March 23, 2015

SEC Rejects Broker’s Efforts to Start RIA While Behind Bars

The U.S. Securities and Exchange Commission has barred David Scott Cacchione from the securities industry once again. Cacchione was banned in 2009 for helping to mastermind a $100 million financial scam. This time, his bar is for attempting to start a registered investment adviser firm while in jail for the previous crime.

Cacchione, who was released from prison in June, had been sentenced to five years in jail and three years supervised release for pleading guilty to securities fraud. The charge involved pledging clients’ securities without their knowledge to obtain over $45 million in personal loans for a friend. Among those whose money he used was an elderly widow and a children’s charity.

According to the SFGate, in 2007 and 2008 Cacchione, while managing director of Merriman, Curhan, Ford & Co. in San Francisco, gave client brokerage statements to William Del Biaggio III, who doctored them to make it appears as if the securities belonged to him. He did this to secure or renew some $100 million in loans. He used the funds to pay off debt and purchase an ownership stake in the Nashville Predators hockey team.

The Federal Bureau of Investigation said that some $47 million was lost. Cacchione was ordered to pay almost $50 million in restitution. The SEC, however, said that as of August 2014, he had paid just $502. (Del Biaggio, who was sentenced to eight years behind bars, after also pleading guilty to securities fraud, was ordered to pay $67.5 million in restitution.)

In April, while still in prison, Cacchione registered Montara Capital Management, of which he was chief compliance officer, a managing member, and owner of over 50% of the firm. After his release, he submitted an application with the U.S. Securities and Exchange Commission seeking approval of Montara, which he said was an RIA in California.

In September, the SEC filed an administrative proceeding to determine if sanctions against Cacchione were warranted for the application. Earlier this year, the regulator issued an order barring him again. This month, California’s department of securities regulation also barred Cacchione from registering as an investment adviser in the state.

The 2009 securities fraud and this latest incident are not Cacchione’s only run-ins with regulators. According to the Financial Industry Regulatory Authority’s broker check database, he was allowed to resign from Smith Barney Shearson in 1994 because the firm was “unhappy” with trading practices in some of his principal accounts. In 2003, he agreed to a 30-day suspension and a $35,000 fine—without denying or admitting culpability—to resolve claims alleging that he sold unregistered securities to customers without providing the proper disclosures while at First Security Van Kasper.

Our investment adviser fraud law firm is here to help investors recoup their losses.

SEC shuts down ex-broker's attempt to start RIA from jail
, InvestmentNews, March 19, 2015

The SEC's Administrative Proceeding, (PDF)

Securities felon who tried to start investment firm barred, SFGate, March 18, 2015

More Blog Posts:
Over $44M Lost in Alleged Investment Adviser Scam Involving Total Wealth Management, Stockbroker Fraud Blog, March 19, 2015

Brookeville Capital Partners Ordered by FINRA to Pay $1.5M for Private Placement Fraud, Stockbroker Fraud Blog, March 12, 2015

Bank of New York Mellon Corp. Settles Currency Fraud Lawsuits Involving Pension Funds for $714M, Institutional Investor Securities Blog, March 19, 2015

March 19, 2015

Over $44M Lost in Alleged Investment Adviser Scam Involving Total Wealth Management

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.

After investors filed securities fraud case to get their money back, Total Wealth Management allegedly blocked fund access and Cooper told clients that if they wanted to speak with him they would need to sign a waver that indemnified him. He then upped his clients’ fees, charging over $300,000—money he is accused of using to pay for the lawyer defending him against both the complaints and the U.S. Securities and Exchange Commission. He also purportedly used $150,000 of client funds to cover a settlement he owed the SEC.

Now, the receiver is saying that most of that money appears to have been put into funds and private placements that were insolvent or losing money but offered revenue sharing agreements to Total Wealth Management. Cooper also is accused of taking money for his personal spending. To date, only $2 million has been recovered.

Contact our securities fraud law firm today to request your free case assessment.

Client losses total $44 million in 'Madoff of Main Street' case, InvestmentNews, March 19, 2015

Read the SEC Order (PDF)

More Blog Posts:

Brookeville Capital Partners Ordered by FINRA to Pay $1.5M for Private Placement Fraud, Stockbroker Fraud Blog, March 12, 2015

Bank of New York Mellon Corp. Settles Currency Fraud Lawsuits Involving Pension Funds for $714M, Institutional Investor Securities Blog, March 19, 2015

CNL Lifestyle Properties REIT Dips in Value, May Sell Ski Resorts, Institutional Investor Securities Blog, March 16, 2015

March 13, 2015

Consumer Groups Accuse SEC of Not Protecting Retail Investors and Poorly Regulating Investment Advisers

A letter to the SEC from consumer groups claims that the agency is not meeting its obligation to make sure that retail investors are getting the protections they need. The Consumer Federation of America, Americans for Financial Reform, Fund Democracy, Consumer Action, Public Citizen, and AFL-CIO gave an outline of how they want the regulator to enhance financial adviser regulation, which they believe could be more robust.

They are calling on the Commission to execute “concrete steps” to up the standards bar for brokers when it comes to giving investment advice. For right now, brokers only have to recommend investments that in general are a fit for the clients’ investment goals and risk tolerance level, even as investment advisers must abide by a fiduciary obligation.

The letter from the groups also talks about improving financial adviser disclosure in regards to compensation and conflicts, reforming the sharing of revenue, placing limits to mandatory arbitration for disputes between investors and their financial representatives, strengthening regulations for high-risk financial products, and enhancing required disclosures from financial advisers to investors about financial products.

