Broker Fraud

Securities Headlines: FINRA Enforcement Officials Say They Are Keeping Their Eyes on Variable Annuities, Massachusetts Goes Looking for Rogue Brokers, and Man is Accused of Scamming Women He Met Online

Published on: June 16, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Takes a Closer Look at Variable Annuities
At a recent Insured Retirement Institute Conference, Financial Industry Regulatory Authority Inc. enforcement officials said that even though variable annuities are not on the regulator’s list of examination priorities for 2016 this doesn’t mean it isn’t scrutinizing them. FINRA Sr. VP/deputy enforcement chief Russ Ryan said that variable annuities often are involved in its cases.

It was just recently that FINRA charged MetLife (MET) $25M for making misrepresentations and omissions related to variable annuity sales. New products were marketed as less costly and better than the variable annuities that clients already owned when, in truth, said the regulator, the clients should have stayed with these older investments. The alleged misrepresentations and omissions were found in 72% of 35,500 applications for variable annuity replacements that were approved by MetLife.

FINRA said that training and supervision were a key factor in the case, which is what they are also seeing in other variable annuity cases. The regulator is also looking at L-share variable annuities, which offer greater liquidity and a shorter surrender-penalty period.

With a variable annuity contract, an insurer consents to pay the investor periodic payments either right away or in the future. The investor buys the contract with a single payment or a series of payments. The VA’s value will depend on performance and the investment options selected by the investor.

Massachusetts Targets Rogue Brokers
The Massachusetts Securities Division is going after rogue brokers. The regulator sent a letter to more than 240 firms that have a higher than average number of reps who have been reported for misconduct. The state says it wants the firms’ hiring information and is interested in learning about brokerage firms’ hiring procedures and policies. The letter was issued to financial firms where over 15% of their current representatives have at least one current disclosure incident documented.

FINRA Bars Broker From Industry For Allegedly Bilking Older Woman He Met at Church

Published on: May 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Former Thrivent Investment Management Inc. broker Miguel Angel Hernandez is now barred from the brokerage industry. According to the Financial Industry Regulatory Authority Inc., he defrauded an older woman whom he met at church. He allegedly took $25K in ’10 but paid her back in ’15 after the misconduct was exposed.

Hernandez is accused of telling the customer that he needed the money to pay for expenses related to his tax business even though he doesn’t own that type of business. Instead, he allegedly used her funds for his own spending.

Hernandez purportedly promised the woman a 2% stake in this supposed business in five years in addition to quarterly payments of nearly $1100 for 3-to-10 years. Even though he is settling, Hernandez is not denying or admitting to the charges.

In other elder fraud news, U.S. Senator Susan Collins (R-Maine) is asking state securities regulators to help her move forward a bill that would make it easier for professional industry members to report when they suspect an older person is being financially exploited. Collins chairs the Senate Aging Committee. She made her request at a recent North American Securities Administrators Association conference.

If passed, the legislation would implement protections so that financial abuse could be reported across the states. While the bill already has several bipartisan cosponsors, it needs additional support to make it through the Senate Banking Committee and the Senate.

Older investors suffer $2.9B in losses yearly as victims of financial scams, and state regulators are ramping up their efforts to combat this type of elder abuse. Sometimes the fraudster is a member of the securities industry. There are also family members, caregivers, and friends that have been known to bilk senior investors.

If you or someone you love is a senior investor and you suspect that he/she is the victim of fraud, contact our elder financial fraud law firm today.

Former Thrivent broker barred from securities business for defrauding woman he met at church: Finra, InvestmentNews, May 17, 2016

FINRA

Senate Aging Committee

Securities Fraud Cases: Ex-Head of MICG Investment Management Firm Faces 13 New Charges, SEC Accuses Unregistered Brokers of Bilking Investors in $6M Scam, and $250M Pump-And-Dump Case Leads to Guilty Plea

Published on: May 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Government Charges Convicted Broker with More Fraud Charges
Jeffrey Martinovich is charged with 13 new counts of fraud. He is is ex-head of MICG Investment Management and was convicted of 17 fraud charges three years ago.

