July 11, 2015

Massachusetts Regulator Charges Securities America Over Bait and Switch Ads By Broker Accused of Targeting Senior Investors

Massachusetts Secretary of the Commonwealth William Galvin is charging Securities America with inadequate supervision of a broker who is accused of using a “grossly deceptive” radio ad campaign to target older investors. The state regulator said that the financial firm shouldn’t have approved the spots that Barry Armstrong ran on his AM radio show. His show, which airs on WRKO-AM, is syndicated on different stations.

The broker purportedly ran ads asking listeners to call for information related to Alzheimer’s Disease when what Armstrong really was doing was collecting their contact information so he could offer to sell them financial advice. Galvin’s office said that the broker engaged in ‘bait and switch’ by falsely advertising one service when he was really selling another type of service.

The regulator contends that Securities America failed to identify or prevent Armstrong’s unethical conduct by neglecting to ask even one question about the content of the ads or attendant mailing materials. Now, the state wants a censure, a cease-and-desist order, and a fine imposed against the firm.

Continue reading "Massachusetts Regulator Charges Securities America Over Bait and Switch Ads By Broker Accused of Targeting Senior Investors " »

June 24, 2015

SEC Charges Unregistered Brokers for Handling Over $79M of Investments in Immigrant Investor Program

The SEC is charging Ireeco LLC and Ireeco Limited with serving as unregistered brokers for over 150 foreign investors. The two firms are accused of illegally brokering over $79M of investments by those who wanted to become U.S. residents under the EB-5 Immigrant Investor Program.

The program offers a way for foreigners to invest money in a U.S. enterprise or a designated, private regional center in exchange for legal residency in this country. The SEC contends that the two brokerage firms went online to solicit foreign investors, promising to help them select a regional center. Instead, the firms allegedly directed most of them to the centers that paid commissions of approximately $35,000/investor once the U.S. Citizenship and Immigration Services (USCIS) approved a green card petition. The SEC said that participants invested $79 million in the regional centers.

The SEC said that Ireeco LLC and Ireeco Ltd. raised money for immigrant investment projects without being registered to legally operate as securities brokers. The two firms agreed to settle without denying or admitting to the findings.

Continue reading "SEC Charges Unregistered Brokers for Handling Over $79M of Investments in Immigrant Investor Program" »

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 10, 2015

Investors Targeted by Advanced-Fee Scams Using Bogus Regulator Websites and Fake Broker Identities

The Financial Industry Regulatory Authority issued an alert warning non-U.S. and U.S. investors about scammers who use fake regulator websites and identities to steal money. Some scammers have even used FINRA’s name or pretended to be employed by the self-regulatory organization.

These fraudsters will typically ask for an advance payment of a service fee and then disappear upon receipt of the money. The fee is supposedly for services that involve buying non-performing stock that already belongs to the person they are targeting with the offer to pay a high price. The fraudster may even pretend to be a securities regulator or industry professional.

According to FINRA, there are investors in the UK who have received phone calls from individuals claiming to be with securities firm that were subject to disciplinary actions by regulators. These callers will typically try to procure advance payment for the return of money that was lost while the investor was associated with the firm.

U.S. investors have also been targeted. The Securities Investor Protection Corporation even issued its own warning against scammers pretending to be the SIPC or another organization with similar powers. SIPC has the authority to keep up a reserve fund for customers of brokerage firms that become insolvent. However firm liquidations that go through SIPC do not require investors to pay a fee so they can recover their monies.

Continue reading "Investors Targeted by Advanced-Fee Scams Using Bogus Regulator Websites and Fake Broker Identities" »

June 8, 2015

Former Stockbroker Pleads Guilty to Fraud Involving $6M Ponzi Scam

Sunil Sharma, a former stockbroker who hasn’t been part of the securities industry for over 10 years, has pleaded guilty to fraud charges. The 68-year-old is facing 20 years behind bars for starting what prosecutors claim was a $6 million Ponzi scam that ran from 2008 to 2014.

He allegedly raised $8.36 million from over 30 investors, paying old investors with new investors’ money. According to officials, Sharma misappropriated some $2.5 million of investor funds for his own spending, including a cruise trip, leases for expensive cars, and a down payment on a house.

Investors received statements showing gains even as Sharma continued to lose their funds. He falsely claimed that investors were putting their money in safe investments when really the day trading strategy he employed was high risk.

Sharma was formerly affiliated with Raymond James (RJF), Merrill Lynch (MER), and A.G. Edwards. He let go of his license following the 9/11 terror attacks after his clients suffered huge losses. According to lawyers, he became an insurance salesman. He started teaching seminars about different kinds of annuities and insurance that his clients could buy.

Following his participation in an options trading workshop in 2007, Sharma started promoting his day trading strategy using options. He established Gold Coast Holding, LLC to trade the options. At first, he started making profits of over 10%. Prosecutors say that Sharma thought he could generate a better return on his insurance clients’ money if he day traded their funds and kept the difference.

He lied to customers, falsely stating that Gold Coast was a very safe way to make retirement money every month. He claimed that the funds would be part of a diversified portfolio, pooled with the funds of others, used to purchase bonds from emerging markets broad, and overseen by Goldman Sachs (GS). Investors were guaranteed a 6-7% rate of return for up to three years. It was suggested that they liquidate their retirement accounts and annuities.

Sharma reportedly planned to buy the bonds from Brazil, Indian, China, and Russia with some of the investor money and would day trade the rest. He never bought any bonds. Instead, Gold Coast and another company that he later set up day traded options via TDAmeritrade’s (AMTD) “thinkorswim” trading platform.

