Misrepresentations and Omissions

Massachusetts Sues GPB Capital Holdings for Defrauding Investors of Over $14M

Published on: June 2, 2020 | by Shepherd Smith Edwards & Kantas, LLP

State Securities Regulator Claims GPB Capital Defrauded 180 Local Investors

Massachusetts Secretary of the Commonwealth, William Galvin, has filed a civil fraud lawsuit against GPB Capital Holdings accusing it of defrauding 180 local investors who purchased more than $14M of private placements in five of the GPB funds.

The alternative asset firm, which acquires waste management operations and auto dealerships, has been accused of operating a more than $1.5B Ponzi scam.

UBS YES Strategy Investors Say They Were Promised Low Risks But Suffered Huge Losses

Published on: June 1, 2020 | by Shepherd Smith Edwards & Kantas, LLP

Investors Claim UBS YES Strategy Was Mismarketed To Them: SEC Looking Into the Allegations

If you are an investor whose UBS broker recommended that you employ the UBS YES (Yield Enhancement Strategy) and you’ve since suffered significant losses, you may have grounds for an investment fraud claim.

Unfortunately, UBS and its registered representatives may have been making unsuitable recommendations of this complex investment strategy to customers, as well as misrepresenting the risks involved.

Timothy Kenska and Citigroup Global Markets Investigated For Securities Fraud

Published on: April 30, 2020 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Global Markets Broker Under Investigation

Shepherd, Smith, Edwards & Kantas, a law firm specializing in representing wronged investors, is looking into securities fraud allegations against Timothy Kenska, a broker employed by Citigroup Global Markets out of Encinitas, California. Prior to that, he worked at Citicorp.

According to his official record on the Financial Industry Regulatory Authority’s (“FINRA”) website, Kenska has seven “disclosures.” FINRA is the regulatory body overseeing brokerage firms and registered representatives employed by them. A disclosure is an official complaint made or a claim filed against a broker/financial advisor.

Rogue Broker Named in Over 50 Complaints Found Guilty of Mail & Wire Fraud

Published on: February 10, 2020 | by Shepherd Smith Edwards & Kantas, LLP

Rogue Broker Convicted & Faces Decades In Prison

A jury has convicted Anthony Diaz, a barred rogue stockbroker who was fired by several brokerage firms and has been the subject of more than four dozen customer complaints, of 11 counts of wire fraud and mail fraud. Each criminal court comes with a maximum sentence of 20 years in prison.

Shepherd Smith Edwards and Kantas (SSEK Law Firm) have been speaking to former customers of Diaz who sustained investment losses while working with him. If you are one of these investors, contact our broker fraud attorneys today. You may have grounds for a civil claim against the brokerage firm where he was working at the time.

SEC Fights to Stop Fraud Scam Targeting Small Businesses

Published on: February 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against “repeat securities law violator” Steven J. Muehler, who it has barred from associating with any broker-dealer since 2016. Once again, the regulator is accusing him of defrauding small businesses.

Muehler and his companies Altavista Capital Markets LLC, Alta Vista Securities, LLC, and Alta Vista Private Client, LLC—all unregistered brokerage firms— offered broker-dealer services to a number of small business clients. Services include finding investors and raising money from them through an online securities change that was supposedly proprietary. In exchange, fees were paid to Muehler and his brokerage firms, as well as rights to a percentage of the funds raised and equity in each business.

Muehler and his firms claimed that they have been successful in raising millions of dollars on clients’ behalf. However, in a previous SEC case, he admitted defrauding small businesses.

Goldman Sachs is Lead Plaintiff in Institutional Investor Fraud Lawsuit Against Startup Outcome Health

Published on: January 25, 2018 | by Shepherd Smith Edwards & Kantas, LLP

After backing Outcome Health, an advertising company, Goldman Sachs Investment Partners (GS) and other investors are among those suing the startup for fraud and to get their money back. The lawsuit, filed a couple of months ago, comes in the wake of allegations that investors were fooled by inflated information financial performances and were charged for ad space that they never received. Outcome denies any wrongdoing.

