Investor Lawyers Blog

Investor’s GPB Private Placement Claim Against Arkadios Capital Gets FINRA Hearing

Published on: September 13, 2019 | by Shepherd Smith Edwards & Kantas, LLP

An investor who filed an arbitration claim against Arkadios Capital for selling her GPB Capital Holdings private placements now has a hearing date set before a Financial Industry Regulatory Authority (FINRA) panel: April 20, 2020. This is one of the first GPB investor fraud case brought against a brokerage firm to get a hearing scheduled before one of the self-regulatory authority’s (SRO) arbitrators. Our broker fraud lawyers at Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) are representing this claimant.

The investor, who is a woman from the greater Atlanta, Georgia area, is claiming hundreds of thousands of dollars in retirement fund losses after her financial adviser, an Arkadios broker, recommended the GPB securities to her. While with the broker-dealer, her portfolio became especially concentrated in private placements, including the GPB Holdings II Limited Partnership. Now, the claimant is contending that this GPB investment, in particular, was an extremely unsuitable recommendation for her, especially since it involved her IRA from which no losses can be offset.

Our client maintains that she was not aware of the risks involved in the investment strategy used by her Arkadios broker. She is alleging unsuitable recommendations, omissions, misrepresentations, gross negligence, due diligence failures, breach of fiduciary duty, negligence, and inadequate supervision. The investor is seeking damages, interest, and costs.

Ex-Cetera Broker from Texas is Accused of Defrauding Investors

Published on: September 13, 2019 | by Shepherd Smith Edwards & Kantas, LLP

If former Cetera Advisers broker James Christopher Hayne has handled your investments and you suffered investment losses that you suspect were due to fraud or negligence, you should speak with an experienced stockbroker fraud law firm right away. Over the years, Hayne, a Texas broker, has been named in numerous customer arbitration claims brought before the Financial Industry Regulatory Authority (FINRA).

With 17 years in the industry, Hayne, previously was a registered broker with Questar Capital, First Allied Securities, Edward Jones, and Morgan Stanley. His BrokerCheck record shows nine customer disputes, five of which were settled.

Most recently, there was the Financial Industry Regulatory Authority claim brought against Hayne by a customer that was resolved for $325K. The former client had requested $100K in damages. In that investor fraud case, Hayne was accused of violating both the Texas Securities Act and California Corporate Securities Law, breaching contractual duties to the claimant, negligence in the way he handled the latter’s account, and causing the customer to suffer investment losses.

American Realty Capital Properties to Pay Investors $1B

Published on: September 12, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Nicholas Schorsch’s former real estate investment trust (REIT) American Realty Capital Properties Inc. (ARCP) has arrived at a $1B settlement with investors who sued over the company’s accounting scandal that led to inflated financial results five years ago. Now called Vereit, the REIT will pay $738.5M of the class action securities fraud settlement, while Schorsch’s American Realty Capital (AR Capital) will pay $225M. American Realty Capital Property’s ex-CFO Brian Block will pay $12.5M of the settlement. Meantime, Grant Thornton, the firm’s auditor during the period of the scandal, will pay $49M.

American Realty Capital Properties admitted to a $23M accounting error in late 2014. After ARCP restated its financials, investors sold their shares, causing a $3B drop in the REIT’s value. At one point, ARCP held $20B in assets.

Investors sued, accusing the REIT of incorrectly stating financials so as to spur acquisitions and inflate financial results. Two years ago, Block pleaded guilty to securities fraud related to the accounting misstatements.

Ex-Morgan Stanley Broker Pleads Guilty to Investment Adviser Fraud

Published on: September 10, 2019 | by Shepherd Smith Edwards & Kantas, LLP

A Former Morgan Stanley (MS) broker who was barred by the Financial Industry Regulatory Authority (FINRA) last year has pleaded guilty to defrauding his clients of hundreds of thousands of dollars. Elias Herbert Hafen was a registered Morgan Stanley rep. from 2009 until 2018 and then briefly went to work for Wells Fargo Clearing Services. According to his BrokerCheck record, Wells Fargo (WFC) fired him after just several months because he had financial agreements with clients that the firm never approved.

A news release of Hafen’s guilty plea on Justice.gov states that between 2013 and 2018, Hafen defrauded at least 11 financial advisory clients by fooling them into thinking he was able to access a high yield investment fund that came with guaranteed investment returns. This fund, however, was not affiliated with the investment bank where Hafen was a registered broker. In fact, it did not exist.

Because of Hafen’s investment advice, a number of his clients moved hundreds of thousands of dollars to his own bank account, from where he was supposed to invest in the fund. Instead, he generated fake bank statements using the name of an investment company that didn’t exist and, rather than use investors’ funds as intended, Hafen spent their money to fund his luxury lifestyle.

Cetera Advisors Accused of Defrauding Investors of $10M

Published on: September 7, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) has filed civil charges accusing Cetera Advisors of defrauding its retail clients through $10M in unnecessary commissions and fees. The regulator is accusing the registered investment adviser (RIA) of selling these customers costlier share classes even though they qualified to invest in less expensive share classes of the same funds. The clients paid the additional compensation to the firm during the time that they held the more costly investments.

According to the Commission’s complaint, from at least 9/2016 through 12/2016, these Cetera customers were invested and held in mutual fund share classes that charged them 12b-1 fees that were recurring instead of shares that didn’t charge these fees. The SEC said that aside from the fees, which was compensation paid to Cetera, the share classes were identical.

The regulator also claims that Cetera took part in a program with its clearing firm in which the latter would share service fees and revenues it was paid from certain mutual funds with the RIA. Hence, this was incentive for Cetera to sell these mutual funds instead of other investments to clients. Cetera purportedly received $1.7M as a result of this deal.