Martinovich is accused of improperly moving over $700K from a company hedge fund in 2010. According to prosecutors, he spent $170K of the funds for his legal defense fees and at least $59K on his personal expenses. He also purportedly took out over $147K more from the hedge fund account.

It was in 2011 that the Financial Industry Regulatory Authority expelled Martinovich and his firm for securities fraud, improperly using client money, and causing false statements to be sent to investors related to the MICG Venture Strategies LLC, a proprietary hedge fund. The self-regulatory organization said that Martinovich and MICG improperly assigned asset values that were excessive to two non-public securities.

FINRA said that the assets’ value were inflated so that incentive and management fee could be increased.

Offshore Broker Pleads Guilty in $250M Pump-and-Dump Scam
Gregg Mulholland has pleaded guilty to conspiracy for operating a pump-and-dump-scam that manipulated shares of over 40 companies in the U.S. One company, Cynk Technology, saw its share price increase by 24,000%.

Nine Brokers Charged in $131M Stock Scam

Published on: May 4, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Nine financial professionals are charged with scamming investors in a $131M financial fraud involving Forcefield Energy Inc. According to authorities, from 12/09 to 4/15 the defendants, which include brokers, stock promoters, and investor relations officials, manipulated the LED lighting provider’s stock by trading it in secret, using undisclosed accounts, hiding kickbacks that were paid to brokers and stock promoters to tout the stock, and inflating the volume of trades to make it seem as if there was a real demand for the stock. Also this week the U.S. Securities and Exchange Commission filed civil fraud charges against the nine defendants and former ForceField executive chairman Richard St. Julien who was arrested last year on charges accusing him of running scams to inflate his company’s stock price.

Speaking about the criminal case, U.S. Attorney Robert Capers said that the defendants took a business that didn’t have much revenue and “essentially no business” and fooled their clients and the market into thinking that it was worth hundreds of millions of dollars. The nine defendant are charged with securities fraud, and conspiracies to commit wire fraud, securities fraud, and money laundering. They are former Stratton Oakmont Inc. broker Christopher Castaldo, unregistered broker Louis F. Petrossi, Mitchell & Sullivan Capital LLC managing partner of investor relations Jared Mitchell, registered representatives Richard L. Brown, Naveed A. Khan, Gerald J. Cocuzzo, Maroof Miyana, and Pranav V. Patel, and Kenai Capital Management LLC head Herschel Knippa III.

NY Broker –Dealer Owner Charged in $17.2M Ponzi Scam

Published on: March 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Guy Gentile, who owns a New York-based brokerage firm, is charged with fraudulently inflating two micro-cap stocks’ prices before selling them to investors. His alleged actions purportedly allowed him to make $17.2M in gross trading proceeds.

Gentile was indicted in federal court. He and co-conspirators Itamar Cohen and Michael Taxon, both Canadian stock promoters, are accused of buying Kentucky USA Energy Inc. and Raven Gold Corp. shares from 4/07 to 6/08 and then using misleading marketing collateral and manipulative trading to inflate the shares. Taxon and Cohen have already pleaded guilty to their involvement in the Ponzi scheme. Gentile, who is charged with securities fraud and conspiracy to commit securities fraud, could be facing twenty years in prison.

Running a Ponzi scam is not the only way to get in trouble for it. Connecticut fund manager Marlon Quann has been ordered to surrender nearly $81M in profit for helping Thomas Petters run his $3.5B Ponzi scheme. The U.S. Securities and Exchange Commission said that Quann hid evidence of the fraud in part with $187M in “round trip” transactions.” The SEC also sued Quan’s Acorn Capital Group LLC, Stewardship Investment Advisors LLC, and ACG II LLC.

Elder Investors: Morgan Stanley Must Pay Home Shopping Network’s Estate Over $34M, Broker Accused of Making Over $1.7M From Churning at Craig Scott Capital, and $10M Ponzi Scam Involving Jamaican Businesses Targets Older Investors

Published on: March 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Panel Awards Estate Over $34M from Morgan Stanley in the Wake of Churning Allegations
A Financial Industry Regulatory Authority arbitration panel awarded the estate of Home Shopping Network Roy M. Speer over $34M in its case against Morgan Stanley (MS). The panel ruled that the firm, branch manager Terry McCoy, and broker Ami Forte were jointly liable for breach of fiduciary duty, negligence, unauthorized trading, constructive fraud, unjust enrichment, and negligent supervision. The alleged negligence would have occurred from 1/09 to 6/12 and involved investments in the financial services and banking sectors.

