to let a number of former A.B. Watley employees, including ex-president Robert Malin, former proprietary trading supervisor Keevan Leonard, former compliance director Linus Nwaigwe, and former CEO Michael Picone, listen in while large orders about to be made by institutional clients were broadcast over the boxes.

Anyone who hears these kinds of orders can trade in the same issue before the client’s order is completed and benefit from the changes in price that will be caused by the large order. This can, however, can lead to the customer not getting as good a price as he or she would have if the misconduct had not taken place.

According to the government, the three brokers were among those who regularly gave day traders at A.B. Watley information like this through the “squawk boxes.” In return, the traders allegedly paid the brokers large amounts of money via “wash trade” commissions. Some brokers also allegedly received bribes in cash.

The U.S. Securities and Exchange Commission says it will go forward with its civil lawsuits against the defendants for similar misconduct allegations.

If you are an investor who has lost money because of the misconduct of members of the securities industry, contact Shepherd Smith and Edwards right away. We are a law firm dedicated to helping investors like you, and we have a very good success record for helping our clients get their losses back. Shepherd Smith and Edwards offers a free consultation to all prospective clients.

Prosecutors to retry "squawk box" conspiracy case, Reuters, May 24, 2007

Two Ex-Brokers Acquitted in `Squawk' Case; One Guilty, Bloomberg.com, May 10, 2007

Related Resource:

A.B. Watley Group

As a former Vice President and registered representative at several major brokerage firms for 20 years, I witnessed Wall Street in action. My assessment of Wall Street is that the majority of the 600,000+ registered representatives at over 5,000 brokerage firms are fairly honest people who seek the best interest of their clients. Unfortunately, there are some “bad apples” in that barrel – brokers who seek to line their own pockets with little regard for their clients.

Yet, it is not so much the apples but the “orchard” that is most troubling today. When I began my investment career in 1970, those running investment firms sought to take care of their clients and maintain their firm’s image. Over the following 20 years, I witnessed their profit motive increasingly outstrip those goals.

Today, it is clear that most financial firms pay little more than lip-service to their clients' welfare. In the past decade, those who run these firms have discovered an important fact: Crime pays on Wall Street! The best example is the widespread research scandal which led to massive investigations, fines and lawsuits.

Yet, the fines paid were relatively small and most of the lawsuits were dismissed. Heavy duty lobbying by Wall Street had changed laws, for example to limit class actions to claims for fraud under federal laws in federal courts, with no recovery allowed from those who assist in the fraud. To make matters worse, the first case was decided by a 96 year old judge in the heart of Wall Street, who stated that the vast majority of investors just wanted to gamble anyway.

The bottom line is that the Wall Street firms identified in the investigations generated well over $100 billion as they misled investors to increase their profits, but have paid about 5% percent of those revenues for their transgressions. Meanwhile, as other major scandals continue to surface, the investment firms involved continue to make record profits.

How many in the public know that primary regulation of Wall Street firms is by an association owned and operated by those firms? The Securities and Exchange Commission is the government's agency created to protect investors, but it is instead busy lowering restrictions on investment firms and lending its weight on the side of firms sued by investors, including at the U. S. Supreme Court.

Fortunately, individual claims filed by investors have fared better than class actions. Although the mandated securities arbitration process investors must use to recover from brokerage firms is another subject of concern for those who fight for investors, it does offer a fighting chance of success.

Meanwhile, the quality of fruit on Wall Street is not likely to change until that orchard is “fumigated for bugs" through legislative changes.

By: William S Shepherd:

When I left the securities industry in 1990, I agumented a law degree with a Master of Law (LLM) in Securities Regulation from Georgetown Law School. I then founded the law firm of Shepherd Smith and Edwards. We have since represented investors in almost 1,000 securities arbitration claims nationwide and are one of the largest in the U.S. specializing in such claims. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

A U.S. District Court in Indiana entered a permanent injunction against several defendants charged by the SEC over their alleged involvement in a $32 million prime bank scheme. They were also ordered to pay $14 million in disgorgement, plus other sanctions

The SEC issued a release saying these defendants, including First National Equity LLC, P.K. Trust & Holding Inc., Worldwide T&P Inc. and several individuals, had raised approximately $32 million using while using misrepresenting and omissions to sell interests in a purported system to trade of various financial instruments, including notes.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

Technorati Profile

Barclays Bank PLC and a former proprietary trader for Barclays' U.S. Distressed Debt Desk agreed to pay a total of $11.69 million to settle Securities and Exchange Commission charges they traded on inside information received while on the creditors committees for six bankrupt companies. Neither admitted or denied the SEC's claims.

The SEC filed an action in a U.S. District Court in New York claiming the bank and its former agent illegally traded millions of dollars of bond securities while aware of material nonpublic information received through six bankruptcy creditors committees. The six bankrupt debtors were Galey & Lord Inc., Pueblo Xtra International Inc., Desa International Inc., Archibald Candy Corp., Conseco Inc., and United Airlines.

