Articles Posted in Broker Fraud

Bond Fraud Case Leads to Conviction for Former Visium Asset Management 

A jury has convicted Stefan Lumiere, a former Visium Asset Management LP portfolio manager, of wire fraud and securities fraud. Lumiere was accused of conspiring to artificially inflate the value of a fund that was invested in debt issued by healthcare companies. Prosecutors said that his actions caused the fund’s net asset value to become overstated by tens of millions of dollars, compelling investors to pay more than they should have for the securities. They argued that Lumiere got fraudulent price quotes from brokers who worked outside the firm in order to override prices that the credit fund’s administrator had calculated. They say that he mismarked securities for years.

Ex-Former Hilliard Lyons Broker Doesn’t Appear to Testify, Gets Barred by FINRA 

Morgan Stanley Accused of Overbilling Investment Advisory Clients

The US Securities and Exchange Commission announced that Morgan Stanley Smith Barney (MS) will pay a $13M penalty to resolve charges accusing the firm of overbilling clients through billing system and coding mistakes and violating the custody rule regarding yearly surprise exams.

As a result, said the regulator’s order, Morgan Stanley has agreed to pay over $16M in excess fees because of billing mistakes that took place from ’02 to ’16. Investment advisory clients that were affected have been paid back the excess fees in addition to interest.

According to the Commission, Morgan Stanley overcharged over 149,000 investment advisory clients. The reason for this is that the firm did not put into place compliance policies and procedures that were designed reasonably enough to make sure that clients were accurately billed according to their advisory agreements. The SEC said that Morgan Stanley did not validate billing rates that were in its billing system against client billing histories, contracts, and other documents.

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The US Securities and Exchange Commission is charging two brokers with securities fraud. The regulator claims that Donald J. Fowler and Gregory T. Dean fraudulently employed an in-and-out trading strategy that was not suitable for customers so that they could make more in commissions. Because of their actions, 27 customers alleged lost substantial amounts of money. Fowler and Dean are accused of violating the Securities Act of 1933 and the Securities Exchange Act of 1934, and Rule 10-B5.The Commission said that they examine trading patterns involving over two dozen of the brokers’ customer accounts.

The SEC contends that the two men did not engage in any due diligence to figure out whether their investment strategy could help customers obtain even the smallest profit. With their strategy, they engaged in the frequent purchase and sale of securities, which would both take place within a two-week or shorter timeframe. They charged customers a commission for every transaction. Meantime, Fowler and Dean were the only ones who had a chance of making a profit.

SEC Warns Investors to Look Out for Excessive Trading, Churning

Along with its announcement of this securities case, the SEC put out an Investor Alert cautioning the public about churning and excessive trading. In its alert, the regulator warned about red flags that may be signs of these types of fraud, including trading that a customer did not authorize, which is known as unauthorized trading, trading that happens more often than seems reasonable for a customer’s investment objectives and/or the level of risk that the portfolio can handle, and suspicious and/or unusually high fees.

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UBS Financial Services (UBS) has terminated the employment of Connecticut broker Phil Fiore Jr. The broker-dealer says that even while Fiore was under heightened supervision he did not tell the firm about his outside business activities.

UBS contends that he violated firm policies, such as not disclosing that he was serving as an unpaid director for a not-for-profit entity affiliate, along with a client, as well as not obtaining internal approval to create blog posts, failing to obtain approval to run a charity golf tournament, and not disclosing that a new client had invested in his outside business.

Fiore, who was let go in November, had been a top UBS broker and was rated as a leading adviser in Connecticut. He’d worked at UBS since 2009 and was a senior VP. Previously, he’d been employed with Merrill Lynch.

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Charles Caleb Fackrell is sentenced 63 months behind bars and three years of court supervision. The 36-year-old former North Carolina financial adviser, who worked with LPL Financial (LPLA), pleaded guilty to one count of securities fraud earlier this year. He now must pay his victims nearly $820K in restitution.

According to court documents, Fackrell ran an investment scam from approximately 5/2012 to 12/2014. During this time, he solicited about $1.4M from at least 20 investors. The companies he ran included Robin Hood LLC, Robin Hood Holdings LLC, Robinhood LLC, and Robinhood Holdings LLC.