The Dodd-Frank Act Wall Street Reform and Consumer Protection Act authorized the SEC to put into effect one fiduciary standard that would be applicable for both investment and retail advice, obligating every financial adviser to make sure their actions take clients’ best interests into account. This is a mandate that the agency has yet to act upon, even as the U.S. Labor Department is preparing to re-propose a fiduciary duty rule involving advice for retirement accounts.

However, the regulator has had a lot to deal with in regards to rulemaking ever since Dodd-Frank went to effect, making certain mandates that the agency has been required to execute. Now, the consumer groups want the Commission to focus once more on retail investors to make sure they are properly protected.

The reason for a push for a fiduciary rule for brokers is that there is concern that because these representatives get compensation from mutual funds and other companies for pushing their products, investors’ best interests may not be getting served. According to White House economists, reports Bloomberg, investors may be losing up to $17 billion annually because they invested in products that their brokers recommended.

A lot of Republicans and business groups claim that the SEC, not the DOL, should be the one to come up with the regulations first. They believe that rules by the Labor Department would only make the situation confusing while limiting a brokers’ ability to work with smaller investor clients.

Please contact our broker fraud lawyers today. Shepherd Smith Edwards and Kantas is here to help investors and their families recoup their securities fraud losses.

Read the Letter (PDF)

A Split Over Protecting Investors, Bloomberg, March 12, 2015

February 10, 2015

SEC Claims Investment Adviser Paid for Fraud Settlement With Client Monies

The U.S. Securities and Exchange Commission is accusing investment adviser Jacob Cooper and his Total Wealth Management firm of using client funds to pay for a settlement in a fraud case. Now, in the wake of the allegations, the RIA is facing new securities charges.

According to the regulator, Total Wealth Management found clients via a weekly radio show, of which Cooper was the host, and also through free lunches.The SEC contends that Cooper and his firm misused investor money and bilked clients via “administrative” fees that went unexplained. The fees ranged from $3,500 to $7,500/per account. The regulator says that to resolve an SEC administrative action from last year, the investment adviser allegedly borrowed $150K in client funds.

The action accused Cooper of pooling about 75% of clients’ $100 million in assets, placing them in a private fund, and then investing that in unaffiliated funds, which gave clients an undisclosed revenue-sharing fee. In its most recent complaint, the SEC said that Cooper also used investor money to cover the legal fees on a class action that clients brought. These clients were unable to end their relationship with the RIA or take out their money. Following the class action securities case, Cooper sent out an email notifying clients that because of this litigation, all of them would now have to contend with fee increases.

The SEC said that using client money to defend oneself in a case brought by one’s own customer investors is a conflict of interest. It wants to freeze Total Wealth Management’s assets and appoint a receiver. The regulator also wants to assess civil penalties against Cooper and his firm.

Our investment adviser fraud lawyers represent investors in getting their losses back.

SEC says RIA used client money to pay settlement, Investment News, February 5, 2015

More Blog Posts:
Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case, Stockbroker Fraud Case, January 31, 2015

Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses, Stockbroker Fraud Blog, January 21, 2015

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information, Institutional Investor Fraud Blog, January 12, 2015

January 31, 2015

Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case

NBA All-Star Tim Duncan is suing his investment adviser for securities fraud. The San Antonio Spurs basketball player says that his financial representative, Charles Banks, made investment recommendations based on conflicts of interest. Duncan claims that because of this he sustained substantial financial losses.

In his Texas securities case, Duncan says that Banks, who gave him investment advice for seventeen years, took advantage of their relationship for personal gain. Duncan claims that Banks suggested he invest several million dollars in beauty products, hotels, sporting goods, and wineries that the latter either had a financial stake in or owned. The NBA basketball player also says that Banks was able to garner a $6.5 million bank loan using Duncan’s forged signature.

Unfortunately, professional athletes are targeted by financial fraudsters. With their large incomes and, in some cases, inexperience with managing their money and investments, there are scammers who will take advantage of their investment adviser relationship with them to try to make money. Because pro athletes can only play at the NBA, NFL, MLB, and NHL levels for a certain amount of years, unexpected and substantial financial losses caused by securities fraud may prove devastating for athletes and their families.

Contact our Texas securities fraud law firm today. Shepherd Smith Edwards and Kantas, LTD LLP represent professional athletes and other individual investors in recouping their investment fraud losses. Retaining legal representation increases your chances of recovering most if not all of your bilked funds.

Tim Duncan sues former business adviser for over $20 million in losses, SBNaton, January 31, 2015

How to scam an athlete, ESPN, April 22, 2011

More Blog Posts:
St. Louis Rams Quarterback AJ Feeley and US Soccer Player Heather Mitts Are Among Professional Athletes Allegedly Targeted in Ponzi Scam, Stockbroker Fraud Blog, September 7, 2012

Professional Athletes, Celebrities Often Targeted for Securities Fraud, Stockbroker Fraud Blog, August 14, 2013

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information, Institutional Investor Securities Blog, January 12, 2015

January 21, 2015

Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses

SEC Accuses Elm Tree Investment Advisors, its Founder, of $17M Securities Fraud
The Securities and Exchange Commission has filed fraud charges against Elm Tree Investment Advisors LLC and its founder Frederic Elm for running a Florida-based securities scam that raised over $17 million in a little over a year. The regulator contends that Elm, his firm, and the funds Elm Tree Motion Opportunity LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Investment Fund LP misled investors and used the bulk of the funds to issue Ponzi-like payments. Elm also is accused of using the money to purchase expensive homes, jewelry, and autos, as well as cover his daily living expenses.

According to the SEC, Elm, his unregistered advisory firm, and the three funds violated the regulator’s anti-fraud rules as well as federal securities laws. The Commission wants relief for investors as well as the restoration of the purportedly ill-gotten gains and financial penalties.

