Stock Broker Fraud Blog

The U.S. District Court for the Central District of California has slapped Lincoln Funds International Inc with a temporary restraining order and told the advisory firm to temporarily freeze its assets. Judge Cormac J. Carney also appointed a temporary receiver over the assets, as well as the assets of three Lincoln Biotech Venture funds and Brookstone Capital, which is Lincoln Fund’s predecessor company.

Lincoln Funds, along with its three principals, are accused of engaging in a biotechnology investment fraud scam, raising over $21.8 million from hundreds of investors. According to the SEC, Robert L. Carver, his son Robert L. Carver II, and James L. DeMer sold securities in Lincoln Funds, the three biotech funds, and Brookstone Capital while making “baseless predictions” and promising that there would be initial public offerings at the two companies.

The Commission charges that the defendants took part in “sham transactions” to make it appear as if Lincoln Funds was not associated with Brookstone or Carver because both had been subject to state regulatory orders. It is also accusing the defendants of misappropriating and misusing at least $2.5 million in investor funds, defrauding the partnerships as a result.

The SEC has charged all defendants with fraud in the offer or sale of securities, unregistered offer and sale and securities, investment advisor fraud, and purchase/sale securities-related fraud. The three principals are also charged with failure to register as a broker dealer.

The SEC complaint seeks to enjoin the defendants from further federal securities law violations, as well as disgorgement, an asset freeze, and civil penalties.

The California Department of Corporations has also ordered Lincoln Funds and two of its principals to cease and desist from securities transactions involving misleading or bogus statements.

If you have are the victim of investment fraud, our stockbroker fraud law firm can help you explore your legal options for recovery. Contact Shepherd Smith Edwards & Kantas today.

Related Web Resources:

SEC Halts a $21 Million Fraud Involving Biotech Investment Funds, SEC.gov

The California Department of Corporations Cease-and-Desist Order (PDF)

In Los Angeles Superior Court, a number of life insurance companies, mutual funds, retirement systems, and other investors are suing Wachovia Securities LLC for alleged fraud related to the sale of senior subordinated notes for beverage maker Le Nature's Inc. The Pennsylvania-based company filed for bankruptcy in 2006.

Causes of action include fraud, negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement. California Public Employees' Retirement System (CalPERS) and the Nature Conservancy are among the scores of plaintiffs.

The plaintiffs are accusing Wachovia of knowing about the fraud and financial problems at Le Nature’s but keeping this information from investors so that the beverage company would keep paying the firm substantial fees. They say the lack of disclosure also helped Wachovia’s high-yield debt business.

Also named in the lawsuit are BDO Seidman and Ernst & Young. The companies had worked for Le Nature’s as auditors on different occasions. The plaintiffs say that the “clean” audit reports aided in the fraud. BDO Seidman denies the accusation and vows to vigorously defend itself against the charges.

Wachovia claims that it too was the victim of fraud by the drink company. One Le Nature's accounting director that pled guilty to fraud acknowledged that the company had issued false information to Wachovia.

About 75 plaintiffs claim they suffered aggregate losses worth over $70 million. The plaintiffs are accusing Wachovia Securities of minimizing its own losses by purposely reducing its own exposure to Le Nature’s notes.

The complaint says that the drink company massively inflated its profits and revenue for years even though it was failing badly. Yet Wachovia market analysis gave Le Nature’s an “outperform” rating despite the fact that it was struggling to survive.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents investor fraud victims in cities across the United States.

Related Web Resources:

Lawsuit alleges fraud in LeNature's dealings, Pittsburgh-Tribune Review, May 1, 2008

Former Le-Nature's employee pleads guilty in fraud scheme, Forbes.com, April 24, 2008

Sidney Mondschein, a former WFG Investment stockbroker, must disgorge $53,000 in ill-gotten gains he allegedly obtained when he defrauded over 500 senior investors by selling their confidential data to insurance brokers. Last month, Mondschein settled Securities and Exchange Commission charges before the U.S. District Court for the Northern District of California.

