Investor Lawyers Blog

Former NY Trader Accused of $19.3M Ponzi Fraud

Published on: July 5, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) is accusing Paul Andrews Rinfret, Plandome LLC, and Plandome Partners LP of defrauding investors in a securities offering scam. At least five investors were allegedly collectively bilked of $19.3M. Rinfret, who is a former New York trader, is now also facing parallel criminal charges.

The SEC, in its complaint, contends that Rinfret told investors they were backing an already successful trading strategy using a proprietary algorithm that had rendered returns in the triple digits—360% in a multiyear period, supposedly—when, in reality, money was being lost on a consistent basis. Meantime, Rinfret allegedly used investors’ money to fund his extravagant lifestyle.

The investors are five individuals who thought they were buying limited partnership interests in Plandome Partners, LP, which Rinfret claimed was an investment fund that he and Plandome Partners LLC ran. These investors thought their funds would be traded in S & P futures contracts and foreign currency.

Purshe Kaplan to Pay $9.5M to Native American Tribe

Published on: July 3, 2019 | by Shepherd Smith Edwards & Kantas, LLP

An alternative investment fraud settlement has been reached between Purshe Kaplan Sterling Investments and the Saginaw Chippewa Indian Tribe of Michigan, in which the independent broker-dealer will pay $9.5M. The tribe had filed an arbitration claim contending that it didn’t know that it was paying the firm millions of dollars in commissions on $190M of alternative investments that were purchased through former Purshe Kaplan broker Gopi Krishna Vungarala between 2011 and 2015, including shares in business development companies and non-traded real estate investments trusts (REITs).

Vungarala was not only the Michigan tribe’s broker but also he served as its investment manager, tasked with overseeing its portfolio. He has been accused by the Financial Industry Regulatory Authority (FINRA), too, of to the tribe about the commissions.

The self-regulatory authority (SRO) recently sought to bar the Purshe Kaplan broker from the industry after the alleged fraud occurred—a motion that is on appeal. FINRA also ordered him to disgorge nearly $9.7M plus interest. The SRO said that Vungarala neglected to tell the tribe that it qualified to receive over $3.3M in volume discounts, which would have lowered how much he made in commissions from the sales.

Massachusetts Fines LPL Financial $1.1M

Published on: July 2, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Secretary of the Commonwealth of Massachusetts William Galvin has imposed a $1.1M fine on target=”_blank” rel=”noopener noreferrer”>LPL Financial (LPLA) after finding that the brokerage firm did not properly register 651 of its advisors in the state. Galvin’s office contends that for six years, LPL let these brokers work in Massachusetts despite the lack of registration and that this violates the state’s securities laws.

In Massachusetts, a brokerage firm is required to register its agents before they are allowed to engage in securities-related business in the state. As of May 9, LPL had 4,219 agents who were registered in the state.

However, the lack of registration by 651 of its agents between March 2013 and April 4, 2019 prevented Massachusetts securities regulators from being able to check their qualifications and histories to ensure that investors who worked with them were in safe hands. 441 of these unregistered agents acted as financial advisors to at least one or more state residents during the period at issue. The other 210 agents supervised the agents who were advisors to these customers.

Brokerage Firms Made over $165 Million for Selling GPB Capital Private Placements

Published on: July 1, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Investment News is reporting that broker-dealers and their brokers that sold GPB Capital Holdings private placements to investors have collectively been paid $167 million in commissions. That large number represents 9.3% of the $1.8 billion that supposedly accredited, wealthy investors paid for these risky private placements. Recent reports had estimated that the commissions paid were lower, at around $100 million (about 7% per transaction), but GPB Capital has apparently confirmed the much larger number.

While brokers and broker-dealers are allowed to make up to a 10% commissions for selling financial products to clients, very few investments pay such a high rate. However, private placements, such as GPB Capital, entice brokers and their firms to sell such risky investments by offering much higher commissions and fees.

For private placements, it is not uncommon for financial representatives to earn around 7% in commissions, with another 2% going to the brokerage firm. In comparison, mutual funds and other similar investments typically pay less than half as much in commissions.

Investors Awarded $3M In Claim Against Spire Securities

Published on: June 29, 2019 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded 23 investors $3M in their claim against Spire Securities, its CEO David Lloyd Blisk, and CCO Suzanne Marie McKeown. The broker-dealer and its executives were accused of inadequately supervising former broker Patrick Evans Churchville, whom the investors contend fraudulently sold them investments that caused them to lose money in a $21M Ponzi scam.

Churchville sold the investments through ClearPath Wealth Management, a registered investment adviser that he operated outside of Spire Securities. Still, the claimants contended that the broker-dealer should have prevented Churchville from causing them financial harm while he was a Spire Securities broker and could have done so had they properly overseen him.