A judge granted the regulator’s request for a temporary asset freeze and issued restraining orders against all those named. Elm’s wife, Amanda Elm, is a relief defendant.

District Court Issues 40 Month Sentence for Cherry Picking Scam
In other investment adviser fraud news, a district court has sentenced Noah Myers to 40 months behind bars for running a cherry picking securities scheme. Myers pleaded guilty last year to one count of securities fraud, which the government says cost investors around $470,000. Myers owns MiddleCove Capital LLC.

Between 4/09 and 11/10, Myers bought a number of securities, including the leveraged exchange-traded fund (ETF) ProShares UltraShort Financials. He then disproportionately allocated the trades that went up in value to his own accounts. In 2013, the SEC took back MiddleCove’s investment adviser license. Myers is now barred from the securities industry.

Ohio Man Accused of $5.5M Ponzi Scam
In an unrelated Ponzi scam, an Ohio man has been charged with running a $5.5 million scheme that bilked at least 19 investors. Geoffrey Nehrenz is accused of promoting and selling investments contracts to clients via Keystone Capital Management. The investment adviser firm is not registered with the SEC.

Nehrenz allegedly falsely represented to prospective clients that their money would be pooled, invested in mid- and large-capitalization, publicly traded U.S. securities by day, and changed into cash at night. He is accused of instead using the funds to cover his personal and business spending and, without client permission, make side pocket investments involving speculative, high-risk trades in overseas and domestic private placement vehicles.

SEC ALJ Finds Harding Advisory Firm Liable for CDO Fraud
An SEC Administrative Law Judge has found Wing Chau and his Harding Advisory LLC liable for fraud. The regulator accused Chau of letting a hedge fund control which assets would back a collateralized debt obligation, the Octans I CDO Ltd., without notifying investors.

The firm must pay $1.7 million as a penalty. Chau has to pay $340,000. They also must disgorge $1 million in profits plus interest.

Uniontown man accused of defrauding investors $5.5M, WKYC, January 16, 2015

Connecticut investment adviser sentenced to 40 months in prison for fraud, Reuters, January 12, 2015

An Investment Adviser Who Sued Michael Lewis For Defamation Has Been Found Liable For Fraud, Business Insider, January 13, 2015

SEC Charges Investment Adviser and Manager in South Florida-Based Fraud, SEC, January 21, 2015

More Blog Posts:
Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors, Stockbroker Fraud Blog, January 13, 2015

Standard & Poor’s to Pay Almost $80 Million to Resolve SEC Charges Over Ratings Fraud Involving CMBSs, Institutional Investor Securities Blog, January 21, 2015

UBS Settles SEC Dark Pool Case for $14M, Stockbroker Fraud Blog, January 16, 2015

January 13, 2015

Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors

According to the Securities and Exchange Commission, ex-investment adviser Sherwin Brown is continuing to offer financial advice even though the regulator barred him from the industry and ordered him to pay $1.3 million for allegedly diverting client monies. Brown now calls himself a “money coach” and has kept his Jamerica Financial Inc. in operation, receiving compensation for his services. At a certain point, the firm, which has since been ordered inactive, had nearly $30 million in assets under management.

The regulator contends that between 6/11 and 5/14, a Wells Fargo & Co. (WFC) account in Jamerica Financial’s name received over 120 deposits totaling $330,000. The deposits were payable to Brown and his company. Notes in check memo lines indicated that the money was for investment advisory services.

Brown, who was barred from the industry in 2011, operates, which includes a blog on investing. The site also promotes his investment books.

Another barred financial adviser who kept on working after he was caught embezzling money from a client has now been sentenced to 51 months behind bars. Jeffrey Knutsen, a Bellingham financial and tax adviser, was convicted of bilking 26 senior investors, stealing $255,000. Knutsen, who owns Bellweather Wealth Management, has not been allowed to work in the securities industry since 2005.

However, according to the U.S. Attorney’s office, he kept setting up accounts for clients, who gave him access to their money. Knutsen allegedly told them they would have to pay him a fee for managing their accounts. He is accused of writing over 200 checks without their knowledge and using the $250,000 for his own purposes.

Unfortunately, even when someone has been barred from the securities industry for wrongdoing there are those that manage to keep working and defrauding more clients. In such instances, it is the investors who suffer.

Last week a Financial Industry Regulatory Authority hearing panel expelled the firm John Thomas Financial while barring its CEO Anastasios “Tommy” Belesis from the securities industry. The panel said that the two of them committed violations related to the sale and common stock of America West Resources Inc. (AWSRQ), including trading before the customers’ order, giving false testimony, as well violations of principals of trade and recordkeeping. Belesis and JTF were ordered to pay more than $1 million plus interest to customers.

FINRA says that the two of them made a profit after they traded ahead of 14 JTF customers that were attempting to sell their positions in AWSR. Belesis and JTW profited while the customers did not. The panel noted that while JTF did not purposely hold the customer orders its attempts to make the trades failed.

Under FINRA rules, a firm must execute the orders at the same or at a greater price than what the firm got. JTF a, Belesis, and JTF’s Chief Compliance Officer Joseph Castellano are also accused of harassing and intimidating registered representatives.

If you are an investor, it is important that you do your due diligence to make sure that the person who is advising you does not have a history of wrongdoing. Financial fraud and other negligence may lead to serious investor losses.

If you think your financial losses are because you got bad advice or because you were bilked by an investment advise, a broker, or another industry representative, you should contact our investment adviser fraud lawyers today.

