Broker Fraud

Morgan Stanley Ordered to Pay $519K to Retired Couple

Published on: May 24, 2019 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded $519,000 to Stephen and Brenda Balock in their investor fraud claim against Morgan Stanley (MS). The couple contends that that one of the firm’s brokers, Tim J. Prouty, placed their funds in investments that were complex and inappropriate for them, causing them to lose money in eight accounts between 2012 and 2015. They filed their claim against Morgan Stanley in 2016.

The Balocks began working with Prouty after Stephen’s employer, the Public Service Co. of New Mexico, compelled him into early retirement due to downsizing. He had never worked with a broker before then.

The couple wanted to invest in certificates of deposit. Instead, Prouty placed them in a Morgan Stanley investment advisory program that involved more complex investments, such as options contracts, derivates, junk bonds, and exchange-traded funds. In their investor claim against Morgan Stanley, the Balocks made a number of allegations, including the following:

Broker Allegedly Illegally Sold Over $23M in Woodbridge Securities

Published on: May 22, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) has filed civil charges against Charles Nilosek for acting as an unregistered broker and illegally selling Woodbridge securities to retail investors. The regulator said that Nilosek, who is based in Massachusetts, was one of the top revenue earners when it came to selling the unregistered investments from the Woodbridge Group of Companies.

The Woodbridge investments are tied to a $1.2B Ponzi scheme that ran from 2012 to 2017. Woodbridge and its 281 related companies are accused of bilking more than 8,400 investors, many of whom were elderly investors who lost their money investing in the company’s promissory notes and private placements. The customers were promised 5-8% in yearly returns and many used their retirement money to invest.

The SEC’s complaint said that Nilosek and his Position Benefits LLC sold over $23M in Woodbridge securities to more than 200 investors in at least four states between 9/2013 and 9/2015. He was paid over $1.4M in compensation. The regulator contends that Nilosek was never a registered broker nor was he ever registered with a brokerage firm.

Former Janney Montgomery Scott Broker Faces Charges

Published on: May 17, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin has filed charges against broker-dealer Janney Montgomery Scott accusing the firm of not properly supervising broker Stephen Querzoli during his trading of Class A mutual fund shares from 2012 to 2017. According to the state regulator, these alleged mutual fund sales violations caused investors, mostly older customers, to pay nearly $200K in unwarranted commissions that were shared between Janney and Querzoli.

Class A mutual fund shares usually charge higher fees of up to 5.7% at the front-end. They also lead to higher commissions for the investment advisers and brokers selling them compared to what other mutual fund class shares would render.

Although Class A shares are meant to be held for at least five years, according to the Massachusetts regulator, Querzoli would sell clients’ Class A shares within months of their acquiring them, thereby engaging in short-term trading. This resulted in higher and additional commissions charged to customers.

Stanford Ponzi Fraud Victims Awarded $1.4M

Published on: May 16, 2019 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) panel has ordered Pershing, LLC to pay $1.4m to six investors who lost money in R. Allen Stanford’s $7.2B Ponzi scam. Pershing is a Bank of New York Mellon Corp. (BK) division. It acted as Stanford Group Co.’s clearing broker for several years.

Pershing is accused of enabling the Stanford Ponzi Fraud, including through its transfer of hundreds of millions of dollars from US investors’ securities accounts, as it continued to make money from the sales of at least $500M in fake, unregistered certificates of deposit (CDs).

Pershing also allegedly disregarded the unusual ways in which Stanford ran his operations, including the use of offshore transfers and the high compensation awarded to brokers. The unregistered CDs were issued out of Stanford International Bank, a Stanford Financial Group unit based in Antigua, and then sold by Stanford’s brokerage firm in the US.

Fund Manager LJM Partners Sues Over Volatility Losses

Published on: May 15, 2019 | by Shepherd Smith Edwards & Kantas, LLP

LJM Partners is suing a number of unnamed parties after losing hundreds of millions of dollars during a major incident of stock market volatility early last year now known as “Vol-magedon.” The Chicago-based fund manager and commodity trading advisor (CTA) claims that these losses are what forced it to go out of business.

LJM had backed complex derivatives, which plunged in value after the largest ever one-day jump in the VIX volatility index in February 2018. The fund manager later gave back what was left of clients’ funds and shuttered its operations.

While LJM held $812M in assets at the start of that month, by the end of February, that figure had dwindled to $14M. One of its affiliates, which operated the LJM Preservation and Growth Fund—a mutual fund for retail investors—lost half its value due to the VIX volatility index jump. The fund then went on to lose the rest of its value as it unwound its holdings.

