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

July 8, 2013

UBS, Morgan Stanley, Merrill Lynch, and Other Brokerage Firms Subpoenaed by Massachusetts Securities Regulator in Probe of Complex Investments Sold to Seniors

William Galvin, the Massachusetts Secretary of the Commonwealth, is subpoenaing 15 brokerage firms in its probe into complex products that were sold to older investors. Morgan Stanley (MS), LPL Financial (LPLA), Merrill Lynch (MER), UBS AG (UBS), Bank of America Corp. (BAC), Fidelity Investments, Wells Fargo & Co. (WFC), Charles Schwab Corp (SCHW), & TD Ameritrade (AMTD) are among the broker-dealers that received notices from the state. The subpoenas are seeking information about investments that were sold to Massachusetts seniors, as well as data about the firms’ compliance, supervision, and training.

Galvin noted that when such investments are sold to inexperienced investors, this creates potential “accidents waiting to happen.” He is among a number of regulators that have expressed worry about how many complex products are being marketed to unsophisticated investors that want higher returns during this era of low interest rates. These financial instruments tend to be among brokers’ favorites because they garner higher commissions.

Already, Galvin has brought in over $11 million in fines from brokerage firms that sold illiquid real estate investment trusts to investors in Massachusetts. This type of REIT is hard to sell when a customer wants out. Galvin said that it was during that probe his staff discovered there were a lot of brokers, who were not only inadequately supervised, but also they were selling complex financial instruments that went beyond even their comprehension. The Massachusetts’s regulator office will continue to look into REITs, in addition into oil and gas partnerships, structured products, and private placement deals.

There was a time when such investments were only for sophisticated investors with an at least $1 million net worth. Now, in the wake of the financial crisis, complex financial instruments have been available to more people, including a lot of older Americans who want to offset losses that their retirement portfolios sustained when the economy tanked.

Senior Investors
It is important for seniors to note that not all investments are suitable for them and their needs. Unfortunately, older investors make easy targets for investment fraud, in part because they tend to have large nest eggs for retirement, and, also, because some of them may have lost the ability to discern when they are being taken advantage of.

Sometimes senior investors are the target of an actual securities scam. On other occasions, they were unfortunate enough to work with a financial adviser that, out of ignorance or hoping to make a bigger commission, persuaded them to get involved in financial products that came with risks that were greater than what their funds could handle/or and incompatible with their investment goals.

At Shepherd Smith Edwards and Kantas, LTD, LLP, we help older investors of elder fraud recoup their losses.

State Regulator Opens Inquiry Into Products Sold to Older Investors, NY Times, July 10, 2013

Massachusetts regulator concerned Wall Street pushed risky investments to seniors, Reuters, July 10, 2013


More Blog Posts:
Berthel Fisher, VSR Financial Services, & Cetera Financial Modify the Way They Sell Nontraded REITs and Other Alternative Instruments, Stockbroker Fraud Blog, May 24, 2013

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M, Stockbroker Fraud Blog, March 14, 2013

FINRA Plan May Dramatically Change The Way Brokerage Firms Report On Nontraded REITS & Other Illiquid Investments on Client Statements, Institutional Investor Securities Blog, April 28, 2013

May 24, 2013

Berthel Fisher, VSR Financial Services, & Cetera Financial Modify the Way They Sell Nontraded REITs and Other Alternative Instruments

Investment News is reporting that in the wake of pressure from regulators, Berthel Fisher & Co. Financial Services Inc., Cetera Financial Group Inc. and VSR Financial Services Inc., are modifying the way they sell specific alternative investments, including nontraded real estate investment trusts, by revising current policy or including no procedures and guidelines. According to executives at the three brokerage firms, they want add liquid alternative choices to their platforms while staying mindful of the issues that regulators recently addressed.