It wasn’t too long ago that the company was generating high profits and revenue, while investors were told that their returns were guaranteed. Just last spring, institutional investors, including Goldman, infused $478M into the ad company, which streams pharmaceutical advertising onto tablets and flatscreens at doctor offices.

According to the Wall Street Journal, there had been red flags even back then. The newspaper noted how even the “savviest investors” can miss or ignore warnings. For example, Outcome already had a lot of debt, including $325M for a loan. It also lacked an independent board to conduct oversight and its co-founders were poised to make an “unusually large payout.”

CFTC Accuses Peregrine Financial Group of Securities Fraud Related to $200M Customer Funds Shortfall

Published on: July 10, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The CFTC is accusing Peregrine Financial Group and its owner Russell R. Wasendorf, Sr. of misappropriating client monies, including statements that were untrue in financial statements submitted to the CFTC, and violating customer fund segregation laws. The Commission filed its securities fraud complaint against the registered futures commission merchant in the United States District Court for the Northern District of Illinois.

Per the CFTC’s complaint, during an audit by the National Futures Association, Peregrine misrepresented that it was holding more than $200M of client funds when it only held about $5.1M. The regulator says that the whereabouts of this at least $200 million in customer fund shortfall are not known at this time. In the wake of the allegations, Peregrine has told its clients that it was being investigated for “accounting irregularities.”

The Commission contends that beginning at least 2/2010 until now, Peregrine and Wasendorf did not meet CFTC Regulations and the Commodity Exchange Act by not maintaining enough client money in accounts that were segregated. The brokerage and its owner also are accused of making false statements about the funds that were being segregated for clients that were trading on US Exchanges in required filings.

Wasendorf, who reportedly tried to kill himself on Monday is now in a coma. The NFA just recently was given information that he may have been responsible for a number of falsified bank records.

The CFTC wants a restraining order to preserve records, freeze assets,, and establish a receiver. It is seeking disgorgement, restitution, financial penalties, and other appropriate financial relief.

Yesterday, Peregrine’s clearing broker Jefferies Group Inc. said that it had started unloading positions held for the futures brokerage’s clients after a margin call was not met. Jeffries Group doesn’t expect to sustain losses.

Meantime, the NFA and “other officials, have frozen all customer funds and Peregrine is not allowed to accept or solicit new client funds or accounts or make trades for customers unless it involves liquidating positions or distributing their money. Also looking into this financial matter is the US Federal Bureau of Investigation.

It was just this year that a court-appointed receiver in Minnesota sued Peregrine over allegedly disregarding warning signs that the futures brokerage’s client Trevor Cook was running a Ponzi scam. According to the securities lawsuit, investments by Cook and others with Peregrine that were supposedly profitable sustained over $30 million in losses as the allegedly culpable participants moved about $48 million from clients to Peregrine accounts.

According to Fox Business, the fallout from these latest allegations against Peregrine could be bigger than the MF Global collapse as traders blame regulators for not doing enough and industry members fight to recapture investor confidence.

CFTC Files Complaint Against Peregrine Financial Group, Inc. and Russell R. Wasendorf, Sr. Alleging Fraud, Misappropriation of Customer Funds, Violation of Customer Fund Segregation Laws, and Making False Statements, CFTC, July 10, 2012

Peregrine Financial Allegedly Has $200 Million Shortfall, Bloomberg, July 10, 2012

PFG Scandal Deepens as CFTC Files Claim, Fox Business News/Reuters, July 10, 2012

More Blog Posts:
ABA Presses for Self-Funding for SEC and CFTC, Institutional Investor Securities Blog, May 31, 2012

CFTC and SEC May Need to Work Out Key Differences Related to Over-the-Counter Derivatives Rulemaking, Institutional Investor Securities Blog, January 31, 2012

