Articles Posted in Investment Advisers

Investment Adviser Settles SEC Case for $575K
John W. Rafal, a Connecticut-based investment adviser, has agreed to settle US Securities and Exchange Commission charges for $575K. As part of the settlement, Rafal is admitting wrongdoing in a civil case that accuses him of bilking a client and then trying to mislead the SEC while lying to other clients about the regulator’s probe.

The SEC said that Rafal paid attorney Peter D. Hershman in secret for referring one of his client’s to Essex Financial Services, which is the firm that Rafal founded. He is no longer affiliated with Essex. Rather than disclose the referral deal to the older widow who was that client, Rafal and Hershman concealed the payments as “legal fees.” Even after Essex officers found out about and stopped the referral arrangement, the deal between the two men continued in secret. The SEC also said that Rafal responded to rumors that he had violated a securities law by emailing his clients and falsely stating that the regulator’s probe had been resolved. He also purportedly tried persuading the Commission that his arrangement with Hershing was over.

Essex Financial Services will pay $180K in disgorgement and interest to resolve charges connected to Rafal’s wrongful behavior. Herhsman will pay over $90K to resolve the civil charges accusing him of aiding and abetting the violations committed by Rafal. The two men agreed to a securities industry bar and from serving in the roles of director or officer for any publicly traded company. They also are no longer allowed to represent clients regarding SEC matters.

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Two Men Are Accused of Scamming Indiana Investors in More than $3.5M Ponzi Scam 
Prosecutors are charging two Indiana men with securities fraud involving a Ponzi scam. They claim that Richard E. Gearhart and his business partner George R. McKown sold securities to investors who moved their annuities, pensions, cash, and 401ks to invest in Asset Preservation Specialists Inc. The investors were purportedly promised a guaranteed return rate.

The authorities say that McKown and Gearhart were not registered with the state of Indiana or the Securities and Exchange Commission to sell these securities.

It was in 2013 that a number of Gearhart’s clients filed complaints against him after he filed for Chapter 13 federal bankruptcy. They contended that their losses collectively totaled over $2M. Court records, however, indicate that the two men allegedly stole over $3.5M from over two dozen investors. between ’08 and ’13.

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Investment Adviser Who Bilked Pro Athletes Gets CFP Board Suspension
The Certified Financial Planner Board of Standards has issued a temporary suspension against Ash Narayan. The California-based investment adviser is accused of bilking professional athletes of millions of dollars.

Narayan was recently named in a Securities and Exchange Commission complaint. In June, the regulator accused him of misrepresenting his professional qualifications and misappropriating client monies when he allegedly siphoned funds from investors’ accounts and invested the money in Ticket Reserve, a flailing online sports and entertainment ticket business.

Narayan is accused of moving  $33M of investor funds to the company and did not tell the athletes that he was a member of Ticket Reserve’s board, owned stock in the company, and was paid a $2M in finder’s fees for making the investments. The CFP Board called the investments “unsuitable” and not in line with clients’ objectives. The board also noted that some of the investments were made without client consent or knowledge.

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Once again, financial adviser Dawn Bennett is in the news. The Financial Industry Regulatory Authority has reportedly filed a securities case against Bennett, who is the owner of Bennett Group Financial Services, for not appearing four times to testify in the regulator’s probe into her retail clothing business, DJBennett.com. FiNRA said that her failure to appear to testify violates its rules. Bennett was recently investigated for fraud while she was an independent broker at Western International Securities.

She stepped down from that firm last year after FINRA found that she may have committed securities fraud, as well as been involved in private securities transactions, undisclosed external business activities, and the misappropriation of investor funds.

It was in 2015 that she allegedly solicited Western clients in a debt deal that her retail clothing company was supposed to guarantee. Bennett sold $6M of convertible and promissory notes to about 30 investors.

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The U.S. Securities and Exchange Commission has put out an emergency asset freeze against Peter Kohli, a former broker. According to the regulator, the Pennsylvania resident bilked at least 120 investors when he fraudulently raised over $3.2M from them between 2012 and 2015. The regulator attributes the funds collapse to the ex-broker’s “extreme recklessness.”

At the time, Kohli was CEO and president of DMS Advisors, a dually-registered investment adviser and brokerage firm. He began the DMS Funds series, comprised of four emerging market mutual funds, in 2012. The SEC claims that he overstated the funds’  level of sophistication while disregarding the risk that he and DMS Advisors might not be able to cover certain expenses.

The Commission claims  that Kohli stole money from investors as the funds became beleaguered and he committed three other frauds to keep his scam going.  He also purportedly misappropriated money he solicited to invest in one of the funds and his accused of drawing in two kinds of investments in Marshad Capital Group, which was DMS advisors’ holding company.

