Articles Posted in Texas Securities Fraud

The Financial Industry Regulatory Authority is ordering VALIC Financial Advisors Inc. to pay a $1.75M fine for purported conflicts of interest that impacted the way that the firm compensated brokers for selling annuities. According to the self-regulatory organization, from 10/2011 through 10/2014, the Houston-Based financial firm established a conflict of interest when it said registered representatives would receive financial incentives for recommending that clients transfer their money from VALIC variable annuities into a Valic fixed index annuity or onto its fee-based platform. FINRA said that the firm created even more conflict when it told representatives they would not get compensation from moving customer money to a non-Valic product from a Valic variable annuity.

FINRA said that because of these conflicts, a significant amount of assets were moved to the firm’s advisory platform and sales of  VALIC ’s proprietary fixed index annuity increased by over 610% after it was included in the firm’s compensation policy.

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Secretary of State William Galvin is accusing Texas-based brokerage firm Investment Professionals of selling investment products to elderly customers even though the investments were not suitable for them. The San Antonio broker-dealer allegedly ran high-pressure sales contests at several partner community banks in the New England state between 2013 and 2016. Galvin said that the purported “sales gimmicks” were  “unacceptable” and that his office would not tolerate them.

The Texas-based brokerage firm allegedly prioritized sales volume over whether or not the investments they were selling were suitable for the older customers. The customers had accounts at the local Massachusetts banks. For example, one bank customer, who was suffering from terminal cancer, saw so many of her assets placed in a variable annuity that she could not access her savings.

Galvin charged that these sales contests were not in alignment with Investment Professionals’ own procedures and policies and his office accused the firm of inadequate supervision, in particular of the Texas broker-dealer’s representatives who worked out of the Massachusetts banks. He noted that sales contests are “contrary to investor protections.”

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Texas Man and His Energy Company Must Pay Arizona Restitution, Penalties for Oil Well-Related Misrepresentations

Texas resident Kenneth White and his Marchant International Resources Inc. must pay almost $1.4M plus $150K in penalties for misrepresenting its participation in two oil well projects that was backed by 12 Arizona investors. The fine was issued by the Arizona Corporation Commission (ACC), which accused White of failing to disclose the complete facts about his business, the company’s experience with well-drilling, and Merchant’s efforts with two wells. The $150K penalty is because White did not disclose that he was previously convicted for a $4.3M felony theft crime when he was marketing himself and his experience in energy extraction.

 

More than 700 Investors to Get $11.2M in Restitution Over Inadequate Disclosures 

White and his company are not the only ones facing fines brought by the ACC in an energy case. Brian C. Hageman and his Hydrotherm Power Corp. and Deluge Inc. now have to pay $11.2M in resittion to over 700 investors. According to the state, while  marketing a thermal hydraulic engine project, Hageman did not tell investors that the two companies were no longer in valid operation. He also must pay a $55K administrative penalty for bilking shareholders.

 

SEC Accuses Minnesota-Based Energy Company Co-Founder of Stock Price Manipulation

The Securities and Exchange Commission has filed charges against the co-founder of a Minnesota-based energy company. Ryan Gilbertson is accused of rigging Dakota Plains Holdings’ stock price while hiding his control of the company in order make a lot of money.  The SEC claims that Gilbertson enriched himself by over $16M as he and others allegedly bilked shareholders through price rigging. Meantime, his co-founder, Michael Reger, will pay almost $8M to settle the charges brought against him.

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The Financial Industry Regulatory Authority has banned Stuart G. Dickinson, a Dallas broker, from the securities industry for recommending that customers back a Ponzi scam. At the time, Dickinson was with  WFG Investments. The firm fired him in 2013.

In addition to the bar, Dickinson must pay seven customers $924K in restitution over the Texas securities fraud. According to FINRA’s default decision notice, Dickinson failed to perform the reasonable due diligence on ATM Financial services (ATMF) and did not detect the red flags indicating that it was a sham. As a result, said the self-regulatory organization, investors lost $1.02M.

It was in 2007 that Dickinson sold over $1M in limited partnership interests in ATM Alliance. He had formed contracts with the company to service and manage ATM machines in a number of locations. Dickinson established a general partnership to raise funds for the ATM investments and he became a 90% owner while his supervisor Trent W. Schneiter became a 5% owner. As part of the agreement, they would earn 20% off what the banking machines made.

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United Development Funding IV, a Texas real estate investment trust,  said that it has received a Wells Notice from the U.S. Securities and Exchange Commission. This is a sign that the regulator’s staff will likely recommend an enforcement action against the mortgage and development REIT.  There are individuals connected to the company and its adviser that also received SEC Wells notices.

The UDF REITs have been in trouble for months now, ever since Harvest Exchange, a hedge fund that had a short position in UDV IV shares, published a report  about how it believes the company has been run like a Ponzi scam for years. Harvest Exchange claimed that the REIT utilized new capital to pay current investors their distributions, while providing earlier UDF companies hefty liquidity in order to pay earlier investors. The hedge fund noted the earlier companies do not appear to be able to stand on their own without this liquidity from the latest UDF REITs.

