Articles Posted in Private Placements

A Financial Industry Regulatory Authority Arbitration Panel is ordering AOG Wealth Management chief executive and president Frederick Baerenz to pay Roger and Barbara Bond $331K in compensatory damages. The panel found Baerenz liable for unsuitable trading because he allegedly misled the Bonds about the risks involved in the direct private placements they invested in from ’06 to ’09. At the time, Baerenz was affiliated with Pacific West Securities.

The Bonds invested about $941K in private placements. Their legal team contends that these were not suitable investments for them.

Private Placements
Private placements are offerings of a company’s securities that are not registered with the SEC. They are not offered to the general public.

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Ex-Medical Capital Holdings COO Gets 10 Years in Prison
Joseph J. Lampariello, the ex-president and COO of Medical Capital Holdings, has been sentenced to 10 years and one month in prison for his involvement in a private placement fraud that became the Ponzi scam responsible for the shutdown of dozens of brokerage firms. Lampariello must also pay investors almost $40M in restitution.

Medical Capital Holdings, a medical receivables financing company, supervised funds that were supposed to buy account receivables from medical providers that were credited, provide money for general operating costs, and make loans that were secure. Instead, for almost a year, Lampariello misappropriated the money investors had given for MedCap deals, using the funds to pay earlier investors and himself.

Over 700 investors were bilked of close to $49M. Meantime, the independent brokerage firms that sold MedCap notes also suffered. They got in trouble over allegations that they did not conduct the proper due diligence on Medical Capital and other private placements that ended up being scams. A lot of broker-dealers had to close up shop because of the securities fraud cases brought by investors wanting their money back from the Medical Capital fraud.

Momentum Investment Partners Faces SEC Fraud Charges
Investment advisory firm Momentum Investment Partners , doing business as Avatar Investment Management, and principal Ronald Fernandes are charged with fraud. The U.S. Securities and Exchange Commission claims that the firm and Fernandes did not disclose to clients that they were charging them additional fees. Avatar is no longer in operation.

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Nine financial professionals are charged with scamming investors in a $131M financial fraud involving Forcefield Energy Inc. According to authorities, from 12/09 to 4/15 the defendants, which include brokers, stock promoters, and investor relations officials, manipulated the LED lighting provider’s stock by trading it in secret, using undisclosed accounts, hiding kickbacks that were paid to brokers and stock promoters to tout the stock, and inflating the volume of trades to make it seem as if there was a real demand for the stock. Also this week the U.S. Securities and Exchange Commission filed civil fraud charges against the nine defendants and former ForceField executive chairman Richard St. Julien who was arrested last year on charges accusing him of running scams to inflate his company’s stock price.

Speaking about the criminal case, U.S. Attorney Robert Capers said that the defendants took a business that didn’t have much revenue and “essentially no business” and fooled their clients and the market into thinking that it was worth hundreds of millions of dollars. The nine defendant are charged with securities fraud, and conspiracies to commit wire fraud, securities fraud, and money laundering. They are former Stratton Oakmont Inc. broker Christopher Castaldo, unregistered broker Louis F. Petrossi, Mitchell & Sullivan Capital LLC managing partner of investor relations Jared Mitchell, registered representatives Richard L. Brown, Naveed A. Khan, Gerald J. Cocuzzo, Maroof Miyana, and Pranav V. Patel, and Kenai Capital Management LLC head Herschel Knippa III.

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The Securities and Exchange Commission is pursuing a securities fraud case against American Growth Funding II, LLC. The regulator contends that the company, which raises money for business loans, lied to investors that bought high-yield securities. Also subject to charges is brokerage firm Portfolio Advisors Alliance, Ralph Johnson, Kerri Wasserman, and Howard Allen III.

In its complaint, the regulator said that AGF II sold about $8.6M AGF II units to at least 85 investors through Portfolio Advisers Alliance. The sales occurred in a private placement between 3/11 and 12/13.

However, investors were purportedly not told that AGF II’s principal asset had significantly dropped in value, which lessened the chances that investors would be repaid in full let alone make the12% interest yearly they were promised.

