December 15, 2014

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

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

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

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

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

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

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

Contact our investment adviser fraud law firm today.


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

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

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

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

December 8, 2014

Ex-California Insurer Charged with Running $11M Ponzi Scam

Joseph Francis Bartholomew is charged with 30 felony counts related to his alleged operation of an $11 million Ponzi scheme. The 75-year-old former licensed insurance agent has been called Orange County, Ca.’s Bernard Madoff, after the financier who ran a multibillion-dollar Ponzi scam for decades. Bartholomew allegedly bilked over 27 investors.

According to the California State Department of Insurance, he used his insurance business, MBP Insurance Services, to get people to trust him. Those involved reportedly included a number of family trusts, a church, an ex-baseball player, and senior citizens.

The Orange County Register said that Bartholomew made false promises to investors telling them that they could earn fast returns of up to 40%. For example, he is accused of offering one investor an unsecured investment while making the claim that the customer would get $10,000 a month if he invested $500,000. Bartholomew allegedly gave fraudulent assurances that the investment on third party life insurance policies was a legitimate one. He also made other misrepresentations, including claiming that over the last decade there had been no problems getting payments to investors.

Bartholomew had stopped paying investors by March 2013.

He is accused of running his financial scam from 2005 into 2014. If convicted, he faces up to 40 years behind bars.

Also charged for her alleged involvement in Bartholomew’s Ponzi scam is insurance agent Wendy King-Jackson. She worked at MBP Insurance Services.

King-Jackson is accused of selling unsecured securities connected to bogus insurance policies. She allegedly told clients that the policies were legitimate and the investments were legal while falling to notify them that the California Department of Corporations did not give the insurer the authority to sell the securities. She faces up to 16 years maximum in state prison if convicted.

Two OC residents arraigned in $11 million Ponzi scheme, Insurance.Ca.Gov, December 4, 2014


More Blog Posts:
SEC to Dismiss Lawsuit Against SIPC Over Payments to Stanford Ponzi Scam Victims, Stockbroker Fraud Blog, September 11, 2014
SEC Commissioner Wants Elder Fraud at Top of 2015 Agenda, Stockbroker Fraud Blog, November 29, 2014

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

November 29, 2014

SEC Commissioner Wants Elder Fraud at Top of 2015 Agenda

U.S. Securities and Exchange Commissioner Michael S. Piwowar says that he wants investigations into elder fraud to stay one of the agency’s top priorities in 2015. Financial fraud targeting seniors is costing this demographic big time. According to a 2011 study by MetLife and the Center for Gerontology at Virginia Tech senior financial fraud victims sustain around $2.9 billion in losses yearly.

One of the reasons for this is that older Americans tend to make more vulnerable targets for fraudsters. They are easier to deceive with bogus sales pitches and some of them may suffer from debilitating mental or cognitive illnesses that can make it hard for them to know they are being bilked.

Also, scammers like to go after elder investors because many of them have accumulated enough retirement money that they have significant funds that fraudsters can steal. Unfortunately, a senior that is the victim of elder financial fraud may no longer have the time or be at an age when he/she can earn back whatever is lost, which can make his/her retirement years a struggle.

Just recently, an ex-insurance agent was accused of numerous felony counts of grand theft, identify theft, and embezzlement. His alleged victims included over 50 elderly clients.

Also this month, a North Carolina woman recently entered a plea related to elder exploitation accusations involving a man over whom she possessed power of attorney. Jessica Lynn Isley is accused of making personal charges to Harold Rudd’s bank account over a more than two-year period. Isley reportedly agreed to a plea that did not require that she admit guilt. She will pay over $30,000 in restitution.

In Oregon, police recently arrested Angela Chisholm for numerous felonies involving financial transactions that impacted the accounts of a 71-year-old. A few months before that, four people were charged in an NFL-related financial scam that also went after senior citizen victims. The fraudsters allegedly raised about $2.4 million by claiming they had technology that the NFL was going to use.

These are just a few of the many incidents of elder financial fraud that happen every year. In August, the North American Securities Administrators Association announced the establishment of the Committee on Senior Issues and Diminished Capacity, a board-level committee that would deal with challenges faced by senior investors. NASAA noted that in the last six years, 34% of enforcement actions initiated by state regulators involved senior victims. 3,548 actions between ’08 and ’13 involved elderly targets no younger than age 62.

At Shepherd Smith Edwards and Kantas, LTD LLP, our senior financial fraud lawyers represent elderly clients (or their families) that sustained significant financial losses because they were bilked. We are here to help senior investors recoup what was taken from them.

SEC Commissioner Pushes For Elder Fraud To Top 2015 Agenda, InsuranceNewNet.com, November 7, 2014

The MetLife Study (PDF)

Woman pleads in elder exploitation case, The Times News, November 26, 2014

Hanover woman charged for embezzling thousands from family member
, NBC12.com, November 26, 2014

Four Charged in NFL-Related Securities Fraud Scheme Targeting Senior Citizens, FBI, July 25, 2014


More Blog Posts:
Securities Fraud Headlines: ConvergEx Group Subsidiary Gets Criminal Sentence for Fraud, Ohio Man Gets Prison Term for Scam, Two Men Face Charges Over Predictive Software, and Fund Manager Admits to $17M Ponzi Scam, Stockbroker Fraud Blog, November 28, 2014

Citigroup, Bank of America Are Selling Soured Home Loans, Sources Tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

October 30, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm

James “Jeb” Bashaw, the former star financial adviser at LPL Financial (LPLA) from Texas is now registered with International Assets Advisory, a small brokerage firm. LPL Financial fired Bashaw last month over allegations involving selling away. Then, for a while this month, he was with Wunderlich Securities Inc.

Selling away typically involves engaging in private securities transactions sans the required written disclosure or brokerage firm approval. It can also include borrowing from a client, as well as engaging in a transaction that is a potential conflict interest, again without the required disclosure in writing or firm approval.

Responding to the selling away allegations, Bashaw noted that he was “home supervised” and underwent more than a dozen perfect audits while affiliated with LPL. After his firing, Wunderlich took steps to hire Bashaw but there was a delay in transferring his license to the firm. In the end, the broker-dealer and Bashaw reportedly decided not to pursue a working relationship.

