November 14, 2015

SEC Headlines: Regulator Warns Investment Advisors About Outsourcing Compliance, Chairwoman White Talks About Private Placement Fundraising, Criticizes Bill Seeking to Place Limits on BDCs

The Securities and Exchange Commission is reminding advisory firms to stay aware of their own compliance functions. After about 20 examinations of advisers that utilized compliance firms, the regulator found that external compliance officers sometimes were not aware of a firm’s business access, did not communicate regularly with firm principals, nor did they have access to company documents.

Issuing a risk alert, the SEC said that whether a chief compliance officer is a direct employee of a registrant, a consultant, or a contractor, this employee should be given adequate information and authority to be able to do the job. The Commission said that it is the job of the registrant to put into place and execute a compliance program that works. It also warned that firms that do outsource their compliance function might be at risk of not comprehending their own possible shortcomings in this matter. The SEC said that outsourced CCOs should be careful about using “standardized checklists” to get information from advisory firms.

In other SEC news, Commission chairwoman Mary Jo White said that even though private placement issuers, private equity managers, and hedge funds are raising more funds from investors now more than before, the incidents of related fraud is not rising. Some people worried that when the 2012 Jumpstart Our Business Startups Act got rid of the ban on the general solicitation of certain kinds of private placements, there would be those that would use this as an opportunity to take advantage of less sophisticated investors. However, even with the new regulations, not that many private equity managers, hedge funds, and private placement issuers are taking advantage of the opportunity to advertise directly to investors.

Continue reading "SEC Headlines: Regulator Warns Investment Advisors About Outsourcing Compliance, Chairwoman White Talks About Private Placement Fundraising, Criticizes Bill Seeking to Place Limits on BDCs" »

November 5, 2015

JPMorgan Ordered to Pay Family Trust Over $1M Related To Purported Violations Involving Short Trading, Leveraged ETFs and Ex-Firm Adviser Must Pay $22M for Fraud

A Financial Industry Regulatory Authority panel has awarded The Elliot Family Trust DTD, Eugene Elliot, Genraza LLC, and Shawn Elliot Over $1M in their securities arbitration case against J.P. Morgan Securities (JPM).

The claimants are contending fraud, breach of fiduciary duty, misrepresentation and omissions, failure to control and supervise, and violations of federal and state securities laws related to the alleged short trading of US Treasury securities and the unsuitable purchase and allocation of securities, including leveraged exchange-traded funds and unspecified options. They had initially sought compensatory damages no lower than $1.75M, rescission of the purportedly unsuitable investments, punitive damages, legal fees, and other costs. Meantime, the financial firm sought to have their case dismissed.

Following the pleadings, the FINRA arbitration panel decided that the respondent is liable for and must pay claimants over $1.145M in compensatory damages, interest on that amount, and over $43,000 in other fees.

Continue reading " JPMorgan Ordered to Pay Family Trust Over $1M Related To Purported Violations Involving Short Trading, Leveraged ETFs and Ex-Firm Adviser Must Pay $22M for Fraud" »

October 31, 2015

SEC Probes Advisers With Access to Client Retirement Accounts, Approves Crowdfunding Rules Connecting Investors with Small Businesses

According to InvestmentNews, the Securities and Exchange Commission is looking at instances in which advisers have access to their clients’ financial accounts that they don’t manage. The SEC wants to make sure that these advisors are unable to take distributions from these accounts if they don’t have custody over them.

The SEC has been taking a closer look at custody since the Bernard Madoff Ponzi scam that bilked investors billions of dollars. Madoff was in control of most of his clients’ money.

In 2013, the regulator, seeking to stave off the next big investor scheme, noted that red flags were raised for 140 firms that were examined in 2012 because of they way they had access to or held the assets of clients. “Significant deficiencies" were found.

Continue reading "SEC Probes Advisers With Access to Client Retirement Accounts, Approves Crowdfunding Rules Connecting Investors with Small Businesses" »

October 27, 2015

Massachusetts Regulator Says Fidelity Let Unregistered Advisers Trade on Its Broker-Dealer Platform

Commonwealth William Galvin has filed an administrative complaint against Fidelity Brokerage Services. The firm is accused of letting at least 13 unregistered investment advisers trade on its broker-dealer platform, which caused Fidelity and the advisers to earn fees.

This practice, which involved unregistered advisers having their clients turn in trade authorizations to the brokerage firm so that they could access the accounts, purportedly took place for more than ten years beginning in 2005. For example, the state regulator contends that over twenty Fidelity customers paid one unregistered investment adviser $732,000 in fees over ten years in which he made over 12,000 trades in his account and nearly 29,000 trades in client accounts.

