Investment Advisers

Investment Adviser Fraud Cases Lead to Civil Charges, Criminal Convictions, and Investor Losses

Published on: January 21, 2015 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accuses Elm Tree Investment Advisors, its Founder, of $17M Securities Fraud

The Securities and Exchange Commission has filed fraud charges against Elm Tree Investment Advisors LLC and its founder Frederic Elm for running a Florida-based securities scam that raised over $17 million in a little over a year. The regulator contends that Elm, his firm, and the funds Elm Tree Motion Opportunity LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Investment Fund LP misled investors and used the bulk of the funds to issue Ponzi-like payments. Elm also is accused of using the money to purchase expensive homes, jewelry, and autos, as well as cover his daily living expenses.

According to the SEC, Elm, his unregistered advisory firm, and the three funds violated the regulator’s anti-fraud rules as well as federal securities laws. The Commission wants relief for investors as well as the restoration of the purportedly ill-gotten gains and financial penalties.

Investment Adviser News: Barred Representative is Now a Finance Coach, Bellingham Man Gets Prison Term for Bilking Seniors

Published on: January 13, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to the Securities and Exchange Commission, ex-investment adviser Sherwin Brown is continuing to offer financial advice even though the regulator barred him from the industry and ordered him to pay $1.3 million for allegedly diverting client monies. Brown now calls himself a “money coach” and has kept his Jamerica Financial Inc. in operation, receiving compensation for his services. At a certain point, the firm, which has since been ordered inactive, had nearly $30 million in assets under management.

The regulator contends that between 6/11 and 5/14, a Wells Fargo & Co. (WFC) account in Jamerica Financial’s name received over 120 deposits totaling $330,000. The deposits were payable to Brown and his company. Notes in check memo lines indicated that the money was for investment advisory services.

Brown, who was barred from the industry in 2011, operates TheOfficialMoneyCoach.com, which includes a blog on investing. The site also promotes his investment books.

Investment Adviser, Ameriprise Financial Services Sued by Hanson McClain Over Client Information

Published on: January 12, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Registered investment adviser Hanson McClain is suing Ameriprise Financial Services Inc. (AMP) and Thomas Chandler for purportedly taking confidential client data and soliciting its customers. The investment adviser says that not only is this a contract breach but also it violates California law. Chandler was formerly an investment adviser for Hanson McClain, which has about $1.6 billion in assets under management.

Hanson McClain submitted its complaint in September, just days after Chandler departed. In November, the court allowed a preliminary injunction barring Ameriprise and Chandler from getting in touch with the clients under dispute and ordering them to give back certain documents until the case is resolved. In December, the RIA submitted an amended complaint requesting a permanent injunction barring Chandler from soliciting clients. Hanson McClain wants compensatory damages as well as the return of its clients’ information.

The firm says that Chandler took the data from its servers, moving the information to a personal email account. The data allegedly includes account numbers, names, net worth, and other pertinent information for clients whose total net worth is around $540,000. Hanson McClain also claims that Chandler asked for the emails of its “platinum” clients and then connected with them via LinkedIn. The RIA contends that Ameriprise and one of its branch managers worked with Chandler to take the information.

SEC Judge Orders Two Investment Advisers to Pay Over $6.3M Related to Bernard Madoff-Linked Hedge Funds

Published on: January 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Securities and Exchange Commission administrative law judge says that investment advisers Larry Grossman and Gregory Adams must pay over $6.3M in restitution and fines for misleading clients who invested in hedge funds tied to Ponzi fraud mastermind Bernie Madoff. Administrative law judge Brenda Murray issued her ruling last month.

The two investment advisers are Sovereign International Asset Management founder Larry Grossman and Gregory Adams, who agreed to buy Sovereign from Grossman in 2008. The firm filed for bankruptcy four years later.

Per the SEC administrative complaint, Grossman did not know that the two hedge funds that he primarily recommended to clients were linked to Madoff. The Commission contends that Grossman violated his fiduciary duties to his clients when he neglected to conduct due diligence on the funds, which were run by a man named Nickolai Battoo. Grossman also purportedly did not notify clients that he was getting paid $3.4 million in consulting fees and referral money for recommending certain funds. After Grossman sold Sovereign to Adams, the former owner continued working in several capacities at the firm and never actually told clients that the sale even happened.

Reliance Financial Advisors, Owners Face SEC Fraud Charges Involving Hedge Fund

Published on: December 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Reliance Financial Advisors and its co-owners Walter F. Grenda Jr. and Timothy S. Dembski with securities fraud. The agency says that the Buffalo, NY-based investment advisory firm and the two men misled clients when recommending that they get involved in a hedge fund managed by portfolio manager Scott M. Stephan.