By settling, the SEC says that the former broker is not admitting to or denying the charges. As part of his agreement, Mondschein agreed to a bar preventing him from associating with any dealers or brokers for five years. He is also permanently enjoined from violating the 1934 Securities Exchange Act’s Section 10(b) and Rule 10b-5, as well as Regulation S-P. He must also pay a $45,000 penalty.

The SEC complaint has alleged that Mondschein illegally sold for profit the confidential data of over 500 clients, almost all of them senior citizens, to six insurance agents. Information included contact information and, sometimes, the dollar figure that an investor had spent on the last annuity. This sale allowed the insurance brokers to sell the investors more annuity products, even though the majority of them already had purchased equity-indexed or fixed annuities.

The insurers reportedly paid the stockbroker anywhere from $50 to $150 for the information. Mondschein also allegedly received customer commissions from the investors that employed his services to sell securities so they could buy the new annuities.

Mondschein allegedly created UNCI Inc. so that he could carry out his investment scam. He did not tell the Financial Industry Regulatory Authority or WFG Investment that UNCI Inc. existed.

Elderly investor fraud is a problem that must be stopped. Our stockbroker fraud attorneys at Shepherd Smith and Edwards have helped many senior investor fraud victims recover their losses. Contact Shepherd Smith and Edwards today.

Related Web Resources:
SEC Makes Broker Pay for Selling Client Info, CCH Wall Street, April 29, 2008

Broker Allegedly Sold Customers' Personal and Confidential Information to Insurance Agents as Sales "Leads" for Annuity Products, SEC.gov, December 6, 2007

The U.S. Court of Appeals for the Third Circuit says that a district court improperly applied an “identity theft enhancement” when calculating the prison sentence of Bryan Hawes, a rogue investment adviser who had pled guilty to two counts of mail fraud. As a result, Judge Marjorie Rendell vacated Hawes’s 6 ½ year prison sentence and remanded for sentencing.

Hawes is the owner and president of Financial Management Advisory Services (FMAS) and Financial Management Services (FMS) Inc. He is also a registered investment adviser. He became an authorized representative for Fidelity Investment Advisors Group in 1997.

According to the court, Hawes defrauded his investment adviser clients. Rather than fulfill the agreements he made to buy annuities for them, he would either keep the money or buy annuities but later liquidate them for his personal use.

Hawes covered up his theft by generating false statements, making it appear as if the accounts contained larger balances, and submitting these reports to clients.

In 1998, Hawes convinced a number of clients to transfer their assets into products that were offered by Fidelity. From 1998 to until 2002, clients regularly received account statements from Fidelity and Hawes. The statements that Hawes provided through FMAS matched the account balances on statements provided by Fidelity.

In 2002, however, Hawes reportedly went into his clients’ accounts without their consent and changed the addresses to which Fidelity was supposed mail their account statements—in many instances, he provided his own office address.

He then told clients that Fidelity was not issuing paper account statements anymore and that his company, FMAS, would be responsible for generating these statements for them.

Hawes then started transferring client funds into his own account. He also transferred funds from one client to another so the thefts would go undetected. FMAS continued to issue account statements that falsely overstated the value of clients’ Fidelity accounts.

In 2003, Hawes’s mother discovered that he had been stealing money from her and her husband, who had just died. She threatened to report him unless he paid her back. He took $125,000 from other clients to repay her.

Hawes’s fraud scheme was discovered later that year. He pleaded guilty two counts of mail fraud in 2004 and was sentenced to 78 months in prison and a 3-year supervised release. He was ordered to pay invest clients $2,276,565.31 in restitution.

Hawes appealed his sentence on the grounds that the district court made a mistake when it applied a two-level identity theft enhancement to his base level offense because he had changed his clients' addresses. On March 27, the appeals court agreed that Hawes’s conduct did not merit this enhancement.

Shepherd Smith and Edwards represents victims of investor fraud in arbitration and litigation.

Related Web Resources:

Final Passage of H.R. 1731, the Identity Theft Penalty Enhancement Act, SSA.gov, June 29, 2004

Read the SEC Complaint

Two Brazilian nationals have been indicted on money laundering and other charges related to an alleged $50 million international penny stock scam that took money from many international investors.