Right before the investment scam failed, Sharma ceased to trade in option spreads and started buying straight “put” and “call” options. Sharma hoped that this new strategy would let him get back his investment losses. Instead, he ran out of funds earlier this year.

Investors have sustained huge losses because of Sharma’s Ponzi scam.

Ponzi Scam
Recovering funds lost in a Ponzi scam can be challenging, which is why you should speak with an experienced broker fraud law firm to explore your legal options. In certain instances, third parties, such as banks, clearing firms, and broker-dealers, can be held liable for the Ponzi scammer’s actions for their inadvertent participation, failure to properly supervise the fraudster, or another part they might have played in allowing the scheme.

The best way to maximize your chances of recovering your losses in any fraud case is to work with a Ponzi fraud lawyer.

Day Trading Broker Steals More Than $6 Million from Investors in Long-Running Ponzi Scheme, FBI, June 2, 2015

June 1, 2015

Sage Advisory Group Must Pay Over $1M for Two Securities Fraud Cases

The United States District Court for the District of Massachusetts has ordered Sage Advisory Group and principal Benjamin Lee Grant (“Lee Grant”) to pay over $1M for two SEC fraud cases. The ruling comes after a federal jury found both of them liable.

In the first case, the regulator is accusing Lee Grant of using allegedly false and misleading statements to fraudulently persuade brokerage customers to move their assets to Sage, which was the firm he was starting in 2005. He purportedly told clients that the 2% wrap fee they would have to pay Sage for transaction, management, and advisory services would not cost as much in the long run as the 1% fee and trading commissions that his former employer, brokerage firm Wedbush Morgan Securities, charged them.

The SEC said that Lee Grant claimed it was First Wilshire Securities Management Inc. that was recommending that clients move their assets to Sage with him. Wilshire Securities Management was the investment adviser managing the assets of these clients at Wedbush. The regulator contends, however, that First Wilshire Securities never made such a recommendation.

Continue reading "Sage Advisory Group Must Pay Over $1M for Two Securities Fraud Cases" »

May 16, 2015

Financial Fraud Headlines: “The Financial Coach” to Pay $3.6M in Restitution to Investors, SEC Charges Father and Son with Insider Trading, and Massachusetts Accuses Investment Firm of Elder Financial Fraud

"The Financial Coach" Pleads Guilty to Wire Fraud
Bryan C. Binkholder, also known as the “The Financial Coach,” will serve nine years in prison for bilking clients. Binkholder used books, a talk show, and YouTube videos to market his “hard money lending” program.

According to prosecutors, he touted himself as serving real estate developers that wanted to flip houses but he only made limited number of loans. Instead, he used investors’ funds to pay for his personal spending, give his wife a salary, and pay interest to other investors.

Binkholder’s financial scam took place from about 2008 to 2013. He pleaded guilty to four counts of wire fraud and must pay over $3.6 million in restitution.

Father & Son Charged in $1.1M Insider Trading Scam
The U.S. Securities and Exchange Commission is charging Sean R. Stewart and his father Robert with running an insider trading scam. Sean, who is a managing director at a renowned investment bank, purportedly tipped his father about upcoming mergers and acquisitions involving clients of two investment banks where he has worked. Robert, a technology company CFO and a certified public accountant, made trades based on these tips that were related to at least half a dozen acquisition and merger announcements. They made some $1.1 million in illegal profits over four years.

Meantime, the U.S. Attorney’s Office for the Southern District of New York has filed a parallel action against them.

Massachusetts Regulator Charges Firm With Illegal Security Sales to the Elderly
Massachusetts Secretary of State William F. Galvin’s office has charged Charles Nilosek and his investment firm Positions Benefit with illegally selling escurites to elderly investors. Both Nilosek and his firm acted as unregistered investment advisers when they sold $4 million of securities that were not registered to more than 140 state residents.

Galvin accused Nilosek and the firm of engaging in “bait-and-swtich” tactics to get investors to buy risky commercial mortgage securities. Position Benefits is accused of selling shares of these securities to retirees, as well as people getting ready to retire, and making it seem as if these investments came with a guaranteed return, which they did not.

Also, the SEC ordered Woodbridge Structured Funding LLC, which made the securities sold by Position Benefits, to pay a penalty of $250,000 for its involvement. The California company has consented to pay back the investors.

Even when regulators bring claims and prosecutors file criminal charges against fraudsters, you should still have an experience securities lawyer representing you to pursue the compensation you are owed. Our investment adviser law firm represents investors throughout the United States. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

The Financial Coach’ gets 9 years in prison for fraud, BizJournals, May 15, 2015

Secretary Galvin Charges Plymouth Man and Firm for Acting as Unregistered Investment Advisers, Orders California Funds to Offer Refunds and Pay a Civil Penalty for Selling Unregistered Mortgage Loans (PDFs)

Read the SEC Complaint against the Stewarts (PDF)

April 7, 2015

LPL Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator

The New Hampshire Bureau of Securities Regulation wants LPL Financial (LPLA) to pay clients $2.4 million in buybacks and restitution for 48 sales of nontraded real estate investment trusts that were purportedly unsuitable for elderly investors. The regulator, which says the firm did not properly supervise its agents, is also fining LPL $1 million plus $200,000 in investigative expenses.

The securities case springs from transactions involving an 81-year-old state resident that purchased a nontraded REIT from the firm in 2008. The investor, whose liquid net worth was $2.5 million and invested $253,000 in the financial instrument, would go on to lose a significant amount of money. A probe ensued.