SEC and CFTC Say They Found Out About JPMorgan’s $2B Trading Loss Through Media, Institutional Investor Securities Blog, May 31, 2012

Several Claims in Securities Fraud Lawsuit Against Ex-IndyMac Bancorp Executives Are Dismissed by Federal Judge

Published on: May 30, 2012 | by Shepherd Smith Edwards & Kantas, LLP

In U.S. District Court for the Central District of California, federal judge Manuel Real threw out five of the seven securities claims made by the Securities and Exchange Commission in its fraud lawsuit against ex-IndyMac Bancorp chief executive Michael Perry and former finance chief Scott Keys. The Commission is accusing the two men of covering up the now failed California mortgage lender’s deteriorating liquidity position and capital in 2008. Real’s bench ruling dilutes the SEC’s lawsuit against the two men.

The Commission contends that Keys and Perry misled investors while trying to raise capital and preparing to sell $100 million in new stock before July 2008, which is when thrift regulators closed IndyMac Bank, F.S.B and the holding company filed for bankruptcy protection. They are accusing Perry of letting investors receive misleading or false statements about the company’s failing financial state that omitted material information. (S. Blair Abernathy, also a former IndyMac chief financial officer, had also been sued by the SEC. However, rather that fight the lawsuit, he chose to settle without denying or admitting to any wrongdoing.)

Attorneys for Perry and Keys had filed a motion for partial summary judgment, arguing that five of the seven filings that the SEC is targeting cannot support the claims. Real granted that motion last month, finding that IndyMac’s regulatory filings lacked any misleading or false statements to investors and did not leave out key information.

The remaining claims revolve around whether the bank properly disclosed in its 2008 first-quarter earnings report (and companion slideshow presentation) the financial hazards it was in at the time. The judge also ruled that Perry could not be made to pay back allegedly ill-gotten gains.

Real’s decision substantially narrows the Commission’s securities case against Perry and Keys. According to Reuters, the ruling also could potentially end the lawsuit against Keys because he was on a leave of absence during the time that the matters related to the filings that are still at issue would have occurred.

Before its collapse in 2008, Countrywide spinoff IndyMac was the country’s largest issuers of alt-A mortgage, also called “liar loans.” These high-risk home loans are primarily based on simple statements from borrowers of their income instead of tax returns. Unfortunately, loan defaults ended up soaring and a mid-2008 run on deposits at IndyMac contributed to its collapse. The Federal Deposit Insurance Corp, which places its IndyMac losses at $13 billion, went on to sell what was left of the bank to private investors. IndyMac is now OneWest bank.

Judge dismisses parts of IndyMac fraud case, Los Angeles Times, May 23, 2012

3 Former IndyMac Executives Are Accused of Fraud, New York Times, February 11, 2011

Read the SEC Complaint (PDF)

More Blog Posts:
SEC Looks Likely to Win Appeal in $285M Securities Settlement that Judge Rakoff Rejected, Institutional Investor Securities Blog, March 15, 2012

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

Alleged Ponzi-Like Real Estate Investment Scam that Defrauded Victims of $9M Leads to SEC Charges Against New Jersey Man, Institutional Investor Securities Blog, May 24, 2012

Institutional Investment Securities Round-Up: Citigroup Agrees to $3.5M FINRA FIne Related to Subprime RMBS, Ex-Broker Consents to $600K CFTC Fine Over Alleged Options Trading Scam, and Senate Ag Chair Presses Regulators To Fully Implement Dodd-Frank

Published on: May 29, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Global Markets Inc. (CLQ) has consented to pay the Financial Industry Regulatory Authority a $3.5M fine to settle allegations that he gave out inaccurate information about subprime residential mortgage-backed securities. The SRO is also accusing the financial firm of supervisory failures and inadequate maintenance of records and books.