Sherwin Brown, former investment adviser turned coach, charged by SEC, Investment News, January 9, 2015

FINRA Hearing Panel Expels John Thomas Financial and Bars CEO Tommy Belesis for Trading Ahead of Customer Orders, Providing False Testimony and Other Violations; Ordered To Pay $1,047,288 to Customers, FINRA, January 9, 2015

Financial adviser sentenced for stealing from elderly, Seattle Times/AP, January 5, 2015

More Blog Posts:
SEC Judge Orders Two Investment Advisers to Pay Over $6.3M Related to Bernard Madoff-Linked Hedge Funds, Stockbroker Fraud Blog, January 9, 2015

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information, Institutional Investor Securities Blog, January 12, 2015

Some Advisers Choose Alternative Investments Using Poorly Suited Benchmarks, Says Morningstar, Institutional Investor Securities Blog, July 8, 2009

January 9, 2015

SEC Judge Orders Two Investment Advisers to Pay Over $6.3M Related to Bernard Madoff-Linked Hedge Funds

A Securities and Exchange Commission administrative law judge says that investment advisers Larry Grossman and Gregory Adams must pay over $6.3M in restitution and fines for misleading clients who invested in hedge funds tied to Ponzi fraud mastermind Bernie Madoff. Administrative law judge Brenda Murray issued her ruling last month.

The two investment advisers are Sovereign International Asset Management founder Larry Grossman and Gregory Adams, who agreed to buy Sovereign from Grossman in 2008. The firm filed for bankruptcy four years later.

Per the SEC administrative complaint, Grossman did not know that the two hedge funds that he primarily recommended to clients were linked to Madoff. The Commission contends that Grossman violated his fiduciary duties to his clients when he neglected to conduct due diligence on the funds, which were run by a man named Nickolai Battoo. Grossman also purportedly did not notify clients that he was getting paid $3.4 million in consulting fees and referral money for recommending certain funds. After Grossman sold Sovereign to Adams, the former owner continued working in several capacities at the firm and never actually told clients that the sale even happened.

It was just last October that a federal judge in Illinois ordered Battoo to pay over $358 million for concealing investment losses that were part of Madoff’s Ponzi scam. The SEC accused the hedge fund manager of bilking investors around the world by claiming exceptional returns while hiding huge losses, including those involving leveraged investments in Madoff feeder funds.

Madoff, whose Ponzi scam went on for decades, collectively bilked thousands of wealthy and regular investors, as well as institutional clients, of billions of dollars, He is serving 150 years behind bars after pleading guilty to the criminal charges against him.

Court Imposes Injunctions and Monetary Sanctions of Over $350 Million Against Nikolai Battoo and His Companies
, SEC, October 6, 2014

More Blog Posts:
Madoff Ponzi Scam: Five Ex-Aides Convicted of Securities Fraud, Victims to Recover $349 Million, Stockbroker Fraud Blog, March 26, 2014

Madoff Ponzi Scam Victims Win Right to Appeal for Interest
, Stockbroker Fraud Blog, January 24, 2014

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

December 15, 2014

Reliance Financial Advisors, Owners Face SEC Fraud Charges Involving Hedge Fund

The SEC is charging Reliance Financial Advisors and its co-owners Walter F. Grenda Jr. and Timothy S. Dembski with securities fraud. The agency says that the Buffalo, NY-based investment advisory firm and the two men misled clients when recommending that they get involved in a hedge fund managed by portfolio manager Scott M. Stephan.

Grenda and Dembski guided senior investors toward making highly speculative investments in the Prestige Wealth Management Fund, which Stephan managed, even though they allegedly knew he was inexperienced in this type of investing. The clients, who were either close to retirement, retired, or living on fixed incomes, collectively invested around $12 million.

Stephan was supposedly going to employ a trading strategy that involved a specific computer “algorithm,” which actually only day traded. Instead, he started making trades manually, his approach eventually playing a part in the hedge fund’s failure. The SEC has said that Stephan’s investing experience was greatly exaggerated in offering materials. (The majority of his career involved collecting car loans that were overdue.)

In late 2012, when the fund did not make the positive returns that were anticipated, Grenda pulled out his clients. When the fund failed, losing around 80% of its value, Dembski’s clients lost most of what they invested.

The SEC’s Enforcement Division also alleges that in 2009, Grenda borrowed $175,000 from two clients, claiming it was a business loan when he used the funds for personal spending. The agency is accusing Grenda, Dembski, and Reliance Financial Advisors of violating provisions of the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Securities Act of 1933.

In another order, Stephan consented to settle findings accusing him of violating the antifraud provisions of the three acts, as well as abetting, aiding and causing violations of these provisions by Prestige Wealth Management Fund’s general partner. He consented to a permanent bar from the securities industry. However, he is not denying or admitting to the allegations.

Contact our investment adviser fraud law firm today.

SEC Announces Fraud Charges Against Buffalo-Based Firm and Co-Owners Accused of Misleading Investors in Hedge Fund
, SEC, December 10, 2014

More Blog Posts:
SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs, Stockbroker Fraud Blog, December 10, 2014

Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014

November 24, 2014

FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees

A Financial Industry Regulatory Authority arbitration panel said that USCA Capital Advisors LLC must pay over $3.8 million to 19 ExxonMobil retirees whose investments were mismanaged the Houston-based wealth management firm. The self-regulatory organization also says that the Texas investment advisory firm misled the investors about its trading strategy.

It is not uncommon for Houston financial advisers to target ExxonMobil retirees as clients. The oil company has a huge outfit and other operations in the area. According to the investors, USCA was tasked with handling their retirement savings because of promises the investment advisors made to protect, oversee, and grow their accounts.