The state regulator contends that the 48 REIT sales, totaling $2.4 million lead to concentration that went beyond LPL guidelines and that the firm sold hundreds of nontraded REITs to clients in New Hampshire on the basis of “clearly erroneous “client financial data, while frequently violating its own policies. LPL has reportedly admitted that 10 of the 48 transactions deemed unlawful by the state were unsuitable according to its own guidelines. The Securities Bureau wants to take away the firm’s license to sell securities in New Hampshire.

Meantime, a former LPL Financial broker has been permanently barred from the securities industry by the Financial Industry Regulatory Authority. Raymond Daniel Schmidt, previously affiliated with LPL Financial Holdings Inc. in Southern California, violated industry rules when he borrowed funds from seven clients between ’09 and ’12. He settled with the self-regulatory organization without denying or admitting to FINRA’s findings.

Schmidt borrowed close to $2.3 million to build the Pakalana Sanctuary, a vacation rental property on Hawaii’s big island. He admitted his involvement in the retreat center/vacation center in a public regulatory filing in 2013. However, said FINRA, Schmidt actually purchased the property in 2009, opening it for business as its owner and operator three years later.

Brokers are not allowed to borrow money from clients. They also can’t take part in business activities outside the firm without telling the company and typically require the latter’s approval.

FINRA says that Schmidt failed to tell LPL about the property or the loans from customers even when he filled out yearly questionnaires required by the firm. Even when he eventually told the firm about the real estate, he denied that he owned interest in the property.

Earlier this year, Schmidt told the regulator's enforcement unit that he wouldn’t give over documents or cooperate with its probe. He is currently the subject of an elder abuse and negligence case related to the Hawaiian real estate investment that the plaintiff made.

Contact our REIT losses lawyers to explore your legal options.

NH regulators seek $3.6m judgment against LPL Financial over risky real estate, Union Leader, April 7, 2015

Watchdog bars ex-LPL broker who tapped client funds for Hawaii retreat, Reuters, March 26, 2015

New Hampshire Bureau of Securities Regulation


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

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

Broker and Adviser News: Morgan Stanley Sues Ameriprise Broker, Former UBS Broker Alleges Investor Risk Levels Were Mischaracterized, and Ex-Bank of America Merrill Lynch Trainees Seek Overtime, Institutional Investor Securities Blog, March 5, 2015

March 31, 2015

Investor Fraud News: NFL Free Agent Sues Bank of America For $20M, FINRA Arbitration Panel Awards $1.3M to Investor in Case Involving Ex-Stifel Broker, and Tony Thompson and His Brokerage Firm are Barred from Industry

Former Colts Football Player Sues Bank of America for $20M
Dwight Freeney, formerly with the Indianapolis Colts and currently an NFL free agent, is suing Bank of America (BAC) for securities fraud. He and his Roof Group LLC say they were bilked of over $20 million.

In his securities fraud case, Freeney contends that the bank’s wealth management division is to blame for taking part, aiding, and abetting in the scam that cost him money. He noted that Bank of America went after him in 2010 to become one of its high net worth and affluent clients.

Aside from losing money, Freeney said that he was forced to close his restaurant venture. He wants compensation and punitive damages.

However, the bank disagrees with the claims, noting that the people accountable for fraud—an ex-bank adviser and a business associate—already were arrested for wiring $2.2M from the pro football player’s account. A spokesperson noted that the ex-employee committed the fraud after she was no longer with Merrill Lynch and Freeney had retained her services personally.

Ex-Daughter-in-Law of Ex-Stifel Broker Gets $1.3M FINRA Arbitration Award
A Financial Industry Regulatory Authority Panel has awarded Tracy Noble Gilbert $1.3M in damages for the way that her former father-in-law, ex-Stifel Nicolaus & Co. (SF) broker Lanis Dale Noble handled her finances. Gilbert claims that while still with Stifel, Noble engaged in churning and breach of fiduciary duty related to the use of margin in her account, ManuLife and SunLife variable annuities, and a Friedman Billings Ramsey real estate investment trust (REIT). Stifel denied the allegations.

The three-person panel awarded Gilbert $1.29 million in compensatory damages and $250,000 in legal fees. However, it denied her request for punitive damages.

Tony Thompson, TNP Securities Barred by FINRA
Tony Thompson and his brokerage firm TNP Securities have been barred from the industry. FINRA said that Thompson and his broker-dealer misled investors about tenant-in-common deals. Because of this, contends the self-regulatory organization, every investor that bought Guaranteed Notes LLC notes after January 1, 2009 was misled and at the very least unjustly experienced loss of the principal on their investment.

Thompson raised some $50 million through private placement securities sales from 2008 into 2012. Thompson purportedly was responsible for marketing P Notes, 12% Notes, and PPP Notes. However, material misrepresentations and omissions were made to investors during the sales.

Thompson has said that the misrepresentations and omissions were because he depended in good faith on the advice and information that others gave him.

FINRA panel initially sought to have Thompson pay restitution. However, it didn't find sufficient basis that investor losses in the private placements were because of the misstatements and omissions that he made. He will, however, have to pay $6 million for administrative proceedings.

FINRA Bars and Fines Rep, Broker-Dealer $39.6M, ThinkAdvisor, April 2, 2015

Ex-Colt Dwight Freeney sues for $20 million in fraud case, IndyStar, March 31, 2015

Finra arbitration panel awards investor $1.3 million from ex-Stifel broker, Investment News, April 1, 2015


More Blog Posts:
Oppenheimer Must Pay $2.5 Million Fine, $1.25 Million in Restitution for Not Supervising Ex-Broker, Stockbroker Fraud Blog, March 29, 2015

Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges, Stockbroker Fraud Blog, March 27, 2015

March 27, 2015

Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges

F-Squared Investments Inc. has laid off 40 workers—that’s one-fourth of its staff—as it continues to deal with the ongoing asset losses in the wake of the securities fraud charges filed against it by the U.S. Securities and Exchange Commission last year. During a routine examination, the regulator discovered that the asset management company allegedly had deceived investors by claiming its performance history was based on a real trading record going as far back as 2001 when F-Squared had just back-tested its algorithm. F-Squared is the biggest marketer of index products using ETFs (exchange-traded funds).