The two defendants, Marcos Macchione and Rodrigo Molina, face charges of money laundering, conspiracy, and participating in illegal financial transactions. The two men reside in Florida and are being charged in connection with their involvement with the US part of the securities scam. A Florida jury handed out the indictment in the U.S. District Court for the Southern District of Florida.

Doron Mukamal, the alleged leader of the telemarketing securities scam, was also arrested. He lives in Brazil, as do his 17 partners, employees, associates, and money launderers that were also arrested.

Asian and European investors were the primary victims of the scam. Mukamal and his team offered them the opportunity to buy nearly worthless stocks in U.S. micro-cap companies for much more than the penny stocks’ actual value.

The investors were told to pay an advance fee to cover escrow costs, taxes, and other services. This fee is not normally required for transactions that are legal.

Once the advance fee was received, the bogus broker-dealer would disappear. When investors contacted these fictitious brokers to find out what happened to their money, they were notified that warrants (that did not actually exist) or the rights to buy more shares held by the victims had been found. The bogus brokers would then try to persuade their targets to shell out even more money.

Mukamal and his team constructed Web sites that made it appear as if they were legitimate securities brokers. They also made up names of fictitious broker dealers, stole the identities of real U.S. brokers, fabricated false government entities that could confirm their broker-dealer’s legitimacy, and used U.S. phone numbers so that investors would think that the broker-dealers were located in the United States.

Our stockbroker fraud lawyers at Shepherd Smith and Edwards have helped thousands of investors recover their financial losses. Contact Shepherd Smith and Edwards to schedule your free consultation.

Related Web Resources:

U.S., Brazilian Law Enforcement Dismantle $50 Million Securities Fraud Organization, PRNewswire.com, March 20, 2008

What Is Penny Stock Fraud?

Holston, Young, Parker & Associates Operator Boris Shuster has pled guilty to 14 counts of wire fraud and 13 counts of mail fraud in a foreign currency exchange scam that cost approximately $6.5 million and affected over 200 investors.

Shuster, also known as “Robert,” was sentenced to 12 years and six months in prison and ordered to pay $6.432 million in restitution, a $10,000 fine, and $7.895 million in disgorgement. New York prosecutors had tried to obtain a sentence of 20 to 25 years in prison for Shuster. He had already been sentenced to five years in prison for a different forex scheme.

According to prosecutors, Holston, Young, Parker & Associates is a fraudulent forex firm. The other owners and employees have also pled guilty to criminal charges related to the scam.

Employees working in the “boiler room” lied to potential investors and investigators. False statements made included bogus information about invested funds, lying about the firm and their own experience, and using bogus titles and names when talking to potential clients on the telephone. They also engaged in high pressure sales methods to get investments.

Investors’ money were sent to offshore bank accounts in Russia and Cyprus instead of used to make investments.

The law firm of Shepherd Smith and Edwards represents investors throughout the United States as well as abroad that have lost money because of investment scams. Contact Shepherd Smith and Edwards today for your free consultation.

Related Web Resources:

NYC Man Sentenced in Forex Scam, Forbes/AP, March 15, 2008

N.Y. man sentenced to 12 1/2 years in forex scheme, Reuters, March 15, 2008

US Charges Eleven Men in $6.5 Million Foreign Exchange "Boiler Room" Fraud, NewYorkFBI.gov, September 29, 2006

The Commodity Futures Trading Commission (CFTC) is charging Diego Mariano Rolando, an Argentine investment adviser, for his role in a $43.8 scheme that defrauded some 400 investors in the United States, South America, and Europe. Earlier this month, the U.S. District Court for the District of Connecticut issued a restraining order to freeze his assets.

According to the CFTC, Rolando allegedly engaged in the following activities:

• Fraudulent trading of customer funds in options contracts and commodity futures.
• Provided investors with fraudulent account statements.
• Gave a U.S. clearing firm false customer contact information to prevent investors from discovering the scam.

The CFTC says that Rolando went online to solicit clients through Roclerman.com and IATrading.com. He told those he contacted that he could trade securities for them. The CFTC is charging Rolando with providing clients with materials about their investments that contained "misrepresentations and omissions of fact."