These types of financial instruments are in demand due to their higher yields, especially as traditional investment interest rates for retirees stay low due to the Federal Reserve’s policy. According to VSR chairman Don Beary, Following recent FINRA’s ‘senior sweep,’ his brokerage firm is now more careful about what senior citizens can invest in. VRS’s registered representatives have just been notified about the new illiquid alternative investment sale guidelines, which include a 35% of illiquid investment limit for older clients’ accounts—down from 40-50% previously. Also, for clients in the 70 to 75 age group, they will be allowed to possess no more than 25% of illiquid investments in their portfolio. Clients in the 75 to 84 age group have a 15% limit, while customers older than that will not be allowed to make own any illiquid investments.

Meantime, Centera hasn’t modified customer allocations percentages , but it has enhanced its representative training requirements for representatives that sell illiquid investments and brought in more employees to conduct product due diligence.

It is important that your financial representative only recommend investments that are suitable for you, your goals, and your financial needs. Failure to do so can be grounds for a securities fraud case if the customer loses money as a result.

Seniors are especially vulnerable to losing big from unsuitable trades. Many have ended up losing the savings they have spent a lifetime accumulating, which can drastically hurt their retirement that they have worked hard for.

You want to work with an experienced REIT lawyer who knows how to recoup your losses for you.

AIternative alterations, Investment News, May 19, 2013

Senior Investors, FINRA

REITs (PDF)


More Blog Posts:

FINRA Notifies Brokerage Firms About Non-traded REIT Information that Can Mislead Investors, Stockbroker Fraud Blog, May 6, 2013

FINRA Plan May Dramatically Change The Way Brokerage Firms Report On Nontraded REITS & Other Illiquid Investments on Client Statements, Institutional Investor Securities Blog, April 28, 2013

March 14, 2013

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M

Focus Capital Wealth Management and its owner Nicholas Rowe are now barred from having a license to serve as either an investment adviser or a broker-dealer in New Hampshire. Rowe and his financial firm are accused of elder financial fraud. Per the settlement with the state, they must pay $2.4 million in client restitution.

The Bureau of Securities Regulation acted against Rowe last year following complaints from clients claiming they’d lost significant amounts of money in risky investments of leveraged exchange-traded funds, which are also known as ETFs. According to the bureau, these investments are not for clients who have a low or medium tolerance for risk. Rowe also allegedly misrepresented his credentials and charged investors unreasonable fees, claiming that these were going to third parties with close Wall Street ties, when, actually, he was keeping part of that money.

Rowe eventually consented to FINRA arbitration over claims filed by a number of his former clients, who alleged civil fraud and negligence. One of the arbitrator’s panels ruled against him for $1.8M in restitution.

Following the ruling, Rowe and Focus Capital Wealth Management filed for Chapter 11 bankruptcy.

Inverse and Leveraged ETFs
Leveraged and inverse ETFs comprise about $28 billion of the $1.2 trillion US ETF market. These types of exchange-traded funds are meant to enhance short-term returns via the use of derivatives and debt. They tend to be more appropriate for professional traders, rather than long-term retail investors. In 2009, regulators began to issue warnings over concerns that brokers were selling these instruments to buy-and-hold investors—a strategy that is more than likely to end in serious losses for a customer.

Senior Financial Fraud
Unfortunately, seniors are a favorite target of those seeking to commit securities fraud. Many elderly investors are not investment savvy and/or due to health and/or aging issues may lack the ability to fully comprehend what they are agreeing to by investing. For seniors, becoming the victim of investment fraud can mean the loss of their retirement and life savings, which can adversely affect their life and care during their later years.

Questions to Ask About Financial Products (From the SEC)
Regardless of your age or whether you are a seasoned or novice investor, there are key questions you need to ask your financial representative, including:

• Is the investment product registered with state and federal regulators?
• Is this investment in line with your investment objectives? Is it suitable/appropriate?
• What makes this investment profitable?
• Are there any accompanying fees and what are they for?
• Is the investment liquid?

Make sure you document what is said to you. Also, you shouldn’t only base your decision to invest on the word of the financial adviser. Ask to see financial statements, the most current annual report, or the prospectus. You can even go online for information about a prospective investment.

