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


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 " »

February 3, 2012

AmeriFirst Funding Corp. Owner Convicted of Texas Securities Fraud

The former COO of AmeriFirst Acceptance Corp. and AmeriFirst Funding Corp. was recently convicted of multiple counts of Texas securities fraud and mail fraud for his involvement in bilking over 500 investors of over $50 million. A lot of the victims of Dennis Woods Bowden were retirees.

Per evidence that was given at trial, the 58-year-old executive and Jeffrey Charles Bruteyn, who was AmeriFirst’s managing director, made available Secured Debt Obligations (SDOs) as promissory note offerings to raise millions of dollars from investors in Florida and Texas. A lot of these clients, who were no longer employed, had hoped to place their money in investments that were safe.

While Bruteyn, who was convicted of nine counts of Texas securities fraud, directed brokers to sell the securities, it was Bowden who deceived and misled and defrauded them by signing the documents that were given to investors and misrepresenting/not disclosing material facts about the securities and the risks involved. For example, he falsely represented to investors that:

• A commercial bank was guaranteeing investors’ investments Interest in certain kinds of collateral was secured by the investors’ principal
• Insurance had been bought to protect investors’ money
• The SDO’s issuers were also acting as the fiduciary of investors.

In fact, all of these “facts” were untrue. Instead, Bowden served as “fiduciary” and spent investors’ money on things they had not approved or even known about.

Senior Financial Fraud
Unfortunately, senior financial fraud continues to be a huge problem in Texas and elsewhere in the US. The state of Texas even recently started running public service announcements to warn investors to be wary of “free lunch” seminars that promise free meals but were, in fact, an excuse to “hard sell” attendees into making investments that may not be appropriate for them. The PSAs also are reminding seniors to check the background of anyone they decide to go into an investment opportunity with—even if the other person is a friend, a fellow community member, or a co-worker.

Unfortunately, retirees continue to be the favorite targets for many seeking to bilk investors. With many of these elderly seniors no longer having a regular source of income, becoming the victim of Texas securities fraud can have devastating consequences, making it difficult for the victims to afford the care they may need or maintain the quality of life they have worked so hard to give themselves.

Contact our Texas securities fraud law firm today. At Shepherd Smith Edwards and Kantas, LTD, LLP we are dedicated to helping our clients recoup their losses. Your first consultation with one of our Dallas securities fraud lawyers is free. Contact us online or call (800) 259-9010.

CEO of Dallas-based AmeriFirst found guilty of securities fraud for swindling $50 million from retirees, The Dallas Morning News, December 22, 2011

Defendant Deceived Investors About Supposed Fraud Scheme That Involved More Than 500 Victims and More Than $50 Million, Justice.gov, December 21, 2011

More Blog Posts:
Texas Securities Fraud: BNY Mellon Capital Markets LLC Settles Allegations of Rigged Bond Bidding for $1.3M, Stockbroker Fraud Blog, January 24, 2012

TD Bank Ordered to Pay Texas-Based Coquina Investments $67M Over $1.2 Billion Ponzi Scheme, Stockbroker Fraud Blog, January 19, 2012

Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam, Stockbroker Fraud Blog, January 4, 2012

December 22, 2011

Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence

According to a recent Wells Fargo & Co-sponsored survey, 23% of the 800 Americans with at $100,000 in investable assets who participated reported that they don’t feel confident that they will have enough money saved by the time they retire. 75% said they felt sure that they would have enough. The ones most likely to feel confident are the ones with a written a financial plan, trust that the stock market will take care of their investments, are married, have at least $250,000 in investable assets, and/or are male. Those who felt unsure about their finances for when they retire included those who are single, female, belong to the 40-59 age group, and/or have under $250,000 in investable assets.

Some of the Other Findings from the Survey:

• 48% of those in the 25 to 49 age range want to keep working during their retirement years.
• More men (42%) than women (34%) wanted to keep working even after hitting retirement age.
• Approximately three-quarters of those that are currently working believe that having a specific amount of money matters more than what age they are when they retire.
• Women without a written financial plan and/or with investable assets of over $100,000 but under $250,000 are more likely to believe that they won’t have enough money when they retire regardless of what they do now.
• Nearly 2 in 5 Affluent Americans feel like they should significantly reduce their spending now to save up for retirement
• One-third of those surveyed worry that they won’t be able to leave their children an inheritance because their savings will have to go toward their retirement
• Four in 10 prefer to enjoy life now rather than worry: These people are usually already retired (54%), seniors belonging to 60-75 age group (51%), Democrats (47%), and parents with kids that are already legal adults (44%)
• Parents with kids under 18 (71%), adults belonging to the 40-49 age group (62%), women (65%), and seniors age 50-59 (64%) are the ones most likely to worry about what will happen when they retire.