The CFTC says that Rolando solicited about $48.8 million through the scam. The commission is seeking a number of sanctions, including a permanent injunction, disgorgement of ill-gotten gains, restitution to investors, and a civil financial penalty.

If you are an investor that wishes to obtain financial restitution because of losses you incurred due to the fraudulent misconduct of a broker or an investment adviser, you should speak with a stockbroker fraud lawyer immediately. Shepherd Smith and Edwards dedicates its legal practice to helping professionals like you recover your financial losses. We represent stockbroker fraud clients in the U.S., as well as internationally. Contact Shepherd Smith and Edwards for your free consultation today.

Related Web Resources:

CFTC Charges Argentine Trader With Fraud, FIN Alternatives, January 17, 2008

Read the Court Order in the Case (PDF)

U.S. Commodity Futures Trading Commission

Questar Capital Corp’s senior vice president of mergers and acquisitions claims he too was victim of a $250 million alleged Ponzi scheme that affected up to 1,200 investors—many senior citizens residing in Michigan, California, Illinois, New York, Florida, New Jersey, and Ohio.

The Securities and Exchange Commission charged Edward May and E-M Management Co. LLC with selling bogus investments which involved shares in fake Las Vegas casino and resort telecom transactions. “Investment seminars” were held to persuade investors to buy shares. The investors were told they would receive monthly returns for the next 12-14 years.

It turns out that there were never any telecom contracts with any Las Vegas resorts, hotels, and casinos. Some of the hotels and casinos that supposedly had contracts were Motel 6, Hilton, Tropicana, MGM Grand, and Sheraton.

Broker/manager Frank Bluestein, formerly with Questar, sold a substantial amount of the fake units before leaving that firm in 2005. A former director of marketing and partner in Questar reportedly bought two units of ATL Project One LLC for $57,000 in 2006. Allianz Life Insurance Company of North America acquired Questar in 2005 and the two companies merged in 2006. Bluestein continued to sell the fake investments after he left to join another firm in 2005, but there is no word of whether his former boss bought through him.

Investment fraud--especially fraud scams targeting elderly seniors is a growing problem in the United States. It is wrong to take advantage of someone's lack of knowledge, inexperience, or age and fraud victims can take action to recoup their lost investments. Yet, many victims fail to seek recovery because they are ashamed of being fooled. Take heart! If a senior VP of an investment firm can be a victim of a Ponzi scheme is anyone immune from investment fraud?

If you lost money because you purchased shares sold by Edward May and E-M Management, or if you were the victim of any other investor fraud scam, contact the stockbroker fraud law firm of Shepherd Smith and Edwards immediately. We have helped thousands of investors in the U.S. and abroad get their money back.

Related Web Resources:

B-D exec bought 'bogus' shares from May, Investment News, December 14, 2007

SEC v. Edward P. May and E-M Management Co. LLC, Civil Action No. 2-07-CV-14954, SEC, November 20, 2007

Senior Investment Fraud Increases as Population Ages, Consumer Affairs, July 18, 2006

The Florida Office of Financial Regulation and the Florida Department of Law Enforcement are investigating Michael O. Traynor and his son, Matthew O. Traynor, former brokers at InterSecurities, Inc. Complaints from at least a dozen investors allege that the Traynors defrauded clients out of approximately $8 million.

In addition to an affiliation with InterSecurities, Inc., the Traynors are reported to have been affiliated with or operated under the firm names of Mariner Financial Services, Western Reserve Life, Association of Professional College Advisors, Inc., College Advisors Group, Inc., LifeTime Advisors, Inc. and LifeTime Advisors Group, Inc. Michael Traynor was licensed in securities and insurance and represented himself as a financial planner and certified college planning specialist.

According to reports, many of the investors were first in contact with the Traynors through their church and were lured to invested funds into accounts entitled “Freedom Bond Account,” “7 Day Freedom Money Market,” as well as “CGU Broker Services” and “Allianz Broker Services”. Apparently, statements on these accounts were falsified to indicate assets, income and profits which did not exist.