N.H. Advisor Ordered To Pay $2.4M In Restitution For Client Losses, Insurance News, March 15, 2013

Questions You Should Ask About Your Investments ... and What To Do If You Run Into Problems, SEC

N. Hampshire investment adviser must pay $1.8 mln in ETF case, Reuters, December 3, 2012


More Blog Posts:

Financial Industry Representatives Settle FINRA Cases Over Securities Fraud, Stockbroker Fraud Blog, March 12, 2013

Financial Representatives Settle with FINRA Over Allegations Related to Excessive Commissions, Elder Financial Fraud, and Funneling Client Funds for Personal Gain, Stock, Stockbroker Fraud Blog, March 8, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

March 12, 2013

Financial Industry Representatives Settle FINRA Cases Over Securities Fraud

These financial representatives have settled the Financial Industry Regulatory turned in their Letter of Acceptance, Waiver, and Consent in the securities cases made against them by the Financial Industry Regulatory Authority. By consenting to the sanctions described and the entry of findings, this does not mean they are denying or admitting to the allegations.

New York Registered Principal Accused of Making Misrepresentations and Missions
Neftali Mercedes must pay $97,000, in addition to interest as restitution to customers. He is accused of intentionally making material omissions and misrepresentations about the risks related to speculative securities and an issuer’s financial state.

Per the findings, Mercedes had no reason to make the statements and he made no effort to verify the information that he gave customers or discuss with them the investments’ negative financial performance and condition, which could have altered their purchase choices. FINRA contends that through his actions, which took place over a number of months, the New York registered principal was able to gain financially while investors lost money.

California Registered Principal Allegedly Took Part In Private Securities Transactions Outside His Employment Scope
James Michael O'Brien is now facing an 18-month suspension from associating with any FINRA member. However, because of his financial state, he doesn’t have to pay a financial sanction. The entry of findings accuses him of engaging in private securities transactions that were outside the scope of his employment and he failed to notify the member firm that he worked for of these transactions.

O’Brien allegedly referred investors to an entity that sold the securities as promissory notes. These investments totaled over $2.6M. He is said to have made $125,416 for making the referrals.

Colorado Registered Representative Settles FINRA Case Alleging Inappropriate Recommendations Made Related to REIT and Regulation D Offerings
According to FINRA, Michael Lee Romero recommended that customers buy $760,000 of non-publicly traded real estate investment trusts and non-publicly traded Regulation D offerings that were not in line with these investors’ financial needs and situation. Now, he must pay a $10,000 fine and cannot associate with any FINRA member for 45 days.

Per the new account application that customers signed, they believed they were investing in instruments that came with moderate risks to meet their goals of capital preservation, income, and long term growth. The REITs and Regulation D offerings comprised nearly all of the clients’ liquid net worth and about 46% of their total net worth.

California Registered Representative Ordered to Disgorge Ill-Gotten Gains of $5,000 Plus Interest to Customer
Sean Placido Rodriguez is accused of executing discretion in a client account without that customer’s written consent or his member firm’s written acceptance that the account was discretionary. He allegedly did not have reasonable grounds for recommending that this woman take part in short-term trading or that she have her account concentrated in equity purchases. Yet, per the FINRA findings, Rodriguez proceeded to make the recommendation that the client buy and sell equity securities in amounts that caused undue concentrations of these securities (25-50% of her account’s value when the transactions happened) in her account.

Now, Rodriguez must disgorge ill-gotten gains in partial restitution of $5,000 and interest to this customer.

If you believe you lost money in any of these (or any other) securities cases, contact our securities lawyers today.