Per FINRA, beginning January 2006 through October 2007, Citigroup published mortgage performance information that was inaccurate on its Web site, including inaccurate information about three subprime and Alt-A securitizations that may have impacted investors’ assessment of subsequent RMB. Citigroup also allegedly failed to supervise the pricing of MBS because of a lack of procedures to verify pricing and did not properly document the steps that were executed to evaluate the reasonableness of the prices provided by traders. The financial firm is also accused of not maintaining the needed books and records, including original margin call records. By settling, Citigroup is not denying or admitting to the FINRA securities charges.

In other institutional investment securities news, in U.S. District Court for the Southern District of New York, Kent Whitney an ex-registered floor broker at the Chicago Mercantile Exchange, agreed to pay $600K to settle allegations by the Commodity Futures Trading Commission that he made statements that were “false and misleading” to the exchange and others about a scam to trade options without posting margin. The CFTC contends that between May 2008 and April 2010, Whitney engaged in the scam on eight occasions, purposely giving out clearing firms that had invalid account numbers in connection with trades made on the New York Mercantile Exchange CME trading floors. He is said to have gotten out of posting over $96 million in margin.

Alleged Ponzi-Like Real Estate Investment Scam that Defrauded Victims of $9M Leads to SEC Charges Against New Jersey Man

Published on: May 24, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has charged David M. Connolly with running a Ponzi-like scam involving investment vehicles that bought and managed Pennsylvania and New Jersey apartment rental buildings. According to prosecutors in New Jersey, Connolly’s alleged victims were defrauded of $9 million. He also faces criminal charges.

None of Connolly’s securities offerings were registered with the SEC. (Since 1996, he had raised more $50 million from over 200 clients who invested in over two dozen investment vehicles.)

Per the Commission’s complaint, in 2006 Connolly allegedly started misrepresenting to clients that their funds were to be solely used for the property linked to the vehicle they had in invested in when (unbeknownst to them) he actually was mixing monies in bank accounts and using their funds for other purposes. Although clients were promised monthly dividends from cash-flow profits that were to come from apartment rentals and their principal’s growth from property appreciation, these projected funds did not materialize. Instead, Connolly allegedly ran a Ponzi-like scam that involved earlier investors getting their dividend payments from the money of newer investors.

He also allegedly made materially false and misleading omissions and statements about: investors’ money being placed in escrow until a purported real estate transaction closed, the financial independence and state of each property, the amount of equity victims had in properties, and the condition of each property. (Also containing allegedly false material misrepresentations and omissions was the “offering prospectus,” which provided information about how the investment vehicles would use the investor funds, the projected investment returns, prior vehicles performances, the mortgage financials for the real estate held in the investment vehicles, and the apartment buildings’ vacancy rates.)

Connolly is accused of improperly using proceeds from refinanced properties to keep his scheme running, and he even allegedly took $2 million of investors’ funds for himself. After he stopped giving dividend payments to investors in April 2009 (when money from new investors stopped coming in and the investment vehicles’ properties went into foreclosure), Connolly allegedly kept making sure he was getting dividends and a $250,000 income from the remaining client funds.

Meantime, a federal grand jury has charged him with one count of securities fraud, three counts of wire fraud, five counts of mail fraud, and seven counts of money laundering. A conviction for securities fraud comes with a 20-year maximum prison term and a $5 million fine. The other charges also come with hefty sentences and fines.

Read the SEC Complaint (PDF)

Multimillion-Dollar Real Estate Ponzi Schemer Indicted For Fraud And Money Laundering, Justice.gov, May 17, 2012

More Blog Posts:
Dallas Man Involved in $485M Ponzi Scams, Including the Fraud Involving Provident Royalties in Texas, Gets Twenty Year Prison Term, Stockbroker Fraud Blog, May 8, 2012

REIT Retail Properties of America’s $8 Public Offering Results in Major Losses for Fund Investors, Institutional Investor Securities Blog, April 17, 2012

JPMorgan Chase $2B Trading Loss Leads to Probes by the SEC, Federal Reserve, and FBI, Institutional Investor Securities Blog, May 15, 2012