Michael Traynor served not only as a registered representative of InterSecurities, Inc., but also as the branch manager of that firm until he was terminated. According to alleged victims, they were not contacted by InterSecurities regarding the reason for his termination.

Shepherd Smith and Edwards represents investors nationwide in claims against securities firms and brokers industry. We have represented investors in more than 1,000 securities cases, including concerning mortgage backed securities. To learn whether we might assist you with a claim contact us to arrange a free consultation with one of our attorneys.

Only a tiny fraction of whistleblower claims against companies have been successful since the passage of the Sarbanes-Oxley law five years ago, raising questions about the ability of employees to raise the alarm about corporate malfeasance, a study claims.

While corporate America whines almost daily about "burdens" placed by it by the so-called "Sorbox" legislation, the truth is that companies continue to defraud investors almost with impunity, while abusing any employee who might dare point a finger at them.

Sarbanes-Oxley contained new pro-whistleblower provisions when it was passed in 2002 in the wake of the Enron and WorldCom scandals. Touted by some as a "revolution in corporate freedom of speech", it was intended to strengthen the protections available to employees who bring to light cases of fraud by including strong "anti-retaliation" provisions.

Yet, a study by the University of Nebraska College of Law of 700 cases brought in the three years after Sarbox confirmed that only 3.6 per cent of cases were found in favor of employees and only 6.5 per cent were successful on appeal. Richard Moberly, author of the study, stated: "It's an incredibly low win-rate that ought to be cause for concern."

Employees rarely won claims. A major problem is that Government agencies, such as the Department of Labor, that adjudicate such cases interpret the whistleblowing provisions in the law as narrowly as possible. Most cases did not qualify to be heard, he said. (Strange that a governmental administration charged with enforcing a law would work so hard to gut its effect - unless you remenber who is in charge of this administration.)

Moral: Whether shareholder or employee, the rights of the rest of us hardly exist in a government dedicated to protecting corporate criminals. Welcome to the "New America": Home of rich and powerful crooks who own its government.

Shepherd Smith and Edwards represents investors nationwide in claims against members of the securities industry. We have represented investors in more than 1,000 securities cases. To learn whether we are able to assist you with a claim contact us to arrange a free consultation with one of our attorneys.

In one of the largest online stock manipulation campaigns in history, spammers sent out some 500 million e-mails last month advising recipients to invest in Prime Time Stores Inc.

This prime example of “pump and dump” scamming involved spammers purchasing shares in a company, promoting it, and then waiting for share prices to rise before selling their stocks and making a profit. This particular pump and dump scheme caused the amount of spam sent around the globe to increase by 30% over a 24-hour period.

Prime Time Stores owns the exclusive licenses for 7-Eleven stores in the Caribbean and Puerto Rico. The company is also involved in automotive, gas, and oil activities. The spam e-mails promoting the company announced the opening of Prime Time Stores in Puerto Rico and said that a huge change in the stock would occur on August 8, 2007.

In the days leading up to the spam campaign’s discovery, the stock did go up.

Pump and dump spam perpetrators can reportedly be very difficult to catch. This type of scam can be effective—especially when small stocks are involved and only a small gain is necessary to make a profit.

The spam e-mail promoting Prime Time Stores came with a PDF attachment. The PDF was what allowed it to get past the spam filters. The perpetrators of this scam have not been identified.

According to SophosLabs, stock scams via e-mail make up about 25% of all spam. At the start of 2005, e-mail stock scams only made up less than 1% of all spam emails.

Earlier this year, the SEC temporarily suspended trading in 35 Pink Sheet-listed companies that were involved in ongoing spam e-mail campaigns involving the companies’ securities. The suspension was part of SEC’s "Operation Spamalot” crackdown.

If you have been the victim of investor fraud, call Shepherd Smith and Edwards today. We have helped thousands of investors nationwide recoup their losses. We have represented clients in Federal and state courts and before the NASD, the NYSE, and the AAA.

Related Web Resources:

Inbox hell: Half a billion stock spam e-mails, Reportonbusiness.com, August 9, 2007

Prime Time Stores, Inc.