FINRA Disciplinary Actions



More Blog Posts:

Financial Representatives Settle with FINRA Over Allegations Related to Excessive Commissions, Elder Financial Fraud, and Funneling Client Funds for Personal Gain, Stock, Stockbroker Fraud Blog, March 8, 2013


Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

Financial Firms Settle with FINRA: ES Financial Services Resolves Solicitation of Non-US Investors Allegations and Lincoln Financial Securities Consents to Entry of Findings Alleging Inadequate Supervision, Institutional Investor Securities Blog, March 11, 2013

December 6, 2012

Decreased Ability to Process Risk and Danger Make the Elderly Easy Fraud Targets, Says Study

According to a study conducted by UCLA psychologist Shelley Taylor, one reason that older adults may be more easily prone to being deceived is that there appears to be less activity in the part of their brains that processes subtle danger and risk. She wanted to find out how well older people recognize visual clues indicating that someone may be scamming them.

Taylor brought in 119 seniors over the age of 55 and 24 people in their twenties. The two groups looked at 30 photographs that showed one of three faces: a neutral looking face, an untrustworthy one, or a trustworthy one. Taylor found that while the seniors and younger adults rated the neutral and trustworthy faces about the same, the elder adults had a more difficult time identifying the untrustworthy cues, rating them as more trustworthy than did their younger counterparts.

A follow-up study she then conducted using brain imaging showed the seniors exhibiting less activity in the risk processing area of the brain. She also said determined that people’s propensity to focus more on the positive as they grow older might too be causing them to miss deception cues (such as a smile that doesn’t include the eyes or someone who leans backward and/or looks away.)

Unfortunately, many elderly persons who are also investors continue to lose their life savings because investment fraudsters are targeting them. According to an AARP survey, last year that looked at the behavior of 723 fraud victims with an average age of 69 and compared them to the conduct of members of the general public, those that were successfully targeted were more likely to read junk mail, take calls from telemarketers and believe in promises that sound “too good to be true.” Women appeared most vulnerable to petty fraud while senior men who had investing experience were the ones that suffered the largest losses.

Other reasons why elderly citizens are a target of senior financial fraud, says the FBI, is that a lot of them:

• Have Great credit.
• Own a “nest egg.”
• Are from a polite, more trusting generation.
• Are less likely to report fraud.
• May have a harder time giving police detailed information about what happened because of memory problems.

That said, elder investors are not the only ones susceptible to financial fraud. “Studies have shown that highly educated and experienced investors are not immune to being cheated,” said Shepherd Smith Edwards and Kantas Founder and Elder Financial Fraud Attorney William Shepherd. “People who realize they do not understand an investment often shy away. Meanwhile, sophisticated investors may buy because they understand the sales pitch. Only later do they learn that what they were told was false or misleading.”

Contact our senior financial fraud law firm to schedule your free case evaluation.

Why It's Easier To Scam The Elderly, NPR, December 6, 2012

Fraud Target: Senior Citizens, Common Fraud Schemes, FBI

More Blog Posts:
JPMorgan Chase Must Pay Oil Heiress’s Trust $18M For Derivatives Investments, Account Mismanagement, and Unsuitable Investment Advice, Stockbroker Fraud Blog, October 12, 2012

Insurance Agent Convicted in Annuity Case Involving 83-Year-Old Dementia Patient, Stockbroker Fraud Blog, March 21, 2012

UBS ‘Rogue Trader’ Convicted of Fraud that Caused $2.3B Loss, Institutional Investor Securities Blog, November 22, 2012

October 12, 2012

JPMorgan Chase Must Pay Oil Heiress’s Trust $18M For Derivatives Investments, Account Mismanagement, and Unsuitable Investment Advice

JPMorgan Chase (JPM) must pay the trust of oil heiress Carolyn S. Burford $18 million for the “grossly negligent and reckless” way that the financial firm handled the account. In Tulsa County District Court in Oklahoma, Judge Linda G. Morrissey said that beneficiary Ann Fletcher was persuaded to invest in derivatives that were unsuitable for the trust, causing it to sustain significant losses. The judge is also ordering punitive damages to be determined at a later date, as well as repayment of the trust’s legal expenses.