The SEC accused the firm of falsely promoting its AlphaSector investment strategy and its supposed excellent track record as based on its investment performance for real clients instead of the backtesting. Due to a calculation error, the results were inflated by 350%.

F-Squared settled the SEC charges for $35 million and the firm’s new CEO, Laura P. Dagan, said that F-squared has been putting more effort into compliance and its main product line. However, in the last several months, investors have withdrawn billions of dollars from F-squared strategies while several brokerage firms refuse to let advisers put more funds into the strategies.

Meantime, Howard B. Present, F-Squared’s ex-chief executive, is still dealing with civil charges filed by the Commission. Both the SEC and Present will battle it out in Boston federal court soon. His lawyers have made court filing statements arguing that their client behaved in “good faith” while at the helm of F-Squared and any alleged misrepresentations or statements that were purportedly misleading or false, as well omissions, were not done on purpose. The regulator wants to clawback millions of dollars of Present’s earnings.

Our ETF fraud lawyers are here to help investors recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.


Ex-F-Squared CEO's conduct 'did not cause loss or harm to anyone': lawyers
, Investment News, March 24, 2015

Read the SEC Order (PDF)


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

Exchange-Traded Fund Strategist F-Squared to Pay $35M to Settle Charges that It Misled Investors, Stockbroker Fraud Blog, December 24, 2014

SEC to Reject BlackRock Inc. Proposal for Nontransparent Exchange-Traded Fund, Institutional Investor Securities Blog, October 23, 2014

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 17, 2015

Financial Fraud Victims’ Suffering is More Than Just Monetary, Affirms FINRA Report

According to “Non-Traditional Costs of Financial Fraud,” which is a new research report by the FINRA Investor Education Foundation, almost two-thirds of financial fraud victims who reported that they’d been bilked experienced at least one non-financial consequence to a serious degree. The findings show other ways in which this type of crime takes a toll on its targets.

Some 600 fraud victims took the survey online. Respondents were at least 25 years of age. Among the findings:

• The most commonly named non-financial fraud costs included serious stress, anxiety, sleeping problems, and depression.

• Other negative emotional reactions included anger, regret, betrayal, feeling like a victim, embarrassment, sadness, shame, helplessness, guilt, and confusion.

• There may have been fees, interest rates, legal fees, bounced checks and resulting fees from losing money because of the fraud.

• 9% of respondents reported bankruptcy.

• Almost half of respondents experienced self-blame. Many felt that they shouldn’t have been too trusting.

• The larger the amount of money stolen, the more non-financial costs were experienced.

• Victims who were confused about the fraud’s details were more likely to suffer from non-financial consequences.

• Just 15% of respondents had a significant amount of interaction with the fraudster.

• The smaller the financial loss, the less interaction there was with the alleged perpetrator.

• Respondents with higher incomes (at least $75K) were more likely to lose more money than those with lower incomes.

• The age of the respondent wasn’t a factor in terms of how much someone might lose from financial fraud.

• An introduction from a family friend or relative was the most common way cited for how the victim became acquainted with the fraudster.

• 68% of respondents told family or friends about the fraud.

• Just 35% of respondents told authorities.

• 48% of those that did not report the fraud said that doing so would not have changed the outcome.

Other reasons for not reporting fraud: embarrassment, not sure what to do, lack of time, and other reasons.

Some of the financial fraud incidents involved:

• Email solicitation from a stranger outside the US asking for a fee or deposit.
• A notification that the target had won a lottery or prize but needed to pay a fee to claim it.
• Learning about an investment through a free lunch seminar.
• Notification of grant eligibility but that a fee was required.
• A commission offered for referring people an investment.
• Phone solicitation.
• Notice of an unclaimed inheritance.


At Shepherd Smith Edwards and Kantas, LTD LLP, we understand that the toll of financial fraud is more than just monetary. We are here to help investors get their losses back. Your initial case consultation with our investment fraud lawyers is free. We can help you explore your legal options.

Non-Traditional Costs of Financial Fraud,

FINRA Foundation Research Reveals Fraud Victims Vulnerable to Severe Stress
, Anxiety and Depression, FINRA March 9, 2015


More Blog Posts:

Ex-Green Bay Packers’ Bruce Wilkerson Awarded $2M Against Resource Horizons Group Over Ponzi Scam Involving Rogue Broker, Stockbroker Fraud Blog, March 16, 2015

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

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

February 27, 2015

Bill Seeks to Eliminate Mandatory Arbitration Clause From Brokerage Contracts, While SEC Approves New Public Arbitrator Limits

The Investor Choice Act in Congress, A U.S. House bill written by Keith Ellison, D-Minn., is looking to stop investment advisers and brokers from obligating investors to pursue their claims in arbitration instead of going to court. The proposed legislation would bar pre-dispute mandatory arbitration clauses in contracts between clients and their representatives.

As of now, almost all brokerage agreements, and an increasing number of investment adviser ones, come with provisions mandating that investors take their disputes to the arbitration system, which is run by the Financial Industry Regulatory Authority. There are those that believe that the forum favors brokers and advisers. Meantime, others say that the arbitration system is much more efficient for investors than going to court.