Galvin believes that Fidelity knew that this person was acting as an unregistered adviser, even at one point pressing him to register. However, claims the regulator, despite remaining unregistered, the trader was rewarded because of referrals he made to the broker-dealer. Seven Fidelity customers paid him $732,000 as compensation for his services.

Continue reading "Massachusetts Regulator Says Fidelity Let Unregistered Advisers Trade on Its Broker-Dealer Platform" »

October 5, 2015

Florida Investment Adviser is Charged With Securities Fraud

The Securities and Exchange Commission is charging investment adviser Arthur F. Jacob and his Innovative Business Solutions LLC with fraud. The regulator claims that the two of them deceived clients from 2009 into 2014 and violated the federal securities laws’ antifraud provisions along with an SEC antifraud rule.

In its order instituting administrative proceedings regarding the purported investment adviser fraud, the SEC Enforcement Division contended that IBS and Jacob misrepresented the profitability and risks of investments he had bought for clients. Rather than disclosing the risks involved in certain exchange-traded funds, Jacob purportedly told clients that his investment approach was safe, presented no or little risk, and would garner predictable earnings. He also is accused of making misstatements to clients regarding their investments’ profitability.

Jacob and his Florida-based firm are not registered as an investment adviser with the regulator or any state. He is accused of telling clients that registration was not mandatory and of hiding his disciplinary history. For example, Jacob was disbarred from being an attorney because he misappropriated client moneys and engaged in other misconduct, including make false statements while under oath and to the Bar Counsel, submitting false tax returns for a client, charging unreasonable fees, and violating a court order.

Continue reading "Florida Investment Adviser is Charged With Securities Fraud" »

September 10, 2015

Another RIA/Financial Radio Show Host Charged with Securities Fraud

The Securities and Exchange Commission is charging Bennett Group Financial Services founder and host of the radio show “Financial Myth Busting” with allegedly inflating her investment adviser firm’s assets under management, as well as its investment returns, to try to gain more clients.

Dawn J. Bennett is accused of claiming that the Washington-based firm had over $2 billion in assets even though it never oversaw more than $407 million. She made the inflated claim multiple times on her radio show. She also purportedly said that the Bennett Group’s investment returns were among the top 1% globally. The SEC said that these bragged about returns came from a model portfolio and did not represent any real customer returns.

At one point Bennett was number five on Barron’s “Top 100 Women Financial Advisors” list and number two on the DC “2011 Top Advisors” because of her alleged misstatements. She touted these rankings to potential customers.

In the regulator’s complaint, the Commission said that from at least 2009 to early 2011 Bennett and her investment adviser firm made material misstatements and omissions to try to bring in more clients. They also allegedly made other misstatements to attempt to conceal their fraud.

Continue reading "Another RIA/Financial Radio Show Host Charged with Securities Fraud" »

July 17, 2015

Massachusetts Regulator Probes Alternative Mutual Funds Sold by JPMorgan Chase, Wells Fargo, BlackRock, and Other Financial Advisers

William Galvin, the Massachusetts Secretary of the Commonwealth, is investigating the sale of 25 alternative mutual funds, including those created by Wells Fargo (WFC), JPMorgan (JPM), Eaton Vance (EV), and BlackRock (BLK). The state’s securities division sent subpoenas to registered investment advisers that deal with the funds. It noted, however, that receiving a subpoena is “not an indication of wrongdoing at this time.”

A full list of the funds under investigation can be found here. Galvin’s office wants to see documents related to the recommendations the firms made make to retail investors. The Massachusetts regulator’s spokesperson, Brian McNiff, said that the funds were selected because of their size, investment strategies, and sales volumes.

Alternative funds, also called liquid alts, are often marketed as tools that involve hedge-fund-style investment strategies to mitigate risks found in bonds, stocks, and other traditional investments. Alternative funds are not like typical mutual funds. Liquid alts usually hold more investments that are non-traditional. They typically employ trading strategies that are more complex.

Alt funds may invest in global real estate, leveraged loans, commodities, unlisted securities, and start-up companies. Strategies used may include short selling, hedging and leveraging via derivatives, opportunistic tactics that change with market conditions, or even single strategy tactics. There are risks involved.

Continue reading "Massachusetts Regulator Probes Alternative Mutual Funds Sold by JPMorgan Chase, Wells Fargo, BlackRock, and Other Financial Advisers" »

June 18, 2015

San Antonio Spurs’ Tim Duncan Addresses $20M-Plus Texas Securities Case Against His Former Financial Adviser

Earlier this year, our securities law firm published a blog post reporting that San Antonio Spurs’ Tim Duncan had filed a Texas securities case against financial representative Charles Banks. Duncan contends that due to unsuitable recommendations made to him by Banks, he allegedly lost some $25 million.