Sophoslabs

Washington lawyer Peggy Blake, who recently joined Winston & Strawn as a corporate partner, reports her foreign financial services clients are "very optimistic" about the movement afoot at the Securities and Exchange Commission to adopt a mutual recognition regime.

Yet, during recent trips to London and Geneva, she found a number of her foreign bank clients have some reservations about "how the whole thing will play out." Blake advises clietns on application of U.S. securities laws to non-U.S. financial service providers. As part of her practice, she works with clients to design their compliance programs.

Her goal, along with those on Wall Street, in the White Houst and at the SEC, is to dismantle U.S. securities regulations governing corporations, their executives, securities firms, accounting firms and others.

U.S. securities regulations began 75 years ago, after the crash of 1929 and during the Great Depression. Since then, the U.S. securities markets have flourished and become the envy of others around the world. Conventional wisdom has been that our framework of securities regulations gives comfort to investors that they have protection to deter fraud and other unfair practices.

Blake was an attorney-adviser in the Office of Risk Management and Control in the SEC's Division of Market Regulation during the 1990s. She later served as special counsel in the Office of Market Supervision. She was with the SEC back when it thought of itself as the "thin blue line" between investors and those who seek to victimize them. Her new job --- well, it likely pays better.

Shepherd Smith and Edwards represents investors nationwide in claims for losses against those in the securities industry. If you, your firm or your pension fund has sustained losses as a result of fraud, negligence or other wrongdoing contact us to arrange a free consultation with one of our attorneys.

In a letter to his Berkshire Hathaway shareholders entitled “How to Minimize Investment Returns,” Warren Buffett points out that between December 31, 1899 and December 31, 1999, the Dow rose from 66 to 11,497. That's a 17,400% gain! Thus, a hundred dollars invested into a Dow portfolio during the 20th century would have grown to $17,500!

Yet, that’s an annual compound return over 100 years of only 5.3%, said Buffet while adding that, if only 1% per year is paid in management fees, nearly 20% of the profits would go to the money manager.

Building on Mr. Buffets warning: If a $100 investment was made the last day of 1899 and managed for 1%, it would COMPOUND at a net rate of only 4.3%. Thus, the portfolio would have grown to only $6,736 during the century that followed. The fee would have cost great-gramps over $10,000, leaving him with a little over one-third what he would have without "professional help”.

So what does all this mean in real dollars? Although a dollar in 2000 was worth only 5.4 cents compared to 1900, Great-grandfather’s $100 would have increased by 2000 to nearly $945 in real value compared to 1900, almost 10 times what he started with. Yet, his investment would only be worth $363 after a money manager took an annual 1% bite.

For Warren Buffet, a frictional cost of 1% is very damaging, but what about smaller investors - realizing virtually everyone is a smaller investor than Mr. Buffett. Many are charged fees of 2% or more, either through higher fees or with annuity charges added.

An investor charged 2% in management fees per year on a hundred dollar "Dow" investment held during the 20th Century would end up with only $2,570, instead of $17,500 without management costs! In real dollars of the 1900 variety, that investor would have $139 - a real value profit of $39 rather over $800. Thus, professional help at 2% would have cost the investor 94% of his gains. Value added"? I think not!

In his letter, Mr. Buffet quotes Sir Isaac Newton, a scientific genius who nevertheless lost a bundle in the South Sea Bubble, explaining later, "I can calculate the movement of the stars, but not the madness of men." It seems that even a genius can be fooled when it comes to investments.

By: William S Shepherd

William Shepherd is the founder of the law firm of Shepherd Smith and Edwards a securities law firm that represents investors seeking recovery of losses in their accounts at investment firms. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

A U.S. District Court in Indiana entered a permanent injunction against several defendants charged by the SEC over their alleged involvement in a $32 million prime bank scheme. They were also ordered to pay $14 million in disgorgement, plus other sanctions

The SEC issued a release saying these defendants, including First National Equity LLC, P.K. Trust & Holding Inc., Worldwide T&P Inc. and several individuals, had raised approximately $32 million using while using misrepresenting and omissions to sell interests in a purported system to trade of various financial instruments, including notes.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

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