Articles Posted in Current Investigations

Current Investigation:  Shepherd, Smith, Edwards & Kantas, LLP (“SSEK Law Firm”) is currently investigating claims on behalf of former clients of Kristian “Kris” Gaudet (“Gaudet”) of Cut Off, Louisiana.

In January 2019, the Financial Industry Regulatory Authority (“FINRA”) barred Gaudet from association with any FINRA member.  The result of such a bar is that FINRA has effectively kicked Gaudet out of the brokerage business permanently.  Kristian Guadet was most recently associated with Ameritas Investment Corp. (“Ameritas”), and had worked for Ameritas’ brokerage firm and insurance arm since 2003.  Prior to Ameritas, Mr. Gaudet worked for The Advisors Group and Princor Financial Services.  In November 2018, FINRA opened an investigation of Mr. Gaudet based on “suspicions that Mr. Gaudet was involved in fraudulent activities.”  Then, only a few weeks later, on December 10, 2018, Ameritas terminated Mr. Gaudet based on allegations from clients that Mr. Gaudet was “using client funds for personal use.”  Even after the termination from Ameritas, FINRA continued with its investigation.  Rather than defend the allegations, Gaudet refused to appear or provide any on-the-record testimony, instead consenting to a permanent bar from the securities industry.

While it is unusual for brokers to find ways to steal client funds or otherwise use client funds as their own, it sadly does still happen.  More importantly, our firm’s experience is that long before a broker starts taking client funds directly, that broker does many other less obvious things to hurt his/her clients while trying to profit from those same clients.  The act of theft is typically the last in a series of wrongdoing that often goes undetected for years from customers.

Ex-Merrill Lynch Broker Will Pay $5M Penalty and Serve Time In Prison

A federal judge has sentenced Thomas Buck, an ex-Merrill Lynch broker, to 40 months in prison. Buck pleaded guilty to securities fraud in 2017. As part of his plea, he admitted to lying to Merrill about telling clients about their account options, and, at certain times, making trades for them without getting their approval.

That year, the US Securities and Exchange Commission (SEC) had filed a complaint against Buck accusing him of making over $2.5M in excessive commissions and fees from more than four dozen clients. The SEC contends that Buck placed clients into accounts that charged them commissions instead of ones that were fee-based and not as costly. The regulator also accused him of making unauthorized trades. The Commission barred the former Merrill broker from the investment advisory and brokerage industries last year.

Investor Awarded $276K in Woodbridge Ponzi Fraud

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded more than $276K to an investor that lost money in the $1.2B Woodbridge Ponzi scam. The panel found that Quest Capital Strategies did not properly supervise former broker Frank Dietrich, who sold $400K of Woodbridge-sponsored mortgage notes to the investor.

According to InvestmentNews, Dietrich sold $10.8M of Woodbridge mortgage funds to 58 investors, making nearly $261K in commissions. He retired in March. In November, FINRA barred him after finding that the former broker did not obtain Quest’s approval to sell the notes.

Ex-Wilmington Trust VP is Sentenced to 21-Months for Bank Fraud

A federal judge has sentenced Joseph Terranova, a Former Wilmington Trust Corp. VP and commercial real estate manager, to 21 months in prison. Terranova’s sentence comes almost five years after he pleaded guilty to conspiracy to commit bank fraud related to a securities fraud that involved hiding from investors and regulators that commercial real estate loans that were past due.

Terranova is one of several Wilmington Trust executive to receive a sentence for the bank fraud, which involved fraudulent actions to hide hundreds of millions of dollars in delinquent loans. When the bank’s debt burden became public knowledge, it almost failed and was sold at a severely reduced price to M & T Bank Corp. in 2011. Meantime, bank stockholders sustained serious losses.

The US Securities and Exchange Commission has filed fraud charges against Phillip Michael Carter, Bobby Eugene Guess, Richard Tilford, and several entities accusing them of operating a multi-million dollar offering fraud. The regulator contends that the three men raised nearly $45 million from more than 270 investors in the US through the sale of high-yield, short-term promissory notes that were touted to prospective buyers as low-risk.

According to the SEC, investors thought they were getting involved in actual real estate development companies but instead ended up buying securities from entities with no assets. Carter, who is the principal of North Forty Development LLC and Texas Cash Cow Investments, is accused of then misappropriating $1.2M in investor funds for his own expenses, including a personal IRS tax lien and to operate a luxury hunting ranch. He also allegedly made over $3M in Ponzi payments that were issued to investors.

