Securities Fraud

Wells Fargo Advisors Must Pay $357K Securities Arbitration Award Over Unsuitable Investments

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

A Financial Industry Regulatory Authority securities arbitration panel ruled that Wells Fargo Advisors (WFC) must pay investor Anthony J. Pryor $357K related to purportedly unsuitable housing and energy investments. In his securities fraud claim, Pryor alleged negligent misrepresentation, negligent supervision, breach of fiduciary, and other causes. Wells Fargo denies Pryor’s allegations.

His advisor, Jeff Wilson, who was not named as a party in the securities arbitration case, has three customer disputes on his BrokerCheck record. One of the other claims that were settled for $250K also allegedly involving unsuitable investments.

Unsuitable Investments

Not every investment is suitable for every investor. Some investments may too be risky for certain investors or are not in alignment with their investment goals or financial needs. For example, many older retail investors that are about to retire will likely require a more conservative investment plan that a much younger, single investor.

Securities Fraud: Ex-BB & T Securities is Suspended Over Unauthorized Private Securities Sales, Fired Merrill Lynch Broker is Fined for Accepting Customer Gifts, Louisiana Investment Adviser is Convicted in $9.5M Scheme, & Jury Issues First Criminal Municipal Bond Issuance-Related Conviction

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

FINRA Suspends Broker For Accepting $105K in Gifts

The Financial Industry Regulatory Authority Inc. has suspended a former Merrill Lynch broker, Adam C. Smith, from the securities industry for a year. The former Merrill Lynch broker, who was fired from the firm, will pay a $10K fine.

According to the self-regulatory organization, while at Merrill Lynch, Smith and his wife accepted $26K in checks from a couple whom he represented. The money was to help fund the education of Smith’s children. When one of the clients passed away, the remaining spouse gifted Smith and his wife another $53K, again to pay for their kids’ education. Smith received $26K from other clients.

Although he is settling, the ex-Merrill Lynch broker is not denying or admitting to FINRA’s findings.

Securities News: Tax Reporting Mistake Costs Morgan Stanley $70M, SEC Accuses Trading Firm & Broker-Dealer of Manipulation, Layering Schemes, and RD Legal Capital’s Hedge Fund is Accused of Targeting Injured NFL Players & 9/11 Responders

Published on: March 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Ordered to Pay $70M for Tax-Reporting Errors
In its yearly regulatory filing, Morgan Stanley (MS) announced that it took a $70M charge because of tax-reporting mistakes made by its brokerage business from ’11 to ’16. The firm is talking to the Internal Revenue Service to settle any client tax underpayments. Morgan Stanley said that some of its wealth management clients that may have overpaid taxes as a result of these errors and they would be paid back.

The firm also announced that it might sustain a $221.3M loss because of a lawsuit brought by Salzburg, the Austrian state, over commodities derivatives and fixed-income transactions between ’05 and ’12. Salzburg claims that Morgan Stanley did not having the authority or ability to make such deals—a contention that the latter disputes.

Trading Firm Accused of Manipulating US Markets
According to a complaint brought by the US Securities and Exchange Commission, Avalon FA manipulated the US markets on hundreds of thousands of occasions, allegedly making over $21M in a layering scam. The regulator obtained an asset freeze against the Ukrainian trading company.

Defendants Convicted of Ponzi Scam That Touted Loans to Professional Athletes Are Sentenced to Prison

Published on: March 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Susan C. Daub and William D. Allen have each been sentenced to six years in prison for running a Ponzi scam that involved issuing loans to professional athletes. Allen, a former NFL player with the Miami Dolphins and the New England Patriots, and Daub have been both the subject of a criminal case and an Securities and Exchange Commission case over this matter.

The two of them were arrested in 2015 on criminal charges of wire fraud, conspiracy, and charging money related to a specified illegal act. Along with their Capital Financial Partners Enterprises, Capital Financial Holdings, and Capital Financial Partners, the two of them raised nearly $32M from investors, who were told that they were providing loans professional athletes but would get back their money in full along with interest when the loans were repaid.

In its civil case, SEC said that Daub and Allen only advanced about $18M to the athletes even though they’d raised over $31M from investors. The regulator said that from 7/2012 through 2/2015, even though the defendants had only gotten back a little over $13M in loan repayments from the pro athletes, they paid back about $20M to investors by using investors’ funds to make up for the almost $7M deficit.