In private placement memoranda that were put out in ’11 and ’12, Johnson is accused of misrepresenting that the lending company’s financial statements had been audited and would continue to be audited periodically. The statements for ’11 and ’12 were not audited until 2014.

The SEC believes that Johnson, who played a central part in preparing the private placement memoranda, knew and acted in reckless disregard and was aware that misrepresentations were made to investors. He also is accused of causing investors to get an email in 2013 that contained false statements noting that an accounting firm was working on an audit, which was not, in fact, the case, and issuing monthly statements that concealed the company’s financial woes. Investors were not made aware that because most of AGF II’s loans were likely uncollectible, the firm wouldn’t be able to pay the account balances that were noted in the statements.
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Barclays Resolves Securities Fraud Claims Related to Libor Rigging
Barclays PLC (BARC) has consented to pay $120 million to resolve securities fraud claims accusing the bank of conspiring with competitors to manipulate the London Interbank Offered Rate, also known as Libor. Barclays is the first to settle allegations made by “over-the-counter” investors.

It was just last month that the British bank consented to pay $94M to resolve litigation accusing it of trying to rig Euribor, which is the euro-denominated equivalent of Libor. Barclays has admitted to rigging both benchmarks. The bank paid settlements to regulators in the United States and in Great Britain.

Libor is used to establish rates on hundreds of trillions of dollars of transactions, such as those involving student loans, credit cards, and mortgages. Banks use Libor to assess how much it will cost to borrow from each other. To date, over a dozen banks have been sued for conspiring to rig Libor.

U.S. District Judge Naomi Reice Buchwald in New York, who approved the class action settlement, said in August that the plaintiffs could win fraud claims if they proved that panel banks lied to the administrator of Libor about borrowing costs and the plaintiffs had depended on these fallacies. Buchwald, in 2013, threw out a “substantial” chunk of this private case, which included federal antitrust claims.

Investment Advisory Firm, Co-Founders to Pay $1M to Settle Custody Rule Violation Charges
Sands Brothers Asset Management LLC and co-founders Steven Sands and Martin Sands will pay a $1 million penalty to resolve Securities and Exchange Commission charges accusing them of violating the custody rule. They also have consented to a year suspension from raising funds from existing or new investors. The firm will under go compliance monitoring for three years. Ex-COO and CCO Christopher Kelly will pay a $60K penalty and serve a one-year suspension from acting as a COO or practicing in front of the SEC as a lawyer.

Under the custody rule, firms have to get independent confirmation of assets when they can control or access client funds or securities. This is so that investors know their money is protected from misuse or theft. The firm, the two Sands brothers, and Kelly settled the charges without or denying or admitting to them.
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According to a court-appointed receiver, investors who were the victim of a financial scam allegedly run by Total Wealth Management founder Jacob Cooper lost more than $44 million of assets. The investors are suing Cooper and other principals of the investment adviser.

Cooper pursued investors using “Uncommon Wealth,” his weekly radio show in which he’d discuss retirement planning. According to InvestmentNews, He capitalized on his past history as an Eagle Scout, as well as he was a Mormon and his dad had been in the U.S. Marine Corps, to grow a more than $100 million business with over 600 clients.

Cooper and other firm principals allegedly pooled about 6% of the $100 million and placed them in the Altus Funds, which are proprietary investment funds. These funds then invested in unsuccessful ventures, as well as in Private Placement Capital Notes-the latter did pay interest until two years ago.

The Financial Industry Regulatory Authority said that Brookeville Capital Partners must pay over $1 million to victims and a $500,000 fine for securities fraud related to private placement offering sales. The self-regulatory organization has barred the firm’s president, Anthony Lodati, from the securities industry.

According to FINRA, from 1/11 to 10/11 Brookeville and Lodati bilked customers in the sale of Wilshire Capital Partners Group, LLC, a private placement offering in which investors were to have an indirect interest in pre-IPO offering shares of Fisker Automotive. The SRO said that while the firm was soliciting customers to invest in the private placement offering, Lodati discovered that John Mattera, a person with a regulatory and criminal background, made transactions for Wilshire as its CEO and managing director.

