Investment Advisers

Westport Capital Markets LLC is Accused of Undisclosed Markups as Investors Lose Over $1M

Published on: December 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed civil charges against Westport Capital Markets LLC and principal Christopher E. McClure. The Connecticut-based, dually registered brokerage firm and investment adviser and its principal are accused of defrauding clients, costing them over $1M in losses.

According to the regulator’s securities fraud complaint, the investment advisory firm and McClure invested clients’ money in risky securities on numerous occasions, resulting in hundreds of thousands of dollars in undisclosed mark-ups that went to Westport even as the clients lost more than $1M. The broker-dealer would allegedly buy securities from underwriters at a reduced rate and later re-sell them to its own clients at the full public offering price while keeping the difference.

Westport and McClure are accused of making false and misleading representations to clients about the compensation that the financial firm received from their accounts. Also, the brokerage firm is accused of receiving 12b-1 fees, which are mutual fund distribution fees, when clients’ money was placed in certain mutual fund share classes and again not telling clients about these fees. The SEC said that the fees created a conflict. McClure and Westport allegedly invested clients in mutual fund shares that charged these fees even when less expensive shares that didn’t carry the fees could have been purchased instead.

Securities Cases : Ex-Stock Trader Allegedly Made Over $1M from Insider Trading, Investment Advisers Accused of Conflicted Transactions & Misleading Investors, and Ex-Pro Football Player Gets 40 years Behind Bars over $10M Scam

Published on: December 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Philadelphia Eagles Player Who Bilked Former Coaches is Sentenced to 40 Years
Merrill Robertson Jr., a former Philadelphia Eagles football player, will serve 40 years in prison for a $10M fraud that bilked investors. Among his investor fraud victims were coaches he knew from when he played football at the University of Georgia and the Fork Union Military Academy.

The SEC also filed a case against him in a parallel civil case. According the regulator, Robertson, Sherman C. Vaughn Jr., and their Cavalier Union Investments diverted almost
$6M of investors’ money to pay for their own expenses and repay earlier investors.

Investment Advisers Accused of Mislead Investors About Conflicted Transactions
The US Securities and Exchange Commission has filed charges against Mohlman Asset Management, LLC, Mohlman Asset Management Fund, LLC, and Louis G. Mohlman, accusing them of misleading investors and engaging in conflicted transactions. Mohlman and the two investment advisers managed two private funds.

Ex-Financial Adviser Settles Private Equity Fund Fraud Charges in Texas

Published on: December 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

James C. Tao, an ex-financial adviser, has settled civil charges accusing him of bilking investors in a private equity fund. It was the US Securities and Exchange Commission that brought the Texas investment fraud charges against him.

Among the allegations was that Tao misappropriated investor money and made material misstatements in offering documents for the Presidio Venture Capital fund. Donna Boyd, Tao’s ex-partner, also settled SEC charges in this case.

The regulator’s complaint contends that the two of them set up the fund four years ago to invest in Houston-based technology startups. They raised about $860K.

SEC Cases: $15.7M Final Judgment Issued in Ponzi Scam that Touted Loans to Athletes, MicroCap Issuer is Accused of Accounting Scheme, and Company’s Assets are Frozen in the Wake of Alleged $5.3M Offering Fraud

Published on: November 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Regulator Orders Alleged Ponzi Scammers to Pay $15.7M Plus Interest
In its final judgement against ex-pro football player William D. Allen, Susan Daub, and three entities, the US Securities and Exchange Commission is ordering the defendants to pay over $15.7M in disgorgement of ill-gotten gains in addition to prejudgment interest for an alleged Ponzi scam that raised nearly $32M from investors. Allen, formerly of the Miami Dolphins, and Daub, who both pled guilty to related to criminal charges last year, have been sentenced to six years in prison. They must pay $16.8M in restitution for that action. The SEC’s order will be deemed met “based on the restitution order” in the criminal case.

The SEC’s complaint contends that Daub and Allen and the entities misled investors about the loans, which were supposed to go to professional athletes. Instead, they allegedly used just part of the money to issue the loans while using investors’ funds to cover nightclub and casino expenses, other ventures, and to pay back other investors.

Microcap Issuer and Its Ex-CEO Resolve Investor Fraud Allegations
Integrated Freight Corporation and its ex-chairman/CEO David N. Fuselier have settled SEC charges accusing them of investor fraud. Both Fuselier and the company, however, did not deny or admit to the allegations.

Texas Securities: Investment Adviser Suspended by State Commissioner, Lawyer Ordered to Pay Almost $180K in Disgorgement Plus Interest, and Houston Man Must Pay Almost $3.8M & Serve 46 Months in Prison for $6.4M Diamond Investment Scam

Published on: November 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Texas Investment Adviser Suspend for Violating Earlier Securities Agreement
The Texas State Securities Board has suspended investment adviser John Michael McDonough for 90 days after he violated a past agreement that limited his business activities and required 212 Advisory Group to enhance its supervision of him. The undertaking agreement was a requirement for him to be approved as a registered investment adviser in Texas in 2015 while he worked with the Georgia-based firm.

At the time, the Financial Industry Regulatory Authority had already sanctioned McDonough, who used to be registered with AXA Advisors, LLC, over allegations that he engaged in “outside business activities” and a number of undisclosed private securities transactions. He was fined $10K and suspended by the self-regulatory organization.

