November 18, 2015

Securities Fraud Cases: Wedbush to Pay $813K Over Investment Fraud Allegations, SEC Files Pump-and-Dump Charges in Marley Coffee Case, and CFTC Accuses IB Capital of Soliciting $50M for Forex Trading While Unregistered

Wedbush to Pay Trusts, Family Members Over $813,000
A Financial Industry Regulatory Authority Panel says that Wedbush securities and investment advisor Kevin Thomas Scarpelli must jointly and severally pay several investors over $813,000 to resolve allegations of professional negligence and failure to supervise related to investments made in Natural Resources USA Corp. The respondents denied the allegations and asked that the claims be thrown own.

After considering the pleadings, evidence, and testimony, the panel decided that Wedbush and Scarpelli must pay claimants: Mary L. Riscornia TTEE nearly $263,000, Jennifer Tiscornia over $252,313, Nicolas E. Toussaint over $55,300, Nicolas E. Toussaint TTEE over $1800, Michael J. Nicolai over $18,4000, Michael Nicolai TTEE over $156,221, Jeffrey M. Nicolai over $22,154, Katherine M. Nicolai over $22,000 and Alexandria P. Nicolai over $22,000 in damages, interest, legal fees, and costs. The FINRA panel denied Scarpelli's request to have his record expunged of this securities case.

SEC Files Charges in $78M Pump-and-Dump Scam Involving Jammin’ Java Stock, Marley Trademark
The Securities and Exchange Commission is accusing ex-Jammin’ Java CEO Shane Whittle of masterminding a $78 million pump-and-dump scam involving the company’s shares. Jammin’ Java operates Marley Coffee, which uses the late reggae legend Bob Marley’s trademark to sell products.

According to the regulator, Whittle used a reverse merger to—in secret—get control of millions of Jammin’ Java shares, which he then spread to offshore entities under the control of Michael Sun, Wayne Weaver, and René Berlinger. The shares were dumped on the public after their price rose in the wake of bogus promotional campaigns. Whittle purportedly hid the scam by making misleading omissions and statements in reports submitted to the SEC.

Continue reading "Securities Fraud Cases: Wedbush to Pay $813K Over Investment Fraud Allegations, SEC Files Pump-and-Dump Charges in Marley Coffee Case, and CFTC Accuses IB Capital of Soliciting $50M for Forex Trading While Unregistered " »

November 17, 2015

SEC Says Amish Investors Were Bilked in $3.9M Securities Fraud

The U.S. Securities and Exchange Commission is suing Earl D. Miller for securities fraud. According to the regulator, the Indiana man bilked investors, many of whom were Amish and new to investing, through private investment vehicles 5 Star Capital LLC and 5 Star Commercial LLC.

The SEC says Miller began recruiting investors last year. The private investment entities he created were supposed to invest in real estate property and green products with patents that one of the companies owned. However, claims the regulator, no patents were actually owned. Instead, contends the agency, the money went to companies that were supposedly developing other products, including energy-efficient washing machines and a pedal-run wheelchair. The bulk of these investments quickly failed. Most of the funds were invested in loans and were supposed to result in interest payments every month. However, such payments only were issued for five months and then they stopped completely.

Miller marketed his investment services in Amish newspapers and in Amish community meetings. He gave investors promissory notes for their money. The notes came with a fixed 8-12%/year return rate, which is a lot higher than the rates for other fixed-return investments, including bank deposits. He also purportedly said he was not paid any money for managing the fund even though he allegedly took $1M for his own spending. At least 70 investors were bilked.

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November 10, 2015

Securities Fraud Headlines: NBA’s Tim Duncan Sues Financial Adviser Again, JPMorgan Hackers Face Criminal Charges, and FINRA Warns Military Vets May Be Targeted by Their Own

Spurs Star Tim Duncan Says Ex-Financial Adviser Bilked Him of Millions
NBA star Tim Duncan is suing his former financial adviser again. The San Antonio Spurs player says that Charles Banks cost him millions of dollars because he persuaded him to invest $1.1 million in a cosmetics company. Banks purportedly told him that the company was profitable even though it was about to go bankrupt.