UDF IV not only denied the hedge fund’s claims, but also it filed a complaint with the SEC claiming it had been the victim of a securities trading scam in which an investor was building a short stock position to illegally manipulate its shares.

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Jens Pinkernell, a Dallas, Texas-based investment adviser, has been suspended for five years. According to the disciplinary action entered by Texas Securities Commissioner John Morgan, Pinkernell and J. Pinkernell Global Wealth LLC charged two clients excessive and unauthorized fees. Both have since been repaid the $46,915 they were collectively overcharged.

The order also suspends the firm’s investment adviser registration. According to the state, J. Pinkernell Global Wealth overcharged the clients for advisory services.

One client agreed to pay the firm 1.35% of the assets it managed. The client also had a separate fee deal with Pinkernell and a third-party custodian. This arrangement allowed Pinkernell to take out $3K/monthly from the client’s account.

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Texas-Based Brokerage Firm Accused of Inadequate Supervision Involving VA Exchanges
The Financial Industry Regulatory Authority is ordering IMS Securities Inc. to pay a $100K fine. The Texas-based brokerage firm is accused of failures related to its monitoring of variable annuity exchanges. By settling, however, it is not denying or admitting to the allegations. 
 
According to the self-regulatory authority, the firm exhibited inadequate supervisory procedures for “problematic rates of exchange” in transactions involving variable annuities. FINRA claims that from 7/ 15/13 through 7/8/14, IMS Securities depended on its CFO to review annuity exchanges but did not provide tools or guidance to help look for “problematic rates of exchange.”  The broker-dealer is accused of not probing possibly “problematic patterns” of VA exchanges and not enforcing written supervisory procedures related to consolidated reports. 

Sethi Petroleum Inc. and its founder Sameer P. Sethi are asking a federal judge to send the U.S. Securities and Exchange Commission’s fraud case against it to trial. Sethi Petroleum is based in Dallas, Texas.  The regulator had sought summary judgment in the Texas lawsuit, which accuses Sethi Petroleum and Sethi of fraudulently selling securities to investors for a drilling project in Montana and the Dakotas.  However, the two of them claim that a jury needs to decide whether the interests that investors are holding are even securities.

The Commission claims that Sethi raised over $4M in a little over a year for the oil venture with the promise of 20 gas and oil wells. 90 investors in nearly 30 states were promised 62.5% net working interest on these wells. They were purportedly told that wells were already making 1 million barrels/month, when Sethi Petroleum actually only held interests in just eight wells—and not all of them were being drilled—in which investors held only .15 to 2.5% interest. These wells produced far less than the 1 million barrels/month touted, claims the regulator. The actual figure was closer to 9,000 to almost 14,000 barrels/month.

The SEC claims that Sethi invested just $950K of investor funds in the wells, while he used $577K to pay himself and his dad. $1.1M of investor funds purportedly went to employees at Sethi Financial Group, with sales employees getting $1.04M. Seth  is accused of lying about his own record of regulatory and criminal violations and his company is accused of lying when it claimed that it was working with Hess Corp. and Mobil Corp.

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Charles August Banks IV was arrested in San Antonio this week. Banks, is charged with two counts of wire fraud related to a $7.5M investment that former NBA basketball star Tim Duncan made with Gameday Entertainment, a sports merchandising company. Banks became Duncan’s financial adviser nearly two decades ago while working for CSI Capital management and he advised him for years.

Banks, now a renowned wine investor,  is  also facing a securities fraud lawsuit brought by the SEC. Although Duncan, formerly with the San Antonio Spurs, isn’t named specifically in the complaint, the regulator said that the case involves an ex-pro basketball player who was Banks’ client.

The SEC claims that Banks made material misrepresentations and omissions of key facts to the basketball player to persuade him to invest in Gameday.  Among the alleged misrepresentations:

A New Jersey financial firm must pay $50,000 in Texas for allegedly not properly supervising one its brokers who loaded up too many energy stocks in his clients’ accounts. The Investment Center Inc. has been reprimanded by the Texas State Securities Board, which also imposed the fine.

It was an investor that brought the Texas securities case against the securities dealer and one of its ex-brokers. According to the state regulator’s consent order, between ’10 and ’14, some clients at The Investment Center held 95% of total investible assets in energy sector equities. The recommended securities were typically low-priced and publicly traded. There were purportedly periods when some clients’ accounts were invested in just one company instead of holding investments in different energy companies at the same time. Also, said the state regulator, with certain clients, their equity positions were 100% concentrated in the energy sector.

The Texas State Securities Board said that clients that could not sustain a lot of risk were among those affected by this broker’s investment choices.

Although the former financial representative’s actions in investing so much of his clients’ money in concentrated equity positions raised red flags when some of these accounts dropped in value, The Investment Center purportedly failed to act on the warning signs. The firm has since paid the investor who filed the Texas securities fraud complaint $98,000.

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