AXA Financial Ordered to Pay $3.2M to Farming Family

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

An egg-farming family based in New York has been awarded $3.2M in its Financial Industry Regulatory Authority (FINRA) arbitration claim against AXA Financial. The claimants are an older couple, Sandra and James Fitzpatrick, who own Fitzpatrick Poultry Farm. They contend that Franceso Puccio, an ex-AXA Financial broker, placed their money into variable annuities (VA), which were unsuitable for them. Puccio has already been convicted for senior investor fraud involving another elderly client that was also with the firm.

The couple are claiming that they lost millions of dollars because of the way AXA and Puccio handled their funds. They contend that their money had been invested in mutual funds until Puccio moved their funds, as well as four life insurance policies, into VAs.

Puccio worked in the securities industry for 16 years. He was barred by FINRA in 2015 after he failed to turn over information and documents that the regulator had requested related to an investigation into whether he had converted monies from a non-customer. Puccio’s BrokerCheck record notes several customer disputes, with allegations including unsuitable investments sold to claimants, negligence, breach of fiduciary duty, misrepresentations, and omissions.

Claim Filed Against Arkadios Over GPB Capital Private Placements

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

An investor in GPB Capital has filed a Financial Industry Regulatory Authority (FINRA) Claim against Arkadios Capital and one of its brokers over losses she sustained to her IRA after she followed the financial adviser’s recommendation to invest in GPB Capital Holdings.

Now she is claiming retirement fund losses in the hundreds of thousands of dollars. Our investor fraud law firm, Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) is representing the investor, who hails from the greater Atlanta area, and we have filed a FINRA arbitration claim on her behalf.

GPB Capital Holdings is an alternative asset management firm whose private placement funds are primarily invested in auto dealerships and waste management. The firm is under scrutiny by FINRA, the US Securities and Exchange Commission (SEC), Massachusetts Secretary of the Commonwealth William Galvin, and the FBI over its private placements that were sold by dozens of brokerage firms and their brokers.

Buckman, Buckman & Reid To Pay Customers $205K

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

The Financial Industry Regulatory Authority (FINRA) announced that Buckman, Buckman & Reid, a New Jersey-based brokerage firm, will pay about $205K in restitution to seven clients to settle claims that it did not reasonably supervise two ex-registered representatives accused of recommending “excessive and unsuitable trades.” The self-regulatory authority (SRO) has already barred both former brokers from the industry.

Also dealing with sanctions are Buckman Senior VP and owner Harry John Buckman, Jr., who supervised the two former brokers. Mr. Buckman was suspended for three months, ordered to pay a $20K fine, and must fulfill continuing education hours related to fulfilling supervisory duties.

FINRA said that the brokerage firm and Buckman neglected to identify when one of the ex-representatives was taking part in short-term Unit Investment Trust (UIT) trading on a frequent basis, as well as engaging in “other long-term investments” that charged customers substantial, upfront expenses. As a result, between ’13 to ’14 Buckman customers that were harmed ended up paying about $201K in commissions while sustaining approximately $163K in losses. Meantime, although there were red flags indicating “potentially excessive trading” by this former broker, the firm is accused of not reviewing these warnings.

Ex-Aegis Capital Broker is Barred Over Churning Allegations

Published on: April 22, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory (FINRA) announced that it is barring former Aegis Capital broker James Schwartz for allegedly churning four clients’ accounts. The self-regulatory authority (SRO) contends that Schwartz, who is no longer employed in the securities industry, made 256 trades in these accounts without first getting the customers’ permission to execute the transactions. Along with other trades he made in these accounts—535 trades in total—the customers ended up collectively losing over $660K.

FINRA’s BrokerCheck record on its case against Schwartz said that he engaged in about $10M worth of unauthorized trades. Some trades were also allegedly excessive.

The SRO said that Schwartz earned commissions and gross sales credits of $277,705 from these fraudulent transactions, more than $194,000 of which was paid to the former Aegis Capital broker.

LPL Financial To Pay $450K Fine to Texas Investors

Published on: April 21, 2019 | by Shepherd Smith Edwards & Kantas, LLP

According to the Texas State Securities Board, target=”_blank” rel=”noopener noreferrer”>LPL Financial (LPLA) will pay a $450K fine and buy back unregistered securities. The Consent Order noted that the settlement is part of the wider $26M one reached between the brokerage firm and state securities regulators in 2018.

In its deal with Texas, LPL agreed to buy back unregistered securities that it sold to investors in the state going as far back as Oct 1, 2006. LPL will pay “3% interest per year on the value of the securities either in damages if they were sold or by repurchasing the investments.” Similar terms were part of the wider agreement offered to all US states and territories regarding how to compensate investors who were sold unregistered stocks and fixed-income securities.

In January, Maryland Attorney General Brian Frosh announced his state’s settlement with LPL, which involved buying back these same types of securities, along with 3% simple interest annually, from investors. Aside from its restitution and rescission offers to Maryland investors, the brokerage firm agreed to pay a $499K civil penalty.