We have represented thousands of investors nationwide and recovered losses and other damages* for them from stockbrokers and their firms *Results will vary depending on the facts of each case

Barclays Capital Inc. (BARC) and a number of its affiliates will pay $2B to settle the United States government’s civil case alleging fraud involving the underwriting and issuance of residential mortgage-backed securities. The settlement comes after a three-year probe. The case is US v. Barclays Capital Inc.

The US accused Barclays of taking part in a fraud to sell three dozen residential mortgage-backed securities deals, causing investors to suffer billions of losses. More than $31B of Alt-A and subprime mortgage loans were securitized and over half of these went on to default. The RMBSs were sold leading up to the 2007 financial crisis.

The bank and its affiliates allegedly misled investors about the quality of the loans backing the RMBS deals, including purposely misrepresenting key features of the loans that involved. The British bank, meantime, maintains that it did not mislead investors about the quality of the loans. The government, however, contends that Barclays committed wire fraud, mail fraud, bank fraud, and violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

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Man Accused of Targeting Religious Congregation Members Admits to $13M Fraud
Sung “Laurence” Hong has pleaded guilty to money laundering and wire fraud, as well as to pretending to be an investment adviser so he could bilk clients of almost $13M. His plea agreement states that Hong mostly targeted members of religious organizations.

This is not the first time Hong that was caught for investor fraud. He served three years in prison after defrauding a neighbor of about $800K. Now, he may end up back in jail for decades.

SEC Files Case Against Man Accused in $250K Ponzi Scam
The US Securities and Exchange Commission has filed charges against Niket Shah, who is accused of stealing over $250K from coworkers and friends in a Ponzi scam. The regulator’s case comes in the wake of complaints brought by investors.

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The US Securities and Exchange Commission has filed civil charges against Wedbush Securities Inc. The regulator is accusing the brokerage firm of not supervising registered representative Timary Delorme, 59, and disregarding warning signs that she was involved in a pump-and-dump fraud that targeted retail investors. Delorme has settled the SEC’s charges against her.

According to the SEC, Delorme took part in certain trades to manipulate the stocks. She received benefits, which were paid to her spouse, for getting customers to invest in microcap stocks that were part of a pump-and-dump fraud run by Izak Zirk Engelbrecht, who also has been subject to civil, as well as criminal charges. Engelbrecht, previously called Izak Zirk de Maison before adopting his wife’s last name, is accused of running the scam that involved microcap company Gepco Ltd.

Also, Delorme and her husband are accused of selling shares for Engelbrecht and sending him the money for the sales while she was paid a commission. This purportedly allowed Engelbrecht to hide the sales.

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Massachusetts Secretary of the Commonwealth William Galvin has filed an administrative complaint accusing private equity fund ARO Equity LLC, Timothy James Alcott, and Thomas David Renison of running a Ponzi scam that bilked investors of over $5.8M. Most of their victims were senior investors in their 70’s and 80’s who were allegedly promised 8-12% yearly returns over three-to-five years for their purchase of mostly promissory notes.

According to the Massachusetts Regulator’s complaint, Renison, Alcott, and ARO Equity invested just half of investors’ funds, with most investments made sustaining substantial losses. They allegedly ran their scam out of a trailer park in the city of Peabody despite listing their address at the One International Place Tower in Boston. Meantime, the two men have purportedly paid themselves more than $1M since their alleged Ponzi scam began.

Renison, who allegedly made $710K, was barred from the securities industry by the US Securities and Exchange Commission in 2014 for promissory note fraud involving a client. He was ordered by a jury to pay a $1.4M judgment in that matter. A criminal charge for conspiring to commit wire fraud was brought against him in a parallel case that was dismissed following his cooperation and testimony against a co-conspirator.

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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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A Financial Industry Regulatory Authority Panel has ruled that UBS must pay claimant Antonio Gnocchi Franco $204,000 in compensatory damages and $66,000 in costs for his Puerto Rico bond fraud case. Franco, a Puerto Rico resident who was also the trustee of his law firm’s pension plan, accused the brokerage firm of negligence, misrepresentation, breach of fiduciary duty, breach of contract, unauthorized trading, unsuitability, overconcentration, failure to supervise, unauthorized use of loan facilities, and unjust enrichment. According to the complaint, UBS had recommended that Franco invest in UBS bond funds and Puerto Rico bonds.

This customer win is yet another in a long line of customer wins against UBS for its investment and brokerage services provided in Puerto Rico. To date, FINRA arbitrators have ordered UBS to pay hundreds of millions of dollars to investors and UBS has paid many hundreds of millions more in settlements. Recently, UBS Puerto Rico and UBS Financial Services lost another Puerto Rico bond fraud case and were ordered to pay five former customers $521,000 in compensatory damages.