In 2011, Bashaw was ranked the number one financial adviser in Texas. He founded a dually registered firm in Houston, which was one of the biggest affiliated LPL practices. He reportedly managed assets of $3.8 billion.

In other LPL Financial news, this week Mark Casady, its chief executive, apologized to shareholders for the time it has taken to resolve the company’s compliance issues. The problems have cost the brokerage firm millions of dollars in settlements, restitution payments, and fines.

Casady’s statement comes a week after parent company LPL Financial Holdings Inc. announced that the broker-dealer expected to incur some $23 million in charges to settle undisclosed regulatory issues. That’s $18 million more than what had been anticipated. Following the announcement, LPL shares dropped 7%.

LPL said the regulatory matters primarily involve LPL Financial’s policies, systems, and procedures. Without going into detail, Casady said that the nature of the issues made it hard to identify or evaluate the “timing or magnitude of their resolution.”

For the last two years, LPL Financial has been contending with regulators over different issues. Earlier this month, regulators in Massachusetts announced that LPL had consented to pay back senior investors $541K for surrender charges from switching variable annuities. In June, LPL Financial was told to pay $820K in restitution and a $2 million fine to Illinois regulators for not properly mantaining books and records that documented 1035 exchanges.

Last year, FINRA fined LPL $7.5 million for close to three dozen system failures involving emails. The firm paid investors in Massachusetts $4.8 million in restitution related to their purchase of nontraded real estate investment trusts.

Our Texas broker fraud lawyers represent investors who wish to recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Ex-LPL Adviser’s Talks With Wunderlich Scuttled, The Wall Street Journal, October 14, 2014

CEO Mark Casady apologizes to LPL Financial shareholders for compliance missteps, Investment News, October 30, 2014


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

Former LPL Financial Broker Must Pay Almost $2 Million For Bilking Clients, Including Elderly Investors, Stockbroker Fraud Blog, August 29, 2014

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

October 15, 2014

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

According to his report on the central registration depository, LPL Financial (LPLA) branch manager James Bashaw was fired last month for allegedly engaging in selling away, which involves taking part in private securities transactions without written disclosure or approval from a brokerage firm, as well as borrowing from a client and taking part in a business transaction that created a possible conflict, again without obtaining the necessary firm approval or written disclosure.

Bashaw, also known as “Jeb” Bashaw, is considered one of the leading financial advisers in Texas. Barron's magazine ranks him as number one in the state with assets totaling $3.8 billion.

According to Investment News, while the CRD, which is the central licensing and registration system for the securities industries and regulators, provided these details regarding Bashaw’s termination, LPL has not elaborated, except to report on his BrokerCheck profile that the broker did not follow industry regulations and firm policies. Bashaw is now registered with Wunderlich Securities Inc.

In other LPL Financial news, the firm has reached a deal with Massachusetts regulators in which it will pay back elderly investors over $500,000 to resolve complaints related to switching variable annuities. The broker-dealer has admitted that certain annuity-switch transactions were performed without disclosing that there were fees for surrendering or cashing in the annuity.

Annuity switching occurs when a broker recommends that a client trade in an older annuity to purchase another one. Frequently, this can cost a customer while benefiting the financial representative.

The agreement with Massachusetts Secretary of State William Galvin’s office covers 157 transactions involving senior investors in the state. LPL reportedly now has new policies in place to make sure that customers get the mandated disclosures when there are transaction fees.

LPL Financial to reimburse annuity-switching fees to investors, Reuters, October 14, 2014

Selling away claims behind LPL's termination of James "Jeb" Bashaw
, Investment News, October 13, 2014

LPL Financial to pay back $541,000, Boston Globe, October 14, 2014


More Blog Posts:

Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions, Stockbroker Fraud Blog, September 28, 2014

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 6, 2014

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

October 8, 2014

Securities Fraud: Ex-Ameriprise Adviser to Pay $3M for Ponzi Scam, Four Insurance Agents Allegedly Defrauded Senior Investors, and Trading in Nine Penny Stocks is Suspended

Former Ameriprise Adviser Ordered to Jail, Must Pay $3M Restitution
Oscar Donald Overbey Jr., an ex-Ameriprise Financial Services (AMP) financial adviser, must pay back the $3 million he allegedly stole from investors while operating a Ponzi scam. The 47-year-old has been sentenced to three and a half years behind bars.

Court documents say that from 1996 into 2007, Overbey stole about $4 million of client funds that he was supposed to invest. Instead, the money was used to pay earlier investors, cover his personal expenses, and pay off his gambling debts.

In July 2012, Overbey was indicted. He pleaded guilty to wire fraud felony charges last year. Overbey reportedly told a doctor that many of his brokerage clients were fellow gamblers.

The Financial Industry Regulatory Authority barred him from the industry in 2007. Ameriprise fired him. It has since paid back the clients that were affected by Overbey’s fraud.

Insurance Agents Face SEC Charges Alleging Elder Financial Fraud
The U.S. Securities and Exchange Commission is charging four insurance agents over their involvement in a multi-million dollar securities fraud that targeted senior investors. The elder financial fraud charges come almost a year after the regulator filed charges against Gary C. Snisky for orchestrating the scheme and bringing in insurance agents to solicit investors.

The financial scam raised about $4.3 million over 18 months. Now, the SEC is going after insurance agents Kenneth C. Meissner, Mark S. Tomich, James Doug Scott, and David C. Sorrells for soliciting funds even though they weren’t registered as a broker-dealer with the Commission.

The fraud primarily targeted annuity holders that were retired. The insurance agents sold interests in Arete LLC, which Snisky controlled. Investors were purportedly told that their money would be used to buy discounted agency bonds that were backed by the government. Instead, Snisky misappropriated about $2.8 million of their money.

Microcrap Fraud Probe Leads to Trading Suspension in Nine Penny Stocks
The SEC has suspended trading in nine penny stocks. The move is an effort to battle microcap fraud. The affected companies include Xumanii International Holdings Corp., All Grade Mining Inc., Solar Thin Films Inc., Global Green Inc., Bluforest Inc., mLight Tech Inc., DHS Holding Co., Inova Technology Inc., and Essential Innovations Technology Corp.