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Three years after the U.S. Securities and Exchange Commission barred Ray Lucia Sr. from the securities industry, the ex-investment adviser and radio talk show host is still seeking to overturn that decision. Last week, he filed a petition asking the U.S. Court of Appeals for the D.C. Circuit to hear his case again.

It was just last August that the appeals court heard his petition but refused to review and vacate the SEC ruling. His latest petition was submitted en banc, which could allow all 11 members of the appeals court to refuse to hear the case or decide to do so and issue a vote.

Lucia, who once touted a “buckets of money” investment strategy for retirement was barred after an SEC administrative law judge found that the ex-investment adviser misled investors about the strategy’s approach to growing retirement assets. According to the regulator, the inflation rates Lucia employed to “back-test” his strategy failed to factor in the historical inflation rates during the time periods that were supposedly relevant.

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NASAA Puts Out Practices and Procedures Guide to Protect Vulnerable Adults

The North American Securities Administrators Association has issued a guide to help investment advisory firms and broker-dealers create procedures and practices to help them identify and tackle suspected incidents of financial exploitation involving vulnerable adult clients, including senior investors and adults with diminished capacity. The guide provides steps that revolve around five key concepts:

  • Identifying who is a vulnerable individual
  • Governmental reporting
  • Third-party reporting
  • Delaying disbursement from the account of a client who is a vulnerable adult
  • Ongoing regulator cooperation when a disbursement is delayed or a report of suspected financial exploitation is made.

It was just recently that NASAA put into effect its Model Act to Protect Vulnerable Adults from Financial Exploitation and this guide is a companion to the act.

If you are an elderly investor or a vulnerable adult who has suffered losses due to fraud, call our senior financial fraud law firm today.

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Charles August Banks IV was arrested in San Antonio this week. Banks, is charged with two counts of wire fraud related to a $7.5M investment that former NBA basketball star Tim Duncan made with Gameday Entertainment, a sports merchandising company. Banks became Duncan’s financial adviser nearly two decades ago while working for CSI Capital management and he advised him for years.

Banks, now a renowned wine investor,  is  also facing a securities fraud lawsuit brought by the SEC. Although Duncan, formerly with the San Antonio Spurs, isn’t named specifically in the complaint, the regulator said that the case involves an ex-pro basketball player who was Banks’ client.

The SEC claims that Banks made material misrepresentations and omissions of key facts to the basketball player to persuade him to invest in Gameday.  Among the alleged misrepresentations:

Paul Mata, the founder of Logos Wealth Advisors, has been barred by the U.S. Securities and Exchange Commission. Mata and fund manage David Kayatta, whom the SEC has also barred, are accused of fraudulently raising over $14M in investor funds.

Mata drew in investors through investment seminars and online videos that came with the promise of “Indestructible Wealth.” During presentations to church groups, he touted “Finances God’s Way.”

Kayatta was the manager of two unregistered investment funds while at Logos Wealth Advisors. According to the Commission, beginning in 2008, the two men raised this money from over 100 investors in the unregistered funds. Kayatta and Mata promised guaranteed returns, did not make any disciplinary history known, and misused investor money.

In the order against him, the SEC said that Kayatta was responsible for the misleading and false statements in private placement memoranda for the Funds. According to InvestmentNews, in 2010, Kayatta was ordered by the state of Nevada to cease-and-desist from pursuing investors in unregistered securities and taking part in investment advisory conduct without the proper licensing.

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Investment Advisor Firm Accused of Paying Off Terminally Ill Patients to Commit Fraud
The SEC has filed fraud charges against Donald Lathen and his Eden Arc Capital Management. Lathen is accused of recruiting at least 60 individuals who had less than six months to live and agreeing to pay them $10K each for the use of their names on joint brokerage accounts. When one of these individuals would die, he would allegedly redeem the investments by falsely representing that he and the terminally individual person were joint account holders.

Lathen recruited the terminally ill patients through contacts he had at hospices and nursing homes. In reality, it was Lathen’s hedge fund that owned the option investments.

As a result, of the purported omissions and misrepresentations, issuers paid over $100M in early redemptions. Lathen is accused of violating the custody rule by not properly putting the securities and money from the hedge fund in an account under the name of the fund or in one that held only client money and securities.

SEC Stops Trading in Neromamam Ltd.
The SEC has stopped the trading of Neuromama Ltd. (NERO) shares. The shares trade on the mostly unregulated over-the-counter markets and the regulator is concerned about transactions that may be “potentially manipulative, as well as other red flags that have purportedly been cropping up for years.

Neruomama’s paper value went up times four to $35B this year despite not much volume. The company’s shares went up by four times to $56/share. (On January 15, ’14, its value was $4.73B.)

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