Articles Posted in Broker Fraud

According to the New York Times, even though Morgan Stanley (MS) executives have known for years about the domestic violence allegations against Douglas E. Greenberg, who was one of their leading brokers, the firm continued to allow him to stay employed in its wealth management division. However, after the NY Times tried to contact the firm about him, Greenberg was finally suspended, pending review. Now, the media is reporting that Greenberg has been fired. Still, a number of the former-Morgan Stanley broker’s exes have retained their own lawyers in light of the fact that he wasn’t let go until now.

Four women have come forward accusing him of domestic abuse. Court filings indicate that not only did Greenberg’s accusers go to the police seeking protection against the now former Morgan Stanley financial adviser, but also, according to one of the women’s attorneys, the firm was issued a federal subpoena notifying it about at least one of the allegations. Morgan Stanley was also aware that Greenberg was charged for allegedly violating a restraining order.

Still, no action was taken against Greenberg, who belonged Morgan Stanley’s exclusive Chairman’s Club as one of the firm’s highest earning brokers. Ironically, the members of this club are expected to maintain certain standards when it comes to “conduct and compliance.” Greenberg is considered one of the leading wealth managers in Oregon. Firmwide, he was among Morgan Stanley’s top 2% of brokers when it came to bringing in revenue.

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The Financial Industry Regulatory Authority has barred three brokers in separate, unrelated cases for alleged misconduct. They are ex-Morgan Stanley (MS) representative Thomas Alain Meier, ex-Fortune Financial broker Michael Giokas, and ex-Northwestern Mutual broker Michael Cochran.

Former Morgan Stanley broker Thomas Alan Meier is accused of making unauthorized trades in customer accounts. In the self-regulatory organization’s letter of acceptance, waiver, and consent, FINRA stated that from 7/2012 through 3/2016, Meier “effected” over 1000 transactions that were not authorized in six customers’ accounts. His allegedly unauthorized transactions involved discretion without written permission or the accounts garnering discretionary acceptance and impacted four clients.

Between 4/2016 and 10/2017, Morgan Stanley submitted 21 amended Forms U5 for Meier. The forms showed that 14 customer complaints were filed against Meier, including two arbitration cases. AdvisorHub reports that because of Meier’s alleged misconduct, customers sustained $818K in losses and over $2M in unrealized losses. To date, the brokerage firm has paid customers about $2.5M in settlements and resolved 13 of the claims.

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FINRA Arbitration Panel Awards Allegis Investment Advisors Client $404,482
A Financial Industry Regulatory Authority arbitration panel has awarded Mark Watson $404,482 in his unauthorized trading case against Allegis Investment Services, Allegis Investment Advisors, and ex-broker Brandon Curt Stimpson. Watson is accusing Stimpson of placing his life savings in investments that were too risky and complex and of making unauthorized trades involving index put options connected to the Russell 2000 Index even though he had told the broker that he only wanted up to 25% of his portfolio involved in these. Instead, Watson alleges, Stimpson invested way more of his money in the index put options.

In his securities arbitration case, Watson also alleged breach of fiduciary duty. Now, a FINRA panel has awarded him nearly $275K in compensatory damages, nearly $54K in interest, and other costs.

Stimpson was fired by Allegis last year for not abiding by the firm’s ethics code and policies. According to his BrokerCheck records, he has been named in eight other customer disputes.

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FINRA Panel Orders Hilliard Lyons to Pay Damages to Elderly Client
In a Financial Industry Regulatory Authority arbitration case, Hilliard Lyons is ordered to pay 84-year-old Elizabeth Nickens $445K in damages for losses she sustained from alleged churning and unauthorized trading. Nickens claims that advisor Christopher Bennett made transactions without her authorization in her retirement accounts, and her assets were allocated in such a way that were not suitable for her or investment goals.

Nickens, as an older investor, had a low risk tolerance and was more interested in preserving her funds. Yet, according to her attorney, more than half of her average account equity was in four stocks. She lost over $300K.

Hilliard Lyons is accused of not properly supervising the trades. The firm and Bennett deny the senior financial fraud allegations.
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The Financial Industry Regulatory Authority has barred Jeffrey Palish, an ex-Wells Fargo (WFC) broker in the wake of allegations of senior investor fraud. The regulator is accusing him of stealing over $180K from an elderly client with no plans or means of paying her back.

Palish was let go by the firm last year after an internal probe found that he had made misstatements about these transactions. He was arrested last week in New Jersey and charged with theft by deception involving over $75K.

According to prosecutors, Parish may have stolen at least $600K from elderly clients and failed to pay back a $100K loan from two clients. NorthJersey.com reports that Palish took clients’ money by selling their stock holdings and putting the funds from those sales into a bank account in which he deposited checks from clients. He also is accused of making more than three dozen unauthorized wire transfers of about $300K in total to pay his credit card bills.