Duncan sued Banks in January in another Texas securities case accusing the latter of making unsuitable recommendations that cost him some $25 million. Banks gave financial advice to the NBA player for almost twenty years. Duncan claims that some of the recommendations made were in his former financial adviser’s best interests while detrimental to him.

JP Morgan Hackers are Indicted for Securities Fraud
US Attorney Preet Bharara says that Joshua Samuel Aaron, Gery Shalon, and Ziv Oreinstein committed “securities fraud on cyber steroids” when they stole customer data from JPMorgan (JPM) and hacked 11 other financial institutions. At least 83 million customers who trade significantly saw their personal information stolen.

Bharara said the men took a typical stock scam into cyberspace, utilizing the stolen private information to send out emails promoting penny stocks in massive pump and dump schemes. Investors would purchase stock, which would raise the price. The men would then cash out before the stock price fell.

They also allegedly conducted reverse mergers of private companies with public shell corporations under Shalon’s control. The defendants are accused of making over $100 million, using 75 shell companies, and 30 bogus passports from 17 nations to conceal their scheme. They were indicted and charged on numerous counts.

The authorities initially thought that Russian hackers were involved.

FINRA Cautions Military Vets to Watch Out for Fraud
On its website recently, the Financial Industry Regulatory Authority reminded military veterans that they can be targeted by investment scammers and in some instances the fraudster may be a fellow vet. This type of financial scheme, where the scammer exploits his/her financial ties to gain an investor's trust is known as affinity fraud. As FINRA Investor Education Foundation's Military Financial Readiness Program Director Bud Schneeweis warns, just because someone served with you doesn’t mean you shouldn’t check their credentials to make sure that the person has the professional experience, educational background, and proper registrations to serve as your broker or investment adviser.

That said, there are military vets who are legitimate financial advisers who are qualified to help other vets manage their money. Doing your due diligence can allow you to make sure you are picking someone who has your best interests at heart, knows how to handle your investments, and can help you meet your financial goals.

At Shepherd Smith Edwards and Kantas, LTD LLP, we help investors in pursuing claims against negligent brokers, investment advisers, and financial firms. We would like to offer you a free case consultation. Contact us today.

Tim Duncan says ex-financial adviser cost him millions, USA Today, November 9, 2015

Trio Indicted in Massive JPMorgan Hack, eWeek, November 10, 2015

November 7, 2015

Securities Headlines: FINRA Seeking to Fine MetLife Over Variable Annuity Sales, SEC Accuses Scottish Trader of Sending Fake Tweets, Market Rigging, and Judge Orders Man to Stop Crowdfunding Fraud

FINRA Plans to Fine MetLife for Purported Variable Annuities Violations
The Financial Industry Regulatory Authority is looking to impose a significant fine against MetLife’s broker-dealer unit related to possible violations involving variable annuities. The company is cooperating with the regulator’s probe, which is looking at alleged suitability, misrepresentation, and supervision issues related to the selling and replacements of variable annuities.

According to MetLife’s quarterly regulatory filing, FINRA told the insurance giant that it plans to recommend disciplinary action. InvestmentNews reports that in an e-mailed statement, MetLife spokesperson John Calagna said that the company did not agree with the conclusions reached by the regulator and plans to defend itself.

SEC Charges Scottish Trader with Over Market Rigging Involving False Tweets
The Securities and Exchange Commission has filed securities fraud charges against James Alan Craig of Scotland for allegedly filing false tweets that caused sharp declines in the stock prices of two companies, even causing one of them to experience a trading halt. The regulator said that Craig sent out false statements via Twitter on accounts that he deceptively set up to make them look like legitimate Twitter accounts of known securities research firms.

According to the SEC’s complaint, Craig’s first bogus tweets caused the share price of one company to drop 28% until Nasdaq temporarily stopped trading. The next day, he sent out false tweets about another company that led to a 16% drop in the share prices of that company. Both days he purchased and sold shares of the companies he targeted to try to profit from the sharp price changes. He was mostly successful in his efforts.