Fletcher, now 75, is the daughter of Burford, who passed away in 1996. The trust was set up in 1955 by Burford’s parents. Burford's dad is the founder of Kelly Oil and her mother had connections to another oil company.

Between 2000 and 2005, the trust and JPMorgan, which gained management over the trust after a number of bank mergers and oversaw it until 2006, got into a number of variable prepaid forward contracts. These derivatives were pitched to the trust as way for it to make more income. However, according to the court, Fletcher was cognitively impaired and experiencing medical problems when the bank recommended that the trust buy the derivatives. A year before, she even expressed in a written letter to the bank that she was scared about getting involved in “puts & calls.” She eventually chose to trust their recommendation that she buy them.

Judge Morrisey believes that the bank failed to properly explain the product to its client while neglecting to reveal that it stood to benefit from the transaction. She also says that when JPMorgan invested the contracts’ proceeds in its own investment products, which she described as “double dipping,” it was in breach of fiduciary duty. JPMorgan also billed the trust transaction investment fees and corporate trustee fees.

Morrisey said that because the bank gives employees incentives to make it revenue, this creates a conflict of interest for those that are advising and managing fiduciary accounts. She said that the financial misconduct that occurred in this securities case exhibits JPMorgan’s disregard of its clients, especially when it knew, or if it didn’t then was reckless in not knowing, that such conduct was occurring.

Investors that purchase variable prepaid contracts generally consent to give a number of the stock shares to the brokerage firm in the future. Such a deal can protect investors from certain losses and can be accompanied by tax benefits. However, they can also lead to additional fees. With Burford’s trust, however, the trustee is not allowed to sell its original stocks. The court said that JPMorgan failed to tell Fletcher that getting involved in the contracts could lead to the sale of that stock.
JPMorgan says it disagrees with the court’s ruling and it may appeal.

JPMorgan Must Pay $18 Million to Heiress Over Derivatives, Bloomberg, October 10, 2012

JP Morgan Ordered to Pay $18 Million to Oil Heiress's Trust, New York Times, October 10, 2012


More Blog Posts:

New York’s Attorney General Sues JP Morgan Chase & Co. Over Alleged MBS Financial Fraud by Its Bear Stearns Unit, Stockbroker Fraud Blog, October 4, 2012

Ex-Employee Accuses Bank of America of Securities Fraud Involving Complex Derivatives Products, Stockbroker Fraud Blog, October 29, 2010

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

Continue reading "JPMorgan Chase Must Pay Oil Heiress’s Trust $18M For Derivatives Investments, Account Mismanagement, and Unsuitable Investment Advice" »

June 28, 2012

Securities Law Roundup: Merrill Lynch Pays Customers $32M For Allegedly Overcharging Them with Unwarranted Fees, Brookstone Securities is Accused of $1.6M in Fraudulent CMO Sales to Elderly Retirees, and Planner Loses CFP Designation Following After Maine

The Financial Industry Regulatory Authority says that it is fining Merrill Lynch, Pierce, Fenner & Smith, Inc. $2.8M in the wake of certain alleged supervisory failures that the SRO says led to the financial firm billing clients unwarranted fees. The financial firm paid back the $32M in remediation to affected clients, in addition to interest.

According to FINRA, from 4/03 to 12/11, Merrill Lynch lacked a satisfactory supervisory system that could ensure that certain investment advisory program clients were billed per the terms of their disclosure documents and contract. As a result, close to 95,000 client account fees were charged.

Also, due to programming mistakes, Merrill Lynch allegedly did not give certain clients timely trade confirmations. These errors caused them to not get confirmations for over 10.6 million trades in more than 230,000 customer accounts from 7/06 to 11/10. Additionally, FINRA contends that Merrill Lynch failed to properly identify when it played the role of principal or agent on account statements and trade confirmations involving at least 7.5 million mutual fund buy transactions. By settling, Merrill Lynch is not denying nor admitting to the charges. It is, however, agreeing to the entry of FINRA’s findings.