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A Financial Industry Regulatory Authority panel has awarded over $4.3M to investors in their elder financial fraud case against former First Allied Securities broker Anthony Diaz. The plaintiffs contend that he invested their retirement funds in high risk private placement investments that were unsuitable for them. They are alleging inadequate supervision, misrepresentation and omissions, unsuitability, fraud, and other violations.

Diaz is considered to be a rogue broker by the regulator, who barred him in 2015. He not only worked at 11 firms win 14 years, but also he appeared to have no problem getting another job whenever he was let go from a previous. Diaz’s BrokerCheck profile shows that he is named in 53 customer dispute and regulatory disclosures.

The arbitration award to the investors is over $1M in compensatory damages, more than $413K in legal fees, and $2.9M in punitive damages. They settled with First Allied Securities last year.

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Two Brokers Barred After Not Appearing at FINRA Hearings
Guillermo Valladolid, an ex-Morgan Stanley (MS) broker, has been barred by the Financial Industry Regulatory Authority. According to the regulator, Valladolid did not show up at a hearing into whether, according to InvestmentNews, he “sold investments away from his employer” and neglected to disclose certain outside business activities.

Morgan Stanley terminated Vallodolid’s employment. Previous to that he worked with Merrill Lynch.

In a different FINRA case, the regulator barred another broker, Bradley C. Mascho, also after he did not appear at his hearing. Some of Mascho’s activities while at Western International Securities had come under question. The firm fired him last month, which is also when the US Securities and Exchange Commission filed fraud charges against Mascho and Dawn Bennett of the Bennett Group Financial and DJP Holdings. Mascho was CFO of the latter.

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The SEC has filed a case accusing broker Brian Hirsch of illegally receiving over $1M in secret kickbacks in return for giving some customers favored access to “lucrative” initial public offerings. The regulators said that these customers made money because of the special treatment. Meantime, prosecutors in New Jersey have filed a parallel criminal case against Hirsch.

According to the SEC, Hirsch, who worked at two broker-dealers, disregarded policies and procedures and made “long-running” deals with specific customers, granted them bigger allocations of some of the public offerings that the firms were marketing. Advisor Hub reports that these two brokerage firms were Barclays Capital (BARC) and Stifel (SF).

As part of the deal, contends the regulator, a customer named Joseph Spera and another customer paid Hirsch cash kickbacks that were equivalent to a percentage of the trading profits they made for the offering stock allocated to them. Hirsch is accused of giving the two customers “preferential access to hundreds of IPOS and secondary public offerings.” These customers purportedly would usually sell their stock quickly so that they could make a “substantial profit.” This was at the expense of the firms’ other customers and the interests of issuers in raising funds from long-term investors.

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Ex-Wells Fargo Brokers Barred Over Unsuitable Energy Securities Sales
The Financial Industry Regulatory Authority has barred brokers Charles Lynch and Charles Frieda for making unsuitable recommendations to investors, resulting in substantial financial losses to the latter. Lynch and Frieda are former Wells Fargo (WFC) representatives who were based in Southern California. Both Lynch and Frida were fired from the firm. Previous to working at Wells Fargo, both men worked at Citigroup (C) and Morgan Stanley (MS).

According to the self-regulatory organization, between 11/12 and 10/15, the former brokers recommended an investment strategy revolving around certain speculative energy stocks to over 50 customers. These securities were volatile. Because investors became very concentrated in these energy securities, they were placed at risk of substantial losses.

FINRA contends that the two brokers did not do a proper job of making sure these investments were suitable for the customers to whom they were recommending these securities.

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The SEC has filed civil charges against Westport Capital Markets LLC and principal Christopher E. McClure. The Connecticut-based, dually registered brokerage firm and investment adviser and its principal are accused of defrauding clients, costing them over $1M in losses.

According to the regulator’s securities fraud complaint, the investment advisory firm and McClure invested clients’ money in risky securities on numerous occasions, resulting in hundreds of thousands of dollars in undisclosed mark-ups that went to Westport even as the clients lost more than $1M. The broker-dealer would allegedly buy securities from underwriters at a reduced rate and later re-sell them to its own clients at the full public offering price while keeping the difference.

Westport and McClure are accused of making false and misleading representations to clients about the compensation that the financial firm received from their accounts. Also, the brokerage firm is accused of receiving 12b-1 fees, which are mutual fund distribution fees, when clients’ money was placed in certain mutual fund share classes and again not telling clients about these fees. The SEC said that the fees created a conflict. McClure and Westport allegedly invested clients in mutual fund shares that charged these fees even when less expensive shares that didn’t carry the fees could have been purchased instead.

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