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Investor Fraud: Quest Capital Strategies Must Pay Investor $276K in Woodbridge Ponzi Fraud, FINRA Warns Firms About Recommending Unsuitable 529 Plan Share Classes, and Ex-Ameritas Broker is Barred from the Securities Industry

Investor Awarded $276K in Woodbridge Ponzi Fraud
A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded more than $276K to an investor that lost money in the $1.2B Woodbridge Ponzi scam. The panel found that Quest Capital Strategies did not properly supervise former broker Frank Dietrich, who sold $400K of Woodbridge-sponsored mortgage notes to the investor.

According to InvestmentNews, Dietrich sold $10.8M of Woodbridge mortgage funds to 58 investors, making nearly $261K in commissions. He retired in March. In November, FINRA barred him after finding that the former broker did not obtain Quest’s approval to sell the notes.

A federal court recently ordered the Woodbridge Group of Companies and its former CEO and owner Robert H. Shapiro to pay $1B in penalties and disgorgement in the alleged Ponzi scam that victimized over 8,000 investors, many of them senior investors.

The Ponzi fraud was discovered in 2017 after investors stopped receiving payments and Woodbridge filed for bankruptcy protection. The US Securities and Exchange Commission filed fraud charges against Woodbridge and Shapiro soon after.

FINRA Puts Broker-Dealers Selling Educational Accounts to Investors Who Can’t Afford Them on Notice
FINRA has launched its 529 Plan Share Class Initiative, giving financial firms until April 1 to look into and self-report possibly unsuitable recommendations of 529 share class investments to investors. These educational savings accounts come with high fees that may not be in line with the investment goals of all of the customers to whom they are being recommended.

Under the self-regulatory authority’s (SRO) initiative, firms that self-report any suitability violations related to these investments will have to repay investors. However, they won’t be subject to fines for past sales. Failure to self-report by the deadline, however, could lead to sanctions later.

529 plans are municipal securities that are “tax-advantaged.” They are meant to encourage saving for educational costs down the road and are usually sponsored by educational institutions, state agencies, or the state. They are legally called “qualified tuition plans.”

529 plans are usually sold in different classes that come with different fee structures. For example, Class A shares charge sales fee up front but lower yearly fees. Class C Shares don’t charge a sales fee upfront but charge higher yearly fees. The SRO is worried that some financial firms aren’t providing the supervision needed to make sure that representatives are only recommending 529 plan share class when they are suitable for the investor.

Fired Broker Barred by FINRA Following Allegations of Misusing Client Money
Kristian Gaudet, a broker fired by Ameritas Investment Corp. in December, is now barred from the industry by FINRA. This occurred after Gaudet failed to come to a hearing over allegations that he may have used client monies for his own use.

Ameritas let him go from the firm after conducting its own internal probe. Gaudet worked with the broker-dealer for 15 years. According to his BrokerCheck record, previous to working with Ameritas he was a registered broker with The Advisers Group and before that Princor Financial Services Corp.

Investor Fraud Lawyers
Our investor fraud lawyers at Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) have spent the past few decades working with investors throughout the US to help them recoup losses they sustained due to broker fraud, inappropriate recommendations, negligence, misappropriation, and other forms of financial adviser misconduct. We also have gone after brokerage firms for inadequately supervising their representatives to the point that investor fraud became possible.

Contact SSEK Law Firm today so that we can advise you on your legal options. We have helped thousands of investors nationwide.

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