Also settling with FINRA are Brookstone Securities, firm CEO/owner Antony Turbeville, and firm broker Christopher Kline. They are accused of fraudulently selling collateralized mortgage obligations to unsophisticated retirees, who wanted to put their money in investments that were safer than equity investments. The financial firm must pay back affected clients $1.6M ($1,179,500 of this was imposed jointly and severally with Kline and the remaining balance was imposed jointly and severally with Turbeville). Brookstone also is responsible for paying a $1M fine over the alleged elder financial fraud.

According to a FINRA hearing panel, from 7/05 through 6/07, Turbeville and Kline purposely issued allegedly fraudulent misrepresentations and omissions to these elderly seniors about the risks involved in CMO investments. The two men are exploiting these clients “greatest fears,” including the worry that they would run out of money when they were older.

The panel found that even when interest rates were rising in 2005 and the two men could clearly see the negative impact this was having on CMOs, they still failed to explain this to clients and instead caused them to think that their investments were bonds that were guaranteed by the government, kept capital safe, and made returns of 10-15%. While clients lost over $1.6M,Brookstone earned $492,500 in commissions from the same CMO bond transactions.

In another securities case, this one a lawsuit that was settled of court, William B. Smith has lost his right to use the certified financial planner designation after he allegedly defrauded a client of $1.2M and took $25K from another client. This revocation, imposed by the CFP Board, is permanent.

Smith’s client, Catharine C. Lund of Maine, had accused him of committing financial fraud after working on a1031 exchange for her following the sale of two of her properties. She contends that Smith should not have advised her to invest $1.2M into the Grafton building where his office is situated.

Our securities lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP represent individual and institutional investors.

Finra Fines Merrill Lynch $2.8 Million for Overcharging Customers
, The Wall Street Journal, June 21, 2012

FINRA Hearing Panel Fines Brookstone Securities $1 Million for Fraudulent Sales of CMOs to Elderly, FINRA, June 4, 2012

CFP Board Disciplines Planner for Alleged Fraudulent Use of $1.2M, FInancial Planning, June 21, 2012


More Blog Posts:
Securities Law Roundup: Ex-Morgan Stanley’s SEC Settlement Over Alleged FCPA Violations Gets Court Approval, Corruption Probe Into Wal-Mart’s Mexico Activities Continue, and Sentry Global Securities Principal Gets 20-Years for Pump-and-Dump Scam, Stockbroker Fraud Blog, May 24, 2012

Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements, Stockbroker Fraud Blog, June 13, 2012

Institutional Investor Securities Roundup: SEC Sues Investment Adviser Over $60M Ponzi Scam, Michigan Investment Club Manager Gets Prison Term for Defrauding Over 900 Investors, & IOSCO Seeks Comments on Report About Credit Raters’ Conflicts & Controls, Institutional Investor Securities Blog, June 7, 2012

April 26, 2012

FINRA Bars Former Wells Fargo Advisors Broker that Bilked Child with Cerebral Palsy

Ralph Edward Thomas Jr., a former broker has been permanently barred from the Financial Industry Regulatory Authority. Thomas, who misappropriated money from three clients, including a child suffering from cerebral palsy, has been sentenced to a prison term of four years. He also must pay $836,000 in restitution.

According to prosecutors, the former broker stole the money over several years. More than $750,000 came from the child’s trust fund, which held the proceeds from a medical malpractice settlement he received for $3 million. During this time, he worked for Invest Financial Corporation, Harbor Financial Services, and Wells Fargo Advisors, which terminated him as their broker in 2010.

This case of securities fraud started after the child’s mom moved the trust to the bank in 2001. This gave Thomas control over the money. He would give out up to $1,500 of the child’s almost $6,300 in monthly annuity payments. He would then use withdrawal slips with the mother’s signature already written on it to buy cashier’s checks and take out money. He would deposit the checks in his personal accounts at other banks. In addition to the over $750,000 that he converted from the child’s account, Thomas converted $12,500 of the mother’s money.