Rather than disclosing that the Securities and Exchange Commission had sanctioned Mattera in 2010 for securities fraud, and also that he’d been convicted of a felony in the state of Florida in 2003, the firm and Lodati purportedly withheld this information, as well as information about Mattera’s connection to Wilshire, on purpose and kept soliciting investors. Brookeville sold more than $1 million of interests in the Wilshire offering to 29 customers and was paid over $104,000 in commissions.

Atlas Energy LP Is inviting investors to put in at least $25,000 in an oil and gas drilling partnership in Texas and other states in exchange for shared revenue from the output from the wells. Its subsidiary, Atlas Resources LLC, is seeking to raise up to $300 million by the end of the year, with the company saying it will put in up to $145 million of its own money. However, according to Reuters, a closer look at the company’s confidential offering memorandum reveals that outside investors may not end up reaping as much as they think.

The private placement venture is called Atlas Resources Series 34-2014 LP. Private placements are unregistered securities sold to a limited number of investors via brokerage firms. Brokers can only market them to accredited investors (investors that have $1 million in assets-primary residence not included-or $250,000/year income) or institutions. Because of inflation, the number of those that qualify to be able to invest in private placements has gone up and not every investor is a high-income one. There are even retirees who now qualify.

According to the Atlas memorandum, $45 million of the money raised will go to Anthem Securities, an affiliate, to pay commissions to brokerage firms. Up to $39 million will go toward purchasing drilling leases from a different affiliate. Some of the $53 million for transport and drilling equipment may also go to affiliated suppliers. $8 million is a markup for estimated equipment costs. Atlas will get $53 million for markups and fees once drilling starts. All this lowers Atlas’s exposure by at least 40%. Once revenue starts coming in, the company is entitled to 33% of this.

FINRA is fining GlobaLink Securities Registered Principal Junhua Michael Liao $20,000. According to the SRO’s findings, through Liao, the firm executed an agreement to sell and market a Regulation D offering comprised of promissory notes for a medical receivables financing company. The financial firm then is said to have sold over $1.2 million of the notes to certain customers, resulting in about $56,700 in commissions.

FINRA also said that during the period in question, it was Liao’s job as the compliance officer for the firm to makes sure that GlobaLink Securities set up, kept up, and enforced a supervisory system and written supervisory procedures designed to ensure compliance with regulations and laws and rules that were applicable. The agency said that while the financial firm did keep up written supervisory procedures regarding private placement sales, the WSPs were not sufficient and lacked specific details about how the firm was to perform due diligence, handle transactions, ensure that a Regulation D product was appropriate for investors, and document GlobaLink’s actions and decisions pertaining to the transactions.

FINRA said that because of the deficient WSPs and inadequate supervision, the firm did not perform proper due diligence on the offerings and that this stopped GlobaLink and Liao from finding out that the issuer had previous payment problems on other note offerings, which resulted in the private placement memorandum misrepresenting the past performance of that issuer. Liao consented to the described sanctions as well as to the SRO’s entry of findings. In addition to the fine, he received a one-month suspension from associating with any other FINRA member in any type of principal role.

Investor Jon Hanson is suing Berthel Fisher & Co. Financial Services Inc. for allegedly not conducting the necessary due diligence on the TNP 2008 Participating Notes Program or making the proper disclosures to parties like him that backed the high-risk investment. The private placement went into default in 2012.

The independent brokerage firm, which not so long ago settled the majority of investor claims over real estate deals involving Diversified Business Services and Investments Inc., (a real estate manager that is now bankrupt), could be facing a class action securities case involving a failed deal with Tony Thompson, the real estate investor. This would be the first time that a broker-could be hit with a class action over a Thompson National Properties LLC-sponsored product.

According to Hanson’s securities fraud lawsuit, Berthel Fisher allegedly know there were misrepresentations and omission in the TNP 2008 Participating Notes Program memorandum yet did not probe further into the red flags. Instead, the financial firm used the “misleading TNP 2008 PPM” to help collect about $26.2M from more than 200 investors. Although the independent broker-dealer did not sell all of the TNP 2008 Notes Program and not all of the $26M was sold to its clients, it is a defendant of this private placement case because it was the underwriter of the deal.

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