Banks, a private-equity investor, was Duncan’s adviser for nearly two decades, since the beginning of his professional sports career. The NBA All-Star says that Banks persuaded him to get involved in investments that were bad for Duncan but good for the financial adviser. He also claims that Banks forged his signature and withheld his return on a loan. The San Antonio Spurs star says that over the years, he’s invested millions of dollars in products and businesses that Banks either owned or had a financial stake in.

Meantime, Banks claims that Duncan’s losses are because of the player’s own impatience or due to misunderstandings. He argued that Duncan is using the Texas securities case to exit certain limited partnership investments.

Continue reading "San Antonio Spurs’ Tim Duncan Addresses $20M-Plus Texas Securities Case Against His Former Financial Adviser" »

June 4, 2015

SEC Warns About Fake Investment Advisers Who Inflate or Fake Their Credentials

The Securities and Exchange Commission has issued an alert cautioning investors to double check the credentials of financial professionals before working with them. This week, the regulator’s Enforcement Division announced two securities fraud cases against investment advisers accused of making false claims about their background and experience.

In one case, Michael G. Thomas purportedly told investors that Fortune Magazine had named him one of the “Top 25 Rising Business Stars.” The distinction does not exist. He also allegedly inflated his past investment performance, pumped up a fund’s projected performance, and made misrepresentations about who would be advising and co-managing a fund.

Thomas has consented to pay a $25,000 penalty. He agreed to not take part in the offer, issuance, or sale of certain securities for five years. Thomas is barred from associating with investment advisers, dealers, and brokers during that time.

In the other SEC case, the regulator said that Todd M. Schoenberger, who was a frequent contributor and guest on national TV business shows, misrepresented his educational credentials. For the Delaware radio show he was recently hired to host, he was touted as a retired hedge fund manager and “accomplished veteran” of Wall Street.

The SEC said that Schoenberger falsely told prospective investors that his unregistered investment advisory firm LandCold Capital LP would pay back promissory notes they were solicited for purchase with fees made through the management of a private fund. The fund was never launched. The SEC also contends that Schoenberger never paid investors the returns he guaranteed them.

He is resolving the SEC charge by consenting to pay $65K in disgorgement of ill-gotten gains in addition to interest. He also agreed to an order that prevents him from serving as a director or officer of a public company. He cannot associate with any dealer, broker, or investment adviser.

In its Investor Alert, the SEC’s Office of Investor Education and Advocacy said that fraudsters have been known to misrepresent their education, lie about awards, claim to hold certain professional titles, create fake online profiles, and even appear as a guest on financial TV programs. The agency said that investors shouldn’t invest solely because of assertions someone has made about their experience and credentials.

At Shepherd Smith Edwards and Kantas, LTD LLP, our investment adviser fraud lawyers are here to help investors get their losses back. Contact us today.

Investor Alert: Beware of False or Exaggerated Credentials,, June 3, 2015

Read the Order Against Thomas (PDF)

Read the Order Against Schoenberger (PDF)

June 3, 2015

SEC, Prosecutor Charge Miami Investment Adviser With Defrauding Retired Teachers and Law Enforcement Officers with Ponzi Scam

The SEC is charging Miami investment adviser Phil Donnahue Williamson with running a Ponzi scam and bilking at least seventeen investors. The U.S. Attorney’s Office for the Southern District of Florida has filed a parallel criminal action against him.

According to the SEC, Williamson raised over $2 million over the course of seven years—from ’07 to ’14—while making misrepresentations about the way investors’ money would be used, as well as regarding the investments’ valuations and returns. He also allegedly misused or misappropriated at least $748,000 of client money to pay for personal expenses, other businesses, and unrelated investment activities. Among his investors were several retired local law enforcement officers and teachers who were looking to put their savings in safe investments.

Williamson allegedly used the money he solicited for the Sterling Investment Fund, which supposedly invested in properties and mortgages in Georgia and Florida, to run his Ponzi scheme. He advised investors to buy an LLC interest in the fund.

The Sterling Fund’s subscription agreement stated that the minimum agreement was $25,000 and that the funds would go toward buying mortgage loans or institutional third-party financing, which was to be used to also buy mortgage loans and otherwise support the business of the company.

Continue reading "SEC, Prosecutor Charge Miami Investment Adviser With Defrauding Retired Teachers and Law Enforcement Officers with Ponzi Scam" »

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. According to one source, the NBA star lost more than $20 million.

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

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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

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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