This is not the first time that Ellison has pushed for ending mandatory arbitration. He unveiled a similar bill in 2013 but it did not become law. The Public Investors Arbitration Bar Association has put out a statement voicing its support for Ellison’s latest bill, which it says gives investors back their right to choose whether they want to take their dispute to court or arbitration.

The 2010 Dodd-Frank Act granted the U.S. Securities and Exchange Commission the power to put a stop to mandatory arbitration. However, the SEC has yet to tackle the issue.

Our FINRA arbitration lawyers are here to help investors recoup their losses in claims against a broker or investment adviser. Contact our securities fraud law firm today.


FINRA Arbitration and Arbitrators
Nearly all customer claims against broker-dealers are resolved in FINRA arbitration. Each case is heard by a three-arbitrator panel. The parties decide who can be on the panel by eliminating candidates until there are three left. Parties are allowed to choose all-public panels.

The SEC has just approved a proposal by FINRA that would put limits on who can become a public arbitrator to be able to preside over such disputes. The rule categorizes anyone who has ever worked in the financial industry as an industry (or nonpublic) arbitrator.

Also, anyone who spent at least 20% of their time over the previous five years representing investors with securities claims would go from being a public arbitrator to a nonpublic one. They could go back into the public arbitrator category after a cooling off period of five years.

Anyone who has been a plaintiff’s lawyer for over 15 years is permanently barred from serving as a public arbitrator. Also disqualified as public arbitrator are accountants, lawyers, and others who worked for financial firms for over 20 years. If they worked for firms for less time, they could go back under the public arbitrator category five years after they stop working for them. In its regulatory order, the SEC said that it believes the proposed rule change would tackle any perceived bias toward Wall Street on the part of public arbitrators by moving certain individuals that fit the specific criteria into the nonpublic arbitrator category.

Bill would end mandatory arbitration in brokerage contracts, Investment News, February 26, 2015

Order Approving a Proposed Rule Change Relating to Revisions to the Definitions of Non-Public Arbitrator and Public Arbitrator, FINRA, February 26, 2015


More Blog Posts:
Investors Name Icon Investments in Securities Arbitration Claims, Stockbroker Fraud Blog, December 19, 2014

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

Judge Temporarily Blocks Meredith Whitney Fund From Making Investor Payouts in the Wake of BlueCrest Capital Opportunities Lawsuit, Institutional Investor Securities Blog, February 27, 2015

February 20, 2015

SEC Cases: Brothers-In-Law Charged in Louisiana Insider Trading Scam, NY-Based Broker-Dealer Accused of CDO Liquidation-Related Fraud, & Colorado Ponzi Scam is Halted

The Securities and Exchange Commission is charging former VP of The Shaw Group’s construction operations Scott Zeringue and his brother-in-law Jesse Roberts III with insider trading. Zeringue has already agreed to settle the regulator’s charges by consenting to pay disgorgement of ill-gotten gains plus a penalty.

The SEC says that the insider trading took place in 2012 when Zeringue, while working at The Shaw Group, became privy to confidential data about the company’s upcoming acquisition by Chicago Bridge & Iron Company. Prior to the announcement of the deal, he bought 125 shares of Shaw stock and asked Roberts to buy for him, too. Roberts went on to tip others and they collectively made close to $1 million in illicit profits.

Meantime, parallel criminal charges have been filed against Roberts. Zeringue has already pleaded guilty to the criminal charges against him.

In another SEC case, the regulator is charging VCAP Securities and its CEO Brett Thomas Graham with improperly arranging for a third party brokerage firm to secretly bid at certain auctions that they conducted for their affiliated investment adviser. The auctions were for liquidating collateralized debt obligations. The brokerage firm was supposed to help them acquire bonds to benefit certain funds.

However, engagement deals with CDO trustees did not allow VCAP and its affiliates to bid while also acting as auction liquidation agent. Because the brokerage firm had access to confidential data regarding bidding, Graham was able to make sure that the third-party firm won the bonds at prices just a little higher than what other bidders made. The affiliate investment adviser would then buy the bonds from the bidder right away.

The Commission said that Graham and the firm made material misrepresentations to the different CDO trustees. They also falsely represented that they would not bid in auctions or wrongly use confidential bidding data. Trustees were given documents that failed to disclose that the affiliate investment adviser was the winning bidder. As a result, the investment adviser was able to get 23 bonds. VCAP and Graham will pay close to $1.5 million to settle SEC charges.

In federal court, the SEC announced an emergency asset freeze and fraud charges against a Colorado-based Ponzi and pyramid scam that promised 700% returns. The scheme purportedly raised $3.8 milion from investors in less than a year.

According to the Commission, Kristine L. Johnson and Troy A. Barnes touted what they called a “3-D matrix “and “triple algorithm.” They got investors to purchase positions in Work With Troy Barnes Incorporated. Web promotions and internet videos were used to solicit participants.

The two reportedly claimed their program wasn’t a pyramid scam, yet the company did not have legitimate business operations. Instead, earlier investors were paid “returns,” which was really money from newer investors. Barnes and Johnson would take money out for their own spending.

SEC Order in the Colorado Ponzi Scam (PDF)

The SEC Order Alleging CDO-Liquidation-Related Fraud (PDF)

The SEC Complaint in the Louisiana Insider Trading Case (PDF)


More Blog Posts:

U.S. Bank National Association Must Pay $18M to Peregrine Customers, Says Court, Stockbroker Fraud Blog, February 18, 2015

DOJ Investigating UBS Over Losses Related To Firm’s V10 Enhanced FX Carry Strategy, Stockbroker Fraud Blog, February 17, 2015

US Probing Whether Morgan Stanley Data Breach Was Linked to Fired Financial Adviser, Institutional Investor Securities Blog, February 18, 2015

February 18, 2015

U.S. Bank National Association Must Pay $18M to Peregrine Customers, Says Court

A district court issued a Consent Order placing a permanent injunction against the U.S. Bank National Association and mandating that the bank return $18 million to customers of Peregrine Financial Group, Inc. customers.