Unfortunately, there appears to a nationwide rise in investment fraud targeting baby boomers, many who are just (or on the verge of) retiring. The Wall Street Journal reports that many of these older investors found themselves placing their money in high-risk bets to compensate for the losses they suffered during the recently financial crisis.

There are approximately 77 million baby boomers currently live in the US. Of the 3,475 enforcement actions involving fraud in 2010, 1,241 affected investors were 50 years of age or older. According to securities regulators, this number is expected to hit a record figure this year. Enforcement actions involved free-lunch seminars, variable annuities, or the misuse of professional credentials. Common types of senior investment fraud included Ponzi scams, self-directed IRA’s containing bogus investments in gold, real estate, and oil wells, and promissory notes.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LLP represent seniors throughout the US. We know the toll that losing your savings can take on you and your family.
Retirement Fears Jump the Wealth Gap to Strike Many Affluent Americans, Wells Fargo Retirement Study Finds, Wells Fargo, December 14, 2011

Boomers Wearing Bull's-Eyes, Wall Street Journal, December 14, 2011

More Blog Posts:

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

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

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients, Stockbroker Fraud Blog, November 29, 2011

Continue reading "Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence" »

December 17, 2011

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors

To settle Financial Industry Regulatory Authority securities fraud allegations against one of its brokers, Wells Fargo Advisers will pay a $2M fine, as well as repay an unspecified amount to elderly clients that were defrauded. Over 21 senior investors were reportedly targeted by Alfred Chi Chen, who sold them reverse convertible notes even though the majority of them were retired and/or had never invested in this type of complex instrument. A number of investors were in their 80’s and 90’s.

FINRA says that Chen made over $1M in commissions even as the investors sustained losses. He also is accused of not giving discounts on Unit Investment Trust (UIT) transactions even when clients were eligible. As part of its settlement, Wells Fargo will pay restitution to those that should have but did not get the discounts and those that were sold unsuitable investments.

FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that Wells Fargo did not review the reverse convertible transactions to make sure that they were suitable and that investors were harmed as a result. The SRO also determined that Wells Fargo did not give certain clients that were eligible breakpoint and rollover and exchange discounts when they bought UITs because the financial firm’s procedures and systems were not sufficient to properly monitor unsuitable reverse convertibles and ensure that clients got the discounts for which they were eligible. (Discounts should be offered on UIT sales when purchases go beyond certain thresholds or involve termination or redemption proceeds from another UIT during the initial offering period.)

By agreeing to settle, Wells Fargo is not admitting to or denying FINRA’s allegations.

The SRO has filed a separate complaint against Chen, who allegedly exposed clients to risks that were not in line with their investment profiles. As of June 2008, 172 of the accounts he worked with held reverse convertibles. 148 accounts had concentrations over the 50% of their total holdings. 46 accounts had concentrations of over 90%.

Reverse Convertibles
These interest-bearing notes involve repayment of principal connected to an underlying asset’s performance. The specific terms of reverse convertibles may vary. An investor risks loss if the underlying asset’s value drops under a certain maturity level or during the reverse convertible’s term.

It is important for many elderly investors that their investments not expose them to too much risk. For an elderly senior to lose his/her life savings because a financial firm or broker behaved irresponsibly, committed securities fraud, or made an avoidable mistake is unacceptable.

Wells to pay $2M to settle claims broker sold unsuitable investments to seniors, Investment News, December 15, 2011

Wells Fargo Fined by Finra Selling Structured Notes to Aged, Bloomberg, December 15, 2011

More Blog Posts:

Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC, Stockbroker Fraud Blog, July 28, 2011

RBC Wealth Management Unit Ferris Baker Watts to Pay Investors Restitution Over Reverse Convertible Notes Allegations, Says FINRA, Stockbroker Fraud Blog, October 23, 2010

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank, Institutional Investors Securities Blog, December 8, 2011

Continue reading "Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors" »

December 14, 2011

Texas Securities Fraud Over Sale of Allegedly Bogus Annuities to Elderly Seniors

Two men are accused of Texas securities fraud involving the sale of bogus annuities to the elderly. The authorities arrested Leon Randy Sinclair III, a 53-year-old Houston man, on charges of theft by deception, misapplication of fiduciary property, and money laundering. Sinclair and his San Antonio-based business partner, Luther Pierce Hendon, allegedly transferred money from the investment policies into their own bank accounts.

Dozens of elderly persons were reportedly bilked out of their life savings while the two men allegedly stole millions of dollars. The elderly clients were sold charitable gift annuities that they thought would go toward their savings for the future. Unfortunately, per the criminal complaints filed against Hendon and Sinclair, the money they were investing actually went to the two men.


An annuity is a contract with an insurance company that allows the participant to fulfill his/her long-term goals and retirement objectives. In exchange for either a number of payments or a lump-sum amount, the insurer starts paying you periodically either right away or sometime in the future.