Also, between February 2004 and July 2010, he defrauded an elderly client of over $42,000. He took out the money from her annuity account without telling her. He used the money to buy cashier’s check payable to cash or credit card companies where he had accounts.

In bilking these investors, Thomas violated FINRA rules 2010 and 2150 and NASD Rules 2110 and 2330. As part of the permanent bar, he can no longer associate with a FINRA member in any capacity.

Elderly seniors are among the most vulnerable members of society when it comes to being targets of financial fraud. The fraudster may be a financial professional, another professional with access to their funds, a relative, a caregiver, or a friend. Unfortunately, in the securities industry, there are brokers, insurance firms, investment advisers, brokerage firms, and other financial scam artists who will not hesitate to take advantage of an elderly person’s lack of investment knowledge, debilitating mental state, or isolation to take their money. In regards to children with disabilities, defrauding their trusts that have been set up as a result of their special needs or serious injuries can deprive them of the support and care they need to maintain their quality of living and pay for medical bills and other related expenses.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our FINRA securities fraud law firm has the experience to help elderly seniors, children and their families, and other individuals to pursue their financial losses. We have helped thousands of investors get their money back. One of our elder financial abuse lawyers would be happy to offer you a free case evaluation.

Finra bars broker who stole from sick child, Investment News, April 12, 2012

FINRA Letter of Acceptance, Waiver, and Consent (PDF)


More Blog Posts:
Insurance Agent Convicted in Annuity Case Involving 83-Year-Old Dementia Patient, Stockbroker Fraud Blog, March 21, 2012

US Army Staff Sergeant Held in Afghan Civilian Massacre Was Once Accused of Securities Fraud, Stockbroker Fraud Blog, March 20, 2012

SEC Seeks to Impose Tougher Penalties for Securities Fraud, Institutional Investor Securities Fraud, December 29, 2011


March 21, 2012

Insurance Agent Convicted in Annuity Case Involving 83-Year-Old Dementia Patient

Independent insurance agent Glenn A. Neasham has been convicted for felony theft for selling a complex annuity to an elderly woman who was suffering from dementia. Neasham, who maintains that the woman seemed fine when the transaction was made in 2008, contends and that he acted appropriately. Now, other insurance agents say they are having second thoughts about offering this financial product.

“Indexed” annuities are savings products that pay interest tied to how the stock- and bond-market indexes perform. An insurance agent gives the buyer a guarantee that the latter won’t lose any principal as long as the investor doesn’t withdraw his/her money early when steep penalties would otherwise ensue.

A lot of insurance agents like annuities because they can earn high commissions (12% or greater of the amount invested).from insurance companies. Annuity sales have increased by over four times in the last 10 years as a volatile stock market and low interest rates attracted buyers.

The Wall Street Journal says that in the mid-2000’s, state attorneys and private plaintiffs sued insurers for making allegedly unsuitable product sales to elderly persons, who ended up losing money due to withdrawal penalties. The insurance companies settled the cases by agreeing to make a number of changes, including employing better efforts to make sure that the products sold to investors were suitable for them.

Neasham claims that the elderly client, Fran Schuber, came to his office with her boyfriend, Louis Jochim, who is also an octogenarian. Jochim said Schuber wanted an annuity like the one he had purchased from Neasham. Jochim told Neasham that the girlfriend was “mentally competent, and the insurance agent said that no one told him, not even Schuber’s son, that she was suffering from dementia.

Yet according to a local bank manager’s complaint, when Jochim and Schuber went to the bank to withdraw $175,000 to buy the annuity, she seemed confused and Jochim appeared to be influencing her. The manager notified Adult Protective Services about her concerns regarding Jochim and the Lake County District Attorney’s Office became involved.

Neasham wasn’t charged with the crime until 2010. Prosecutors contended that Neasham knew at the time of that firs transaction that Schuber lacked the capacity to agree, to it and Lake County Senior Deputy District Attorney Rachel Abelson said the 8% commission that was in it for the insurance agent was the incentive for his “criminal intent.”