US Bank has offices in Iowa where Peregrine, a non-bank, nonclearing FCM (Futures Commission Merchant), and its owner Russell Wasendorf were based. Peregrine was also The bank was the depository for the non-bank and it held an account for customer-segregated funds that Wasendorf accessed when bilking over 24,000 clients. Some $215M was misappropriated.

In July 2012, the Commodity Futures Trading Commission put out a civil action against Peregrine and Wasendorf. The latter has pled guilty to criminal charges and received a 50-year sentence. He also has to pay over $215M in restitution.

The CFTC’s action is related to the period of 6/08 through 7/12 when Wasendorf took out and moved about $36M from the US Bank account to entities and persons that were not customers of Peregrine. The U.S. bank received fees from the account.

Per the order, US banks cannot commit future violations of the Commodity Exchange Act and CFTC Regulations. They don’t let depository institutions hold, get rid of, or use money that belong to futures commission merchant customers as if the funds belonged to anyone else.

The $18 million will go to Peregrine’s trustee, who can then give the money back to the customers who were affected.

CFTC Enforcement Director Aitan Goelman noted that while it was Wasendorf who stole the money from customers of Peregrine, this does not exempt the bank from its own duty to keep the money of Peregrine customers safe.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm.

Federal Court Orders U.S. Bank National Association to Pay $18 Million to Peregrine Customers, CFTC, February 4, 2015


More Blog Posts:
CFTC, FINRA, and SEC Fight Investor Fraud Together, Stockbroker Fraud Blog, December 5, 2014

Money Manager Paul Greenwood Gets 10 Years in Prison for $1.3B Investment Fraud, Institutional Investor Securities Blog, December 4, 2014

John Carris Investments Expelled by FINRA
, Stockbroker Fraud Blog, February 9, 2015

February 14, 2015

SEC Cases: Insider Trading Charges Filed Against Georgia Resident, Mutual Fund Adviser Accused of Improper Asset Handling, & Two-Ex CFOs Agree to Give Back Bonuses Because of Accounting Fraud

Atlanta, GA Man Accused of Making $740,000 for Insider Trading
The Securities and Exchange Commission is filing charges against a Georgia man who is accused of insider trading and making about $740,000 in illicit profits. Charles L. Hill allegedly traded in Radiant Systems stock based on the confidential insider data a friend gave him about an upcoming tender offer to purchase the company. The friend was a friend of a Radiant Systems executive.

In 2011, Hill bought about 100,000 shares valued at close to $2.2 million on the final day of trading prior to the public announcement of the acquisition. That was his first time buying stock of Radiant Systems, and before that it had been years since he’d purchased equity securities.

Mutual Fund Adviser Settles SEC Case with $50K Penalty
In another SEC case, Walter Island Capital LLC will pay $50,000 as a penalty to resolve charges accusing the firm of improperly handling fund assets. The mutual fund adviser, which works with several alternative mutual funds, purportedly maintained millions of dollars of the funds’ cash collateral at brokerage firm counterparties instead of at a custodial bank.

The Commission said that an investment company that maintains securities in a qualified bank’s custody has to do the same with other cash assets. The SEC said that Walter Island Company failed to make sure that about $247 million in cash collateral was maintained at such a bank. The mutual fund adviser is settling without denying or admitting to the charges.

Two-Ex CFOs Return Stock Sale Profits, Bonuses In the Wake of Accounting Fraud
On Tuesday, the SEC announced that two ex-Saba Software CFOs have agreed to return close to $500K in stock sale profits and bonuses that they were given while the company was committing accounting fraud.

The William Slater and Peter E. Williams III are not charged with the company’s misconduct. However, the Sarbanes-Oxley Act requires that they reimburse the company for both the stock sale profits and bonuses.

From December 2008 to January 2012, Slater was CFO until October 2011, when Williams was in the position until January. During that time Saba Software overstated pre-tax earnings and issued material misstatements about revenue recognition practices. In 2014, the software company and two ex-executives were charged with accounting fraud involving falsified timesheets so that quarterly financial targets were hit. Slater made over $333K in stock sale profits and bonuses, while Williams made close to $142K.

Our securities fraud lawyers at Shepherd, Smith, Edwards, and Kantas, LTD LLP are here to help investors get their money back.

The Insider Trading Case against Hill (PDF)

The SEC Order Against Walter Island Capital
(PDF)

The SEC Order Against Slater, Williams (PDF)


More Blog Posts:
SEC Claims Investment Adviser Paid for Fraud Settlement With Client Monies, Stockbroker Fraud Blog, February 10, 2015

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

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

February 13, 2015

Securities Fraud Cases: NY Hedge Fund Manager Bilks Investors of Over $800K, Maize Fund Scam Leads to Restitution, Madoff Ponzi Scheme Victims Get $355M, and Kentucky Scheme Ends with Probation, Compensation

SEC Says New York Hedge Fund Manager Stole From Investors
The U.S. Securities and Exchange Commission says that Moazzam Malik, a purported hedge fund manager in NYC, stole money from investors. Malik allegedly falsely claimed to be running a hedge fund holding about $100 million in assets under management. He is accused of touting high returns.

Malik raised over $840,000, but his fund, which didn’t make actual investments, never held over $90,177 in assets. Instead, he kept taking out money and spending the funds. He refused to give investors back their money, even pretending to be a fund employee and sending out an e-mail saying that he had passed away. Mailk purportedly kept soliciting investors even as he received redemption requests.