Usually, an annuity offers tax-deferred earnings growth and a death benefit that will pay a designated beneficiary a specific minimum figure. Three kinds of annuities are:

Indexed Annuities: The insurer credits you with a return determined by changes in an index.

Fixed Annuities: The insurer agrees to pay you a minimum interest rate while your account grows. The insurance company also is to pay specific, periodic payments into your account.

Variable Annuities: You can opt to invest your payments in different kinds of investments. The Securities and Exchange Commission regulates this type of annuity.

Annuity Fraud
Annuity fraud occurs when the agent that is selling misrepresents/fails to disclose key facts about the investment.

Unfortunately, the elderly are among the favorite targets for many of those intentionally seeking to commit annuities fraud. This type of investment is very appealing to people wanting to retire early or who are in search of a fixed income. It is easy for an elderly investor to mistakenly think that this type of investment is safe when, in fact, certain kinds of annuities are incredibly risky.

According to MetLife Inc. in June, older Americans are bilked of $2.9 billion annually by relatives, businesses, and strangers. At Shepherd Smith Edwards and Kantas, LTD, LLP, our Houston stockbroker fraud lawyers work hard to help our clients that have been the victim of elder financial abuse recoup their losses.

We know how hard you’ve worked to save for your future, as well as provide some financial security for your family. Losing your retirement and/or life savings can take a devastating toll on a bilked investor. Serious emotional and health complications can result, in addition to the financial troubles that can arise. There may be a way to recoup your losses.

Houstonian accused of selling bogus annuities to elderly, Chron.com, December 14, 2011

Annuities, SEC.gov

More Blog Posts:

Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011

Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011

November 29, 2011

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients

LPL Financial must pay $100K for its improper supervision of a broker. The Oregon Division of Financial and Corporate Securities, which fined the financial firm, reports that LPL Financial has put in place better oversight procedures since the violation was discovered. LPL Financial is a LPL Investment Holdings Inc. division.

According to the state’s securities division, Jack Kleck, an LPL Financial branch manager, sold risky gas and oil partnership-related investments to almost 36 residents. A lot of these clients were elderly seniors for whom these investments were unsuitable (considering their investment goals and age). Some even lacked the mental capacity to make such investment choices.

LPL Financial is accused of committing securities law violations, including not making sure that company procedures and policy were enforced and inadequately supervising Kleck, whose securities license was taken away in 2007. He was ordered to pay a $30,000 fine.

Among the steps that LPL has taken to set up better supervisory and compliance practices are having more employees focus on these responsibilities, improving branch office exams, and increasing the pre-sale evaluation of transactions.

Our securities fraud lawyers are talking to people who sustained losses because of Kleck or another LPL Financial representative. Contact Shepherd Smith Edwards and Kantas LLP today.

Unfortunately, elderly seniors and persons who are mentally impaired are easy targets for securities fraud. These investors may not fully understand what they are getting into and they can place their trust in the wrong registered representative. Often, the risks resulting from stockbroker fraud are too much for these clients, who may want to be conservative about their investment goals in order to ensure that they have enough money to support themselves. At this point in their lives, they cannot afford any huge losses.

It is the responsibility of financial firms to properly supervise their employees so that securities fraud doesn’t take place. They must also have the proper supervisory and compliance procedures in place so that employees can execute them.

Our senior investor fraud lawyers know how devastating it can be to find out the nest egg you’ve spent your whole life growing is now gone because someone made investments on your behalf that were inappropriate.

Examples of Financial Scams that Commonly Target Seniors:
• Investment scams
• Reverse mortgage schemes
• Ponzi scams
• Internet fraud

Ways to Avoid Financial Fraud:
• Don’t sign up right way. Take the time to think about the investment and whether it would benefit you.
• Do research on the broker and the financial firm to make they are legitimate. Have they been accused of securities fraud before?
• Consult with a family member or a friend about the investment.
• Make sure you know what you are getting involved in. If you don't understand any details, ask and make sure you get answers.

Oregon fines LPL Financial $100,000 for failing to properly supervise rural broker-dealer, Oregon Live, November 22, 2011

Shepherd Smith Edwards & Kantas Investigates Claims Against LPL Financial in Light of $100k Fine for Supervisory Oversight, Globe Newswire, November 30, 2011

More Blog Posts:

LPL Financial Management and Private Equity Backers TPG and Hellman & Friedman Could Make Over $450M from IPO, Stockbroker Fraud Blog, November 19, 2010

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam, Stockbroker Fraud Blog, April 13, 2011

Wells Investment Securities Agrees to $300,000 Fine by FINRA for Alleged Use of Misleading Marketing Materials for REIT Offerings, Institutional Investor Securities Blog, November 23, 2011