Cambridge Capital Accused of Defrauding Retired NFL Athletes

Published on: September 6, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Cambridge Capital Group Advisors, its president Phillip Timothy Howard, and previously barred investment adviser Don Warner Reinhard are now the subject of a Securities and Exchange Commission (SEC) case accusing them of defrauding 20 investors, the majority of whom are retired National Football League players. Howard, who is also an attorney, represented the NFL retirees in a class action lawsuit over brain injuries they sustained while playing the game.

The investors invested about $4.1M in two proprietary hedge funds, the Cambridge Capital Partners and Cambridge Capital Group Equity Options Opportunities. According to the SEC, even though Howard knew that the former NFL players whom he represented lack proper brain function, employment capacity, credit, or capital, he and Reinhard still allegedly persuaded them to invest in the two funds. The regulator said that more than half of players who invested used their retirement money.

Among the false claims and misrepresentations that the defendants allegedly made while soliciting investors were that:

Philadelphia-Based Investment Adviser Accused of $105M Investor Fraud

Published on: September 5, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Investment adviser Brenda Smith has been arrested and charged with defrauding about 40 investors of $105M. The US Securities and Exchange Commission (SEC) also has filed civil fraud charges against Strong, who is based in Philadelphia, and her Broad Reach Capital, LP (also known as the Broad Reach Fund), Broad Reach Partners, and registered investment advisor Bristol Advisors, LLC. The fund and the two entities are controlled by Strong.

According to the SEC, Smith told investors their money would go into publicly traded securities and that she would employ different trading strategies that had consistently rendered high returns in the past. Instead, contends the regulator, Smith made just a few investments using said strategies and spent investors’ funds on her own expenses, to pay back other investors, and on unrelated companies.

Smith is accused of sending out false information bragging about positive returns of more than 30% annually, claiming to hold billions of dollars in assets at a company belonging to her, creating fake documents to inflate the fund’s assets to more than $180M, and fooling investors into thinking their money was safe.

UBS Ordered to Pay $9.3M for Puerto Rico Bond Fraud

Published on: September 3, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Two different groups of investors were recently awarded nearly $9.3 million in their respective Puerto Rico bond fraud claims against UBS Financial Services (UBS). These are just the latest Financial Industry Regulatory Authority (FINRA) arbitration claims where the Swiss giant and its Puerto Rico-based brokerage firm have been ordered to pay customers after selling over $10 billion of closed-end funds that were heavily invested in the island’s municipal debt. To date, UBS has paid hundreds-of-millions-of-dollars to investors in either arbitration awards or settlements.

In one of these latest Puerto Rico investor fraud cases, the claimants are three investors and their related businesses and trusts. The customer claimants contend that UBS violated FINRA’s rules and the U.S. territory’s securities laws, as well as committed other fraudulent acts. Now, the FINRA arbitration panel has awarded them $4.25 million in compensatory damages, interest, and $170,000 for costs.

In the other Puerto Rico bond fraud claim, the claimants were customers alleging constructive fraud, common law fraud, breach of fiduciary duty, negligent misrepresentation, negligent supervision, breach of contract, and fraudulent concealment. The FINRA arbitration panel awarded them $4.8 million in damages.

Financial Sherpa Accused of Cherry Picking

Published on: September 2, 2019 | by Shepherd Smith Edwards & Kantas, LLP

In a settlement reached with the US Securities and Exchange Commission (SEC), Financial Sherpa and its principal James L. Beyersdorf will pay more than $232K of disgorgement, over $15K of prejudgment interest, and a $188K penalty for allegedly defrauding investment advisory clients by engaging in a cherry picking scam. The regulator contends that Beyersdorf allocated a disproportionate amount of option trades that were profitable to himself and his wife while distributing the unprofitable ones to the firm and his clients. Beyersdorf oversaw some $6.7M in assets for 13 individual investors.

According to the SEC, he purchased options in the firm’s omnibus trading account during the morning, distributing the trades later in the day. The regulator claims that because of the allegedly illegal trading, over six months– from October 2017 and April 2018– Beyersdorf and his wife ended up with a net positive one-day return of more than 45% on the options trades that were sent to their accounts. Meantime, the negative one-day return for the firm’s individual clients that received the unprofitable trades was also 45%. The Commission said that the odds of the “disparate performance” occurring by chance was under one-in-a million.

Also, while the registered investment advisory’s strategy for the majority of its clients involved placing about 90% of each of their assets in exchange-traded funds (ETFs) and 10% in short term options trading, the account of Beyersdorf’s wife traded nearly exclusively in options and did not hold any ETF positions.

UBS Yes Strategy Investors File Fraud Claims

Published on: August 31, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Clients of UBS Group AG (UBS) who employed the firm’s Yield Enhancement Strategy (YES) are now filing investor fraud complaints after suffering at least $60M in losses to date. YES involves options trades and borrowing that was supposed to be “safe” and low risk while earning investors positive returns.

The complex investment strategy did just that while the market was stable but the volatility that ensued last year–the worst to hit the market in 30 years– caught investors by surprise. The Wall Street Journal reports investor losses of over 13% in one month alone. However, Seeking Alpha reports that losses have been as high as 20% for some investors.

For example, according to the WSJ, Sherrie Pellini, a 60-year-old UBS customer who financially supports her mom and three kids, invested $3M in the UBS YES Strategy and was charged 1.75%. She now claims her losses were $750K. Pellini is accusing UBS broker Robert Perlman of telling her that YES had not resulted in any losses for 17 years.