Articles Posted in Investment Advisers

Massachusetts Secretary of the Commonwealth William F. Galvin has filed civil charges accusing Oakdale Wealth Management financial advisors Michael O’Keefe and James Daly of using over $11M of client assets to make risky bets on oil and gas investments. The state regulator accused them of employing a “one-size-fits-all” approach when managing investors’ money. Oakdale Wealth Management is a registered investment advisor (RIA) that the two men founded in 2006.

According to Galvin’s complaint, Daly and O’Keefe gambled away clients’ money in the oil and gas market. The two investment advisors are accused of spending more than $11M of investors’ funds to make 2000 energy-related investment purchases, including Master Limited Partnerships (MLPs). Their victims included a number of senior citizens who were saving money to retire, blue-collar workers, a charitable organization, and a widow.

The Massachusetts regulator contends that even though the risk tolerance levels, investment goals, and financial situations of Oakdale’s clients varied, the two financial advisers made the decision to place almost all of them in high-risk, publicly traded investments related to energy, including oil and gas investments. This, even as the firm’s written policies and procedures articulated that investment decisions would be specifically tailored according to each client’s goals and the degree of risk they could handle.

The US Securities and Exchange Commission (SEC) has filed civil charges against Talimco LLC, a registered investment adviser (RIA), and its former COO Grant Gardner Rogers. The regulator is accusing them both of rigging a commercial real estate auction it held for  one client to benefit another client, defrauding the selling client as a result. Talimco and Rogers are consenting to the cease-and-desist orders against them but without denying or admitting to the findings.

The SEC contends that around April 2015, the RIA and Rogers sought to help the selling client—a collateralized debt obligation (CDO)— sell a commercial real estate asset, while intending to help a different client—a private fund that Talimco had created—to acquire the asset. The regulator claims that instead of looking for a number of bidders for the asset that was for sale—it was the firm and Roger’s fiduciary duty to help the CDO client find a number of willing bidders so as to obtain the best price possible—Rogers purportedly only presented the selling client with the affiliated private fund client’s bid and the bids of two other “unwilling” parties. The latter two were assured that their bids would not win.

Because of this alleged “manipulation,” the private fund client’s bid ended up being the highest, and the fund was able to acquire the commercial real estate asset for half of its value at about $28.6M. The fund, with the help of further alleged manipulation by Talimco and Rogers, later sold the asset at a profit for $43.5M.

79 investment advisers have settled charges brought by the US Securities and Exchange Commission (SEC) accusing them of not properly disclosing conflicts of interests involving the sale of costlier mutual fund share classes that caused them to earn more fees. The regulator’s action is related to its Share Class Section Disclosure Initiative. Announced by the SEC’s Division of Enforcement early last year, the initiative gives firms the chance to report disclosure failures that violate the Advisers Act, while offering them more “favorable settlement terms” in return.

Here is a partial list of some of the investment advisers involved in this case:

  • AXA Advisors

William Neil Gallagher, a Dallas area-based radio host based who calls himself the “Money Doctor,” is now facing securities fraud charges accusing him and his companies, Gallagher Financial Group and W. Neil Gallagher, PhD Agency, Inc., of seeking to defraud older investors of their retirement money in a $19.6M Texas-based Ponzi scam/affinity fraud. The US Securities and Exchange Commission (SEC) brought the civil fraud charges against them.

According to the SEC’s complaint, from 12/2014 through 1/2019, Gallagher, who is based in the Dallas/Fort Worth area, raised at least $19.6M (maybe even up to more than $29M) from about 60 elderly investors ranging in age from about 60 to the early 90’s. He allegedly did this through his companies in what the regulator is referring to as an “affinity fraud investment scam” that is also a Ponzi scheme.

Gallagher is accused of using his radio shows to target retired Christian investors, who were his radio audience, and to whom he ingratiated himself by often making religious references on his shows. He also allegedly urged radio listeners to call GFC to set up meetings, during which he would help them with their retirement plans and give them advice regarding how to make money without having to take on any risks.

Brokerage firm and investment adviser BB&T Securities has agreed to give back over $5M to retail investors, as well as pay the US Securities and Exchange Commission (SEC) a $500K penalty, to resolve charges that Valley Forge Asset Management misled advisory clients into thinking they were getting complete “full-service brokerage services in-house” at an up to 70% reduced rate, even as less costly alternatives were available. BB&T Corp. previously acquired Valley Forge, now a subsidiary called Sterling Advisors.

The regulator contends in its order that Valley Forge, which was registered as a broker and investment advisor, made “misleading statements and inadequate disclosures” about these services and their prices to persuade customers to retain their in-house services. Meantime, Valley Forge purportedly failed to give these advisory clients more services than what they provided to their other advisory clients who had selected other brokerage options. These options charged substantially lower commissions—about 4.5 times less than what the firm charged for its full-service in-house broker services. This, even as those who had chosen the in-house broker services were led to believe they would be getting a “high level of service at a low cost” and beyond what the other clients were getting from the firm.

The SEC is accusing Valley Forge of placing its own interests before that of its advisory clients, costing them money in higher commissions so that the firm could profit. The regulator noted that it was the firm’s duty to fully disclose any material facts to its advisory clients that could impact their relationship, including conflicts of interest. Such disclosures are important so that a client is able to give their informed consent (or not) to these conflicts.

$20M Ponzi Scam Results in Guilty Plea for Kiddar Capital Founder

Todd Hitt, Kiddar Capital’s founder and a member of a prominent commercial real estate family in Virginia, has pleaded guilty to criminal fraud charges accusing him of operating a $20M Ponzi fraud that involved several schemes. According to prosecutors, Hitt solicited about $30M from investors and then proceeded to use most of the money to fund his lavish lifestyle while using newer investors’ funds to pay older investors. He also allegedly made “false statements and material omissions” to investors when he didn’t tell them that their money was comingled with unrelated projects and not just the real estate and venture capital investments for which their funds were supposedly designated.

The U.S. Attorney’s Office for the Eastern District of Virginia contends that because of Hitt’s “fraudulent conduct,” investors lost about $20M. He is facing up to 20 years behind bars and is expected to pay a fine of millions of dollars. He previously settled related civil fraud charges filed against him by the US Securities and Exchange Commission.

FINRA Panel Orders Capital Securities to Pay Retired Teachers $2.38M

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded retired schoolteachers Beryl Lakin and Janice Patin $2.38M for losses they sustained while they were clients of Capitol Securities Management, which is based in Virginia. The two claimants, who are former coworkers, alleged excessive trading, fraud, and unauthorized withdrawals and fund transfers. They accused one of the financial firm’s former registered representatives of stealing money out of their Capitol accounts.

The financial rep. whom they are accusing was Patin’s nephew, who has since committed suicide. Finra documents name him as “Mr. T.”

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.

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.

DOJ Distributes Another $695M to Over 27,000 Madoff Ponzi Scam Victims

A decade on the heels of Bernard Madoff’s arrest for running a multi-billion dollar Ponzi scam, the US Justice Department has distributed another $695M to over 27,000 of his victims. This is the DOJ’s third payment to investors of the fraud, bringing the total amount issued to nearly $2B.

In a statement, the DOJ said that it plans to restore more than $4B in total to those who sustained losses in the scheme that went on for decades, harming investors from all walks of life, including:

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