Securities Cases: LPL Financial Fined $900K for Record-Keeping Issues, NY-Based Broker Deal to Pay $100K for Trading Surveillance and Compliance Failures, and Private Equity Adviser is Barred Over Improper Fund Withdrawals

Published on: February 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines LPL Financial $900K

The Financial Industry Regulatory Authority has fined LPL Financial (LPLA) for either not sending or failing to create records showing that it had sent over 1.6 million mandatory account notices to customers over a 36-month period. Under industry rules, account notices have to be sent to customers at three-year intervals which is when a determination of suitability is evaluated. FINRA said that LPL did not send more than 25% of such written notices over a period of seven years.

The financial firm accepted the self-regulatory organization’s settlement but is not denying or admitting to the findings. However, an LPL Financial spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

CFTC Orders Citigroup to Pay $25M for Spoofing, Supervisory Failures

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

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

Securities Fraud: Prison Sentence Issued in $39M Ohio Penny Stock Scam, SIPC Warns About Fraud Invoking Its Name, & Investors Sue Banc of California

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

Eight People Implicated in $39M Penny Stock Fraud Get Prison Sentences, Must Pay Restitution
In Ohio, eight people were sentenced to prison terms ranging from almost two years to a dozen years for their involvement in a penny stock scam that caused investors to suffer $39M in losses. One of the defendants, Zirk de Maison, received the 12-year sentence. He was ordered to pay $39.1M in restitution. The other defendants also were ordered to pay restitution in lower amounts.

According to prosecutors, the defendants conspired to bilk investors and potential ones in a number of public issuers. They did this by putting out millions of shares and artificially controlling the price and volume of the shares that were traded. This was accomplished through undisclosed commissions paid to brokers, boiler room operators, and promoters who got investors to invest, as well as through the fraudulent concealment of ownership interests in the companies in which the funds were invested.

In some instances, brokers and ex-brokers were paid illegal kickbacks of sometimes up to 50%. Clients were not told of these payments. The co-conspirators used most of investors’ money to enrich themselves. Some of the defendants were boiler room owners.

Ex-Financial Adviser To Mike Tyson, Glen Rice, and Dikembe Mutombo Pleads Guilty to Criminal Fraud

Published on: February 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Brian J. Ourand, a former Live Nation Entertainment and SFX Financial Advisory Management Enterprise executive, has pleaded guilty to wire fraud. Ourand admitted to embezzling almost $1M from heavyweight champion Mike Tyson, NBA basketball stars Glen Rice and Dikembe Mutombo, and another athlete.

According to prosecutors, Ourand began defrauding clients in 2003. They say that he used the funds to pay for hotel stays, tanning sessions, gambling activities, private school tuition for a girlfriend’s relative, and other expenses.

Ourand was charged in 2015 with multiple criminal counts, including wire fraud, mail fraud, and aggravated identity theft. As part of his plea agreement, the former financial adviser will repay the money he stole from the athletes.

SEC Charges Connecticut RIA with $3.95M Fraud, Ex-Morgan Stanley Financial Adviser with $5M Securities Scam

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

The Securities and Exchange Commission has filed fraud charges against Sentinel Growth Fund Management and its owner Mark J. Varacchi. The regulator is accusing the Connecticut-based investment advisory firm of stealing at least $3.95M from investors. Over $1M was allegedly used to resolve private litigation in which Varacchi was the defendant.

According to the Commission, Sentinel Growth Management Fund and Varacchi misrepresented to investors that their money would go to hedge fund managers to be invested. Instead, the investment advisor firm allegedly commingled investor money and manipulated account balances, activities, and investment returns as part of a securities fraud.

Now, the SEC wants disgorgement and penalties brought against Varacchi and his firm in this investment advisor fraud case.

Criminal Cases: Hedge Fund Manager is Sentenced for Bilking Veterans of $1.8M, Charges Brought Over $81M Ponzi Scam Involving Hamilton Tickets, and Indictment in $17M Ponzi Scam is Dropped

Published on: January 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Chicago Hedge Fund Manager Gets Over Four Years in $1.8M Fraud
Clayton Cohn is sentenced to more than four years behind bars and he will pay $1.55M in restitution for targeting military veterans in a $1.8M hedge fund fraud. Cohn is an ex-US Marine. He pleaded guilty to the criminal charges against him.

Cohn is accused of pretending to be a successful hedge fund manager to persuade clients to invest with his Marketaction Capital Management. Of the over $1.8M that was invested,he lost more than $1.5M and spent at least $400K on his luxury lifestyle and business investments.

The US Securities and Exchange Commission had brought civil charges against him in 2013 when they accused Cohn of soliciting investors through his Veterans Financial Education Network. The non-profit was supposed to help veterans handle their money. Instead, he diverted some of their funds toward himself. The regulator stayed its case against him following the federal indictments. Now, the civil fraud charges will proceed.