Continue reading "Securities Headlines: FINRA Seeking to Fine MetLife Over Variable Annuity Sales, SEC Accuses Scottish Trader of Sending Fake Tweets, Market Rigging, and Judge Orders Man to Stop Crowdfunding Fraud " »

November 4, 2015

Securities Cases: More Brokers Identified by SEC in Stock Rigging Case, Former Ameriprise Broker Gets Prison Term for Fraud, and Boeing Settles 401K Case for Almost $57M

SEC Names More Brokers in Penny Stock Rigging Case Filed Last Year
The Securities and Exchange Commission is charging three more people related to a $300M penny stock rigging case that it filed last year. In federal court, the regulator sought to lift the stay in its civil case to submit an amended lawsuit and now also name brokers Ronald Heineman and Michael Morris, as well as lawyer Darren Ofsink.

The SEC says that Morris and Heineman executed the scam through their brokerage firm awhile Ofsink made money illegally by selling unregistered shares even though no exemption for registration was valid. Meantime, the U.S. Attorney’s Office in New York is fling criminal charges against Ofsink ad Morris.

Per the amended SEC complaint, in 2013 Abraxas Discala, Marc Exler, and brokers Craig Josephburg and Matthew Bell were involved in a scam to raise the price of CodeSmart Holdings stock. The men intended to make money at the expense of Josephberg’s customers and Bell’s clients. Heineman and Morris, who own Halcyon Cabot Partners—the firm where Josephberg was employed—allegedly were involved in the securities scam. The two men are accused of secretly consenting to buy shares of CodeSmart at pre-set prices so that Discala could liquidate his positions at prices that were artificially raised. Meantime, Ofsink, who played a part in the execution of the company’s reverse merger into a public shell company, made money by illegally selling securities of CodeSmart that were not registered.

Trading in CodeSmart has been suspended because the company hasn’t submitted periodic reports since late 2014 and due to purportedly suspect market activity.

Former Ameriprise Adviser Gets Prison Term for Defrauding Clients of Over $1M
Former Ameriprise (AMP) adviser Susan Elizabeth Walker wills serve more than seven years behind bars for defrauding at least 24 retirement accounts of over $1.1M. Walker was convicted of tax evasion and mail fraud. She pled guilty last year to the criminal accounts.

Walker offered financial planning services through the firm from October 2008 through March 2013. She also was registered with the Financial Industry Regulatory Authority and was a securities agent under the Minnesota Department of Commerce.

Continue reading "Securities Cases: More Brokers Identified by SEC in Stock Rigging Case, Former Ameriprise Broker Gets Prison Term for Fraud, and Boeing Settles 401K Case for Almost $57M" »

October 7, 2015

SEC Case Headlines: New Jersey Fund Manager Faces Charges Over $1.1M Ponzi Scam, $32M Fraud Scam Involving Amber Mining is Halted, and Executives Face Charges for Allegedly Bilking Investor in Stock Fraud

NJ Fund Managers Faces SEC Fraud Charges
The Securities and Exchange Commission is charging William J. Wells and his Promitor Capital Management LLC with bilking investors in a $1.1 million Ponzi scam. According to the regulator, Wells falsely misrepresented himself as a registered investment adviser to some investors. However, rather than invest their money in specific stock as he told them he would, Wells and his firm placed most of the funds primarily in risky options that garnered poor results. He then allegedly hid the outcomes using bogus investor account statements that recorded performance figures that were severely inflated.

Wells also allegedly tried to conceal the investment loses by making Ponzi-like payments in which he paid earlier investors using the funds of new investors. By the end of this summer, fund brokerage accounts at Promitor held under $35 while the remainder were sucked dry from the Ponzi-like payment, trading losses, or transferred into Wells’ own bank account.

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

Regulator Files Charges, Obtains Asset Freeze in $32M Amber Mining Scam
The SEC has gotten asset freeze and file fraud charges against Steve Chen and 13 entities based in the state of California. According to the regulator, Chen falsely promised investors they would make money in an investment venture involving amber holdings.

Continue reading "SEC Case Headlines: New Jersey Fund Manager Faces Charges Over $1.1M Ponzi Scam, $32M Fraud Scam Involving Amber Mining is Halted, and Executives Face Charges for Allegedly Bilking Investor in Stock Fraud " »

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.