Earlier this year, the Texas State Securities Board found that McDonough was in total violation of the undertaking agreement. Meantime, 212 Advisory was found to have failed in making sure that McDonough did not engage in any supervisory-like acts nor did it ensure that a firm principal was appointed as his direct supervisor.

Ex- Investment Adviser is Accused of Defrauding Retirees of Over $1.85M

Published on: November 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against a former broker and investment adviser. According to the regulator’s investment adviser fraud complaint, Jay Costa Kelter defrauded three retirees of over $1.856M. Meantime, prosecutors in Tennessee have filed a criminal case against him related to one of the clients. A federal grand jury indicted him on multiple counts of wire fraud, mail fraud, and security fraud.

The SEC contends that from 9/2013 through last year, Kelter, who owns insurance and investment firm BEK Consulting Partners LLC (known in the past as Kelter & Company LLC), made misrepresentations to the older investors, whom he’d persuaded in 2013 to transfer their accounts to TD Ameritrade (AMTD) after he left his former employer. The former broker had access to their new accounts and was authorized to keep giving them investment advice and make trades on their behalf while, meantime, he allegedly used the funds for himself.

For example, Kelter is accused of misappropriating $1.467M from a 75-year-old widow who was nearly totally financial dependent on her investments by engaging in fraud and forgery. The SEC’s complaint said that the client had told him she was only interested in making conservative investments.

Texas Securities Fraud: Houston Investment Advisor Gets Five Years for Defrauding Investors and Prison Sentences are Rendered in $6.4M Diamond Investor Fraud Case

Published on: November 10, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Lawrence Allen DeShetler will serve 60 months in federal prison for Texas investor fraud. The Houston man pleaded guilty to mail fraud earlier this year after he fraudulently solicited $1.9M from five clients.

Starting in 2014, the former investment advisor, certified planner, and head of DeShetler & Company started persuading clients that if they let him invest their funds they would make higher returns. These clients took money from their investment accounts and gave them to him. Unfortunately, DeShetler used the money on himself.

He has since admitted to using some of investors’ funds to build a house abroad. DeShetler also admitted that he persuaded one widow who was an octogenarian to liquidate a trust and transfer nearly $190K to him. He even stayed in her home while she went away. Upon her return DeShetler was gone and so were her investment documents.

Securities Cases: NYSE Regulation Files Complaint Against Wedbush Securities, Ex-Apollo Management Sr. Partner is Accused of Billing Investors for Salon Visits & Vacations, and NY Money Manager & Ex-Investment Adviser Get Prison Sentences for Fraud

Published on: October 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Wedbush Securities Accused of Failing to Oversee Owner, Who May Have Cherry Picked Investments
The NYSE Regulation has filed a disciplinary case against Wedbush Securities Inc. accusing the firm of not properly overseeing the trading activities of firm owner and principal Edward Wedbush. According to the complaint, Mr. Wedbush, “actively” managed and traded in over 70 accounts and he had limited power over attorney over the accounts of relatives, friends, and some staff members. NYSE contends that he was never properly overseen, which increased the possibility of conflicts and manipulation, including cherry picking. For example, the regulator believes that the inadequate supervision of Mr. Wedbush gave him the “unchecked ability” to give the best trades to family members and himself because there was no system in place to make sure trades were fairly allocated.

Wedbush Securities has previously been subject to at least $4.1M over supervisory deficiencies. Last year, the Financial Industry Regulatory Authority ordered Mr. Wedbush to pay $50K for supervisory deficiencies involving regulatory filings. He also was suspended for 31 days from serving as a principal.

Wedbush Securities has been named in investor fraud complaints over the handling of their money.

NY Investment Adviser Accused of Bilking Non-Profit of $9M

Published on: October 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against John Rogicki. The New York-based financial adviser, who is the chief compliance officer and managing director of Train, Babcock Advisors, LLC, is accused of defrauding a non-profit charitable foundation of $9M. The founder of the Foundation had named Rogicki, who had been her husband’s financial adviser, as the trustee and trust president in her will.

She and Rogicki became friends in the 1990’s when she was already an elderly woman. She died at 97 in 2001. Just a few years before that, it was Rogicki who introduced her to a trusts and estate attorney. This lawyer executed a trust and will that made all the designations to Rogicki.

Rogicki was also the non-profit’s investment adviser and he was tasked with making all investment decisions for the Foundation, including directing all securities transactions in the latter’s advisory account. The Commission believes that Rogicki committed the alleged fraud between 2004 and 2016.

Massachusetts Accuses Investment Adviser of Venture Capital Fraud

Published on: October 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Secretary of the Commonwealth of Massachusetts William Galvin has filed civil fraud charges against Moser Capital Management and investment adviser Nicklaus J. Moser. Galvin’s office is accusing Moser and his firm of fraud involving two venture capital funds: the Moser Capital Fund, LLC and the Moser Capital Fund II, LLC.

The state regulator claims that the respondents engaged in fraudulent conduct and breached their fiduciary duties. The breaches alleged include making misrepresentations and omissions to investors and prospective investors by providing misleading information, not getting “valid investor signatures” when receiving more capital contributions, and charging a performance fee to the non-qualified account of an advisory client.

According to Galvin’s office, Moser set up the funds to raise cash for start-up companies. The investment adviser was allegedly a sales representative at a company that sold products to startup ventures, but he did not tell investors that he had financial reasons for making sure that the start-ups in operation.