Financial Firms

Former GunnAllen Financial Branch Manager Allegedly Involved in Partnership Ponzi Scheme

Published on: October 8, 2007 | by Shepherd Smith Edwards & Kantas, LLP

A former broker and branch manager of a Michigan office of GunnAllen Financial, Inc. are accused of selling fraudulent investments. His clients, many of whom are retirees, recently learned that the partnership investments may have been part of a Ponzi scheme. According to reports, a mastermind of the scheme stated in a sworn statement that the investments were fraudulent and that he had acted on the advice of the GunnAllen broker/manager.

Frank Bluestein, who has been in the investment business for an over a decade, joined GunnAllen Financial in 2004. There, he was not only a registered stockbroker but also as one of the firms’ branch office managers. According to reports, Bluestein, his son and another broker worked in a Detroit area office fo GunnAllen.

Along with other investments, Bluestein’s clients were persuaded to invest millions of dollars into partnerships which ceased paying earlier this year. Those who invested recently learned about investigations, a court action seeking to freeze partnership assets and that their total investment in the partnerships could be in peril

Former InterSecurities Brokers Investigated for Fraud

Published on: October 5, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Florida Office of Financial Regulation and the Florida Department of Law Enforcement are investigating Michael O. Traynor and his son, Matthew O. Traynor, former brokers at InterSecurities, Inc. Complaints from at least a dozen investors allege that the Traynors defrauded clients out of approximately $8 million.

In addition to an affiliation with InterSecurities, Inc., the Traynors are reported to have been affiliated with or operated under the firm names of Mariner Financial Services, Western Reserve Life, Association of Professional College Advisors, Inc., College Advisors Group, Inc., LifeTime Advisors, Inc. and LifeTime Advisors Group, Inc. Michael Traynor was licensed in securities and insurance and represented himself as a financial planner and certified college planning specialist.

According to reports, many of the investors were first in contact with the Traynors through their church and were lured to invested funds into accounts entitled “Freedom Bond Account,” “7 Day Freedom Money Market,” as well as “CGU Broker Services” and “Allianz Broker Services”. Apparently, statements on these accounts were falsified to indicate assets, income and profits which did not exist.

Ex-Goldman Sachs & Co. Employee Pleads Guilty To Operating Multi-Million Dollar Insider Trading Scheme

Published on: September 26, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Former Goldman Sachs & Co. Associate Eugene Plotnik has pled guilty to conspiracy to commit securities fraud, in addition to eight counts of insider trading. The charges carry a maximum of 165 years in prison.

Plotnik had been charged with running a “multi-faceted,” multi-million dollar scam that used inside information from at least three sources to conduct trading. The sources included a Merrill Lynch analyst, a federal grand juror, and two printing press employees that stole advance copies of a business publication with nonpublic information.

As part of his plea agreement, however, Plotnik promised that he would not appeal a lighter sentence ranging from 4 years and 9 months to 5 years and 11 months in prison. He also agreed to repay the money. More than $6.7 million acquired from the scheme is in illegal gains. Federal authorities have already frozen bank accounts to secure most of the funds.

Hartford to Pay $115 Million for Late Trading – and More!

Published on: August 3, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Hartford Financial Services Group will pay $115 million to settle market-timing and broker-compensation charges brought by the Attorney General offices of Connecticut, New York and Illinois.

The three state regulators charged that the Hartford insurance unit failed to properly oversee hedge funds that were engaging in market-timing sales of its variable annuities. New York Attorney General Andrew Cuomo said his investigation also found that Hartford invested into a hedge fund that was market-timing Hartford’s variable annuities, reaping nearly $16 million in profits from the hedge fund, while hiding its role and profit to customers.

The Connecticut Attorney General said his investigation revealed that Hartford also provided fictitious quotes to insurance brokers including the Marsh & McLennan Companies. He stated that Hartford provided Marsh with the intentionally high and noncompetitive bids, knowing it could “deceptively create the mirage of a competitive market–with the understanding that it could win other desirable future business from Marsh,” adding, “Hartford colluded with brokers and agents to pay concealed contingent commissions to get steered business.”

Merrill Manager at Center of Harassment Claim Now at Southwest Securities – But Claims and Counterclaims Continue

Published on: July 31, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Former Merrill Lynch employee Hydie Sumner sued that firm saying she was sexually harassed. She was represented by lawyer Linda Freidman. In 2004, a panel of three NASD arbitrators decided Hydie was right and awarded her $2.2 million. They also forced Merrill to reinstate her.

Meanwhile, an email was allegedly sent to Merill Lynch by Ms. Sumner’s attorney Linda Freidman, reportedly at Sumner’s direction, questioning Merrill’s ethics for employing “a man like [Blas] Catalani,” Sumner’s Merrill Lynch manager. According to Catalini, this defamed him and caused him to be fired, his clients were then distributed to other brokers at Merrill and he found it “extremely difficult” to become re-employed in the securities industry.

Catalini, therefore, filed a lawsuit against Sumner and her lawyer, claiming defamation. Not to be outdone, Hydie Sumner then filed a counterclaim against Catalini claiming that he damaged her reputation by reporting that she was the reason he was terminated by Merrill Lynch.