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September 29, 2015

UBS Puerto Rico To Pay the SEC $15M Over Closed-End Bond Fund Sales

UBS Financial Services Inc. of Puerto Rico (UBS PR) has consented to pay $15 million to resolve the Securities and Exchange Commission’s claims related to the brokerage firm’s supervision of the sale of its closed-end Puerto Rico bond funds (CEFs). The SEC contends that UBS PR did not properly supervise ex-broker Jose Ramirez, who is accused of increasing his compensation by at least $2.8 million when he allegedly had customers improperly borrow funds to invest in Puerto Rico bond funds. UBS fired Ramirez last year.

The funds came from UBS Bank USA, which is a bank affiliated with UBS PR. Under bank and UBS rule, the funds from UBS Bank are not allowed to be used to carry or purchase securities. According to the SEC, not only was using the funds from the Bank a violation, investors were placed at risk of losses while Ramirez profited. The SEC has filed a separate complaint against the ex-UBS broker.

The regulator claims that Ramirez misled customers about how safe the CEFs were, as well as misrepresented the risks involved. He purportedly lied to his branch manager when he was asked about suspect transactions.

To avoid getting caught, Ramirez allegedly told customers to move money from their credit line to an external bank account before placing the funds into their brokerage account at UBS PR and then buying the CEFs. The CEFs, which were heavily invested in Puerto Rico bonds, dropped in value when the Puerto Rican bond market started to decline in the Fall of 2013. Customers then had a choice of either paying down part of the loans or risk liquidation of their investments.

The $15 million settlement will be put into a fund for investors who sustained losses when the funds dropped in value. The Commission's order instituting a settled administrative proceeding claims that UBS PR did not have the systems and procedures to prevent or detect the misconduct that Ramirez was engaging in. Even though UBS PR was allegedly apprised at least twice that customers of Ramirez might be violating the loan policy, the brokerage firm’s policies did not provide for reasonable follow up. UBS PR also purportedly lacked a system to make sure that credit line proceeds that were moved out of firm accounts were not used to buy securities.

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September 27, 2015

Father and Sons Charged in $20M Stock Scam

The Securities and Exchange Commission is charging a father, three sons, and two other men with bilking people who invested money in Gerova Financial Group. The regulator’s complaint names John Galanis, his sons Derek, Jason, and Jared, Gerova president Gary T. Hurst, and investment adviser Gavin Hamels. John has been a defendant in SEC enforcement actions numerous times over the last four decades. Jason faced SEC charges in 2007.

The SEC contends that Jason and Hirst came up with a securities scam in 2010 to secretly issue $72M of unrestricted shares to a friend in Kosovo. The Galanis’ are accused of redirecting the proceeds from the sales of those shares from the friend’s brokerage accounts and wiring the money to themselves and others. This resulted in about $20 million in illicit profits.

Jason is accused of bribing Hamels to buy stock in Gerovia to help stabilize its price as shares went into liquidation. Hamels is accused of buying the stock for clients according to arrangements made with Jared about prices, times, and how much to buy. He allegedly did not tell clients about Jason’s bribe.

The SEC is charging all of the men with federal securities laws and securities registration violations. It is charging Hamels with investment adviser fraud. Meantime, prosecutors in New York have put out a parallel action filing criminal charges against the six men, as well as Ymer Shahini, who was the family friend in Kosovo.

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September 21, 2015

SEC Headlines: Regulator Settles Private Equity Fund Fraud Case for $6.8M, Accuses R.T. Jones of Not implementing Cybersecurity Measures, and Files A Securities Case Over Stock Manipulation

Men Accused of $6.8M Private Equity Fund Fraud Allegedly Bilked Friends and Family
The Securities and Exchange Commission has settled charges with two men and their unregistered investment advisory firm for allegedly bilking investors in a private equity fund. Under the agreement, William B. Fretz, John P. Freeman, and their Covenant Capital Management Partners, L.P. will owe the regulator about $6.8 million. Any money collected will go to investors that were defrauded.

According to the SEC order instituting administrative proceedings over the alleged private equity fund fraud, the two men, their firm, and Covenant Partners, L.P., which is the fund they managed, sold partnership interests in the fund to friends and family. However, instead of investing the money, they used the cash for themselves and their other business.

Fritz and Freeman are accused of taking more than $1 million and placing it with their brokerage firm, Keystone Equities Group L.P., which was failing. They also purportedly paid close to $600,000 in performance fees they didn’t make and used assets from the fund to pay back personal obligations.