The SEC can elect to suspend trading in a stock if it believes that doing so is necessary to protect investors and the public. The regulator typically cannot announce in advance that a suspension is in the works because this could hinder its investigative efforts.

Ex-Ameriprise adviser gets jail time for using client money to pay gambling debts, Investment News, October 7, 2014

SEC Charges Four Insurance Agents in Securities Fraud Targeting Elderly Investors, SEC, September 26, 2014

Penny Stocks Trading Suspension Order, SEC (PDF)


More Blog Posts:

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 7, 2014

Former Axa Advisors Broker Faces SEC Charges Over Alleged $1.5M Ponzi Scam, Stockbroker Fraud Blog, September 30, 2014

Shareholder’s $40B Class Action Securities Lawsuit Over AIG Bailout Goes to Trial, Institutional Investor Securities Blog, September 29, 2014

October 6, 2014

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision

The Financial Industry Regulatory Authority has barred Jo Ellen Fischer, an independent financial adviser with Raymond James Services Inc. (RJF), for purportedly stealing nearly $1 million from a 95-year-old client. At the time, Fisher worked for Peoples Bancorp.

According to the self-regulatory organization, from July to December 2013, Fisher converted $924,750 from the elderly customer’s trust without permission. She did this by moving funds and securities into a brokerage account under her daughter’s name. Fisher then liquidated securities and used the money to cover her personal spending, including two Rolexes, motor vehicles, a 2-carat diamond ring, and other expenses.

FINRA says that Fisher claimed that the elderly client was her daughter’s godfather and he wanted her to have the money when she was older. The SRO, however, contends that Fisher falsified documents regarding this matter. She has agreed to the bar without denying or admitting to the findings alleging elder financial fraud.

Raymond James, which terminated Fisher's registration earlier this year, is cooperating with investigators. The financial firm has filed its own action against her in federal court to get back the money she purportedly took. Raymond James has already paid back the investor.

In other FINRA-related news, the SRO is charging SWS Financial Services with approving variable annuity applications without conducting principal review to make sure they were suitable. The agency’s enforcement department claims that from 9/09 to 5/11 the firm did not have the required supervisory systems and written procedures in place for VA transactions.

SWS is accused of not conducting adequate supervisory reviews of variable annuity deals, failing to register principal reviews of VAs prior to turning the applications over to the insurer, not setting up and documenting a training plan for supervisory review of VA deals, and failing to establish surveillance procedures that could identify VA exchanges that were not appropriate.

FINRA says that during the time of these violations, variable annuity sales comprised up to 20% of the firm’s total revenue. It wants disciplinary action, including monetary sanctions, as well as an order mandating that SWS pay for the proceeding costs.

Finra Bars Ex-Raymond James Adviser Over Alleged Account Theft, The Wall Street Journal, October 3, 2014

Finra charges SWS with improper supervision of VA transactions, Investment News, October 2, 2014


More Blog Posts:

Former Axa Advisors Broker Faces SEC Charges Over Alleged $1.5M Ponzi Scam, Stockbroker Fraud Blog, September 30, 2014

DOJ’s Fund for Madoff Victims Has Received 51,700 Claims Worth $40B, Institutional Investor Securities Blog, May 14, 2014

Resource Horizons Group’s Future Hangs in Balance Following $4M FINRA Arbitration Award, Stockbroker Fraud Blog, September 25, 2014

August 29, 2014

Former LPL Financial Broker Must Pay Almost $2 Million For Bilking Clients, Including Elderly Investors

Blake B. Richards, an ex-LPL Financial (LPLA) broker, must pay close to $2 million in penalties and disgorgement over allegations that he defrauded clients of close to $1.7 million. According to the case, submitted in the U.S. District Court of the Northern District of Georgia, Richards told at least seven clients to write checks to entities under his control. The clients thought that the money would be invested in variable annuities, fixed-income investments, or equities. Instead, contends the U.S. Securities and Exchange Commission, the funds were used to pay for his personal spending.

According to the SEC, most of the investors’ money came from life insurance proceeds or retirement savings. Two of the investors involved were widowed and at least two others were elderly customers.

Per the regulator’s complaint, Richards won one investor’s trust by delivering pain meds to her husband during a snowstorm. The spouse was suffering from terminal pancreatic cancer at the time.

Richards has not denied or admitted to the charges. The agency said that his actions indicate “selling away,” which involves brokers defrauding investors through external business activities.

LPL let Richards go last year after another adviser notified the brokerage firm about his alleged wrongful conduct involving non-firm accounts. The broker-dealer then conducted its own probe and notified regulators. Also last year, the Financial Industry Regulatory Authority barred Richards.

Senior Fraud

Elderly investors are a favorite target for fraudsters. According to a survey by the Investor Protection Trust, the American Bar Association, and the Investor Protection Institute, 34% of attorneys who took the poll said they either work with or expect to represent senior clients who have been victims of fraud. 27% reported dealing with the children of older fraud victims who either are trying to help their parents, who’ve been bilked, or the kids are the ones accused of exploiting them.

In an earlier survey, the Investor Protection Trust found that over 7.3 million Americans older than 65 had already sustained fraud losses. Earlier this month, the North American Securities Administrators Association set up the Committee on Senior Issues and Diminished Capacity. The panel, which is comprised of state securities regulators, will look more closely at elder financial abuse and the problems that can occur related to retirement nest eggs and complex financial securities. NASAA-compiled enforcement statistics indicate that 34% of actions in the last six years involved senior victims.

One reason for this is that the retirement population is growing, especially as people are living longer. However, a diminished mental capacity and the growing number of complex financial products can make for a bad combination. Many retirees may not be able to understand what they’re putting the retirement money into, and they can end up suffering huge losses.

The SEC has also expressed concern about how elderly investors continue to be targeted by fraudsters.

Contact our elder financial fraud lawyers today to request your free case consultation. Shepherd Smith Edwards and Kantas, LTD LLP also represents investors based abroad with securities claims against U.S. firms.


