Investor Lawyers Blog

Multimillion-Dollar Investment Adviser Fraud Cases Target Widows, Older Investors, and Other Retail Investors

Published on: December 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Two Investment Advisers Accused of $20M Investor Scam
The US Securities and Exchange Commission has filed civil charges against investment advisors Ronald A. Fossum and Alonzo Cahoon. They are accused defrauding retail investors in an unregistered securities scam. According to the regulator, from about 3/2011 to 6/2016, Fossum raised over $20M from more than 100 investors via securities offerings in investment funds under his control or ownership, including the:

Accelerated Asset Group, LLC
Turnkey Investment Fund, LLC
Smart Money Secured Income Fund, LLC

Fossum is accused of misappropriated hundreds of thousands of dollars of investors’ money to pay his own expenses, including living in a home owned by one of the fund’s free of rent. He also allegedly used investor funds to pay for international travel and federal taxes.

Train Babcock Advisors Charged With $9M Fraud Against Charity Client

Published on: December 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Train Babcock Advisors LLC, lawyer Robert Gaughran, and accountant Kevin Clune related to an over $9M institutional fraud targeting a charitable foundation set up by an elderly widow in 1991. The organization, which focuses on improving healthcare and education, was set up using assets from her estate after she died in 2001.

To resolve the civil charges, Train Babcock Advisors will pay over $1.7M in disgorgement plus interest and penalties. It also has consented to withdrawing its SEC registration as an investment adviser. The firm is in the process of shutting down operations.

The $9M fraud was masterminded by former Train Babcock Advisors John Rogicki, who pleaded guilty to criminal charges in October. Earlier this month, he was sentenced to 30 to 90 months behind bars. Rogicki was also ordered to pay the foundation over $6.7M.

Houston Technology Company is Accused of $28M Texas Securities Fraud

Published on: December 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed fraud charge against Behavioral Recognition Systems, Inc. and its former CEO Ray C. Davis. According to the Commission, the Houston-based technology company, and Davis solicited over $28M from hundreds of investors, diverting over $7.8M to the latter’s personal use.

Between 1/2013 and 7/2015, investors targeted in the alleged Texas securities scam were solicited for funds and their involvement in seven equity securities offerings. “Material misrepresentations and misleading statements” were allegedly made to them about: how investor proceeds would be used, executive compensation, operating costs, and related party transactions.

The regulator’s complaint, claims that Behavioral Recognition Systems and Davis lied more than once in order to get investors to give them their money. Offering documents claimed that investor money would go toward “working capital,” “growth, “mezzanine funding,” and “general corporate purposes” for Behavioral Recognition Systems. Instead, contends the SEC, Davis used shell companies under his control to divert about $11M of investor money for his own use–$7.8M of that money was allegedly diverted during the period at issue. Bogus invoices from the shell companies for services purportedly rendered were then generated to conceal the fraud.
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Regulators Fine Merrill Lynch $26M and J.P. Morgan Securities $2.8M, Respectively

Published on: December 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to Reuters, Bank of America Merrill Lynch (BAC) must pay FINRA and the SEC $13M in penalties each — $26M in total — because its anti-money-laundering procedures and policies were purportedly inaccurate. According to the regulators, from ’11 to ’15, these policies and procedures were “not reasonably designed” enough to account for the additional risks involved in certain services offered by some of its retail brokerage accounts.

The SEC’s cease-and-desist order states that Merrill Lynch did not do an adequate enough job of monitoring, identifying, and reporting certain suspect activity involving transaction patterns in customer accounts. Among the allegations is that when the firm provided traditional banking services, the software that was supposed to identify possibly suspect transactions did not screen for such activities.

The $26M fine comes just two months after the Financial Conduct Authority in the UK fined Merrill Lynch $45.5M for not reporting 68.5 million exchange-traded derivative transactions between ’14 and ’16. Because the firm’s wealth management division cooperated with the FCA’s probe, the original fine of $64.9M was reduced by 30%.

Financial Firm News: Raymond James Fined $2M Over Email Supervision, FinMa Finds JPMorgan Chase Responsible for Anti-Money Laundering Violations, and Bank of America, Wells Fargo, Citigroup, and Other Big Banks Get Federal Approval for Their Living Wills

Published on: December 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Raymond James Financial to Pay Fine to FINRA Over Email Communications

The Financial Industry Regulatory Authority has fined Raymond James Financial Services (RJF) $2M for not maintaining supervisory systems and procedures that were “reasonably designed” enough to oversee emails. The firm settled the case but without denying or admitting to the charges. It also agreed to a risk-based retrospective review of past emails for potential violations.

FINRA examined Raymond James’ email system “during a nine-year review period.” According to the self-regulatory organization, the system had significant flaws that allowed email communications to not undergo “meaningful review.” As a result, “unreasonable risk” was created that could have allowed for “certain misconduct” to go undetected. Also, the firm did not assign enough resources or staff to the team tasked with evaluating emails that had been flagged by the system, even as the number of flagged correspondence grew in volume.

FINRA said that Raymond James “unreasonably excluded” certain personnel who worked on customer brokerage accounts from “email surveillance.” The SRO claims that the emails of 300 registered representatives who were employed in branches with their own email servers were not subject to the “lexicon” of phrases and words for detecting emails that might merit review for potentially suspect conduct.

FINRA Warns About Cryptocurrency Related-Fraud

Published on: December 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is warning investors interested in buying shares in companies touting potentially high returns related to cryptocurrency-related activities, but that are unable to “back up such claims,” to be on the lookout for potential financial fraud.