The SEC charged that, for example, the defendants made 82 illegal trades in notes and other securities of United Airlines. In some instances "big boy letters" were issued, but neither Barclays nor its trader ever revealed the inside information to the counterparties, according to the SEC. (A "big boy letter" is an agreement in which the buyer of securities agrees not to sue the seller while acknowledging the seller may possess confidential information the buyer does not have.)

Barclays consented to pay disgorgement of $3,971,736, prejudgment interest of $971,825, and a civil fine of $6,000,000. Its agent paid a fine of $750,000. Both also agreed to be permanently enjoined from violating the antifraud provisions of the federal securities laws.

The law firm of Shepherd Smith and Edwards has assisted investors nationwide to recover a total of more than $100 million. To learn whether we can assist you or your firm to recover your losses, contact us to arrange a free confidential consultation with one of our attorneys.

A large percentage of U.S. investors could be convinced to invest into a “guaranteed return” investment scam, according to a poll by “Money-Track,” a public-television series, and Investor Protection Trust, an investor education group.

The poll surveyed investors regarding eight basic investment principles, such as the definition of diversification and inquiring into to the background of financial professionals. When presented with questions to determine their fraud tolerance only 1% of the 1255 persons surveyed responded correctly on all eight principles.

Given investment swindle scenarios, such as the opportunity to invest into an options-trading system which guaranteed returns of at least 100%, 43% of investors responded indicating they would take the bait.

“Everyone wants to believe that they can make a ‘quick score’” said Don Blandin, president and chief executive of Investor Protection Trust in Washington. “They have to understand that there isn’t going to be any overnight ‘rags to riches’ for the majority of people.”

According to the survey, two-thirds of those participating would meet with a financial professional without seeking a background check such as though the Securities and Exchange Commission, National Association of Securities Dealers (NASD) or state securities regulors.

Many investors need help preparing for retirement. Half of those surveyed said they had not created a financial plan. Only forty percent said they expected Social Security to make up a major part of their retirement income.

Other surveys have demonstrated that sophisticated investors are more easily victimized by investment fraud than those less knowledgeable. Yet, many investors hesitate to file claims to recover losses because they fear appearing foolish.

Losses can also be caused by negligent actions of investment firms or advisors. WhIle most people would not hesitate to ask for compensation for repair or medical costs if involved in a car wreck, some hesitate to seek just compensation when negligent acts cause investment losses.

We at Shepherd Smith and Edwards represent investors in claims for losses caused by negligent or fraudulent acts by investment firms and advisors. If you or your company has sustained significant investment losses, contact Shepherd Smith and Edwards to schedule a free confidential consultation with an attorney.

The North American Securities Administrators Association released its “Top 10 Traps" likely to ensnare investors, a list that included real estate investment contracts, affinity fraud, foreign exchange trading, and Internet fraud.

Other problematic areas, according to NASAA, include: "free lunch" investment seminars; oil and gas scams; prime bank schemes; private securities offerings; unlicensed professionals and unregistered products; and unsuitable sales.

"The path to safe investing is littered with traps that are likely to catch unwary investors," Joseph Borg, NASAA's president and the director of the Alabama Securities Commission, said in the release. "It always pays to remember that any investment that sounds too good to be true usually is."

While Borg observed that many investor traps are "usually baited with slick sales pitches promising high returns for little or no risk," he also noted that investors "can be trapped by legitimate investment products that are suitable for some investors, but not all."

Unsuitable sales, as they are known, are a concern when securities sales professionals encourage clients to put their assets into investments that are not a appropriate for them. As an example, variable and equity-indexed annuities are incompatible with the needs of most senior investors. Yet, as NASAA explained, sales agents are lured by high commissions on these investments to ignore suitability standards

NASAA further warned of those who target their victims based on religious, ethnic, cultural, or professional ties. Non-English speaking investors are particularly vulnerable. In many “affinity fraud” cases scammers infiltrate a particular group to develop trust and even use a respected member of the group to, knowingly or unknowingly, hype a particular "investment."

Scams have for centuries been pitched one-on-one, but mass solicitations via the Internet can now instantly reach millions of potential victims. "The Internet can be a con artist's dream," NASAA said, "Easy access to you and your money, with no 'return address' if the deal goes sour."

The most prevalent scam run on the Internet is the "pump-and-dump," in which stock manipulators convince the unwary to buy thinly traded issues in an effort to drive up their price.

A more old-fashion but successful way unscrupulous promoters reach investors is through seminars. Potential victims, including seniors, are offer a free lunch to hear to achieve "higher returns and little or no risk." Yet the opposite is often true - high risk and no returns.

We have assisted investors to recover losses caused by all types of wrongdoing. If you wish to discuss your situation in confidence with an experienced securities attorney, contact Shepherd Smith and Edwards today.