Churchville pleaded guilty in 2016 to criminal charges accusing him of operating a $21M Ponzi scam. In 2017, he was sentenced to seven years in prison for tax evasion and wire fraud.

Healthcare Investment Scam Targeted Dozens of Investors

Published on: June 26, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Unregistered investment advisers (IAs) David Wagner and Mark Lawrence, Downing Investment Partners, Downing Partners, and Downing Digital Healthcare Group are now facing US Securities and Exchange Commission (SEC) charges accusing them of involvement in an $8M scam that allegedly defrauded dozens of healthcare fund investors. Wagner and Downing are also facing parallel criminal charges.

The regulator contends that between 5/2014 and 1/2017, Wagner, Lawrence, and the companies they headed sold healthcare services and technology-related investment opportunities while defrauding 30 investors, many of them “purported” employees at two of the defendant companies, as well as at Downing Health Technologies, Inc., and Cliniflow Technologies. According to the SEC’s complaint, the two unregistered investment advisers and their companies claimed to acquire, oversee, and resell companies that offered technologies and services for the investment portfolios of the healthcare funds at issue.

To bring in new investors, the two unregistered IA’s allegedly would inflate how much was available in cash reserves at the funds, including at Downing Digital Healthcare Group and Downing Investment Partners, as well as the revenue from the portfolio companies of the funds. Wagner is also accused of secretly negotiating a deal that obligated Downing Digital Healthcare Group to pay him and an entity that he operated certain management fees. This allegedly resulted in the defendants misusing at least $540K of the $1.5M that was invested in Downing Digital Healthcare Group to go toward these fees.

REIT Investors Suffer Major Losses

Published on: June 25, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Trouble is brewing with a number of nontraded real estate investment trusts (REITs) and now, investors are filing claims for their losses. One of the REITs, NorthStar Healthcare Income, Inc., suspended distributions to investors on February 1.

Closed to new subscriptions since December 2015, the publicly registered REIT was set up to acquire, originate, and oversee securities in the healthcare industry. Northstar told investors that challenges involving performance and operations had resulted in a reduced estimated value/share in 2018 compared to 2017—from an $8.50 NAV/share at the end of June 2017 to $7.10 NAV/share in December 2018.

The nontraded REIT’s board cited a number of reasons for the decrease: a cash flow affected by the senior housing market, labor costs related to the investments that have impacted the REIT’s portfolio, more cash flow issues—this one impacting the skilled nursing industry—and assets’ income losses.

Ex-Cetera Financial Group Adviser Named in 27 Customer Disputes

Published on: June 24, 2019 | by Shepherd Smith Edwards & Kantas, LLP

After failing to cooperate in a probe into allegations of securities violations, George Merhoff, a former ex-Cetera Financial Group adviser, has been barred by the Financial Industry Regulatory Authority (FINRA). He was fired by the brokerage firm in April for allegedly issuing an undisclosed payment to a firm customer.

With over 21 years working in the brokerage industry, Merhoff was a registered Cetera broker for seven years. Before that, he was registered with Pacific West Securities, where he worked for 13 years, and at AAG Securities for less than a year.

Merhoff’s BrokerCheck record shows 27 customer disputes filed since December 2015 that have either been settled or are pending. Allegations include the following:

Ex-Cetera, UBS, and Spencer Edwards Brokers Barred

Published on: June 21, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Former Cetera Broker Allegedly Engaged in Outside Business Activities

The Financial Industry Regulatory Authority (FINRA) announced that it is barring Nina Jessee, a former Cetera Advisors broker. The bar comes after Jessee failed to cooperate with the self-regulatory organization (SRO), which was investigating complaints about her related to alternative investments, including allegations that she had engaged in business activities that were not authorized outside of the brokerage firm.

With more than 30 years in the industry, Jessee has also been a registered broker at five other broker-dealers, including Investors Capital Corp., Financial Securities Network, NAP Financial Corporation, Marketing One Securities, and Mutual of Omaha Fund Management Company.

Recent SEC Cases Involves Market Rigging

Published on: June 19, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Investors in Alleged $2.3M Prime Bank Fraud Were Promised Huge Profits

In the US Securities and Exchange Commission’s (SEC) prime bank investment fraud case against Elizabeth Oharriz of Florida and Peter Baker of Georgia, the regulator is accusing the two of them and their companies of stealing more than $2.2M from investors. The Commission contends that Oharriz and Baker sold fake prime bank instruments from supposedly known banks while promising investors “astronomical profits.” The regulator’s complaint said that they also were also told that if these instruments could not be obtained, then their advance payments would be returned to them.

Instead, claims the SEC, Oharriz and Baker allegedly used investors’ money for their own personal spending or sent the funds to third parties. Meantime, investors were given bogus bank instruments along with accompanying documents.