Prosecutors contend that instead of using investors’ money as intended, Fackrell enriched himself in what North Carolina Secretary of State Elaine Marshall has described as “one of the most vicious financial crimes” the state has seen.

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According to the Massachusetts Securities Division, brokerage firms that hire brokers with troubled disciplinary records are not doing a proper job of supervising them. The state, which recently released its findings from its examination of 241 broker-dealers who are registered in the state and retain an above average number of rogue brokers, said that this relaxed way of self-policing could be harming investors.

According to the division’s report, not a lot of these brokers were put on more rigorous supervision despite their questionable pasts. Massachusetts Secretary of the Commonwealth William Galvin said that it appeared to his office that certain firms were not willing to take on the duty of “zealously monitoring” the way these brokers were interacting customers.

It was in June that the Massachusetts Securities Division announced it was cracking down on broker-dealers who hired rogue brokers. The news of its sweep came soon after the Financial Industry Regulatory Authority announced it was conducting its own probe.

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Ex-Newbridge Securities Broker Involved in $131M Fraud Pleads Guilty 
Gerald Cocuzzo, has pleaded guilty to securities fraud related to his involvement in a $131M market manipulation scam involving Forcefield Energy Inc. (FNRG). According to the U.S. Justice Department, between 1/2009 and 4/2015, Cocuzzo and others sought to bilk investors in the publicly traded company that globally distributes and provides LED lighting products. They did this by artificially manipulating the volume and price of the shares that were traded.

Meantime, Cocuzzo received kickbacks for buying Forcefield stock in his clients’ brokerage accounts. He did not tell the customers that he was receiving these payments. Instead, he and several others sought to hide their involvement.

Newbridge Securities fired Cocuzzo earlier this year following the federal indictment. Before working at Newbridge, he was registered with IAA Financial, previously called CBG Financial Group Inc.

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In his continued sweep to target broker-dealers who have hired brokers with disciplinary histories,  Massachusetts Secretary of the Commonwealth William Galvin has filed complaints against two New York-based brokerage firms. The cases were brought against Spartan Capital Securities, broker Dean Kajouras, Revere Securities, and broker Jonathan Eric Altman.

Galvin claims that the agents named in both cases already had “numerous” reports of misconduct on their records and then went on to engage in more wrongful conduct involving older investors. The state regulator contends that the firms knew—or if they didn’t, then they should have—that Kajouras and Altman posed a risk to clients because of their histories. Galvin said that Spartan Capital and Revere Securities had a duty to put the two men on “special heightened supervision.”

Responding to the complaint, Spartan Capital said that it had retained 60 reps with previous disciplinary records between 1/2014 and 6/2016  but only felt the need to put six of them on heightened supervision.

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Ex-UBS Broker is Accused of Inflating Customer’s Account 
The Financial Industry Regulatory Authority has barred Jeffrey Hamilton Howell from the broker-dealer industry. The former broker is accused of giving  a customer bogus weekly account statements that overvalued an account by up to $3M. The alleged misconduct is said to have occurred between 9/2008 and 11/2014.
According to FINRA, Howell sent the customer over 300 Stock Tracking Reports that misstated the client’s portfolio in amounts ranging from $289K to approximately $3M. He purportedly used his personal e-mail to send the customer some of the fake reports. This left UBS with records and books that were not accurate.

Texas-Based Brokerage Firm Accused of Inadequate Supervision Involving VA Exchanges
The Financial Industry Regulatory Authority is ordering IMS Securities Inc. to pay a $100K fine. The Texas-based brokerage firm is accused of failures related to its monitoring of variable annuity exchanges. By settling, however, it is not denying or admitting to the allegations. 
 
According to the self-regulatory authority, the firm exhibited inadequate supervisory procedures for “problematic rates of exchange” in transactions involving variable annuities. FINRA claims that from 7/ 15/13 through 7/8/14, IMS Securities depended on its CFO to review annuity exchanges but did not provide tools or guidance to help look for “problematic rates of exchange.”  The broker-dealer is accused of not probing possibly “problematic patterns” of VA exchanges and not enforcing written supervisory procedures related to consolidated reports. 
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