Ex-LPL broker ordered to pay $1.9 mln in U.S. SEC fraud suit, August 28, 2014

Senior investor concerns, abuse get more regulator attention, Investment News, April 19, 2014

Investor Protection Trust


More Blog Posts:
LPL Financial to Pay Illinois $2 Million Fine Related to Variable Annuity Exchanges, Stockbroker Fraud Blog, August 13, 2014

SEC Charges Ex-UBS Broker in $730K Elder Financial Fraud Ponzi Scam, Stockbroker Fraud Blog, August 4, 2014

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

August 5, 2014

SEC Gets Nearly $70M Judgment Against Richmond, VA Firms, CEO Find Liable for Securities Fraud

AIC Inc., Community Bankers Securities LLC, and CEO Nicholas D. Skaltsounis must pay a nearly $70 million judgment for securities fraud, in the wake of an earlier trial that found them liable. The Securities and Exchange Commission had accused them of conducting an offering fraud while selling millions of dollars in AIC promissory notes and stocks to investors in different states, including unsophisticated investors and elderly customers.

The regulator accused them of omissions and misrepresentations of material information about the investments, their risks, the return rates, and how the money would be used by AIC, which is a financial services holding company, and Community Bankers Securities, its subsidiary brokerage firm. The SEC argued that the companies were not profitable and new investors’ money was used in Ponzi scam fashion to repay returns and principal to earlier investors.

Last year, a jury ruled in the SEC’s favor against AIC, Community Bankers Securities and Skaltsounis. Now, AIC must disgorge over $6.6 million, over $969,00 in prejudgment interest, and a $27.95 million penalty. Community Bankers Securities disgorgement is $2.8 million, over $400,000 in prejudgment interest, and a $27.95 million penalty. Skaltsounis is to pay over $2.5 million dollars in total.

SEC enforcement division director Andrew Ceresney said that these penalties should reinforce that the regulator is determined to aggressively go after companies and individuals to hold them accountable when they are not truthful with investors, even taking them to trial when necessary.

Just last month, the SEC filed administrative proceedings against a Seattle, WA investment advisor for misusing over $8 million in client moneys and making loans to himself. Dennis H. Daugs and his Lakeside Capital Management are accused of borrowing $3.1 million from one client without her consent.

The SEC also claims that Daugs and Lakeside Capital improperly directing an investment fund that the firm managed to make over $4.5 million in investments and loans. The money was used to facilitate personal real estate deals, purchase a luxury vacation home, refinance a vintage auto, and fend off claims of over $500,000 from firm clients.

Daugs and Lakeside Capital have repaid the diverted monies. They also consented to settle SEC charges and pay over $340,000 in disgorgement and interest to the investment funds and the one client. They also agreed to pay a $250,000 penalty. Daugs agreed to a 5-year minimum industry bar.

Our investment advisor fraud lawyers help investors recoup their money. Working with a securities attorney dramatically increases your chances of getting back all or most of your losses. You want to work with a securities fraud law firm that has the resources and experience to help you recover your money. Your case consultation with us is free. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Obtains Nearly $70 Million Judgment Against Richmond, Va.-Based Firms and CEO Found Liable for Defrauding Investors, SEC, August 1, 2014

Adviser misused $8 million in client funds: SEC, Investment News, July 17, 2014


More Blog Posts:
SEC Charges Ex-UBS Broker With $730K Elder Financial Fraud Ponzi Scam, SEC, August 4, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

August 4, 2014

SEC Charges Ex-UBS Broker in $730K Elder Financial Fraud Ponzi Scam

The Securities and Exchange Commission has filed charges against ex-UBS Wealth Management Americas (UBS) broker Donna Tucker for a Ponzi fraud that allegedly bilked elderly investors of over $730,000. Tucker is accused of misappropriating the money from UBS customers over a five-year period while she worked at the financial firm.

According to the SEC, Tucker took part in unauthorized trading, made misrepresentations to customers about the status of their funds, and forged documents and checks. She allegedly gained customers’ trust by becoming friends with them.

For example, she helped one blind couple take care of their medical needs and pay their monthly bills. The latter action gave her access their checkbook. She used this authorization to forge checks written to cash that she then gave to herself.

She also purportedly lied to the couple about their holdings and gave them bogus documents showing fake brokerage account balances. The SEC says that inn one such instance, after she allegedly took money from the couple’s IRA account, the IRS sent them a delinquency letter about the premature distribution. When the couple asked Tucker about it she claimed that the letter was a mistake and no money had been withdrawn. She also generated a fake account statement to support her lie, as well as a fake letter that was supposedly from the IRA saying the matter had been resolved.

The SEC claims that Tucker took close to $350,000 from this couple alone and hid the theft by convincing them to bank online and use electronic statements because she knew they would not be able to get them.

She also allegedly took out unauthorized margin loans on accounts of customers to pay back other accounts. Tucker then used investors’ funds to pay for vehicles, vacations, clothes, and a country club membership.

UBS has since paid back several customers for Tucker’s fraud. She resigned from UBS last year. In September 2013, the Financial Industry Regulatory Authority barred her.

Tucker is settling the SEC charges and has agreed to disgorge the monies. The order she consented to permanently enjoins her from violating the Securities Act of 1933’s Section 17(a), the Securities Exchange Act of 1934’s Section 10(b), and Rule 10b-5. Meantime, the U.S. Attorney’s Office for the Western District of Virginia has filed a parallel criminal case against her.

Senior Fraud
Elder financial fraud is a serious problem. Shepherd Smith Edwards and Kantas, LTD LLP represents senior investors and others who have suffered losses because of securities fraud. Financial fraud by brokers and investment advisors may result in a huge financial strain for elderly investors. Many of them rely on their retirement monies to carry them through for the remainder of their lives. Our securities lawyers are here to help investors recoup their losses.