At a presentation by USCA RIA LLC, which is USCA’s investment advisory arm, advisers told investors about their Total Return model program, which they claimed would up S & P 500 gains while lowering the risks involved in trading equities. Investors said they were told the strategy would hold primarily exchange-traded funds and U.S. stocks in a rising market and turn the money into cash when the markets dropped. Trades were to be stimulated by “objective technical factors.”

While some investors thought the program would handle trading, others thought that the firm would monitor computerized results, using the information to trade. They invested close to $40 million. They believe that they could have made $3 million from the strategy they thought the firms’ advisers were going to employ. Instead, they sustained $1.25 million in losses.

Of the $3.8 million FINRA arbitration award, $853,000 is punitive damages. $1.9 million are damages and interest. Nearly $1 million will go to legal bills and other expenses.

Shepherd Smith and Kantas, LTD LLP is a Texas stockbroker fraud law firm.

Texas Advisory Firm Ordered to Pay Exxon Retirees $3.8 Million,, November 20, 2014

Houston wealth management firm must pay $3.8 million to retirees: panel, Reuters, November 19, 2014

More Blog Posts:
Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

October 27, 2014

Investment Adviser Pleads Guilty to Involvement in $2M Cherry Picking Securities Scam

Noah Myers waved his right to indictment and pleaded guilty to defrauding clients of over $2M. The investment adviser admitted to his involvement in a cherry picking scam. Myers, 43, owns MiddleCove Capital LLC, which is located in Connecticut. He faces up to 20 years behind bars and a maximum fine of $5 million.

As part of his guilty plea, Myers admitted to taking profits from investments for himself and other accounts he favored. Losses were distributed to accounts he did not favor. He accomplished this imbalanced distribution by waiting to assign a trade to an account until after he was able to determine whether it was profitable.

Because of his securities scam, clients lost over $2 million. Meantime, he made $460,000 in profits. A lot of the investors he bilked were retired and had asked MiddleCove to involve them in investments that were low risk.

Myers was the portfolio manager in charge of running client accounts. Charles Schwab & Co., Inc. (SCHW) was tasked with trading securities. As part of a trading deal with Schwab, Myers was allowed to use a master account to make block purchases and sell securities. He could then transfer these transactions to other accounts. During the day, he would disproportionately allocate the trades that appreciated to his personal and professional accounts. Trades that went down in value he would move to clients’ accounts.

It was MiddleCove’s employees who discovered the cherry picking scheme in 2010. They found out about the potentially illicit trades via a computer program that detects favorable allocations of day trades that are profitable.

Both the Federal Bureau of Investigation and the U.S. Securities and Exchange Commission have been investigating Myers for the past couple of years. The regulator has taken away MiddleCove’s investment adviser registration while Myers is now barred from the industry.

Contact our securities fraud lawyers today if you suspect your investments are because of financial fraud or negligence.

Connecticut Investment Adviser Admits Defrauding Clients Through Cherry-Picking Scheme, FBI, October 21, 2014

Read the SEC Order (PDF)

More Blog Post:
Alleged Cherry-Picking Scam Leads to SEC Charges Against California Hedge Fund Manager, Stockbroker Fraud Blog, December 18, 2012

73 Swiss Banks Want the US to Modify Proposed Tax Amnesty Deals, Institutional Investor Securities Blog, October 25, 2014

Wells Fargo to Pay $5M Over Inadequate Controls, Altered Documents, Institutional Investor Securities Blog, October 21, 2014

October 17, 2014

SEC Wants to Bar Ex-Broker for Allegedly Misappropriating $2M

The U.S. Securities and Exchange Commission has taken action to bar Paul Marshall, an ex-investment adviser and broker from the industry. Marshall is accused of misappropriating $2M in client assets.

Last year, the SEC charged him and his related investment advisers, Bridge Securities and Bridge Equity Inc., with fraud. The regulator contends that Marshall took client assets to cover his own spending, including child support, alimony, expensive vacations, and tuition for his kids. He purportedly diverted the money into accounts under his control, set up misleading account statements, and raised cash for FOGFuels Inc., a private placement he controlled.

The Financial Industry Regulatory Authority Inc. has already barred Marshall from associating with all brokerage member firms. Last month, the SEC ordered him to pay $15 million in disgorgement because of the money he made from the alleged securities scam.

Marshall has to pay $1.35 million in penalties. The two investment advisers must pay $5.8 million. FOGFuels’s penalty is $725,000.

Marshall previously worked for eight brokerage firms. In 2008, he was let go from Oppenheimer & Co. (OPY) after a customer accused him of taking a loan from that client and taking part in private securities transactions.

Please reach out to our stockbroker fraud lawyers if you suspect that you were the victim of financial fraud. We represent investors with securities claims and financial fraud lawsuits and help them recover their investments losses.

Read the Administrative Proceeding Against Paul Marshall (PDF)

SEC: Cobb adviser used clients’ funds for trips, alimony
,, September 16, 2013

More Blog Posts:
UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Closed-End Mutual Fund Sales, Stockbroker Fraud Blog, October 14, 2014

DOJ Charges Another Two Ex-Rabobank Traders Over Libor Manipulation, Institutional Investor Securities Blog, October 16, 2014

LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

September 3, 2014

Study Assesses How Much Investment Advisory Firms Would Pay for SEC Exams

According to a study released by compliance consultant RIA in a Box, some investment advisory firms could end up paying millions of dollars in users fees each year to finance exams conducted by the Securities and Exchange Commission. The study addresses a bill that would let the regulator charge fees to cover exam costs. The agency has said that it needs more money to hire more RIA examiners.