Freeman, Fretz, and CCMP consented to settle charges accusing them of willfully violating federal securities laws and SEC anti-fraud laws. However, they are not denying or admitting to the SEC fraud charges.

Investment Adviser R.T. Jones Capital Settles SEC Charges Related to Cybersecurity
R.T. Jones Capital Equities Management has settled SEC charges accusing it of not putting into placed required cyber security procedures and policies prior to a breach that compromised the personal identifiable (PII) information of thousands of its clients. Without denying or admitting to the findings, the investment adviser agreed to pay a $75,000 penalty and consented to cease and desist from future violations of the Securities Act of 1933’s Rule 30(a) of Regulation S-P.

According to an SEC probe, R.T. Jones violated federal securities laws’ “safeguard rule.” The rule mandates that registered investment advisers put into place written procedures and policies that are designed in a manner reasonable enough that they protect customers’ information and records from security threats. The regulator said that for four years R.T. Jones did not adopt any such policies.

Continue reading "SEC Headlines: Regulator Settles Private Equity Fund Fraud Case for $6.8M, Accuses R.T. Jones of Not implementing Cybersecurity Measures, and Files A Securities Case Over Stock Manipulation" »

September 16, 2015

SEC Files Fraud Charges in $18M Arizona Securities Scam that Bilked 225 Investors

The Securities and Exchange Commission is charging James Hinkelday, Jason Mogler, Brian Buckley, Casimer Polanchek, and James Stevens with bilking millions of dollars from investors. The regulators claims that the Arizona residents misappropriated about 97% of $18 million from 225 investors who thought their money was being used to acquire and develop beachfront property in Mexico, run recycling facilities, and buy foreclosed residential properties to resell. The men are accused of making Ponzi-like payments to investors who threatened to sue them.

In its complaint, the SEC says that the men—none of whom were registered with the agency to sell investments—solicited prospective investors via magazine, radio, and Internet ads, along with cold calls, marketing materials, and investor presentations. Polanchek purportedly looked for investors at cruises, bars, and self-help seminars. The men also were involved in The Investment Roadshow, which is an Arizona radio program that instructed listeners on how to use self-direct IRAs to put money in their companies. Prospective investors were guided to a website where they could schedule appointments and join seminars to find out more about the investment opportunities.

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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.

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September 9, 2015

SEC Moves to Stop Financial Fraud That Bilked Over 100 Investors Of Over $14 Million

The Securities and Exchange Commission has filed fraud charges and obtained an asset freeze against three individuals accused of stealing investor money. According to the regulator, David Kayatta, Paul Ricky Mata, and Mario Pincheira raised over $14M from over 100 investors for two unregistered funds. The money was supposed to be placed in real estate.

The SEC’s complaint noted that on a website run by Mata, the alleged fraudsters advertised an “Indestructible Wealth Bootcamp” and promised said wealth when, in truth, both funds never made a profit. Online videos on the website and YouTube marketed this investment seminar and another one titled “Finances God’s Way.” Retirees were encouraged to sell their securities holdings and get involved in the unregistered funds.

The complaint states that Mata is an ex-licensed securities professional with a lengthy disciplinary record that he hid from investors. He and Kaytata allegedly promised guaranteed returns for one fund even though a state regulator had sanctioned them for making such promises. The two men are accused of diluting the investments in the other fund by bringing in new investors while making false assurances to current investors that the two funds were doing well. Pincheira, Kayata, and Matta purportedly charged dinners, entertainment, travel, and other expenses on Pincheira’s credit card and paid off the balances with investor money. Monthly balances on the card were often above $40,000.

Unfortunately, new technologies are making it easier for fraudsters to reach more investors. Well-edited videos and legitimate looking ads can make scammers appear as if they are experienced and qualified to offer financial advice when they are not. At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers are here to help investors who have sustained losses because of financial scams.

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September 2, 2015

SEC Stops Minnesota Securities Fraud

The Securities and Exchange Commission has filed fraud charges against James M. Louks and FiberPoP Solutions Inc., accusing them of bilking almost 100 investors by persuading them to invest in notes that were in theory supposed to help fund the operations of the company. An emergency order was issued stopping the Minnesota resident and FiberPop to prevent them from continuing to raise investor funds under false pretenses without generating the returns that were promised.