At Shepherd Smith Edwards and Kantas, our elder financial fraud lawyers represent senior investors that have been the victims of all types of securities fraud. Unfortunately, there are loved ones and financial professionals that will take advantage of an elderly person’s lack of knowledge, dependence, or diminished mental capacity to defraud them.

Annuity Case Chills Insurance Agents, The Wall Street Journal, March 18, 2012

Insurance Agent Gets Jail Time for Selling Annuity to Elderly Woman; He Denies Recognizing Dementia, ABA Journal, March 20, 2012


More Blog Posts:

Texas Securities Fraud Over Sale of Allegedly Bogus Annuities to Elderly Seniors, Stockbroker Fraud Blog, December 14, 2011


AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients, Stockbroker Fraud Blog, May 4, 2011

SIFMA Wants FINRA to Take Tougher Actions Against Brokers that Don’t Repay Promissory Notes, Institutional Investor Securities Blog, January 17, 2012

March 20, 2012

US Army Staff Sergeant Held in Afghan Civilian Massacre Was Once Accused of Securities Fraud

Before US Army Staff Sergeant Robert Bales joined the military, he had a career as a stock trader. Now, media sources, who have been digging into his background to find out more about the man accused of massacring 16 villagers in Afghanistan, are reporting that the 38-year-old’s stockbroker career ended after he was accused of defrauding an elderly couple and bilking them of their life savings.

According to The Washington Post, prior to joining the military, Bales and MPI, the financial firm that he worked for, were ordered by the Financial Industry Regulatory Authority to pay a $1.4 million securities settlement (compensation and punitive damages), for allegedly engaging in unauthorized trading, fraud, unsuitable investments, churning, and breach of fiduciary duty. Bales allegedly sold valuable stocks off while favoring penny stocks in order to up his commission.

The claimant, 74-year-old Gary Liebschner, said that he was never paid a cent of the arbitration award. In his securities complaint against Bales, which he filed in 2000, Liebschner said that $825,000 in AT & T stock lost all value because of trades that this former stock trader had made for him. ABC News says that when Liebschner was asked if he thought of Bales was a con man, the elderly senior replied in the affirmative.

“A question one may ask is, what do the actions of this man as a soldier have in common with his actions as a former stockbroker?” asked Shepherd Smith Edwards and Kantas, LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd. “In either case, it is apparent that he was and is a very disturbed person. Having represented thousands of investors to recover investment losses I have found that most of the harm is caused by either the large percentage of ruthless financial firms or the small percentage of disturbed brokers. Most financial advisors are honest and care very much about their clients, but a few of them range from gambling addicts to complete sociopaths.”

US officials have said that early on the morning of March 11, Bales walked to two villages and started shooting families in their homes. He initially reported shooting a number of Afghan men outside a US combat post and reports of the staff sergeant’s initial account imply that he may have asserted that his actions had a legitimate military goal even though he entered the villages without authorization. What he didn’t mention, however, was that he had also killed over a dozen women and children. Bales’ defense lawyer, who says that his client doesn’t remember the shootings, plans to mount an insanity defense.

Afghan Murder Suspect Bales 'Took My Life Savings,' Says Retiree, ABC News, March 19, 2012

Staff Sgt. Robert Bales' arrest as suspect in civilian shootings renews questions about mission in Afghanistan: A Closer Look
, Cleveland.com, March 18, 2012


More Blog Posts:

AmeriFirst Funding Corp. Owner Convicted of Texas Securities Fraud, Stockbroker Fraud Blog, February 3, 2012

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors, Stockbroker Fraud Blog, December 17, 2011

Wells Fargo & Co. May Have to Pay Another $15M to Minnesota Nonprofits For Securities Fraud, Institutional Investor Securities Fraud, December 24, 2010

Continue reading "US Army Staff Sergeant Held in Afghan Civilian Massacre Was Once Accused of Securities Fraud " »