In total, UBS has been named in FINRA arbitration claims brought by thousands of investors that lost money from investing in UBS-packaged bond funds and Puerto Rico bonds. UBS Puerto Rico brokers, especially, have come under fire for allegedly recommending customers concentrate their investments in UBS Puerto Rico products, even when they were not suitable for customers in almost any amount. Moreover, many of these investors have alleged that UBS encouraged them to borrow against their own accounts so that customers could invest more. For example, the firm’s financial representatives are accused of advising clients to leverage their accounts and use them as collateral, sometimes for the purposes of purchasing even more UBS investments. This is a practice that should have never happened.

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LPL Financial Holdings (LPLA) brokers and investment advisers will now be able to offer their clients securities lending services through Goldman Sachs (GS). Under the new arrangement, LPL clients can borrow anywhere from $75,000 to $25 million against the securities held in their accounts. In a press release, Goldman Sachs spoke about how through its Goldman Sachs Private Bank Select, LPL clients would be able to borrow these funds for “life events,” including travel or education, without having to sell their investments. However, the money borrowed cannot be used to purchase more investments. Goldman noted that its “high-tech platform” would be able to reduce wait time for a non-purpose securities- based loan from weeks to days, with no fees charged.

Over 15,000 LPL financial advisors will now be able to offer clients access to Goldman’s securities lending capabilities. The independent investment advisory firm joins 40 other such firms and broker-dealers on Goldman’s GS Select platform.

Securities Lending Comes with Significant Risks
The ability to borrow against securities is often touted as a benefit to investors. However, securities lending may not be the best choice in the long run for many investors. While such loans allow clients to borrow against what is in their accounts, certain risks come with this advantage, including forced liquidation of accounts during bad market moves.

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Fyre Festival Founder Pleads Guilty to Wire Fraud and Must Pay Back Investors
Billy McFarland, the founder of the failed Fyre Festival who pleaded guilty to two counts of wire fraud, must may pay back millions of dollars to investors whom he bilked. In Manhattan federal court, McFarland acknowledged that he received more than $26M in investor funds for the Bahamas festival that promised catered dining, luxury accommodations, and renowned performers. Instead, attendees were greeted with no food or tent accommodations.

Billboard reports that eventually prepackaged sandwiches were served, local musicians performed, and the festival was postponed even though it had already begun. Travelers who headed back home encountered rescheduled and delayed flights. Many festival employees went unpaid.

The FBI arrested McFarland last summer. He has since admitted that he solicited investors using bogus documents touting financial holdings that he didn’t possess.

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The US state of Massachusetts is investigating Wells Fargo Advisors (WFC) over whether the firm engaged in unsuitable recommendations, inappropriate referrals, and other actions related to its sales of certain investment products to customers. The news of the probe comes after Wells Fargo disclosed that it was evaluating whether inappropriate recommendations and referrals were made related to 401(K) rollovers, alternative investments, and the referral of customers from its brokerage unit to its own investment and fiduciary services business.

Secretary of the Commonwealth William Galvin said it would examine Wells Fargo’s own internal probe and wants to make sure that Massachusetts investors who were impacted by “unsuitable recommendations” would be “made whole.” He noted that while moving investors toward wealth management accounts brings “more revenues to firms,” these accounts are “not suitable for all investors.”

As Barrons reports, referring clients to managed accounts tend to earn fee-based advisors significantly more. The article goes on to note that Galvin is looking into the use of managed accounts related to the US Department of Labor’s Fiduciary Rule, which includes best practices standards for the protection of consumers. The Massachusetts regulator recently referred to that same rule when the state became the first one to file such related charges in its case against Scottrade over sales contests. In that case, Galvin accused the broker-dealer of improper sales practices, including contests that offered incentives to agents who targeted retiree clients and prospective retiree clients in particular.

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Direct Services LLC and Voya Investment LLC, two Voya Holdings Inc. investment adviser subsidiaries, will pay about $3.6M to settle Securities and Exchange Commission charges accusing them of failing to make certain disclosures related to securities lending. Of that amount, over $2M will go straight to mutual funds that were impacted.

The two investment advisers worked with a number of “insurance-dedicated mutual funds” that insurers affiliated with Voya Holdings and Direct Services offer to life insurance and annuity customers. The two advisers lent fund-held securities to certain parties. They then called back the securities so that the insurer affiliates would get a tax benefit. These same affiliates were record shareholders for the funds’ shares. Meantime, this led to the funds and their investors losing income while not getting to avail of the tax benefit.

According to SEC Enforcement Division Asset Management Co-Chief Anthony S. Kelly, the mutual funds and its investors were not notified that they would be losing money in order for the affiliates to get this tax benefit. The regulator said that Voya advisors did not disclose that this conflict of interest existed.

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