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers, SEC, July 31, 2014

Read the SEC's Complaint (PDF)


More Blog Posts:
Boston Investment Firm Accused of $5 Million Real Estate Investment Fraud Targeting Senior Investors, Stockbroker Fraud Blog, June 19, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

June 19, 2014

Boston Investment Firm Accused of $5 Million Real Estate Investment Fraud Targeting Senior Investors

The state of Massachusetts has filed a complaint against Cabot Investment Properties and its principals Timothy J. Kroll and Carlton P. Cabot. Secretary of the Commonwealth William F. Galvin is charging the firm with defrauding mostly elderly investors through fraudulent real estate investment sales.

The administrative complaints contends that Massachusetts residents wanting retirement income invested over $5 million in eight tenancy-in-common investments and misappropriated more than $9 million of the investment proceeds. Cabot Investment Properties had bought 18 business centers, malls, and other real estate properties in the US and structured them as securities.

Galvin claims that the respondents committed fraud when offering and selling the securities and made omissions and misrepresentations about their backgrounds and the consequences involved in securitizing the underlying TIC mortgages into commercial mortgage-backed securities. He contends that they misled investors by providing disclosures that downplayed how much liability was involved.

The investments were supposed to generate rent for two decades. Instead, Kroll and Cabot comingled funds from the different investments into a number of Cabot Investment Properties holdings. The two men then spent several years wiring millions of these dollars into their own accounts. Meantime, they inflated their reputations. Cabot’s mother had married into New England’s Cabot family, so the respondents bragged about the connection to make themselves seem more legitimate, respectable and prominent.

Unfortunately, senior investors are a favorite target for fraudsters because many of them have money that they want to invest. At Shepherd Smith Edwards and Kantas, LTD LLP, we help investors recoup their defrauded funds. Over the years we have helped thousands of individual investors and institutional investors get their money back.

Boston firm charged in real estate investment fraud, Investment News, June 18, 2014

Read the Complaint (PDF)


More Blog Posts:
Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, Stockbroker Fraud Blog, June 18, 2014

DOJ Investigates Foreign-Exchange Industry Over Sales Markups, Institutional Investor Securities Blog, June 19, 2014

$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014

May 31, 2014

More Older Investors Are Getting Rid of Advisers and Managing Their Own Funds Online

According to InvestmentNews, nearly half of investors in their fifties are now self-directed when it comes to their investments. This means that their main provider for investment advice is either a discount brokerage or a robo-adviser. 40% of investors in the 60 and over age group also are calling themselves self-directed.

The reasons for why older investors are gravitating toward the Internet to manage their own investments vary. For some, it can be a cost saver, compared to paying human advisers their numerous fees. There is also now a greater mistrust of financial representatives in the wake of the 2008 economic crisis. Also, getting everything handled online and without having to go out and meet with an actual adviser for advice or updates is proving very convenient for some.

InvestmentNews offers up as one example a 76-year-old investor, Lois Mayerson. She and her now 81-year-old husband fired their traditional advisers two decades ago. She said they started managing their own money because their financial advisers were losing the funds faster than the couple could deposit the cash into their accounts. Another investor, 58-year-old Joseph Giuliano, works with Betterment, an online financial adviser. Giuliano says that he and his wife have about $500,000 in a Betterment account. He believes that the only reason to have an adviser is when making bigger picture plans about taxes, college spending, insurance, and estate planning.

However, according to the J.D. Power 2014 U.S. Self-Directed Investor Satisfaction Study, even though many self-directed investors—especially the younger ones—want to manage their money online this hasn’t eliminated their desire to establish strong ties with their broker-dealer and get more guidance. The study found that although self-directed investors’ primarily ask for advice by making their inquiries online, they still want quality answers and support.

Our senior investor fraud lawyers represent elderly investors that have sustained losses because they were the victim of financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Best Firms for Self-Directed Investors: J.D. Power—2014, ThinkAdvisor.com

J.D. Power 2014 U.S. Self-Directed Investor Satisfaction Study

Older investors turn to the web to manage assets, InvestmentNews, May 25, 2014


More Blog Posts:
FINRA Panel Tells Ameriprise to Pay Elderly Couple $1.7M Over Unsuitable Real Estate Investments, Stockbroker Fraud Blog, May 5, 2014

Elder Financial Fraud: One Out of Five Seniors Victimized, Reports WSJ, Stockbroker Fraud Blog, January 20, 2014

CTFC Issues Its First Whistleblower Award, Institutional Investor Securities Blog, May 30, 2014

May 29, 2014

Stockbroker Fraud: Morgan Stanley Sues Convicted Ex-Broker, Former-Wells Fargo Broker Pleads Guilty, And Ex-John Thomas Financial Broker Evades Customer Complaints

Morgan Stanley Files Lawsuit Against Ex-Broker Convicted in Kickback Scam
Morgan Stanley (MS) is suing ex-broker Darin DeMizio for legal fees. DeMizio was convicted over his involvement in a kickback scheme. Now, the financial firm wants him to pay back legal expenses because it says that he purposely defrauded the broker-dealer and hid the fraud while working there.

DeMizio was convicted five years ago for his scheme to pay kickbacks of $1.7 million to his brother and dad. He was sentenced to 38 months behind bars and ordered to pay Morgan Stanley $1.2 million in restitution.


Ex-Morgan Stanley and Wells Fargo Broker Pleads Guilty in Check Fraud Scam Involving Elderly Widow
Adorean Boleancu, a former Morgan Stanley and Wells Fargo (WFC) broker, has entered a guilty plea to wire fraud charges related to a $1.8 million check fraud scheme. His victim was a widow in her eighties. Boleancu admitted that he wrote checks without authorization on her home equity lines of credit and her brokerage account. The checks included payments to his relatives, a significant others, and companies where he had credit card accounts.

According to prosecutors, Boleancu was working for Morgan Stanley when he set up accounts for investor Tonna Treadwell in 2007. He left the firm a year afterwards but kept forging checks from her account through 2011 when he was a Wells Fargo broker.

Boleancu has repaid Treadwell $650,000. As part of a civil settlement with the Financial Industry Regulatory Authority, he agreed to be banned from the industry.


