Investor Lawyers Blog

Ex-Morgan Stanley Broker Suspended Over Alleged Churning

Published on: June 4, 2019 | by Shepherd Smith Edwards & Kantas, LLP

David Strnad, a longtime broker, has been suspended by the Financial Industry Regulatory Authority (FINRA) for 18 months. According to his BrokerCheck record, in 2016, the daughter of a client accused Strnad of churning in her father’s account while he was a registered Morgan Stanley representative. Following the allegations, FINRA opened a probe into the matter.

The self-regulatory authority (FINRA) found that Strnad made over 270 trades involving CDs in the account of one elderly customer between 2013 and 2015. While the client had given the former Morgan Stanley broker permission to purchase the CDs, Strnad allegedly exceeded the authority granted to him when he sold the CDs before they matured and used the money made from those transactions to purchase more CDs for the client.

As a result, said FINRA, the client ended up paying nearly $4300 commissions that were not warranted. Morgan Stanley has since paid that money back to the client.

FINRA Bars Additional Bad Brokers from Big Firms

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

Former Securities America Broker Is Accused of Unsuitable and Unauthorized Trades

Michael Bastardi, an ex-Securities America broker, is barred by the Financial Industry Regulatory Authority (FINRA) after he failed to give the regulator the information it requested for an investigation into his alleged conduct. Bastardi was a registered representative with Securities America from 2014 to 2016.

In 2018, the brokerage firm submitted a Form U5 that disclosed that Bastardi had been named in a customer complaint accusing him of unauthorized trading, unsuitable margin trading, forgery, and fraud while at Securities America and previous to that when he was a registered Dalton Strategic Investment Services broker. His alleged misconduct is said to have resulted in about $250K in damages. The investor fraud claim is still pending.

Former Och-Ziff Capital Executive Admits To Lying

Published on: May 31, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Michael L. Cohen, the ex-head of Och-Ziff Capital Management Group in Europe, has pleaded guilty to one criminal count of lying to authorities. The guilty plea comes a year after he was accused of defrauding a client, a biomedical research charity, of millions of dollars. Although prosecutors have not identified the charity, sources have told various media that it was Wellcome Trust, which backs research in health, science, and other fields.

Cohen, who was based in the UK at the time while working for the hedge fund management firm, is the one who brokered the sale of shares in an African mining company to the charity. The company belonged to one of his business associates.

Cohen made $4M from the sale of the shares. He allegedly failed to tell the charity that he himself owned shares in the mining company.

Investors Defrauded in Alleged $1.4M Prime Bank Fraud

Published on: May 30, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) has filed fraud charges against David Sims and Mario Procopio accusing them of running a $1.4M prime bank scam that defrauded 13 investors. ALC Holdings, LLC, Sims Equities, Inc., and El Cether-elyown, which are companies that they control, are also defendants in the investor fraud scam. This is not the first time that the SEC has charged Sims in relation to alleged fraud.

The regulator contends that the two men mostly found their investors through referrals given to them by associates and friends. Between 4/2014 and 5/2017, Sims and Procopio allegedly told those whom they solicited, usually by phone, that their investments would go into “prime bank” financial instruments that would make returns of 1200-40,000% percent.

Procopio and Sims falsely touted “special access” to trading platforms that they claimed also were used by rich investors, corporations, and governments to purchase huge amounts of currency, usually $500M to $1B, at a reduced rate from different banks. The notes could then supposedly be sold for an up to 30% profit.

SEC Announces $4.5M Whistleblower Award

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

In a Securities and Exchange Commission (SEC) whistleblower case that resulted in a company probe and two successful enforcement actions, the regulator has awarded $4.5M to the individual who stepped forward to provide the key information. This person is the 62nd one to receive an SEC whistleblower award since the Commission began granting them in 2012.

According to the regulator, the whistleblower provided an anonymous tip internally to the company about the alleged wrongdoing, as well as a similar tip to the SEC within 120 days. The information compelled the company to conduct its probe into the misconduct allegations and then report them to the Commission and to a second agency. After the company concluded its investigation, it notified both agencies of the outcome.

While the SEC didn’t provide specifics about the whistleblower case—it refrains from doing so in order to protect the confidentiality of any informants/claimants—The Wall Street Journal identified the claimant as an ex-Brazilian orthopedic surgeon who brought up concerns about an alleged kickback scam run by a subsidiary of Zimmer Biomet Holdings.