FSC Securities Unit of AIG – A ‘Cozy’ Place for Fraud?

Published on: July 26, 2007 | by Shepherd Smith Edwards & Kantas, LLP

FSC created “an extremely cozy environment for a man bent on defrauding his customers,” said three NASD Securities Arbitrators, “management ineptness was broad” and the firm ignored red flags that the broker had “selling away” issues (using one’s status at a firm to aid in the sale of investments not approved by the firm).

FSC Securities of Atlanta, part of the AIG Financial Group, had warning when it hired broker Scott Hollenbeck that he had problems during his past employment, said a panel of three arbitrators in their award to several investors. During his past employment, they say, he even embezzled money from a church organization.

Hollenbeck was based in Kernersville, N.C. where he was employed by FSC for over 5 years, ending in 2002, not counting a 20 month hiatus. Not named in the arbitration claim, Hollenbeck faces charges over an alleged Ponzi investment scheme which reportedly took place after he left FSC and included the use of billboards.

Citigroup’s Smith Barney Unit Ordered to Pay $50 Million over Widespread Fraud Charges

Published on: July 24, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In one of its final regulatory acts before being folded into the NASD, the New York Stock Exchange’s regulatory unit has censured and fined Smith Barney $50 million over illegal trades, failures to supervise and record-keeping violations. The firm agreed to the sanctions without admitting or denying the charges.

The Smith Barney unit of Citigroup Global Markets Inc. will pay a fine of $10 million to the NYSE, and a fine of $5 million to the State of New Jersey, related to a “separate regulatory matter arising out of the same conduct.” An additional $35 million will be paid into a restitution fund to compensate victims.

The NYSE regulators say Smith Barney agreed to these huge sanctions to resolve charges related to a variety of fraudulent trading activities, including excessive trading, improper trading in mutual fund shares, improper trading in variable annuity mutual fund sub-accounts, illegal market timing trades, plus the firm’s failures to supervise and to maintain adequate books and records.

Wedbush Hit with Nun’s Complaint over CMO’s – May Have More Than Brokers in Common with Brookstreet

Published on: July 18, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Last month, when Brookstreet Securities suffered a flame-out over high risk mortgage investments, its second in command, also the son of its founder, joined Wedbush Morgan and invited Brookstreet brokers to join him at that firm. Some thought it an odd fit, but the firms may have more in common than earlier believed.

Recently, a group on nuns, who claim they were led to believe they were making safe investments, apparently had their funds invested by Wedbush into mortgage-backed CMO securities which were just pools of mobile home loans. They soon lost $1 million, according to a complaint filed by The Sisters of St. Joseph of Carondelet in California against Wedbush Morgan in arbitration through the National Association of Securities Dealers.

Ed Wedbush, president of the firm that handled the nuns’ investments, said in an interview that the losses in this and other cases came on the riskier portions of mortgage investments and were the result of “clients being very aggressive and wanting high yields.” They should have understood, he said, that “high yield is high risk.” (The statement resembles another recently made by Oppenheimer & Company, which claimed an elderly widow “only has herself to blame” for losses in a joint account as her husband lay dying. Oppenheimer was subsequently fined $1 million and ordered to reimburse over a million to the widow by the state of Massachusetts.)

Securities America Fined $375,000 Over Secret Commissions Directed to Its Broker

Published on: July 18, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Securities America, Inc. agreed to a $375,000 fine to settle charges by the NASD that it received improperly directed mutual fund commissions on behalf of one of its brokers, failed to supervise and failed to disclose the arrangements to the affected mutual fund owners.

The NASD said that this situation, in which a mutual fund company directed brokerage fees specifically for the benefit of a lone broker, is the first known case of its kind. NASD rules prohibit registered firms from allowing sales personnel to participate in directed brokerage arrangements. NASD fair dealing regulations also require disclosure to clients of such fees and other compensation received through arrangements involving their accounts.

A directed brokerage arrangement is one in which a client, such as a pension fund, directs a planner to use a certain broker-dealer for trade executions. In return for the commissions received on the transactions, the broker-dealer provides other services to the advisor or these can be rebated to the clients. The Securities America broker arranged for such commissions from union-sponsored retirement plan clients to be directed to his firm for his own benefit.

Schwab to Distribute $3.5 Billion to Its Shareholders by Buying Back Over 100 Million Shares

Published on: July 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

After sale if its U.S. Trust subsidiary to Bank of America for $3.3 billion, Charles Schwab Corporation has decided to distribute even more than the proceeds of that sale to its shareholders by buying back shares and paying a special dividend.

Under the plan, San Francisco-based Schwab will pay up to $22.50 per share for 84 million shares of its own stock — 10 percent above the previous closing price. It will guarantee selling stockholders at least $19.50 per share, and also purchase up to 18 million additional shares from its founder. Charles Schwab will himslef receive over $400 million and will maintain his stake at its current level of 18%, which would be valued at over $4.5 billion.

The auction, which covers about 7 percent of Schwab’s outstanding shares has already begun and is to be completed by July 31. In addition to $2.3 billion to buy the stock, in August Schwab will also pay $1.2 billion to shareholders through a $1 per share special dividend.