The proposed measure is intended to help the SEC enhance its yearly examination rate. Right now, the exam rate is just 9% of the about 11,500 investment advisers that are registered with the agency.

Under the bill, the SEC would determine user fees according to how much it would cost to increase the amount and frequency of registered investment advisers. A firm’s assets under management, risks characteristics, and the number and kinds of clients would also be factored.

The RIA in a Box came up with its calculations by estimating how much more it would cost for the SEC to hire additional RIA examiners. It then allocated the costs among the different firms according to their assets under management. For example, a firm with $2.5 billion in assets under management would likely pay a $14,121 user fee. A firm with $2.35 trillion in assets under management would have a yearly user fee of over $13.2 million dollars.

RIAs that have under $100 million in assets under management do not have to pay a user fee to the SEC. They are registered in their states.

The compliance consultant says that the cost to RIA firms for exams funded by user fees is estimated to be around $310 million. According to ThinkAdvisor, even though the fees might be substantial for some firms, RIA in a Box’s analysis indicates that most of the 32,000 advisers would not be subject to much of (if any) fee. Only approximately 11,500 firms will likely meet the criteria that would obligate them to pay a user fee.

Our investment adviser fraud lawyer represents investors throughout the U.S. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC User Fees Would Have Little Impact on Most Firms: Study, ThinkAdvisor, September 3, 2014

SEC exams could cost RIAs thousands – or even millions, InvestmentNews, September 3, 2014

More Blog Posts:
Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest, Stockbroker Fraud Blog, September 2, 2014

SignalPoint Asset Management to PAY SEC Fine for Breach of Fiduciary Duty, Stockbroker Fraud Blog, July 7, 2014

SEC Temporarily Shuts Down Investment Adviser Over Alleged $8.8M NY Securities Fraud, Institutional Investor Securities Blog, June 4, 2014

September 2, 2014

Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest

The SEC is charging Robare Group Ltd., an investment advisory firm headquartered in Houston, Texas, with securities fraud. The regulator’s enforcement division says that the firm and co-owners Jack L. Jones Jr. and Mark L. Robare made mutual fund recommendations to clients even though they had a conflict.

According to the SEC, Robare and a broker-dealer purportedly had an undisclosed compensation agreement. The brokerage firm paid Robare Group compensation—a portion of each dollar that every client invested in certain mutual funds—for recommending the investments

The deal gave Robare, Jones, and the firm incentive for favoring these funds over other investments. The firm is accused of making about $440K in compensation over eight years from the agreement.

Although in 2011 Robare did modify its Form ADV to disclose the compensation agreement, the SEC claims that the form and later disclosures stated falsely that the investment advisory firm did not benefit financially for giving investment advice about the mutual funds. It wasn’t until last year that Robare disclosed there was a conflict of interest. However, the firm did not reveal that there was incentive to recommend certain mutual funds.

The SEC has been taking a closer look at compensation deals between brokers and asset managers. There is concern that payments to investment advisers for recommending certain investments is impairing their ability to give impartial advice that is in the best interests of clients. Also, investment advisers are required to disclose any conflicts of interest to customers.

Our Texas investment adviser fraud lawyers represent investors in recouping their losses. You shouldn’t have to sustain losses while an adviser, a broker, or anyone else profits at your expenses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Houston-Based Investment Advisory Firm and Co-Owners Charged With Failing to Disclose Conflict of Interest to Clients, SEC, September 2, 2014

Read the SEC Order (PDF)

More Blog Posts:
Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud, Stockbroker Fraud Blog, August 7, 2014

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July 7, 2014

SignalPoint Asset Management to PAY SEC Fine for Breach of Fiduciary Duty

The Securities and Exchange Commission is ordering the comptroller and principals of SignalPoint Asset Management to pay $215,000 for breach of fiduciary. The regulator claims that the Missouri-based registered investment adviser breached its fiduciary duty when it did not tell clients about certain conflicts of interest.

The SEC says that SignalPoint principals Dennis R. Walker, Jonathan C. Timson and John W. Handy Jr. failed to disclose that they had control of the RIA when they advised clients to invest in it. This failure to disclose the conflict is a violation of the Advisers Act.

Michael Orzel, SignalPoint’s comptroller, was responsible for filing and drafting the RIA’s Form ADVs that also failed to disclose that Walker, Timson, and Handy were not just the principals of the registered investment adviser but also its control persons.

SignalPoint Asset Management is the investment adviser to over 1,800 accounts. Asset under management is about $526 million.

Breach of Fiduciary Duty
a “fiduciary” has a legal obligation to act in another’s best interests. The duty is typically one that is performed in good faith and the fiduciary makes the clients’ interests the first priority over his/her own. Part of this is disclosing to a customer any conflicts of interest, especially when making an investment recommendation that will benefit the fiduciary. Examples of other duties that should be honored including: providing complete and fair disclosure of important facts, and exercising professional judgment, skill, care, and diligence.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities lawyers represent securities claims for investors who have lost money because a breach of fiduciary duty occurred. Contact our investment adviser fraud attorneys today.

SEC fines Missouri RIA for breach of fiduciary duty, InvestmentNews, July 3, 2014

More Blog Posts:
SEC Files Order Against New Mexico Investment Adviser Over Allegedly Secret Commissions, Stockbroker Fraud Blog, June 10, 2014

SEC Charges Total Wealth Management With Securities Fraud, Receiving Undisclosed Kickbacks, Stockbroker Fraud Blog, April 18, 2014

SEC Temporarily Shuts Down Investment Adviser Over Alleged $8.8M NY Securities Fraud, Institutional Investor Securities Blog, June 4, 2014

June 10, 2014

SEC Files Order Against New Mexico Investment Adviser Over Allegedly Secret Commissions

The SEC has submitted an order against Dennis J. Malouf accusing him of investment adviser fraud. The regulator says that he allegedly took trading commissions that he wasn’t entitled to for himself. He was in charge of UASNM’s bond trading operation between 2008 and May 2011. Malouf, who was the CEO of UASNM Inc. is now with M Wealth Management.

