Articles Posted in Texas Securities Fraud

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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Dez Bryant, the wide receiver for the Dallas Cowboy, is suing Texas State Senator Royce West for financial fraud. West used to be Bryant’s adviser. The NFL football player is claiming breach of fiduciary and professional obligation.

West was Bryant’s adviser and lawyer. According to the Dallas Cowboy player’s Texas securities fraud case, West recommended his friend David Wells as a financial manager to Bryant even though for had more than $1K in pending judgments against him in 2010 alone.

Because of West’s recommendation, Bryant gave Wells power of attorney and signatory authority over his banks accounts. The football star said that Wells stole more than $200K from him.

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The U.S. Securities and Exchange Commission is ordering WFG Advisors to pay a $100K penalty for charging clients too much on their investments business development companies and real estate investment trusts. The Dallas-based firm is the registered investment advisory arm of Williams Finance Group.

According to the regulator, the purported overcharges took place from 1/11 through 8/13. The SEC claims that WFG Advisors had policies and procedures that were inadequate, which kept it from identifying and stopping incidents of overcharging. Because of these inadequacies, including what the regulator considered a lack of technological capabilities, 35 accounts were collectively overcharged $34,640.63 in advisory fees.

The Commission said client’s in the firm’s wrap account program were told that they would be charged a commission to buy alternative investment product interests, including interests in BDCs and REITs. However, there wasn’t supposed to be an advisory fee. Instead, said the Commission, WFG Advisors charged both a commission and an advisory fee. (Forms submitted to the regulator included false statements saying that wrap program participants would not have to pay commissions for transactions that took place in their accounts.)

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The U.S. Securities and Exchange Commission is charging Breitling Energy Corp. (BECC), Breitling Oil & Gas Corporation, Patriot Energy Inc., Crude Energy, LLC, and eight people over an $80M Texas oil and Gas scam run by a Dallas man. Chris Faulkner, who is Breitling Energy Corp.’s CEO, is accused of starting the scam as far back 2011 through Breitling Oil and Gas Corporation (BOG), which sold “turnkey” oil and gas working interests.

Faulkner is charged with issuing misleading and false offering documents, trying to manipulate BECC’s stock, and misappropriating clients’ funds, including at least $30M for his own expenses, such costly meals, international travel, personal escorts, and jewelry. The SEC said that the false offering documents included fake statements and omissions regarding Faulkner’s experience, the ways in which investor money would be used, and drilling cost estimates. The documents also included reports by Joseph Simo, a licensed geologist. Simo’s production projections purportedly had no basis and the reports did not mention that he had ties to BOG.

The SEC said that BECC, Patriot Energy, and Crude Energy also were involved in the scam. Faulkner is accused of setting up the latter two companies so he could scam investors through additional offerings that resembled those offered by BOG. BOG, Patriot, and Crude would go on to raise over $80M from investors.

Also facing SEC charges are ex-Crude and Patriot employee Beth Hadkins, ex-BECC CFO Rick Hoover, BECC COO Jeremy Wagers, BOG co-owners Dustin Michael Miller Rodriguez, and Parker Hallam, Simo, and ex-BECC employee Gilbert Steedley. Wagers and Hoover,

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The Securities and Exchange Commission has gotten a court order to freeze the assets of investment adviser Ash Narayan. He is accused of bilking Denver Broncos quarterback Mark Sanchez, ex-Major League Baseball pitcher Roy Oswalt, and San Francisco Giants pitcher Jake Peavy, and other clients of millions of dollars in a Ponzi-like scam.

Also named in the case are The Ticket Reserve Inc., an online sports and entertainment ticketing business, its COO John A. Kaptrosky and CEO Richard Harmon. Narayan, who used to be managing director of Dallas-based RGT Capital Management, was on the ticket company’s board. He owned over 3 million shares of The Ticket Reserve Inc. stock and he was the primary person raising funds for the company.

According to the regulator, Narayan took over $33M from clients’ accounts and moved the funds to The Ticket Reserve. He allegedly did this without their knowledge or permission and he used unauthorized or forged signatures. Narayan also is accused of making Ponzi-like payments using newer investors’ money to pay earlier investors. Meantime, he was purportedly was paid almost $2M in concealed compensation.

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