Broker Misconduct

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.

Wedbush Securities To Pay $250K Over Inadequate Supervision of Ex-Broker Accused of Fraud

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

According to the US Securities and Exchange Commission (SEC), Wedbush Securities has settled allegations accusing the brokerage firm of failing to supervise one of its former registered representatives, Timary Delorme, who is accused of engaging in a pump-and-dump fraud that harmed retail investors. As part of the settlement, Wedbush consented to a censure and will pay a $250K penalty.

The SEC filed this civil securities case against Wedbush a year ago, accusing the broker-dealer of not properly investigating red flags indicating that Delorme might have been defrauding investors. The former Wedbush broker is accused of, from 2008 to 2014, receiving payments, which were issued to her husband, in exchange for recommending to investors that they make certain trades that were then used in the pump-and-dump fraud.

The regulator said that Wedbush even disregarded an email from a customer reporting the fraud, as well as a number of Financial Industry Regulatory Authority (FINRA) arbitrations claims and inquiries over Delorme’s trading activities involving penny stocks. Instead, contends the Commission, Wedbush performed two inadequate probes into the allegations against its former broker but didn’t take proper action.

Former Alexander Capital Broker Accused of Churning Must Pay Over $302K

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

The US Securities and Exchange Commission (SEC) has secured a final judgment against ex-Alexander Capital broker William Gennity, who is accused of excessive churning in clients’ brokerage accounts. Gennity, whom the Financial Industry Regulatory Authority (FINRA) had earlier suspended, will pay nearly $128K in disgorgement, nearly $15K in prejudgment interest, and a $160K civil penalty.

The SEC’s complaint accused Gennity of recommending costly, “in-and-out trading” to four clients between 7/2012 and 8/2014 without having any reasonable grounds for thinking that doing so would cause them to make money. Instead, they lost money as a result, while Gennity made money. The alleged churning purportedly took place while he was an Alexander Capital broker.

Churning typically involves a broker engaging in trades in order to earn more commissions.

SEC Bars Former Wells Fargo Broker Over Alleged $1.3M Senior Investor Fraud

Published on: March 11, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Just a few weeks after former Wells Fargo (WFC) broker John Gregory Schmidt consented to a final judgment in the US Securities and Exchange Commission’s (SEC) investor fraud case against him, the regulator announced that it has barred Schmidt for misappropriating more than $1.3M from clients, most of them elderly retired investors. Schmidt, who also ran Schmitt Investment Strategies Group in Ohio and was already barred by the Financial Industry Regulatory Authority (Finra), was fired by Wells Fargo in 2017. In a parallel criminal case, he is also charged with 128 felony counts over the same fraud allegations.

The SEC’s complaint notes that at the time that Wells Fargo fired Schmidt, he had about 325 retail brokerage customers. At least half of them had worked with him for over a decade, and a “significant percentage” were retirees who depended on regular withdrawals from their brokerage accounts to cover their living expenses. Many of them were unsophisticated, inexperienced investors, some of whom were suffering from dementia, including Alzheimer’s disease.

Schmidt’s scam purportedly involved making unauthorized sales and withdrawals involving variable annuities from certain customers’ accounts and then using fraudulent authorization letters to move the money to the other clients’ accounts. According to the Commission’s complaint, between ’03 and ’17, Schmidt took money out of seven clients’ accounts and moved the funds to the accounts of other clients to conceal shortfalls there.

Securities-Backed Lines of Credit Are Not For Every Investor

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

In an Investor Alert, the Financial Industry Regulatory Authority and the US Securities and Exchange Commission’s Office of Investor Education and Advocacy (OIEA) sought to inform investors about the risks involved in securities-backed lines of credit (SBLOCs). These loans are usually touted as a hassle-free, low-cost way for investors to gain access to money by borrowing against their investment portfolio’s assets without needing to liquidate the investments. Popular among a growing number of securities firms, SBLOCs, however, are not a good match for every investor.

Securities-Backed Lines of Credit – SBLOCs

Typically, to qualify for an SBLOC, an investor must have assets with a “market value of at least $100K.” He or she can then usually borrow anywhere from 50-95% of the value of assets in the portfolio.