Now, the defendants are accused of offering and selling unregistered securities, violating the Exchange Act and the Securities Act, and acting as unlicensed brokers. The entities that are relief defendants in the case include:

A Financial Industry Regulatory Authority (FINRA) panel has found that ex-Royal Alliance Associates broker stole money from Cathy Carter, a 54-year-old widow suffering from a brain injury. Former broker Gary Basralian has already pleaded guilty to defrauding clients of at least $2M and using the funds on himself.

Now, FINRA has announced two awards holding Royal Alliance and its former broker liable for the fraud. The self-regulatory authority is ordering both of them to pay the widow $2.1M and $500K for legal fees each.

Basralian resigned from Royal Alliance in 2017. FINRA barred him from the securities industry last March.

The Financial Oversight Management Board for Puerto Rico (the Board) is asking a federal district court judge to invalidate over $6 Billion in general obligation (GO) bonds by disallowing any claims brought by the bonds’ holders. The legal action, brought by the Board and the island’s unsecured creditors’ committee, focuses on GO debts that the U.S. territory sold in 2012 and 2014.

The Board and the committee contend that the debt at issue violates Puerto Rico’s Constitution, including the balanced budget clause as well as the debt service limit provision. According to Law360, both parties claim that previous administrations of the island’s government engaged in different “accounting gimmicks” to get around these provisions.

For example, the petitioners maintain that bonds issued through the Puerto Rico Public Buildings Authority were an attempt to get around the 15% debt service limit when, in fact, the bonds should have been factored into that limit. If that had been done, the Board and committee are now arguing, then bonds issued after March 2012 should be rendered invalid and taken off the balance sheet of what the island owes.

According to Bloomberg, market woes have left Goldman Sachs Group Inc. (GS), Barclays Plc (BARC), Bank of America Corp. (BAC), and other Wall Street banks unable to get rid of at least $1.6B of “unwanted leveraged buyout debt” as investors continue to run from high-risk assets in the wake of fears about the global economy. A leveraged buyout (LBO) involves the acquiring of a company using borrowed funds. The assets of the company that is acquired, as well as the acquiring company’s assets, usually serve as collateral. LBOs make it possible for companies to get involved in big acquisitions without having to use a lot of capital.

Bloomberg reports that as of the 22nd of December, at least four loan sales involving acquisitions and buyouts had yet to “clear the market” leaving banks with no choice but to retain the debt on their books, including:

· A group led by Goldman Sachs in charge of the financing for First Reserve’s acquisition of pipeline operator Blue Racer was expected to end the year holding a $516M loan.

In the U.S. House of Representatives, lawmakers have introduced a bipartisan bill that would require advisers and others contracted to help with the debt restructuring proceedings in Puerto Rico to abide by stronger reporting requirements. The move comes in the wake of an article in The New York Times reporting that McKinsey & Company, one of the advisers to the island’s federal oversight board, had bought millions of dollars of Puerto Rico bonds at a huge discount but did not disclose the purchases.

McKinsey, claims that it has satisfied all disclosure requirements. The company contends that it was MIO Partners, its investment division, that purchased about $20 million of Puerto Rico bonds. The consulting firm maintains that MIO Partners is separate from the consulting arm and McKinsey consultants having no control over MIO Partners or involvement in any of its investments.

Under the proposed bill, called the Puerto Rico Recovery Accuracy in Disclosures Act, consultants and others hired by the fiscal oversight board must submit verified disclosures noting any connections they might have before they can receive payment for their services. These disclosure requirements already apply to other bankruptcies, but they have not been part of the island’s bankruptcy proceedings so far. Because the U.S. territory is not a municipality, it was unable to file for Chapter 9 bankruptcy protection and instead sought relief under the 2016 Puerto Rico Oversight Management and Economic Stability Act (PROMESA).

Prosecutors in Malaysia have filed criminal charges against a number of Goldman Sachs Group Inc. (GS) units and several people over a massive multibillion-dollar  bond fraud involving the sovereign wealth fund the 1Malaysia Development Berhad (1MDB). The individuals charged including former Goldman managing directors Roger Ng Chong Hwa and Tim Leissner, financier Jho Low, who is accused of masterminding the fraud, and ex-1MDB general counsel Jasmine Loo Ai Swan.

Malaysia Attorney General Tuan Tommy Thomas said that the criminal charges are related to fake and misleading statements issued in order to steal $2.7B from the proceeds of three 1MDB subsidiary issued-bonds. The bonds, which Goldman organized and underwrote, were valued at over $6B.

The defendants are accused of conspiring together to bribe public officials in Malaysia so as to allow for Goldman’s involvement with the bonds. The investment bank earned about $600M in fees for its work with the Malaysian sovereign fund.

Contact Information