Maize Fund Investment Scam Leads to $6.7M Restitution
The U.S. Commodity Futures Trading Commission has gotten a federal court order demanding that Scott M. Ross and his Maze Asset Management LLC, Maize Capital Management, LLC and his Maize Capital Management LLC pay $5.4 million in restitution and a $1.3 million civil penalty for his Maize Fund investment scam. Ross is serving time behind bars for his involvement in two other financial scams.

Ross and his companies are accused of making false statements to prospective customers, putting out bogus account statements reflecting trading profits when there were none, mishandling client funds, and not properly registering as a Commodity Pool Operator with the CFTC. The regulator’s complaint charged Ross and the companies with violating core anti-fraud Commodity Exchange Act provisions related to their solicitation and managing of the Maize Fund, which is a pooled foreign exchange account.


Madoff Ponzi Scam Victims Get Back Another $355M
According to the Securities Investor Protection Corporation, about $355 million will be returned to the victims of the Bernard Madoff Ponzi scam. Along with a $497 million settlement reached with federal funds Primeo Fund and Herald Fund, some $10.5 billion has been recovered in the liquidation proceedings for the scheme that bilked inventors of billions of dollars.

This is Madoff trustee Irving Picard’s fifth distribution of recovered moneys to Madoff customers. He is in charge of the Securities Investor Protection Act liquidation of Bernard L. Madoff Securities LLC.

$1.3M Restitution in Kentucky Securities Fraud Case
The Department of Financial Institutions says that Pamela Jean Williams and Richard Dow Williams must pay over $1.3 million in securities fraud restitution to five victims. If they don't pay, then their sentences of one year and three years, respectively, would go from probation to time behind bars.

The Williamses were charged on multiple counts of selling unregistered securities, fraudulent securities practices, and omitting or misrepresenting material facts about a gas well investment. Each pleaded guilty to one consolidated fraud charge and has agreed to pay restitution.

Fraudulent Hedge Fund Manager Moazzam Malik Fakes Own Death, ValueWalk, February 16, 2015

Federal Court Orders Scott M. Ross and his Companies to Pay More than $6.7 Million in Restitution and a Civil Monetary Penalty for Defrauding Investors in His Commodity Pools, Mishandling Customer Funds, and Failing to Properly Register as a Commodity Pool Operator, CFTC, February 13, 2015

Madoff's Victims Are Repaid Another $355 Million, Trustee Says, NPR, February 9, 2015


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

Standard & Poor’s Settles Inflated Ratings Case for $1.5 Billion, Institutional Investor Securities Blog, February 3, 2015

SEC Subjects Credit Rating Agencies, Asset-Backed Securities Issuers to Tighter Rules, Stockbroker Fraud Blog, August 28, 2014

Magoffin man, woman ordered to pay more than $1.3 Million in securities fraud case, Floydcountytimes, February 12, 2015

January 28, 2015

Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations

Oppenheimer & Co. (OPY) has consented to pay $20 million to resolve settlements with the U.S. Securities and Exchange Commission and the Financial Crimes Enforcement Network. The firm is accused of not properly identifying and reporting suspect trades in penny stocks. The low priced, highly speculative securities are easy to manipulate and involve in pump-and-dump scams.

At least 16 Oppenheimer customers in several U.S. states were reportedly identified as having engaged in “suspicious activity.” Admitting guilt, the broker-dealer acknowledged that it did not set up and implement a proper anti-money laundering program nor did it perform sufficient due diligence on a foreign correspondent account. Oppenheimer also said that it failed to comply with the USA PATRIOT Act’s Section 311, which allows FinCEN’s director to decide whether a foreign financial firm is a money laundering risk.

The government agency said that because Oppenheimer did not notify its foreign correspondent financial institutions of the special measures under Section 311, the firm ended up conducting business without setting up the necessary procedures, policies, and internal controls that allow it to reasonably report and detect suspect fraud activity from ’08 to ’14.

FinCEN noted that this is the second time it has penalized the Oppenheimer for similar violations. It fined Oppenheimer $2.8 million in 2015. In 2013, it was the Financial Industry Regulatory Authority that fined the broker-dealer $1.4 million for anti-money laundering failures and securities laws violations.

Meantime, in the SEC’s parallel action, the regulator noted two times between ’08 and ’10 when the firm took part in unregistered penny stock sales. One incident involved a financial adviser and his branch manger purposely engaging in the unregistered sales of 2.5 billion penny stock shares for one customer even though the shares were not registration exempt. The trades made $12 million and the firm got $588,400 in commissions. Oppenheimer is accused of not reacting to red flags or looking into whether sales were exempt from registration.

The other incident is over Oppenheimer’s possible involvement in purportedly illegal activities involving Gibraltar Global Securities, which is a broke-dealer in the Bahamas that is not registered to do business in the United States. The firm purportedly executed billions of shares of penny stocks in Gibraltar’s account and either knew or was negligent if it didn’t know that that firm was making transactions and providing brokerage services for customers, many of whom were based in the U.S.

The Commission said that Oppenheimer did not report possible misconduct by Gibraltar and its clients and, also, did not properly deal with over $3 million in backup withholding taxes in that brokerage’s account. The filing of Suspicious Activity Reports is a Bank Secrecy Act requirement.

As part of the SEC settlement, Oppenheimer is admitting wrongdoing and will pay $10 million. The other $10 million resolves the FinCEN claims.