United Planners Fined $100K By Massachusetts for Inadequate Supervision of a Broker

Published on: February 20, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin’s office has fined United Planners Financial Services of America $100K for failing to properly supervise broker Thomas T. Riquier. The broker was charged last year for violating the state’s securities laws over his alleged involvement in a real estate scam that defrauded investors and others of at least $1M over 26 years.

According to the state regulator’s consent order, at one point Riquier, who is president of The Retirement Financial Center, oversaw 1,771 accounts for about 400 clients and generated more than $1.2M for United Planners, including over $500K in advisory fees. The state regulator charged Riquier, who is no longer a registered broker or investment adviser, last year with violating the Massachusetts Uniform Securities Act.

Investors of a limited partnership known as the Rowley Land Appreciation Fund Limited Partnership (The Rowley Fund) contend that Riquier told them that the property he was purchasing on their behalf would be sold for profit. Instead, he allegedly used their money to buy property that already belonged to him. Investors have yet to see any return on this property. Last year, The Salem News reported that according to investigators, Riquier made about $730K from his investor fraud.

Securities Cases: Massachusetts Charges Royal Alliance Over Unsuitable Investment Advice, Ex-Schwab Rep. is Fined For Alleged False Statements, and Texas Broker Accused of Bank Fraud Gets His CFP Designation Suspended

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

Former Centaurus Financial Broker’s Certified Financial Planner Designation is Suspended

The Certified Financial Planner Board of Standards has suspended Texas broker’s Larry J. Templin’s CFP designation. The interim suspension comes after Templin, who is accused of bank fraud, refused to provide the Financial Industry Regulatory Authority (Finra) with information related to the allegations against him.

Templin was a Centaurus Financial broker until last year when he was fired by the Texas-based brokerage firm. Previously, he was registered with USAllianz Securities and First Global Capital, which are both headquartered in Texas. Templin worked in the securities industry for over 20 years.

Finra Bars Another Ex-Morgan Stanley Representative, Fines Firm $10M for AML Detection Deficiencies, and Orders It To Pay Two Investors $4.2M For Broker Fraud

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

Daniel Todd Levine, a former Morgan Stanley (MS) broker, has been barred by the Financial Industry Regulatory Authority after he failed to cooperate in a probe into allegations that he may have taken part in outside business activities that he did not disclose to the broker-dealer while he worked for the firm. Levine was a Morgan Stanley broker based in Denver, Colorado between 2013 and July 2018 when he stepped down. His next employer was First Financial Equity Corp., but that brokerage firm fired him a few weeks later after he did not notify them about the FINRA investigation.

According to Levine’s BrokerCheck record, he previously worked with Prudential Securities, Merrill Lynch, and UBS (UBS). He was employed in the securities industry for over 20 years.

A number of other former Morgan Stanley brokers have recently made news headlines over allegations of broker fraud. Last month, FINRA announced that it had filed a lawsuit against Ami Forte, who is accused of making unauthorized trades in the account of now deceased Home Shopping Network co-founder Roy M. Speer. In November, former Morgan Stanley financial adviser James Polese was sentenced to five years behind bars after pleading guilty to defrauding customers of over $1M.

Houston, TX-Based Brokerage Firm Next Financial is Acquired by Atria

Published on: January 9, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Next Financial Group Inc. will be purchased by Atria Solutions. The Houston-based independent broker-dealer is the fourth brokerage firm that Atria, which is located in Dallas, has acquired since 2017. The other brokerage firms are Cadaret Grant & Co., Cusco Financial Services, and Sorrento Pacific Financial.

Next Financial currently has almost 540 advisers and representatives and nearly $13B in assets under management. According to InvestmentNews, Under the Next Financial deal, Atria will acquire the broker-dealer and its related companies. Following the acquisition, Atria will work with almost 2,000 advisers with about $65B in assets under administration.

Next Financial’s BrokerCheck record shows 19 disclosure events that have been settled, usually without the firm admitting to or denying the findings, for various causes, including:

Ex- Wells Fargo Broker Faces 128 Felony Counts in Alleged $1M Ponzi Scam

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

John G. Schmidt, an ex-Wells Fargo (WFC) broker, is now facing 128 felony counts over his alleged running of a $1M Ponzi scam. Criminal charges include:

124 counts of forgery
1 count of telecommunications fraud