Grenda and Dembski of Reliance Financial Advisors guided senior investors toward making highly speculative investments in the Prestige Wealth Management Fund, which Stephan managed, even though they allegedly knew he was inexperienced in this type of investing. The clients, who were either close to retirement, retired, or living on fixed incomes, collectively invested around $12 million.

Stephan was supposedly going to employ a trading strategy that involved a specific computer “algorithm,” which actually only day traded. Instead, he started making trades manually, his approach eventually playing a part in the hedge fund’s failure. The SEC has said that Stephan’s investing experience was greatly exaggerated in offering materials. (The majority of his career involved collecting car loans that were overdue.)

FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees

Published on: November 24, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel said that USCA Capital Advisors LLC must pay over $3.8 million to 19 ExxonMobil retirees whose investments were mismanaged the Houston-based wealth management firm. The self-regulatory organization also says that the Texas investment advisory firm misled the investors about its trading strategy.

It is not uncommon for Houston financial advisers to target ExxonMobil retirees as clients. The oil company has a huge outfit and other operations in the area. According to the investors, USCA was tasked with handling their retirement savings because of promises the investment advisors made to protect, oversee, and grow their accounts.

At a presentation by USCA RIA LLC, which is USCA’s investment advisory arm, advisers told investors about their Total Return model program, which they claimed would up S & P 500 gains while lowering the risks involved in trading equities. Investors said they were told the strategy would hold primarily exchange-traded funds and U.S. stocks in a rising market and turn the money into cash when the markets dropped. Trades were to be stimulated by “objective technical factors.”

Investment Adviser Pleads Guilty to Involvement in $2M Cherry Picking Securities Scam

Published on: October 27, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Noah Myers waved his right to indictment and pleaded guilty to defrauding clients of over $2M. The investment adviser admitted to his involvement in a cherry picking scam. Myers, 43, owns MiddleCove Capital LLC, which is located in Connecticut. He faces up to 20 years behind bars and a maximum fine of $5 million.

As part of his guilty plea, Myers admitted to taking profits from investments for himself and other accounts he favored. Losses were distributed to accounts he did not favor. He accomplished this imbalanced distribution by waiting to assign a trade to an account until after he was able to determine whether it was profitable.

Because of his securities scam, clients lost over $2 million. Meantime, he made $460,000 in profits. A lot of the investors he bilked were retired and had asked MiddleCove to involve them in investments that were low risk.

SEC Wants to Bar Ex-Broker for Allegedly Misappropriating $2M

Published on: October 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission has taken action to bar Paul Marshall, an ex-investment adviser and broker from the industry. Marshall is accused of misappropriating $2M in client assets.

Last year, the SEC charged him and his related investment advisers, Bridge Securities and Bridge Equity Inc., with fraud. The regulator contends that Marshall took client assets to cover his own spending, including child support, alimony, expensive vacations, and tuition for his kids. He purportedly diverted the money into accounts under his control, set up misleading account statements, and raised cash for FOGFuels Inc., a private placement he controlled.

The Financial Industry Regulatory Authority Inc. has already barred Marshall from associating with all brokerage member firms. Last month, the SEC ordered him to pay $15 million in disgorgement because of the money he made from the alleged securities scam.

Study Assesses How Much Investment Advisory Firms Would Pay for SEC Exams

Published on: September 3, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a study released by compliance consultant RIA in a Box, some investment advisory firms could end up paying millions of dollars in users fees each year to finance exams conducted by the Securities and Exchange Commission. The study addresses a bill that would let the regulator charge fees to cover exam costs. The agency has said that it needs more money to hire more RIA examiners.

The proposed measure is intended to help the SEC enhance its yearly examination rate. Right now, the exam rate is just 9% of the about 11,500 investment advisers that are registered with the agency.

Under the bill, the SEC would determine user fees according to how much it would cost to increase the amount and frequency of registered investment advisers. A firm’s assets under management, risks characteristics, and the number and kinds of clients would also be factored.

Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest

Published on: September 2, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Robare Group Ltd., an investment advisory firm headquartered in Houston, Texas, with securities fraud. The regulator’s enforcement division says that the firm and co-owners Jack L. Jones Jr. and Mark L. Robare made mutual fund recommendations to clients even though they had a conflict.

According to the SEC, Robare and a broker-dealer purportedly had an undisclosed compensation agreement. The brokerage firm paid Robare Group compensation-a portion of each dollar that every client invested in certain mutual funds-for recommending the investments

The deal gave Robare, Jones, and the firm incentive for favoring these funds over other investments. The firm is accused of making about $440K in compensation over eight years from the agreement.