Read the SEC Order (PDF)

FBI raids Florida firm with 'Wolf of Wall Street' link: witnesses, Reuters, January 14, 2014


More Blog Posts:

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges, Institutional Investor Securities Blog, January 25, 2014


Oppenheimer Told by FINRA to Pay $675,000 Fine, $246,000 Restitution over Municipal Securities Transaction Pricing, Supervisory Violations, Stockbroker Fraud Blog, December 12, 2013


January 23, 2015

Insider Trading News: SEC Sues Ex-Capital One Data Analysts, U.S. Attorney Bharara Wants Rehearing in Case Involving Overturned Convictions, and Judge Vacates Four Men’s Guilty Pleas

Ex-Capital Data One Analysts Are Defendants in SEC Insider Trading Lawsuit
The U.S. Securities and Exchange Commission is suing Nan Huang and Bonan Huang, two former Capital One data analysts, for insider trading. The regulator contends that the two of them used nonpublic data to trade in consumer retail companies’ shares before earnings and sales reports were issued. They allegedly used sales information that the credit card company had collected from millions of customers.

According to the SEC lawsuit, from 11/13 to 1/15 the two analysts made hundreds, perhaps thousands of keyword searches for sales information on at least 170 companies that are publicly traded. They had access to this data because part of their job was to serve as fraud investigators.

The Commission says that the two men knew how to examine the information to figure out whether a company’s sales were going up or down. From 1/12 to 1/15 Huang and Huang purportedly made $2.83 million via share trades, in some instances using call options and put options to make the trades. Stocks that they traded included those belonging to Apple. Capital One fired the two men earlier this month.

U.S. Attorney Preet Bharara Seeks Rehearing Regarding Ruling Overturning Hedge Fund Fraud Convictions
Manhattan U.S. Attorney Preet Bharara will ask for a rehearing of an insider trading case in which convictions were overturned. In the case, United States v. Newman, A United States Court of Appeals for the Third Circuit panel overturned the convictions of Level Global Investors hedge fund portfolio manager Anthony Chiasson and Diamondback Capital hedge fund portfolio manager Todd Newman. The panel cited a 1983 Supreme Court precedent that said remote tippees could only be held liable if they knew the original tipper and received “personal benefit” from said tippee. This could not be proven against the two men so the court dismissed the cases against them.

“Remote tippees” in insider trading cases are people that find out about material nonpublic data via an intermediary and not straight from the insider that was the original source of the information.

Judge Vacates Insider Trading Guilty Pleas
Just this week, a federal judge vacated guilty pleadings by Thomas Conradt, Daryl Payton, Trent Martin, and David Weishaus. The four men pleaded guilty to trading on non-public data ahead of IBM’s agreement to purchase SPSS for $1.2 billion in 2009. A lawyer working on the deal gave them the information. He passed on the data to Martin but did not think that he would share the information with anyone else or use it for trading.

The men requested that their guilty pleas be withdrawn after the Second Circuit panel overturned the convictions of Chiasson and Newman. U.S. District Judge Andrew L. Carter Jr. granted their request.

Now, ex-Galleon Group trader Zvi Goffer is also saying that he will try to get his insider trading conviction, which came with a ten-year prison term, dismissed. Nicknamed the “Octopussy” while at that firm, Goffer is accused of having direct knowledge that tippers were benefiting and personally directing cash payments to them for giving over the material, non-public data.

U.S. regulators sue former Capital One employees for insider trading, Reuters, January 22, 2015

Insider trading convictions vacated, USA Today, January 22, 2015

Insider-Trading Defendants Allowed to Retract Guilty Pleas, The Wall Street Journal, January 22, 2015


More Blog Posts:
SEC Wants $602M Fund Set Up for Victims of SAC Capital’s Insider Trading, Stockbroker Fraud Blog, November 17, 2014

Ex-Ameriprise Manager Who Helped with SAC Capital Insider Trading Case Settles Charges Against Her, Institutional Investor Securities Blog, December 9, 2014

Texas State Securities Board Was Special Prosecutor in $1M Securities Fraud Case
, Stockbroker Fraud Blog, January 22, 2015

January 22, 2015

Texas State Securities Board Was Special Prosecutor in $1M Securities Fraud Case

Alberto Alba Villareal was sentenced to five years behind bars for defrauding investors in a $1 million Texas securities fraud. Villareal was convicted of theft of property for stealing money. The funds he procured were supposed to go toward funding a new insurance company. The Texas State Securities Board was a special prosecutor in the case. Villareal is from South Texas.

As part of his sentence, Villarreal must pay complete restitution to the investor who purchased a $1 million investment contract in Nafta Holdings LLC, which was the new insurer’s controlling company. Villareal must also serve ten years probation.

According to court testimony and his indictment, Villareal took part in a number of financial deceptions to raise funds for the controlling company, even telling the investor that the Texas Insurance Code mandated that there be $4 million in capital and additional cash to open a new insurance company—even though the amount he quoted was about twice what the law actually stipulated.

Villareal allegedly made it seem as if he had raised half of the money and that investors' funds would go into escrow until the threshold was established. Instead, he used some of their money for his personal expenses, including yacht payments and mortgage payments, which were past due. Investor funds also went toward insurance claims to policyholders with other insurers that he controlled.

The state’s Department of Insurance also gave evidence in the Texas securities case.

Shepherd Smith Edwards Kantas, LTD LLP is a Texas securities fraud law firm.

South Texas man sentenced to five years for $1 million securities fraud, theft, inForney, January 20, 2015


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Orders Dallas Man to Pay Over $1.4M in Restitution, Penalty Over Texas Securities Scam Involving Forex Commodity Pool, Stockbroker Fraud Blog, January 12, 2015

NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations, Stockbroker Fraud Blog, December 28, 2014

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