According to Mrs. Speer’s lawyer, in six of Mr. Speer’s accounts, about 12,000 transactions took place, most of them involving municipal bond trading and corporate trading. Many of these trades were unauthorized.

The arbitrators awarded $32.8M in compensatory damages to Speer’s widow, Lynnda Speer, and $1.5M for the costs involved in the arbitration process. The panel said that Morgan Stanley violated a law in Florida that prohibits the exploitation of vulnerable adults. Mr. Speer had dementia. Forte, who was his broker, is said to have been in a relationship with him.

Former Craig Scott Capital Broker Accused of Elder Financial Fraud
FINRA is accusing broker Edward Beyn of making over $1.7M in commissions and fees by engaging in excessive trading in client accounts while he was a registered representative at Craig Scott Capital. He is now with Rothschild Liberman. Beyn is accused of churning nine accounts of six customers, all of them over the age of 60, from 3/12 through 5/15. They all sustained losses.

Stockbroker Fraud: Ex-JPMorgan Broker Who Gambled Gets Five Years, FINRA Bars Broker Over Elder Financial Fraud, Risky Alternative Investment Sales and Ex-Broker is Indicted by Jury for Allegedly Bilking Clients of $2.8M

Published on: March 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Former JPMorgan Broker Who Stole Over $20M from Richest Clients, Gambled, Goes to Prison
Michael Oppenheim, a former broker with JPMorgan Chase & CO. (JPM), has been sentenced to five years behind bars. Oppenheim pleaded guilty last year to stealing over $20 million from 10 of his richest clients. At one point Oppenheim managed nearly $90 million for 500 clients. He claims he was addicted to sports gambling.

He began betting on NFL games in 1993 and later got involved in online sports betting. After losing hundreds of thousands of dollars, he began stealing from clients to cover his losses. Oppenheim also started options trading in tech stocks to repay these clients and in one day lost $2.7M. He concealed the theft by providing customers with bogus account statements.

Prosecutors contend that Oppenheim persuaded clients to take out up to millions of dollars from their accounts by promising to put their money in low risk municipal bonds that would be kept at the bank. Instead, he used the funds to get cashier’s checks that he deposited into accounts that were his but located outside the bank. Oppenheim purportedly targeted clients he knew wouldn’t be watching their accounts closely. His scam went on for over seven years.

FINRA Bars Broker for Senior Financial Fraud
The Financial Industry Regulatory Authority has barred David Joseph Escarcega from the financial industry. Escarcega is accused of making a dozen unsuitable recommendations involving debentures tied to the life insurance policy secondary market and targeting elderly clients. He must also pay a $52,270 fine, which is how much he kept in commissions.

According to FINRA, Escarcega sold the debt instruments, which were issued by CWG Holdings Inc., from 3/12 to 6/13. The regulator said that the debentures were very risky and only suitable for investors that could afford to lose all of their investments. The 12 customers involved in this matter were not that type of investor. A lot of the investments were placed in IRAs.
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SEC Cases: Ex-AIG Broker-Dealers to Pay $9.5M For Purportedly Directing Investors Toward Pricier Mutual Funds, California Water District Resolves Bond Offering Charges for $125M, & Businessman is Accused of Stealing Investor Money

Published on: March 14, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Former AIG Affiliate Brokerage Firms to Pay $7.5M Fine, $2M Restitution Over High-Priced Mutual Funds
Royal Alliance Associates, FSC Securities Corp., and SagePoint Financial have agreed to pay over $9.5M to resolve Securities and Exchange Commission charges accusing them of guiding clients toward expensive mutual fund share classes so that the firms could garner additional fees. The brokerage firms were formerly under the AIG Advisor Group umbrella.

According to the regulator, the firms put clients in share classes that charged 12b-1 fees for distribution and marketing even though they were eligible to purchase shares that didn’t come with these added fees.

Because of the placement in the costlier fund classes, the firms collected an additional $2M in fees and did not disclose their conflict of interest in choosing the share classes that would make them more money.