Louks and the firm had promised swift investment returns of up to 100%. Although FiberPoP was founded in 2003 it still has no employees or operations. The SEC said that the investments that were solicited have the “hallmarks of prime bank schemes," which promote secrecy and exaggerated returns in purported complex investments that are fake.

The Commission said that Louks pursued investors for years while knowing that none of the supposed financing opportunities would ever go toward investor returns or company funding. Louks and FiberPop consented to the SEC order without denying or admitting to the charges.

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August 29, 2015

SEC Gets Asset Freeze in Alleged $125M Fraud Case Involving Chinese Investors Seeking US Immigration

The Securities and Exchange Commission said that an asset freeze has been imposed on Lobsang Dargey, who is accused of bilking Chinese investors looking to obtain residency in the United States through the EB-5 Immigrant Investor Pilot Program. The regulator contends that Dargey and his Path America companies raised $125 million for two real estate projects in Washington State while diverting $14 million for other real estate projects and using $3 million for personal spending.

With the EB-5 program, foreign citizens can qualify for residency in the country as long as they invest at least $500,000 in a specific project that preserves or creates at least 10 jobs in the U.S. Dargey and his companies purportedly got 250 Chinese investors to invest money under the program.

The SEC said that Darby told U.S. Citizenship and Immigration Services and the Chinese investors that the funds would go toward a downtown Seattle skyscraper and a residential/commercial development with a farmer’s market in Everett. The regulator also claims that Darby misled investors about their chances of getting permanent residency for their investments. For instance, an investor’s application for residency can be denied if his/her funds are used for a project that materially deviates from the plan that was approved by the USCIS.

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August 26, 2015

SEC Says Broker-Dealers Need to Do a Better Job of Monitoring High Risk Products

The Securities and Exchange Commission has put out an alert warning brokerage firms that they need to better monitor the sale of high risk complex investments to retail investors. The regulator said that its analysis of 26,600 transactions of $1.25 billion of structured securities products revealed that there has been quite a number of times when the investments were sold to investors for whom they were not appropriate.

According to InvestmentNews, the Commission examined 10 branch offices of brokerage firms. The assessments took place from January 2011 through the end of 2012. In one firm, they discovered $96 million of structured-product sales that were made to conservative investors. At two other broker-dealers, the SEC discovered high concentrations of structure products in the accounts of older investors. One representative purportedly modified a customer’s investment goals without that person’s consent after a sale went through to make the complex product purchases appear justified.

Brokers are required to abide by suitability standards, which mandate that investment products that are sold meet each client’s risk tolerance and investment goals. The SEC said that in exams that were conducted, there were firms that appeared to have weak suitability controls.

The Commission wants broker-dealers to regard this alert as a wake up call so that they will take a closer look at their compliance programs. The regulator noted that while all the broker-dealers that were scrutinized had written procedures and policies for suitability, the controls were not consistently or properly implemented. In some instances, suitability controls differed among the different branches of a firm.

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August 18, 2015

Over 14,000 Massachusetts Investors Receive Checks for Losses in $1B TelexFree Ponzi Scam

The first checks for compensation in the $1 billion global Ponzi scam involving TelexFree Inc. have gone out to over 14,000 investors in Massachusetts. Victims received $2.9 million in total as part of a settlement with Fidelity Cooperative Bank. This is only a small portion of the alleged losses.

About 1.9 million investors are still waiting to get any financial relief in the case, which affected not just people in the US as the scam spread globally and virally online and by word of mouth. The alleged Ponzi scam involved fraudsters selling inexpensive Internet phone service for long distance calls. They were recruited as members for $1,400 increments. Big financial returns were promised to investors for bringing in other investors and using Internet ads to market the business. While early investors made money, many others suffered substantial losses.

Telex-Free was shut down in Brazil in 2013, but the Ponzi operation continued in Massachusetts where it was headed up by James Merrill and Carlos Wanzeler. Both deny the criminal and civil charges.

Continue reading " Over 14,000 Massachusetts Investors Receive Checks for Losses in $1B TelexFree Ponzi Scam " »

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.

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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.

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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.

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