According to the Commission, he set up a secret verbal deal with someone at a broker-dealer branch to send him the commissions generated by the broker for bond trades that this person did with Malouf’s firm. The regulator claims that rather than look for the best way to make the bond trades happen, UASNM worked only with the broker-dealer. Over the approximately three-year period, the investment advisory firm made over 200 bond trades through the unnamed branch. This was about $30 million to $40 million in trades every year, for which Malouf obtained about $1.1M in commissions.

In 2011, UASNM fired Malouf, who was a majority owner,because of misconduct allegations. He then sued for wrongful termination and that is when the firm’s attorneys discovered the purported commission deal.

Meantime, the regulator has censured UASNM, which settled for $100,000. It is also paying over $500,000 to over clients who were affected by the additional markups because the investment advisory firm did not look for the best bond prices.

Please contact our investment advisor fraud lawyers today. We help investors get their money back.

SEC files cease-and-desist order against adviser accused of stealing $1.1 million, InvestmentNews, June 10, 2014

UASNM Inc. settles with SEC over alleged commission scheme, BizJournals, June 10, 2014

Read the SEC Order (PDF)

More Blog Posts:
State Senator Reprimanded For Violating the Texas Securities Act, Stockbroker Fraud Blog, May 8, 2014

SEC Charges Total Wealth Management With Securities Fraud, Receiving Undisclosed Kickbacks, Stockbroker Fraud Blog, April 18, 2014

SEC Temporarily Shuts Down Investment Adviser Over Alleged $8.8M NY Securities Fraud
, Institutional Investor Securities Blog, June 4, 2014

May 8, 2014

State Senator Reprimanded For Violating the Texas Securities Act

The Texas State Securities Board has reprimanded Senator Ken Paxton and ordered him pay a $1,000 fine for soliciting investment clients even though he wasn’t properly registered. According to the board’s disciplinary order, Paxton, who is running for state attorney general, violated the Texas Securities Act. Under the Act’s Section 12.B, a person cannot act as an investment adviser representative unless he/she is registered as one for that investment adviser in particular.

The Texas Tribune reports that Paxton started working as a solicitor for companies belonging to Fritz Mowery in 2001. On three occasions, in 2004, 2005, and 2012, he took part in unregistered solicitations and referred the customers to Mowery Capital Management, LLC. The fine is for the last incident, which occurred within the last five years. (One of the incidents led to a Texas securities fraud case in 2009 when investors Teri and David Goettsche sued Paxton and Mowery for breach of duty.

In their Texas investment fraud case, the Goettsches claimed that Paxton recommended they invest with Mowery while failing to mention that he would get a 30% commission for the referral. The couple later dropped the securities lawsuit.

In other Texas securities news, a federal judge has sentenced a Brazoria County woman to three years in prison for investment fraud. Kimberly Fontenot bilked clients when she used a voice actor to pose as a rich investor. She falsely claimed that she knew a lot of rich “angel investors.” Fontenot will have to pay back over $115,000 to victims.

About 20 investors were defrauded in a scam involving her company Stellar Grants Inc. The voice actor was hired to pose as the fake wealthy investors during conference calls.

Prosecutors said that Fontenot used and to set up bogus email accounts for these fake angel investors, who would then send e-mails to her customers. She had these clients (or their reps) sign “Master Consulting Agreements” that included a penalty clause for directly contacting the angel investors.

Two other Texans also in the headlines over fraud allegations are billionaire brothers Sam and Charles Wyly. The latter is deceased. Both men are on trial for allegedly making $550M because they concealed share holdings in offshore trusts.

According to the Securities and Exchange Commission, for 13 years the brothers hid trades in four public companies in which they were board members —Michaels Stores. Inc., Scottish Annuity & Life Holdings Ltd., Sterling Commerce Inc., and Sterling Software Inc. The regulator is suing them for insider trading and securities fraud.

The Wylys’ lawyer denies that the men hid the trusts or broke the law.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm. Our main office is in Houston.

Read the Disciplinary Order against Paxton (PDF)

Paxton Violated Securities Law, Gets Reprimand, The Texas Tribune, May 2, 2014

‘Investment Advisory Firm’ Owner Convicted of Fraud,, December 5, 2013

Jurors Weigh Fraud Charges Against Wyly Brothers Accused Of 13-Year 'Scheme of Secrecy', Forbes, May 8, 2014

More Blog Posts:
Texas Man Gets 25 years in Prison for $11M Ponzi Scam, Stockbroker Fraud Blog, April 21, 2014

Securities Lawsuits Accuse BlackRock Of Charging Exorbitant Investment Advisor Fees, Institutional Investor Securities Blog, May 8, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales, Stockbroker Fraud Blog, May 6, 2014

April 18, 2014

SEC Charges Total Wealth Management With Securities Fraud, Receiving Undisclosed Kickbacks

The Securities and Exchange Commission has filed a financial fraud case against Total Wealth Management Inc., an investment advisory firm based in Southern California. The regulator is accusing the firm of getting undisclosed kickbacks over investments recommended to clients. It is also alleging breach of fiduciary duty.

According to the SEC’s complaint, Total Wealth placed about 75% of 481 client accounts into Altus Funds, which is a family of proprietary funds. The investment advisory firm has a revenue-sharing deal that allows them to get kickbacks. The regulator says this was a conflict of interest because customers did not know about the agreement.

