Foreign Currency Scam

FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales

Published on: June 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority Inc. says that Merrill Lynch, Pierce, Fenner & Smith Incorporated (MER) and Wells Fargo Advisors LLC must pay $5.1 million for losses sustained by customers who bought floating-rate bank loan funds.

According to the SRO, brokers at Banc of America and Merrill recommended the purchase of floating-rate bank loan funds to customers who didn’t have investment goals, risks tolerance, or financial conditions that were consistent with the features and risks of these kinds of mutual funds. Instead, these were customers whose risk tolerance levels were conservative and wanted to preserve principal. FINRA says that the sale recommendations were made even though there wasn’t reason to believe that floating-rate bank loan funds would be suitable for these investors.

In regards to the allegations against Wells Fargo, FINRA, in its acceptance, waiver and consent letter, said that brokers there warned about the funds but that the firm failed to act on their worries. The SRO says that the brokers had even confused the funds with bank certificates of deposit and other less risky investments.

SEC Roundup: Massachusetts Investment Adviser Gets $1.78M Judgment and Allianz to Pay $12.3M to Settle Foreign Corrupt Practices Act Lawsuit

Published on: January 5, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Investment Adviser Gets $1.78M Judgment

In a final judgment, the U.S. District Court for the District of Massachusetts says that EagleEye Asset Management LLC and its principal Jeffrey A. Liskov must pay a $1.78M judgment for using a foreign currency exchange trading scam to defraud clients. The Securities and Exchange Commission contends that Liskov fraudulently got several of his investment advisory clients to liquidate securities investments and place the money in forex trading. While EagleEye and Liskov made about $300,000 in performance fees, their clients allegedly lost $4M.

Liskov is accused of perpetuating the investment adviser fraud by issuing material misrepresentations about forex investments, their risks, and his track record. Also per the SEC’s complaint, Liskov more than once took old forms that advisory clients had signed and changed the dates, asset transfer amounts, and other information, and, without their knowledge, opened forex trading accounts.

Texas Man Sued by CFTC Over Alleged Foreign Currency Fraud

Published on: February 23, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission is suing Texas resident Christopher Cornett for alleged solicitation fraud, issuing false account statements, misappropriation of participants’ funds, and not registering in connection with an off-exchange foreign currency fraud. The CFTC filed its complaint on February 2 in the U.S. District Court for the Western District of Texas.

The CFTC contends that between June 2008 through October 2011, the Texas resident approached prospective clients to try to get them to put money in a pooled investment in forex. He played the role of operator and manager of the pool that was referred to with different names, including ICM, ITLDU, IFM, LLC, and International Forex Management, LLC. Cornett is accused of falsely soliciting these prospective participants and making false claims to them that he never had a losing month or year while engaging in forex trading.

Cornett was allegedly able to solicit about $7.07 million between June 2008 and September 2010. Pool participants were able to redeem about $1.64 million. Meantime, he lost about $4.17 million of the funds’ money. During this period of over two years, Cornett allegedly had only one month that was profitable while engaged in forex trading with the pool funds. He is also accused of misappropriating about $1.26 million and falsely reporting the pool’s profits, account balances, and losses to participants.

Texas Securities Fraud: M25 Investments Inc., M37 Investments LLC, and Two Individuals Must Pay $16.2M Over Alleged Forex and Ponzi Scams

Published on: November 8, 2010 | by Shepherd Smith Edwards & Kantas, LLP

M37 Investments LLC, M25 Investments Inc., Jeffery Lyon, and Scott Kear Sr. have settled for $16.2 million Commodity Futures Trading Commission charges involving the alleged defrauding of over 200 individuals in a foreign currency scheme. Many of the investment fraud victims were senior investors. The Texas securities fraud agreement was reached between the parties in district court.

The CFTC contends that the defendants solicited about $8 million from approximately 213 individuals to trade off-exchange leveraged foreign currency,
commodity futures contracts, and forex options. The commission says that between December 2007 and September 2009, investors in Texas, West Virginia, Maryland, and Mississippi, and other states were solicited for the trades. Many of the seniors who were targeted were solicited through their churches.

The defendants are accused of guaranteeing investors renewal bonuses, if they reinvested, in addition to guaranteed interest payments on investments. The investors were also allegedly told that “profitable trading” would garner returns. Unfortunately, what ended up happening is that most of the investors’ funds didn’t go toward trading and what was traded resulted in substantial losses.

CFTC says that the few funds that M35 and M25 paid to investors was money that had come from other clients. Because of this, CFTC contends, the two firms ended up running Ponzi scams. The agency also is accusing the defendants of covering up the securities fraud with monthly statement accounts that gave clients the false impression that they were making the 2% monthly interest that they had been promised.

Jointly and severally the defendants will pay $7.404 million in restitution. The two companies will jointly and severally pay a fine of $7.1 million. Lyon’s fine is $375,00 and Kear will pay $1.4 million.

Related Web Resources:
Federal Court Orders More than $16.2 Million in Customer Restitution and Monetary Penalties against Texas Defendants Scott P. Kear, Sr., Jeffery L. Lyon and their Firms in CFTC Anti-Fraud Action, CFTC, October 27, 2010
Read the Complaint (PDF)

Texas Securities Fraud, Stockbroker Fraud Blog
Institutional Investor Securities Blog
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