Ex-John Thomas Financial Broker Avoids Customer Complaints With Bankruptcy Filing
Scott Levine, a former John Thomas Financial broker, was granted momentary reprieve from the customer complaints that have been made against him after he filed for bankruptcy protection. Because of the filing, five customer complaints that named him and carry nearly $5 million in damage claims are now frozen.

The allegations against Levine involve purportedly unsuitable investments, private placements, and churning. His former firm, John Thomas Financial, was expelled by FINRA. However Levine continues to work as a broker with IAA Financial.

Under Section 362 of the U.S Bankruptcy Code, administrative actions and litigation are frozen so that those who are in financial trouble can financially recover. Now, however, some investor fraud lawyers are saying that the code is letting brokers continue to stay employed while the customer complaints again them wallow in bankruptcy court.

In FINRA’s BrokerCheck database, complaints directed to a bankrupt broker end up being marked “pending.” Arbitrators can’t rule on them until a bankruptcy judge lifts the order to freeze the claims.

Our stockbroker fraud law firm is here to help investors get back their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Brokers dodge customer complaints with bankruptcy, Investment News, May 29, 2014

Morgan Stanley Sues Convicted Ex-Broker for Legal Fees, Bloomberg, May 27, 2014

Ex-Wells, Morgan Stanley broker pleads guilty in check fraud scheme, Reuters, September 17, 2013

U.S. Bankruptcy Code


More Blog Posts:
SEC Files Charges in Penny Stock Scams, Stockbroker Fraud Blog, May 27, 2014

SEC Takes Action to Stop Alleged Fraud Involving Transfer Agent, Institutional Investor Securities Blog, May 28, 2014

Insider Trading Headlines: Principal of Wynnefield Capital Now On Trial, Ex-Vitamin Company Board Member Settles His Case, and Clinical Drug Trial Doctors Face Charges Related to New Cancer Drug, Stockbroker Fraud Blog, May 23, 2014

May 5, 2014

FINRA Panel Tells Ameriprise to Pay Elderly Couple $1.7M Over Unsuitable Real Estate Investments

A Financial Industry Arbitration panel says that Ameriprise Financial Services Inc. (AMP) must pay $1.17M to two senior investors for getting them involved in investments that failed. The panel said that the financial firm acted inappropriately when it advised Albertus Niehuis Jr., 82, and his wife Andrea, to put $1.03M into high-risk tenant-in-common investments involving hotels and office complexes six years ago. They are retired school teachers.

One of the investments failed. The other two lost significant value. Despite the ruling, the financial firm insists that it gave the Niehuises the appropriate investment advice and it stands behind the recommendations.

In 2012, ThinkAdvisor.com said that the number of senior investors is expected to reach 89 million in 2050. Currently, there are close to 40 million Americans belonging to the age 65 and over group. Unfortunately, elder financial fraud continues to be a serious problem.

Just recently, broker Michael Zuno Zuniga received a 5-year prison term and was told to pay $1.2 million for taking part in a Ponzi scam that targeted seniors living in the Los Angeles, California area. He was charged with 57 felony counts and accused of bilking at least 18 investors, most of them Latinos, of about $1.5 million. Zuniga reportedly solicited his victims in their homes.

Financial firms and their representatives know that older investors sometimes can’t afford to take on as much risk as younger investors. It is the broker’s job to make sure that they make the appropriate investment recommendations to protect their clients’ money.

Many elderly investors will not be bringing in more income and they will need the money they do have to take care of them for the rest of their lives. Huge investment losses can be devastating, possibly making it hard for them to get the proper medical and nursing care they might need later in life.

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

Finra panel orders Ameriprise to pay couple $1.17 million, InvestmentNews, May 5, 2014

Best Practices for Working with Senior Investors, Think Advisor

Broker sentenced for $1.5 million Ponzi scam targeting Latino seniors, IFAWebnews.com, April 29, 2014


More Blog Posts:
SEC Files Fraud Charges Against American Pension Services and Its Founder Over $22M Investor Losses, Stockbroker Fraud Blog, April 30, 2014

Elder Financial Fraud: One Out of Five Seniors Victimized, Reports WSJ, Stockbroker Fraud Blog, January 20, 2014

The Brokerage Industry Responds to FINRA’s Broker Compensation Proposal
, Institutional Investor Securities Blog, April 4, 2014

April 30, 2014

SEC Files Fraud Charges Against American Pension Services and Its Founder Over $22M Investor Losses

The Securities and Exchange Commission has filed charges against American Pension Services Inc., a third-party administrator of retirement plans based in Utah and its founder Curtis L. DeYoung. The regulator says that they caused clients to lose about $22 million in risky investments involving certain business ventures. American Pension Services is now under receivership.

The securities scam allegedly goes back at least to 2005. Customers with retirement accounts containing non-traditional assets usually not found via IRA custodians, such as traditional (401)K retirement plans, were targeted. The Commission says that APS and DeYoung solicited customers to set up self-directed IRA accounts with third party administrator. DeYoung purportedly said this was “genuine self-direction” for investors seeking other options besides stocks, mutual funds, and bonds.

These clients had to fill out IRS Form 5305-A, which say that a third-party administrator doesn’t have discretionary authority over assets and it is up to the depositor to direct the assets’ investments. Although clients’ funds were kept at a bank in two master trust accounts, the complaint claims that APS controlled the money and mixed clients’ money together.

Even though APS was not allowed to direct client trades, DeYoung is said to have used letters with forged signatures that gave him permission to invest for clients. The SEC believes that clients were sent inaccurate account statements in 2012 and 2013, and some were told that at the end of 2012 master trust accounts contained $45.9 million when really that balance was at around $23.8 million. (In 2013, account statements noted that these accounts held $57.3 million when really they contained $22.7 million.) Client fees were calculated according to the inflated figures in customer account statements.

Meantime, customer funds were placed in risky business ventures involving friends of DeYoung. Even after a friend defaulted on promissory notes that DeYoung is said to have recommended to investors, he allegedly kept referring APS clients and their money to that person until a year ago. He also caused customers to think that their investments were profitable. DeYoung is accused of giving his friend the cash, which was issued to clients as bogus principal payments and interest.