The self-regulatory organization provided a number of “tips” for avoiding a stock scam involving cryptocurrencies, including:
• Conduct your own research before making any investments.
• Watch out for “unrealistic predictions” or claims of results even if they are published online or issued via press release.
• Be wary of “aggressive” cold caller-sourced solicitations, especially if the stocks being recommended are “very low-priced.”
• Be careful of anyone promising guaranteed or specific returns.
• Consider “pushy sales pitches” or pressure to “act now” mandates to be red flags.
• Check FINRA’s BrokerCheck to see if the representative or firm is registered or to find out of they have been sanctioned for any alleged violations in the past.
• Look at the Securities and Exchange Commission’s Edgar database to see if the company that is selling the stock has submitted filings with the regulator. That said, registration of a security with the SEC is no guarantee that the investment is a good one.
• Watch out for stocks that see big price jumps because fraud or stock rigging may be involved.

Already, the US Securities and Exchange Commission has suspended trading in different securities over uncertainties regarding the accuracy of activities related to cryptocurrencies. Just this week, the regulator temporarily halted trading in shares of The Crypto Co. after its stock price increased by over 2,700 this month amidst concerns about “potentially manipulative transactions” and the “accuracy and adequacy of information” provided to investors and regulators.

UBS Did Not Fully Disclose the Risks Involved in Puerto Rico Bond Funds to Investors and Brokers, Reports CNBC

Published on: December 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to a recent CNBC investigation, not only did UBS Puerto Rico (UBS-PR) fail to disclose to investors the risks involved in the bond funds UBS pushed on the island’s residents, but also the brokerage firm neglected to fully apprise its own brokers of the incredible risks. While these findings are not new, the CNBC probe digs deeper into the matter.

The majority of these investors were island locals, who have now also been further devastated as a result of Hurricane Maria. Already, UBS has come under fire and paid hundreds of millions of dollars in securities settlements and awards from FINRA arbitration panels over losses investors sustained when these investments failed dramatically more than four years ago. UBS also has settled with regulators, including the U.S. Securities and Exchange Commission and FINRA, and paid over $60 million for its wrongful conduct and abuse of investors. The firm did not, however, deny or admit to wrongdoing.

UBS Executives Purportedly Knew Puerto Rico Bonds Would Fail
CNBC’s investigative team obtained approximately “2,000 pages of confidential documents” that display conversations and the “inner workings” between UBS executives in Puerto Rico and the U.S. mainland prior to the funds’ collapse. According to the documents, as far back as a year before the Puerto Rico funds failed, UBS management already knew that problems were brewing and they discussed what could happen if the firm did not deal with these issues immediately.

Woodbridge Group and Owner Accused of $1.2B Ponzi Scam that Targeted Over 8,400 Investors, Including Senior Investors

Published on: December 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed financial fraud charges against the Woodbridge Group of Companies, LLC and its owner Robert H. Shapiro. The Woodbridge Group is comprised of unregistered investment companies. According to the regulator, Woodbridge and Shapiro ran a $1.2B Ponzi Scam that bilked over 8,400 investors, many of whom where older investors. At least 2,600 investors collectively spent close to $400M that came from their IRAs.

The civil fraud charges include other alleged federal securities law violations. The SEC also announced an asset freeze to keep more investor funds from dissipating. The regulator wants restoration of allegedly ill-gotten gains plus interest, as well as financial penalties.

Senior Financial Fraud

The Commission’s complaint accused Woodbridge and its owner of defrauding seniors using a “sham” business model that involved selling investments in unregistered Woodbridge funds. The company presented its main business as giving loans to third-party commercial property owners that were paying 11-15% in yearly interest for “’hard money’ short-term financing.” In fact, claims the SEC, the property owners were not third-parties but were companies belonging to Shapiro. Not only that but they had no income streams and never paid interest on these supposed loans. Woodbridge and Shapiro are said to have used investor money to buy nearly 200 commercial and residential properties in California and Colorado.

UBS Group Ordered to Pay Former CMBS Strategist Turned Whistleblower $903K

Published on: December 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A jury in Manhattan federal court found that UBS Group (UBS) owes ex-commercial mortgage-backed securities strategist Trevor Murray $903K after he turned whistleblower on the Swiss lender. Murray contends that he was fired after reporting that CMBS traders had tried to affect his research reports, which were supposed to be independent.

Murray claims that UBS CMBS bond trading head and managing director David MacNamara insisted on screening drafts of the strategist’s reports in advance, which violates firm policy. The former UBS strategist accused Kenneth Cohen, his former boss, of being the one to instigate the pre-clearance process and calling his reports “off message.”

Testifying about one instance, Murray spoke about how Cohen instructed him not to put down anything negative regarding the hotel sector since UBS was engaged in financing for a Miami Beach hotel. The ex-UBS strategist said that he disregarded Cohen’s alleged instructions and notified clients about his worries.

SEC Suspends Trading in The Crypto Company After 2700% Rise in Its Stock Price

Published on: December 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has placed a temporary halt on trading in The Crypto Company (CRCQ) stock until January 3, 2018. The company’s stock has just seen a 2,700 percent rise in price. It recently agreed to purchase a German cryptocurrency data platform called Coin Tracking E. K.

Citing concerns regarding “accuracy and adequacy,” the SEC expressed concerns about the quality of information that was given to investors. The regulator also is looking into whether “potentially manipulative transactions” involving the stock took place last month.

The Crypto Co. provides digital assets, consulting services, and technologies to the “blockchain and cryptocurrency markets.” It doesn’t sell cryptocurrencies or other digital-type monies. The Crypto Co.’s stock price, at $3.50 a share in late September, rose to $575 earlier this week. As a result, The Crypto Co.’s stock value is now over $11B—that’s more than the market worth of some of the most renowned companies in the US, including Macy’s.