Newbridge Securities Corporation in Financial Trouble

Published on: May 28, 2019 | by Shepherd Smith Edwards & Kantas, LLP

In March 2019, Newbridge Securities Corporation (“Newbridge”) filed its Form X-17A-5, commonly called a firm’s Focus Report, with the Securities & Exchange Commission (“SEC”). The Focus Report showed that in 2018, Newbridge had almost $33 million in revenues, yet reported only about $108,000 in net profits.

The accounting firm that audited Newbridge disclosed in its “Opinion on the Financial Statements” that “there is substantial doubt about [Newbridge’s] ability to continue as a going concern.” This means that the finding from the CPA firm of Newbridge in financial trouble means investors that hold accounts with the firm should be concerned.

Newbridge is a Boca Raton, Florida based brokerage and financial services firm. Although the firm claims to have “over 80 locations in the US”, its website only lists offices in Boca Raton, Ft. Lauderdale, Scottsdale, Chicago and a few locations in New York.

SSEK Investigates Harvest Volatility Management Strategies

Published on: May 27, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Shepherd, Smith, Edwards & Kantas Investigating Firms Selling Harvest Volatility Management Strategies’ Collateral Yield Enhancement Strategy

The law firm of Shepherd, Smith, Edwards & Kantas (“SSEK Law Firm”) is investigating several firms that have been selling Harvest Volatility Management Strategies as a safe way for customers to earn extra income from their investment portfolio. The long period of historically low interest rates that have existed since at least 2008 has resulted in the creation of a number of brokerage firm products that are meant to combat the low return investors receive in traditional income investments, such as money markets or CDs, but provide similar safety.

One such investment product that has become popular, but proven to be far riskier than represented to investors, is the so-called “Yield Enhancement Strategy”, or the “YES” investment. We have previously written on the UBS Yield Enhancement Strategy and the number of investors who lost significant money with that investment when the real risk of the product was revealed in February 2018.

Former LPL Financial Broker is Barred from the Securities Industry

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

On May 17, 2019, the Financial Industry Regulatory Authority (“FINRA”) issued a permanent bar against former Pennsylvania LPL Financial representative Philip John Nalesnik.

According to FINRA’s BrokerCheck records, Nalesnik was in the securities industry for roughly 17 years, from 2002 until he was kicked out in 2019. Nalesnik previously worked at IDS Life Insurance Company, American Express Financial Advisors, CCO Investment Advisors and, for almost a decade, LPL Financial, LLC.

Prior to receiving his FINRA bar, Nalesnik had a very questionable regulatory history. Nalesnik’s CRD shows that he has had at least five customer complaints, one criminal complaint, at least two tax liens and a personal bankruptcy, much of which happened while Nalesnik was a registered representative of LPL Financial.

Morgan Stanley Ordered to Pay $519K to Retired Couple

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

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded $519,000 to Stephen and Brenda Balock in their investor fraud claim against Morgan Stanley (MS). The couple contends that that one of the firm’s brokers, Tim J. Prouty, placed their funds in investments that were complex and inappropriate for them, causing them to lose money in eight accounts between 2012 and 2015. They filed their claim against Morgan Stanley in 2016.

The Balocks began working with Prouty after Stephen’s employer, the Public Service Co. of New Mexico, compelled him into early retirement due to downsizing. He had never worked with a broker before then.

The couple wanted to invest in certificates of deposit. Instead, Prouty placed them in a Morgan Stanley investment advisory program that involved more complex investments, such as options contracts, derivates, junk bonds, and exchange-traded funds. In their investor claim against Morgan Stanley, the Balocks made a number of allegations, including the following:

Broker Allegedly Illegally Sold Over $23M in Woodbridge Securities

Published on: May 22, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) has filed civil charges against Charles Nilosek for acting as an unregistered broker and illegally selling Woodbridge securities to retail investors. The regulator said that Nilosek, who is based in Massachusetts, was one of the top revenue earners when it came to selling the unregistered investments from the Woodbridge Group of Companies.

The Woodbridge investments are tied to a $1.2B Ponzi scheme that ran from 2012 to 2017. Woodbridge and its 281 related companies are accused of bilking more than 8,400 investors, many of whom were elderly investors who lost their money investing in the company’s promissory notes and private placements. The customers were promised 5-8% in yearly returns and many used their retirement money to invest.

The SEC’s complaint said that Nilosek and his Position Benefits LLC sold over $23M in Woodbridge securities to more than 200 investors in at least four states between 9/2013 and 9/2015. He was paid over $1.4M in compensation. The regulator contends that Nilosek was never a registered broker nor was he ever registered with a brokerage firm.