Some of these business ventures failed or went bankrupt, allegedly causing APS clients to suffer losses. Among the investments are entities that are currently subject of SEC enforcement cases. SEC Salt Lake Regional Office director Karen Martinez, because of the alleged misconduct, the retirement security for thousands of investors was “jeopardized.”

If you are a senior investor, a retiree, or another customer who sustained losses because of the negligence of your investment representative, contact our securities lawyers today. Your initial case assessment is free.

Read the SEC Complaint (PDF)

SEC hits American Pension Services and its founder with fraud charges, Investment News, April 30, 2014


More Blog Posts:
Charles Schwab’s Barring of Customers from Joining Class Actions Violated FINRA Rules, Says Board of Governors, Stockbroker Fraud Blog, April 25, 2014

Ex-Sentinel CEO is Convicted of $500M Fraud, Stockbroker Fraud Blog, April 25, 2014

Institutional Investors Sue BP for Securities Fraud
, Stockbroker Fraud Blog, April 21, 2014

January 20, 2014

Elder Financial Fraud: One Out of Five Seniors Victimized, Reports WSJ

According to the Wall Street Journal, a 2010 survey conducted by the financial education organization Investor Protection Trust reports that out of ever five Americans age 65 and over, one of them has been the victim of elder financial abuse. The paper is calling this an epidemic.

A tracking by the Federal Trade Commission in 2012 found that 26% of all fraud complaints involved seniors age 60 and older. Unfortunately, says the WSJ, investigators estimate that just 10% of elder financial fraud cases are reported, with most of these cases never undergoing investigation—a reason for this being that financial schemes are costly to probe. Often, there is little evidence and federal authorities will typically refuse to look into cases where under $100,000 was involved. Still, less than this amount is a lot for many people—especially retirees and those that are too sick to work anymore.

Older seniors can make easy targets. According to a Duke University study, over one-third of seniors, age 71 and older, have some type of cognitive impairment that can make it hard for them to manage their money properly. There are also many seniors who depend on fixed incomes and are in need of additional funding that can easily fall prey to fraud.


Elder Financial Fraud Scams
A fraudster may be a relative, friend, or caregiver that the senior investor knows and trusts, giving him/her access to bank accounts, retirement funds, or agreeing to invest in deals that prove to be scams. There are also registered representatives that may seek to take advantage of an old widow/er who has a huge nest egg and doesn’t understand the risks involved or that the investment opportunity is a Ponzi scam or some other type of fraud. Affinity fraud, in which the scammer is part of the victim’s community in some way, is also a common way that seniors are targeted. A broker from the same church or social group may use his/her connections to collect money from other members.

Because many seniors are no longer working, a lot of them cannot afford to get involved in high-risk ventures. Such losses might devastate their finances, making it difficult for them to pay for healthcare services, medical bills, and living expenses. There are also scammers who will call up seniors by phone or email. Insurance firms have also been known to target investors.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities lawyers represent the victims of elder financial fraud. Contact one of our senior fraud attorneys today if you or someone you love has lost their investment due to a scam or some other negligence. Your case assessment with us is free.

Financial Scammers Increasingly Target Elderly Americans, The Wall Street Journal, December 23, 2013

How To Avoid Investment Scams That Target Groups, Securities and Exchange Commission

Senior Investor Alert: Free Meal Seminars, North America Securities Administrators Association


More Blog Posts:
Two Ex-JPMorgan Brokers Alleged Bilked Mentally Impaired Elderly Widow of $300,000, Stockbroker Fraud Blog, December 4, 2013

Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women, Stockbroker Fraud Blog, September 23, 2013

GAO Wants SEC to Look At Other Criteria for Who Qualifies As An Accredited Investor, Institutional Investor Securities Blog, July 31, 2013

December 4, 2013

Two Ex-JPMorgan Brokers Alleged Bilked Mentally Impaired Elderly Widow of $300,000

The Financial Industry Regulatory Authority is barring ex-JPMorgan Chase Securities, LLC (JPM) brokers Jimmy E. Caballero and Fernando L. Arevalo from the securities industry for allegedly stealing $300,000 from an elderly widow who suffers from diminished mental capacity. Although the bank reportedly was not involved in the misconduct, it has given the money that the two men had converted back to the senior investor

According to the SRO, in 2013 the elderly woman deposited about $300,000 in proceeds from two annuity sales into a bank account Arevalo had set up for her. The funds were then taken out of the account with the use of two cashier’s checks and Caballero purportedly placed the funds into a joint account that was under her name and his name at another bank. That institution asked for clarification and confirmation and Arevalo took the woman to the bank to confirm where the funds had come from. The money was then taken out of that account through checks issued to Arevalo and Caballero. Arevalo is also accused of using the account’s debit card to pay for retail purchase and loans for a car and real estate. The elderly widow had no idea these transactions were being made.

The SRO says the two men did not completely cooperate with its investigation. Without deny or admitting to the FINRA charges, Arevalo and Caballero are settling and consenting to the entry of findings.

It was in February 2013 that FINRA initiated a high-risk brokers program to take action against rogue stockbrokers. The SRO has since barred at least 16 brokers from the securities industry.

Researchers say that the reason senior citizens may be more vulnerable to financial exploitation could be neurological. Dementia, mild cognitive impairment, and early Alzheimer’s can make it easier for a fraudster to take advantage of an elderly investor. One in five American seniors report to having suffered from or been targeted for financial exploitation by someone trying to steal their savings.

Contact our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra Bars Two Former Chase Brokers For Allegedly Stealing $300,000 From Elderly Widow, The Wall Street Journal, December 3, 2013

Is It Elder Financial Fraud? 5 Signs It May Be “Yes”, AARP, July 7, 2013

Senior Investor Alert: Free Meal Seminars, North American Securities Administrators Association


More Blog Posts:
Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women, Stockbroker Fraud Blog, September 23, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

Attorney Generals Want Securities Cases Against Standard Poor’s To Go Back to State Courts, Institutional Investor Securities Blog, August 21, 2013

September 23, 2013

Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women

An Allen, Texas man is sentenced to 40-years behind bars for bilking elderly women out of close to $500,000 in a phone annuity scam. Robert Mangiafico Jr. pleaded guilty to money laundering and theft related in the Texas securities fraud case.