The AIG affiliates are accused of not monitoring advisory accounts quarterly to make sure that churning didn’t take place. The SEC order is claiming breach of fiduciary duty and numerous compliance failures.

California Businessman Allegedly Stole Investor Money, Covered Up Fraud
Daniel R. Nase is accused of stealing investor assets and then trying to conceal the theft once the SEC discovered his scam. The regulator claims that the California businessman raised funds from investors via an unregistered offing of common stock in his Bic Real Estate Development Corp. He then used the funds to cover his own bills.

The Commission said that Nase, who was not registered with any state regulator or the SEC to sell investments, told investors that his company would invest in promissory notes and real estate. Instead, he improperly placed those under his name, his wife’s name, of the name of their family trust. He allegedly tried to hide his fraud by investing the assets that he stole back into BIC to make it look like he was raising his equity stake in the company.

California Water District Accused of Misleading Investors in $77M Bond Offering
The SEC is charging Westlands Water District with misleading investors about its financial state while issuing a $77M bond offering. The agricultural water district is the largest one in the state of California.

According to the SEC, Westland, in prior bond offerings, consented to keep a 1.25 debt service coverage ratio but discovered in 2010 that a lower water supply and drought conditions would keep it from making enough money to keep up that ratio, which measures an issuer’s ability to make future bond payments. To meet the ratio without upping customer rates, Westlands reclassified the funds.
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FiNRA Bars Chicago-Based Broker For Market Manipulation

Published on: March 2, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred broker George Johnson from the industry. The regulator is accusing him of market manipulation involving the artificial inflation of a penny stock’s value. FINRA claims that Newport Coast Securities, which is the last firm where Johnson worked, let its brokers engaging in churning.

According to the self-regulatory organization, over eight days in May 2012, Johnson, while working for Meyers Associates, told customers to buy stocks of iceWEB at prices that were artificially inflated. He also suggested that certain clients sell their shares to match trades between clients.

FINRA said that Johnson manipulated stock to get business from the issuer, which agreed to compensate him for a future private offering. He purportedly worked with a stock promoter to increase iceWEB’s share price to the point that certain warrants could be exercised.

Johnson also has been accused of involvement in a second penny stock fraud and he purportedly has tried to cover up different state securities violations. He has a history of regulatory actions and customer disputes going as far back to 1994. Johnson previously worked for H.J. Meyers & Co. and Jesup & Lamont Securities, two firms that have since been expelled. Meyers Associates also has been linked to a number of regulatory probes.

Securities Fraud: SEC Charges Unregistered California Man with Fraud, FINRA Bars Two Brokers, Second Scam Lands Man in Jail Again

Published on: February 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

SEC Files Charges in $1.9M Broker Scam
A California man is facing Securities and Exchange Commission charges. The regulator is accusing Gregory Ruehle of fraudulently selling purported stock in a medical device company and keeping investors’ money. The unregistered broker purportedly raised about $1.9M from over 100 investors but did not transfer or deliver the securities that they purchased to them. Meantime, Ruehle is said to have used the funds to cover his personal spending and pay off gambling debts.

According to the SEC, Ruehle began bilking investors in 2012. He allegedly misrepresented to investors in Minnesota and California that he would sell them securities that he owned in ICB International Inc., for which he was a former consultant.

Instead, said the regulator, Ruehle sold investors more securities than what he owned and he failed to tell them that the securities that belonged to him were not transferrable. Ruehle is accused of generating fake documents that he claimed came from the company and issuing bogus company stock certificates to investors, along with a letter that falsely stated that the stock had been transferred to them.

The SEC wants permanent injunction, disgorgement, prejudgment interest, and penalties against Ruehle. The unregistered broker is also now the subject of criminal charges in a parallel case that was brought by U.S. Attorney’s Office for the Southern District of California.

FINRA Bars Two Men for Hedge Fund Fraud
In other broker news, the Financial Industry Regulatory Authority has announced that it is barring brokers Walter F. Grenda and Timothy S. Dembski from the securities industry. The industry bar is for fraud involving the sale of the Prestige Wealth Management Fund, LP, which is a hedge fund.
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