The Wall Street Journal reports that according to the SEC, Altus invested 92% of all its investments—$32 million—in funds that had revenue sharing deals with Total Wealth. The agency says that clients likely wouldn’t have put their money with Total Wealth if they had known that the majority of the Altus funds were paying the firm.

The Commission is accusing Total Wealth Management CEO Jacob Cooper, co-founder David Shoemaker, and chief compliance officer Nathan McNamee with setting up business entities to hide the undisclosed payments. While revenue sharing isn’t necessary illegal, they become a problem if they are concealed on purpose. Cooper is also accused of misleading investors about just how much due diligence it conducted on Altus Funds’ investments.

The SEC contends that Cooper and Total Wealth violated federal securities laws’ antifraud provisions, while Shoemaker and McNamee purportedly aided and abetted or violated the provisions. Other charges include custody rule and Form ADV disclosure rule violations. The Commission wants the allegedly ill-gotten gains given back, the imposition of a financial penalty, interest, and remedial relief.

Investment advisers have a duty to act in the best interests of a client. Failure to do that may result in losses for an investor and in some cases intentional gains for the adviser or his firm. If you think your investment losses are a result of your financial adviser breaching its duty to you, please contact our investment fraud law firm today.

Read the SEC Order (PDF)

More Blog Posts:
SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

SEC Reveals Plans to Examine Never-Before-Inspected RIAs, Stockbroker Fraud Blog, February 24, 2014

SEC Sanctions Three Investment Advisory Firms for Custody Rule Violations, Institutional Investor Securities Blog, October 30, 2013

April 12, 2014

FINRA Doesn’t Want Oversight Over Financial Advisers, Says CEO Ketchum

According to Financial Industry Regulatory Authority CEO Richard G. Ketchum, the regulator no longer wants to be given oversight over financial advisers. Speaking to The Wall Street Journal, Ketchum said the self-regulatory agency had done all it could to be granted authority over investment advisers and has decided to stop with additional attempts.

FINRA currently oversees brokers. Meantime, the Securities and Exchange Commission and the states oversee registered investment advisers. The SEC had been exploring having FINRA or another agency police RIAs instead. However, the majority of investment advisers were against such a move because of the way FINRA handles enforcement. They don’t think the regulator understands the way investment advisers operated.

Ketchum is now saying that Congress should give the SEC the resources it needs to enhance its examination program of advisers. The Commission has been asking for more money because it can only afford to examine investment advisor firms about once a decade, which isn’t much oversight at all.

Ketchum also said that he approves of the way investment advisers, like brokers, must now uphold fiduciary standards that mandate that they always act in the best interests of a client. However, it is only brokers who need to ensure that the investment strategies and products they recommend are suitable for a customer.

Meantime, reports InvestmentNews, a five-year bull market is causing advisers to experience the highest levels of compensation and assets under management in seven years. A study just released by Fidelity Investments reports that in the last year approximately 95% of advisers saw their business grow. Also, average compensation was at about $24,000 and average assets under management was at around $60 million. However, many advisory firms are finding it hard to draw in young clients, which could slow long-term growth.

Our securities lawyers represent investors that have lost money because of investment adviser fraud and other forms of financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Financial Industry Regulatory Authority

Finra Backs Off From Expanding Oversight, The Wall Street Journal, April 10, 2014

Advisers' business booming, but dark clouds looming, Investment News, April 10, 2014

More Blog Posts:
SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

SEC Reveals Plans to Examine Never-Before-Inspected RIAs, Stockbroker Fraud Blog, February 24, 2014

SEC Sanctions Three Investment Advisory Firms for Custody Rule Violations, Institutional Investor Securities Blog, October 30, 2014

April 1, 2014

SEC Says Investment Advisors Can Publish Third-Party Endorsements Online

The Securities and Exchange Commission says that investment advisers are allowed to publish comments from the public about their services on an independent social media website but that they must include both negative and positive reviews in unedited form. Also, the adviser must not have any affiliation with the site or the ability to influence it. The SEC made the announcement this week in a guidance update.

SEC rules typically don’t allow “testimonials.” The guidance, however, now says that Commission-registered advisers can direct potential clients to the reviews as long as certain conditions are met. The changes are in part because of the rapidly evolving social media market and the fact that this area is becoming a primary way that businesses communicate with prospective customers.

The regulator said that client reviews could only appear on review sites or independent social media. This means, for example, that they cannot be published on an adviser Facebook page. Also, an adviser cannot promise a customer anything in return for favorable reviews and employees are not allowed to write these testimonials.

Advisers cannot use client endorsements as part of their advertising materials. They can, however, publish these testimonials from an independent review site in a way that is “content-neutral,” such as alphabetically or chronologically.

Investment advisers that want to use Facebook, Twitter, or LinkedIn as part of their business will likely feel relief about the new guidance. The SEC’s guidance says that even a “fan” page of the adviser set up by an independent party would not be a violation of the testimonial rule. The regulator, however, warned against investment advisers including a hyperlink to the third party site on its own web pages.

Our investment adviser fraud law firm is here to help investors recoup their securities fraud losses.


More Blog Posts:
Puerto Rico Bonds Are at Record Low Prices After FINRA Announces It Is Looking At Transactions, Stockbroker Fraud Blog, March 27, 2014

SEC To Examine Exchange Traded-Fund Regulation Again
, Stockbroker Fraud Blog, March 22, 2014

FBI Probes Possible High-Speed Trading, Insider Trading Link
, Institutional Investor Securities Blog, April 1, 2014