According to prosecutors, Mangiafico persuaded a number of widows to liquidate holdings and securities in brokerage accounts and other assets and he was supposed to use the money to buy annuities for them. Instead, after he had them move the funds to him or to Security Financial Services LLS, which was set up by Thomas Grimshaw of Dallas, the cash went to bank accounts for him and Grimshaw. The two men used the money for personal spending and to scam their investment victims.

Prosecutors say that $655,000 was stolen from four victims, who sustained $458,361 in losses. According to a 2011 indictment, the appropriations were made without the women’s consent because they were of advanced age and their capacity to make rational and informed choices was diminished.

The criminal charges against Grimshaw are pending.

Elder Financial Fraud
Unfortunately, elder financial fraud is a serious problem. Many elderly seniors have lost their ability to make sound investment choices and there are those who choose to take advantage of this, bilking them of their retirement and other savings. This can lead to serious consequences for the investors, who may need these funds to take care of their medical and living expenses—especially if they have no one to turn to for help. A lot of elderly investors may be too scared to report when they’ve been victimized by fraud or they may have lost the ability to do so.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our elder financial fraud lawyers are here to advocate for our senior investor clients and fight for their right to recover their investment fraud losses. We handle securities cases via mediation, arbitration, or in the courts.

Contact our Texas securities fraud law firm today and ask for your free case consultation.

Texas man gets 40 years for phony annuities scheme, InvestmentNews, September 20, 2013

Fraud Target: Senior Citizens, FBI

Seniors, Securities and Exchange Commission


More Blog Posts:

Texas Money Manager Sued by SEC and CFTC Over Alleged Forex Trading Scam, Stockbroker Fraud Blog, August 6, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013

GAO Wants SEC to Look At Other Criteria for Who Qualifies As An Accredited Investor, Institutional Investor Securities Blog, July 31, 2013

September 17, 2013

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton "Bud" Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

The FINRA arbitration panel’s ruling this week includes over $1 million for the couple’s real estate investment losses and $2.1 million for the couple’s portion of the $10 million judgment. Should the Madhanys have to pay the entire $10 million amount, Citigroup will have to pay them back.

Selling Away
The securities industry prohibits selling away, which is a practice involving advisors promoting investments privately without their firm’s knowledge. Brokerage firms can be held liable when a broker engages in “selling away.”

Our securities lawyers represent investors that have lost their investments because of selling away, elder financial fraud, and other types of securities fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today and ask to speak with one of our FINRA arbitration lawyers.

Citigroup must pay couple $3.1 million for not overseeing broker: panel, Reuters, September 16, 2013

Orlando couple win $3.1M award from Citigroup Global, Orlando Sentinel, September 17, 2013


More Blog Posts:
Many Financial Fraud Victims Don’t See It Coming, Says Survey, Stockbroker Fraud Blog, September 7, 2013

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013

July 15, 2013

Insurance Companies Experiencing Sellers’ Regret Over Variable Annuities

According to The New York Times, a number of insurance companies that sold variable annuities with healthy death or income benefits prior to the financials crisis are regretting this decision. One reason for this is that they are finding it hard to meet the obligations—payouts of at least 6% or guaranteed returns—that come with them.

Now, some insurers are currently trying to get annuity owners to agree to buyouts or move into investments that have lower returns. In some cases, the penalty for not complying is the loss of the payment that was guaranteed to them. Unfortunately, says The Times, the notice of these changes and potential ramifications are not being made explicitly clear to annuity owners, who may be hearing them via generic-seeming notices sent in the mail that don’t show no indication that the letter might be urgent.

One company, The Hartford, has notified advisers and clients that they have until October to change the asset allocation in specific variable annuities. This is to decrease the balance of the client, which would lower how much the company has to pay out. Rather than a 5% lifetime guaranteed payout, the annuity’s owner would receive a lower payout according to a decreased account value. Failure to comply will result in the loss of the rider that guaranteed payment no matter what the annuity’s value in cash. (A spokesperson for The Hartford, which is exiting the annuities business, said that the investment changes only apply to owners with contracts where such changes are allowed.)

It is important to note that the changes that insurance companies are making to these variable annuity arrangements are legal and within the company’s contractual rights. Unfortunately, because such contracts tend to pay hundreds of pages long, most people don’t read them so they don’t know that this can happen. Consumers that have signed these contracts don’t have much choice but to go along. They can either lose the benefit they’ve been paying for or move to an asset allocation that isn’t as aggressive.

It doesn’t help that annuity owners might not comprehend the buyout offer even when notified. Even if no rider changes are made, contract provisions can be harmful to an annuity owners’ financial goals if he/she doesn’t understand the terms.

Variable Annuities
Often found in investment and retirement plans, a variable annuity is a contract between an individual and insurer involving the latter agreeing to pay you periodically either for a set amount of time or either for the duration of your life or your spouse’s life. In exchange for your payments, the insurer starts to pay you either right away or at a determined, set date. You can opt to invest the payments in different kinds of investments.

Variable annuities have a death benefit, which means that if you die before you start to get the payments, your beneficiary will get a definite amount, even if it is just how much you paid to buy the annuity. Because variable annuities are tax-deferred, you don’t pay tax on investment gains or the income from the annuity until you take your money out.

If you believe that you sustained losses because you were misinformed or misled about variable annuities that you purchased, please contact our variable annuities fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today.

That Bland Annuity Notice May Be Anything but Routine, New York Times, July 13, 2013

Variable Annuities, SEC

The Hartford To Sell Its U.K. Variable Annuity Business For $285 Million, The Courant, June 27, 2013



More Blog Posts:

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk, Stockbroker Fraud Blog, June 26, 2013

Annuity Assets are Hot Commodities Among Investment Managers Private-Equity Groups, and Hedge Fund-Controlled Entities, Institutional Investor Securities Blog, October 20, 2012

Cayman Islands LLC Must Replead CLO Securities Case Against Deutsche Bank, Institutional Investor Securities Blog, June 24, 2013