Broker Fraud

FINRA Promises To Take Tougher Stance With Rogue Brokers

Published on: June 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory has barred Lawrence M. Thomas, an ex-Woodbury Financial Services Inc. broker who was under investigation for unauthorized product sales. Thomas was previously registered with Essex Securities.

Last year, Thomas was fined $5K and suspended for three months after he consented to findings that he told an assistant to forge three customers’ signatures on about 10 documents. FINRA had been looking into whether Thomas recommended to Woodbury clients that they purchase an unauthorized product. The self-regulatory organization barred him after he failed to testify in FINRA’s investigation into the claims.

In an unrelated FINRA case, the SRO has filed charges against Kim Dee Isaacson, an ex-Morgan Stanley (MS) broker, for allegedly misleading a client about the size of his account, engaging in unauthorized trading, and attempting to resolve these issues directly with the client instead of along with the firm. According to FINRA, Isaacson told the client that the account was valued at $3.1M even though that was false.

FINRA Claims That It Can’t Stop Firms From Hiring High-Risk Brokers

Published on: June 12, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In interviews with Reuters, the Financial Industry Regulatory Authority admitted that even though investors are harmed when broker-dealers hire brokers with checkered histories, there is not much that the regulator can do to stop this practice because it is not illegal. This is undoubtedly causing even more investors to suffer losses as some of these high-risk brokers continue to engage in more misconduct or other violations at their new places of work.

For example, reports the news agency, since 2007 broker Mike McMahon and brokerage firms where he has worked, including National Securities Corporation, have shelled out $1.35M to resolve 10 client cases in which he was purportedly involved. McMahon is currently contending with another four broker fraud cases that were brought by other ex-clients.

One of the reasons the complaints keep coming is because he has been able to move from one firm to another even with the cases that have already been brought against him. Unfortunately, McMahon is not the only one.

Securities Fraud Cases: Ponzi Scam Operator Sentenced to Prison, Fund Manager Pleads Guilty, Ex-Options Trading Instructor Allegedly Misappropriated Investor Funds, & $1.7M Financial Scam Leads to 10-Years Behind Bars

Published on: May 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

SEC Charges Man Accused of Running $10M Ponzi Scam
Mark Anderson Jones, whom the US Securities and Exchange Commission has charged with fraud, has been sentenced to 70 months in prison in a parallel criminal case. Jones pleaded guilty to running a $10M Ponzi scam.

According to the SEC, Jones solicited investors in a number of US states, as well as in Washington DC. He did this by issuing promissory notes, as well as providing personal guarantees to clients that were willing to invest in The Bridge Fund, which supposedly lent money to Jamaican businesses that were waiting to get commercial bank loans.

However, rather than investing their money the way he said he would, Jones used a portion of investors’ cash to pay his own expenses as well as make Ponzi payments.

SEC Files Broker Fraud Charges Alleging Unsuitable Investments Involving Exchange Traded-Funds and Exchange Traded-Notes

Published on: April 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed charges against broker Demitrios Hallas accusing him of making unsuitable investments in five clients accounts and misappropriating over $170K from these customers. The regulator is seeking a permanent injunction and the return of ill-gotten gains, along with interest and penalties.

According to the SEC, Hallas repeatedly traded investments that were not appropriate for these customers. In just over a year, the broker allegedly traded 179 daily leveraged ETFs and ETNs. both of which are generally “risky, complex, and volatile.” The net loss involving all positions was about $150K.

His customers were not experienced or sophisticated investors and they could not handle the degree of volatility and risk to which he exposed them. Meantime, Hallas made about $128K in fees and commission.

Broker Fraud: FINRA Arbitration Panel Awards Investor $1M After Misleading Variable Annuities Sales Pitch, Broker-Dealer Owner Gets Prison Sentence in $100M Stock-Loan Scheme, & Fugitive Broker is Arrested After 20 Years On the Run

Published on: April 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Investor Awarded Over $1M After Allegedly Misleading Sales Pitch by Wilbank Securities Broker

A Financial Industry Regulatory Authority panel has awarded investor Grace S. Huitt over $1 million in her broker fraud claim against Wilbanks Securities. According to Huitt, one of the firm’s brokers presented her with a sales pitch about the ING Landmark Variable Annuity that not only was misleading but also promised too much and then under-delivered. She alleged breach of contract, fraud, breach of fiduciary duty, and negligent supervision.

Huitt claims that when she bought the variable annuity in 2008, she was told that it came with a guaranteed 7% compound yearly return. Other investors who also had made investment puchases through Wilbanks Securities reportedly claimed similar problems with what they were promised.

Dallas, TX Man Pleads Guilty in $131M Broker Fraud Case

Published on: February 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Herschel “Tress” Knippa III, a Dallas, Texas resident, has pleaded guilty to conspiracy to commit securities fraud. The former registered broker, who owned a commodities trading firm, was implicated over fraudulent market rigging involving ForceField Energy Inc. (FNRG), which was a supposed global distributor and provider of LED lighting products and solutions. Investors lost $131M because of the scam.

According to court filings and facts submitted at the plea hearing, between 1/2009 and 4/2015, Knippa and others worked together to bilk those who invested in ForceField. The conspirators artificially manipulated the price and volume of ForceField shares by 1) using nominees to buy and sell the stock but without disclosing this to investors and potential investors, 2) manipulating ForceField stock trading to make it seem as if there was real interest and genuine trading volume, and 3) hiding payments made to brokerage firms and stock promoters that marketed and sold the stock.

All the while, Knippa and others claimed that ForceField was an independent company. Also, they used disposable prepaid cell phones, encrypted message applications to communicate, and paid kickbacks in cash.

Securities Fraud: Jury Convicts Former Visium Portfolio Manager, Boston-Ex-Hilliard Lyons Broker Accused of Unauthorized Trades is Barred by FINRA, and Utah Businessman is Charged with Bilking Investors In $100M Ponzi Scam

Published on: January 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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

SEC Cases: Morgan Stanley to Pay $13M for Custody Rule Violations and Overbilling Clients, BNY Mellon to Settles Allegations of Reported Miscalculations By Paying $6.6M, and Citadel Securities to Pay $22M for Purportedly Misleading Clients About Pricing Trades

Published on: January 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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.

SEC Charges NY-Based Brokers with Fraud, Excessive Trading

Published on: January 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

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.

UBS Broker is Fired Over Outside Business Activities

Published on: December 28, 2016 | by Shepherd Smith Edwards & Kantas, LLP

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.